Turning The Corner: Nigeria’s Ongoing Path of Economic Reforms

“Naija no dey carry last” is a popular term used in Nigeria to convey the resilient and enterprising spirit of Nigerians. To many, it affirms Nigeria’s place as a giant, not just in Africa but across the world. As popular and affirmative as the term is, many Nigerians, especially the youth, have become less optimistic over the years about Nigeria’s potential to stand tall as a giant nation. This results from Nigeria’s inability to accelerate its economic progress and achieve its enormous potential as an economic powerhouse.

Chima, a 39-year-old, runs a small bakery in the outskirts of Abuja, Nigeria’s capital city, where he employs six staff. Like many young Nigerians, he has longed for a country where his business can grow, allowing him to expand his production by investing in more modern equipment and employing even more staff. In his words:

Over the years, the number of Nigerians living below the poverty line has risen from 70 million in 2010 to an estimated 109 million in 2023 – one of the world’s largest poor populations. Nigeria ranked 161 out of 193 countries on the Human Development index (HDI) in 2022. Despite these staggering development challenges, the average Nigerian continues to be resilient in their bid to excel and create better economic outcomes, from the thriving markets in the commercial cities of Lagos, Kano and Aba, to the unicorn startups that are providing cutting edge fintech solutions, and the buzzing creative industry that is making waves globally. The promise of Nigeria rising to its potential is still on the near horizon.

Accelerating Nigeria’s development progress has become urgent given the enormous and growing scale of its development challenges, especially against the backdrop of rising poverty, insecurity and fragility, and intensifying climate-change related risks.

Since May 2023, Nigeria has embarked on far reaching and long-overdue reforms aimed at stabilizing the economy and setting the country towards the path to growth. The Central Bank of Nigeria unified the multiple official exchange rates, fostered a market-determined official rate, cleared the verified foreign exchange (FX) backlog, and tightened monetary policy. As a result of the reforms, the supply of foreign exchange has improved, which is good for businesses, consumers, and economic growth. The previous, large gap between the official and parallel market exchange rates has also been eliminated, improving transparency and putting a stop to corrupt practices and “round tripping. The government also sharply adjusted gasoline prices to begin to phase out the gasoline subsidy, which had cost the country over 8.6 trillion naira (US$22.2 billion) from 2019 to 2022 with empirical evidence showing it did not benefit the poor but rather benefitted relatively better off consumers and resulted in large-scale black market and out-smuggling.

Implementing reforms often comes with a high cost, especially the short- to medium-term effect on citizens. The unwinding of the large previous distortions, such as addressing the artificially suppressed price of gasoline and the rationing of FX at official rates, have added to the already high cost-of-living pressures on households with inflation rising to 33.7 percent in April 2024, impeding the purchasing power of citizens. To cushion the effect on citizens, especially the poor and vulnerable, the government announced a cash transfer program to provide 15 million households with 75,000 naira for a period of three months. This initiative is being supported by the World Bank through the Nigeria Social Safety Net Program-Scale Up. The program is a good example of how macro-fiscal reforms need to be accompanied by concerted measures to help absorb temporary price shocks. Nigeria still needs to accelerate the delivery of the program and consider expanding its reach to cover even more households.

Turning the corner on the reforms that Nigeria has embarked on will require all the right partnerships and support to achieve the long-term goal of a prosperous economy where jobs are created, and human development is significantly improved. The World Bank has stepped up its support to help Nigeria stay the course on its home-grown reform efforts by approving a new financing package of US$2.25 billion for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing Program (DPF) and the Nigeria Accelerating Resource Mobilization Reforms (ARMOR) Program-for-Results (PforR). The two programs will provide immediate financial and technical support to Nigeria’s urgent efforts to stabilize the economy and scale up support to the poor and most economically at risk. It further supports Nigeria’s ambitious, multi-year effort to raise non-oil revenues and safeguard oil revenues to promote fiscal sustainability and provide sufficient resources to deliver quality public services.

As Nigeria pushes forward to attain economic prosperity, the country will need sustained efforts to deliver on key public goods for its citizens. The World Bank is supporting Nigeria to achieve this with both technical advisory and financing, which stands at over US$15 billion in sectors that include reliable power and clean energy, girls’ education and women’s economic empowerment, climate adaptation and resilience, water and sanitation, and governance reforms.  

The future can be bright, and “Naija” (Nigeria) can rise and serve as an example for the region on how macro-fiscal and governance reforms along with continued investments in public goods can accelerate growth and improve the lives of citizens.