Oil refined domestically and debt discipline present an opportunity for the African giant

Nigeria’s economy is forecasted to grow by +3.2% in 2025, a slight increase from +2.9% in 2024 and below our forecast for Sub-Saharan Africa. The oil sector continued to hinder growth in 2024 due to Nigeria’s compliance with the OPEC production ceiling. Oil production is not expected to pick up at least until mid-2025 as OPEC has extended the production cap to maintain prices somewhat elevated. The non-oil sector has continued to grow above +3% in 2024, with a strong pick up in the second half of 2024. Growth is forecasted to remain robust in the mid-term, boosted by growth in agriculture and services, especially the finance sector. Meanwhile, increased refined oil from the Dangote refinery should continue to boost the manufacturing sector as it should be fully functional by 2026, reducing expensive imports.

In 2024, the Nigerian nira depreciated over over 40% against the USD, pushing inflation to 33.5%, among the highest CPIs on the African continent. Consequently, private consumption faced a sizable negative shock in H1 2024. In 2025, inflation is expected to decline to around 24%, back to 2023 levels; the Central Bank of Nigeria is expected to follow suit and start easing in Q2 2025. In parallel, the naira’s strong depreciation strengthened Nigeria's external position. International reserves have grown by +25% since early 2024, above 10 months of imports, and the current account balance is forecasted to expand to 3.5% of GDP in 2024 and 2.2% in 2025. 

However, in an economic environment marked by declining oil prices and reduced demand driven by slower economic activity in European economies and China, Nigeria’s heavily reliance on oil for its exports and government revenue remains the primary challenge to its economy. Oil revenue remains just below 40% of total government revenue and oil exports represent 90% of total exports. Nigeria’s external break-even oil price is approximately 80USD/barrel, while the fiscal break-even price is assessed to be above USD150/barrel.

As the biggest country in the African continent, Nigeria would highly benefit from reaping the opportunities that come from the African Continental Free Trade Agreement. Nigeria currently exports just 10% of total trade with the rest of the continent. The Western African nation's trading infrastructure is currently set up to serve commodity exports directed to mainly Europe and Asian economies - Nigeria's biggest trading partners - and imports of refined oil, machinery and consumer products from these same markets. Yet, increased investment in port and road infrastructure could double intra-African trade from USD8.5bn annually.

During the summer of 2024, Nigeria experienced a period of social tensions and protests motivated by the cost-of-living crisis and by similar demonstrations that took place in Kenya and spread across the African continent. The government reacted with an increased budget to support households and heavy security measures. In recent years, various regions in Nigeria have encountered increasing security challenges, including issues related to safety and stability. There are concerns about external influences in some areas, which have complicated local dynamics. In the Niger Delta, many community members have expressed concerns about equitable access to resources, highlighting ongoing governance and development challenges that affect the oil sector. Given the broader regional security landscape, Nigeria continues to receive support from international partners. Addressing the security situation in the north and managing community relations in central Nigeria, where resource pressures and demographic changes are factors, remain important priorities.

Given the broader regional threat posed by Islamist extremist organizations, the US has been a major arms supplier to Nigeria and is likely to continue providing security assistance. The persistent menace from Islamist terrorist groups, such as Boko Haram and Islamic State West Africa Province, operating in the north and executing attacks nationwide, remains a concern. Prolonged violence between farmers and herders in central Nigeria, driven by factors like rapid population growth and natural resource depletion, also presents a challenge.