UNSTABLE grid, interest rate hikes from the Central Bank of Nigeria (CBN), electricity and telecom tariff hikes are some of the economic issues that will shape Nigeria’s businesses and economy in 2025.
For some economists, 2025 is not a year for the faint-hearted. The federal government’s reforms on gasoline (fuel) subsidy removal and naira floating against the US dollar are already taking a toll on Nigerians and heightening business risks.
“Price moderation of gasoline is to be expected if prices from our West African neighbours are aligning with our own. The International oil price is also a major determinant of the price moderation. We may see the price settling at N1,000 in the first quarter as global oil price rises. We may also begin to see exchange rate stability because of less import-dependent on gasoline aided by Dangote refinery and rehabilitation from the government-owned refineries,” the chief executive officer of Financial Derivatives Company, Bismarck Rewane, said in response to business risk exposures for 2025.
Naira devaluation is also a major risk factor for businesses, the manufacturing sector and investors which can unsettle their overall economic plan.
“The price of bread could rise further this year because of the rising cost of diesel and raw materials that we import for bread production. In 2024, almost 40 per cent of our people were leaving the business because of high cost of production and raw materials. Sadly, we are not accessing any facility from the commercial banks because of high interest rates,” the president of the Premium Beadmakers Association of Nigeria, Emmanuel Onuorah, said.
On naira’s devaluation, findings have shown that from December 2023 to December 2024 the Nigerian naira depreciated by 46.8 per cent relative to the US dollar, and the dollar appreciated by 88.25 per cent relative to the Nigerian naira, based on the official exchange rate (N1,538/$).
Also, from November 2023 to November 2024, the naira depreciated by 51.79 per cent relative to the US dollar, as the dollar appreciated by 107.41 per cent relative to the naira, based on the official exchange rate (N1738/$).
Further risk projections showed businesses are still worried over the national grid. The electricity grid collapsed up to 12 times in 2024, which raises questions over the country’s obsolete grid and over-reliance on the central grid.
Energy watchers have argued that the collapse would persist in 2025 unless the government intensifies efforts in transmission expansion and states attract investments through their regulatory and investment agencies, riding on the Electricity Act.
Beyond the grid collapse, electricity tariff hike is also expected this year which according to the Electricity Act 2023 is to be effected bi-annually considering exchange rate variables and rising inflation.
“The government needs to do something about power and clearing of debts owed gas generating companies. We need power for the industrialisation of our country. Electricity deficit in Nigeria is more than 40 per cent. We still have millions of unmetered customers, and these are gaps that must be plugged to grow investors’ confidence,” the head of Investment Research at Cardinal Stone, Phillip Anegbe said.
Another risk exposure for the Nigerian economy is rising inflation. Since the commencement of Tinubu’s administration, Nigeria has been battling high inflation which rose for the third straight month in November 2024, soaring to a near 30-year high of 34.6 per cent, up from 33.9 per cent in the prior month.
Food inflation in Nigeria reached 39.93 per cent in November, 2024, a sharp increase from 32.84 per cent in November 2023.
As a result of this, most Nigerian families are struggling to have three square meals in 24 hours as the federal government’s promised food import waiver on essential food items in 2024 failed without effective implementation.
The rise in food inflation poses a greater challenge to some food companies and overall Nigeria’s spending.
“I had expected the food import waiver to take effect last year, but that did not happen. Currently, I spend 65 per cent of my earnings on food. The rest goes into transport and other essential things. I do not even have anything left to save or invest,” said a Lagos-based Ibrahim Wahab, who has a family of four.
Reforms triggering risks
The ongoing reforms of the federal government, focused on naira devaluation and fuel subsidy removal had exposed Nigerian businesses and upbeat investors to massive risks with inflation currently at 34.6 per cent.
The reforms are triggering multiple risks for businesses as volatile exchange rate and rise in the price of gasoline also influence rising costs of funds for purchase of raw materials for production.
Nigeria has been paying the price of Tinubu-led federal government’s reforms but are yet to reap the positive effects.
Politicians have also told Nigerians to make intentional sacrifices, but yet to stop their flamboyance which is noticeable even on the oversized convoy fleet of the President, Bola Tinubu, during his 2024 Lagos Christmas holiday trip.
Although, there are some glimmers of hope noticed on the performance of Nigeria’s stock market which was bullish and returned over N21 trillion profits above Nigeria’s current inflation rate, commodity crops like cocoa did well at the international scene and returned huge profits for investors in the value chain.
Despite this, there’s is still widespread hunger and anxiety of most people looking for where the next meal will come.
The Centre for the Promotion of Private Enterprises (CPPE) listed forex volatility, interest rate, inflation financial and monetary policy and regulations as critical risks for businesses in 2025.
“Other business risks expected include cyber security, political, environmental/climate change and corruption, especially concerning public sector transactions and contracts,” the Chief Executive Officer of (CPPE), Muda Yusuf, disclosed in an email sent to The ICIR.
Yusuf stressed that commercial bank’s lending at over 35 per cent is disruptive to businesses and the manufacturing sector, adding, “There is no way you can fund any sector now with a financial facility from the commercial bank.”
He expressed concern with the CBN’s constant interest hike approach which has failed to solve the problem of rising inflation.
“Businesses cannot access credit from banks, cost of funds is so high and unbearable for the real sector. This is high risk exposure for businesses as inflation still remains the big elephant in the room, “he added.
Suggesting on better strategies, he stressed on the importance of alignment of the monetary and fiscal policies. He urged the federal to sustain the momentum on local petrol production, which would impact on exchange rate stability.
“Government has to be deliberate on petrochemical industries. Now that the subsidy on gasoline is gone, the government needs to be deliberate and appreciate these refineries and ensure they work optimally.
A senior economist at Stears Incorporated, Dumebi Oluwole, said the government reforms could expose investors to further risks, while urging government to have a stable policy to enable investors plan.
She suggested to the government to be formal on its policies and ensure those who pay for higher electricity tariffs don’t get ripped off through grid collapse and estimated billing.
“Don’t rip off the band A electricity users through estimated billing and grid collapse. Be firm in your reforms so that investors can know the direction of the economy and plan.
She stressed that N15 trillion on debt servicing is a higher risk on government since on the first line charge and susceptible to amount generated in revenues.
“Debt servicing suffocates funds for infrastructure. If we don’t marry the fiscal side well with the monetary policy, it becomes a problem.
“Instead of borrowing, we should be looking at equity, not just borrowing because it starves fund for critical investment.
“Asset based financing, attracting foreign direct investments and equity are way to go and Nigeria has lots of dormant idle assets in trillions of naira,” she stressed.
Concerns over rising poverty
Nigeria remains one of the poverty capitals of the world, with over 100 million people living in extreme poverty and more than 150 million in multidimensional poverty. The situation has deteriorated significantly over the past 18 months under the current administration
The ICIR reports that Nigeria has fallen from being the largest economy in Africa, with a GDP of $574 billion and a per capita income of over $3,500 in 2014, to now ranking fourth on the continent.
What financial and investment agencies are saying
Afrinvest’s Nigeria Economic and Financial Market Review of 2024 and 2025 Outlook has projected that six major sectors are poised to boost the Nigerian economy this year.
The firm, which is involved in investment banking, securities trading, asset management, trust services, consultancy, and technology forecast a modest recovery in 2025, supported by stabilising inflation and improved global demand, amid persistent risks from geopolitical tensions and climate change.
According to the report: “Beyond the Rhetorics: Transforming Reforms to Tangibles,” the sectors that will aid Nigeria’s economic growth are agriculture, oil & gas, consumer goods, industrial goods, banking and telecommunication.
Afrinvest forecasts that Nigeria’s economic prospects will be largely hinged on the proposed tax reforms and effective implementation of the tax reforms would help unlock about N7.5 billion annually, which are essential for fiscal sustainability in 2025.
“The reforms would be pivotal to revitalising the currently challenged fiscal capacity evidenced by the jump in national debt-to-GDP ratio to N138 trillion and 58.3 percent in 11 months of 2024 from N97.3 trillion and 40.1 percent in 2023 respectively,” the report said.
It highlighted that the banking sector recapitalisation exercise remains vital to achieving Nigeria’s $1.0 trillion economy ambition by 2030.
“The positive spillovers from a successful banking sector recapitalisation in 2025 would include wealth and job creation across other sectors of the economy as well as the attraction of foreign capital to the economy,” the report added.
The telecom sector is expected to remain under pressure from FX dynamics which will strain operational costs and profitability with the proposed tariff hike also creating business uncertainties.
The ICIR reports, however that strategies such as renegotiations of existing tower lease agreements and upward review of tariffs in first quarter (Q1) 2025 would aid telecom giants in combating the challenging environment.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.