The World Bank has projected that Nigeria’s per capita income will return to its pre-pandemic level by 2025.
This outlook comes as the country’s economy is expected to witness a gradual improvement in the coming years, according to the bank’s Global Economic Prospects report for January 2024.
The Sub-Saharan African (SSA) region, including Nigeria, experienced a slowdown in economic growth to an estimated 2.9% in 2023, primarily due to country-specific challenges such as higher input prices for businesses in Nigeria.
The region’s three largest economies – Nigeria, South Africa, and Angola – saw their growth rate slow to an average of 1.8% in 2023.
The Sub-Saharan Africa (SSA) region, where Nigeria is the largest economy, experienced a deceleration in growth to an estimated 2.9% in 2023, lower than the earlier projection.
Nigeria’s growth in 2023 softened to an estimated 2.9%, influenced by various factors including services growth weakening due to a disruptive currency demonetization policy.
However, there was an increase in annual oil production after previous years’ decline.
Nigeria’s economy to grow by 3.3% in 2024
Looking forward, Nigeria’s economic growth is projected at 3.3% for 2024 and 3.7% for 2025. These projections are 0.3 and 0.6-% points higher than previous estimates made in June last year.
This improvement is expected due to the gradual impact of macro-fiscal reforms initiated by the government.
Key reforms have included removing the gasoline subsidy and unifying the exchange rate, which, despite causing short-term challenges, are deemed necessary for long-term economic stability and growth.
Growth in the coming years is expected to be driven by sectors like agriculture, construction, services, and trade.
Moreover, inflation is projected to ease gradually as the effects of last year’s exchange rate reforms and the removal of fuel subsidies fade away.
The report read:
- “Growth in Nigeria is projected at 3.3 percent this year and 3.7 percent in 2025—up 0.3 and 0.6 percentage points, respectively, since June—as macro-fiscal reforms gradually bear fruits. The baseline forecast implies that per capita income will reach its pre-pandemic level only in 2025.
- “Growth is expected to be driven mainly by agriculture, construction, services, and trade. Inflation should gradually ease as the effects of last year’s exchange rate reforms and removal of fuel subsidies fade. These structural reforms are expected to boost fiscal revenue over the forecast period.”
- However, it is important to note that while the World Bank’s report is optimistic about Nigeria’s economic growth and per capita income returning to pre-pandemic levels by 2025, this recovery is contingent on the successful implementation and continuation of the current reform momentum.
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The World Bank’s projection on per capita income is similar to a projection by an analyst at the global investment bank Morgan Stanley, who said the reforms made by the current president of Nigeria, Bola Tinubu, may lead to a strong increase in annual income despite the challenge they pose for economic growth.
- Specifically, the analyst, Steven Quattry, noted that Tinubu’s reforms could lead to a new consumer class and attract investment opportunities.
- The Federal Government implemented bold reforms to avert a fiscal crisis, including ending the gasoline subsidy and moving to a unified, market-reflective foreign exchange rate.
- These reforms have resulted in significant adjustments, such as a considerable increase in retail gasoline prices and a depreciation of the naira against the US dollar.
To support those affected by these adjustments, the government launched a cash transfer intervention to provide relief to the poor and vulnerable, to cover 15 million households.
In the medium term, the economic outlook for Nigeria hinges on the continuation and effectiveness of its macroeconomic stabilization agenda.
With the implementation of these reforms, Nigeria’s economy is expected to grow at an average annual rate of 3.5% during 2023–2026.
However, this growth depends on the sustained and full implementation of these reforms and complementary actions.
- While growth is expected to be mainly driven by sectors such as agriculture, construction, services, and trade, there are risks including high inflation and the need for further economic reforms.
- The World Bank report highlights the importance of maintaining the reform momentum and consolidating fiscal and monetary policies to enhance growth prospects.
