Donald Trump’s return to the White House as the 47th President of the United States, following a dramatic victory over Kamala Harris, brings new questions for Nigeria’s economic outlook.
Trump’s economic policies, built around “America First,” prioritize domestic energy production, tariffs on imports, and pushing for low interest rates.
These policies could have a significant impact on Nigeria’s economy, particularly in the areas of exchange rates, capital flows, inflation, and immigration. Below is an analysis of how these shifts could affect Nigeria’s economic landscape.
Key takeaways
Donald Trump’s second term could have sweeping implications for Nigeria’s economy.
- A stronger dollar, potential capital outflows from the U.S., and low global oil prices may add to Nigeria’s exchange rate volatility, putting pressure on the naira and increasing inflation.
- Immigration restrictions could reduce remittance flows, while geopolitical shifts might reduce U.S. support for Nigeria’s security and development needs.
- Nigeria’s policymakers may need to consider alternative strategies, such as fostering regional trade, increasing non-oil exports, and pursuing structural reforms to counterbalance the potential challenges posed by Trump’s policies.
Exchange Rate pressures from a Stronger Dollar
Trump’s policies could lead to a stronger U.S. dollar, particularly if his administration imposes tariffs that increase demand for domestically produced goods and services.
- A stronger dollar generally makes it more expensive for emerging economies like Nigeria to acquire foreign exchange, potentially straining the Central Bank of Nigeria’s (CBN) efforts to stabilize the naira.
- Nigeria’s naira has depreciated by over 45% this year, and an appreciation of the dollar could further weaken the naira, impacting import costs, inflation, and purchasing power.
- A stronger dollar also increases Nigeria’s debt-servicing costs, as many of Nigeria’s obligations are dollar-denominated.
- Given Nigeria’s reliance on imports for fuel, raw materials, and consumer goods, additional dollar strength could heighten inflationary pressures on already high living costs.
Interest rates and Capital Flows into Nigeria
Historically, Trump has favoured a low-interest-rate environment, pushing the Federal Reserve to maintain a loose monetary policy even during periods of economic growth.
- During Trump’s initial presidency, the Federal Reserve raised interest rates, peaking at 2.5% in 2018 before cutting them near zero by March 2020 to counteract the economic effects of COVID-19.
- Trump’s renewed pressure for lower interest rates could again influence the Federal Reserve’s policy direction.
- If the Federal Reserve keeps rates low, this could, in theory, result in capital outflows from the U.S. as investors seek higher returns in emerging markets.
- However, if dollar strength persists and other global markets remain volatile, investor sentiment may still favour U.S. assets as a haven.
From 2016 to 2020, Nigeria attracted approximately $58.1 billion in capital importation, with 2019 seeing the highest inflows at $23 billion.
- This was in part due to Nigeria offering high-yielding instruments like government bonds, which attracted foreign investors—including $4.69 billion from U.S. sources in that year.
- Should Trump’s policies create a continued low-yield environment in the U.S., Nigeria could once again attract U.S.-based capital looking for higher returns, particularly if Nigeria maintains attractive interest rates on its debt instruments.
- This capital inflow could help alleviate Nigeria’s foreign exchange pressures and support naira stability.
Inflation and Trump’s energy policies
Trump’s focus on reducing U.S. energy costs by increasing domestic oil production and drilling on federal lands could mean sustained low global oil prices. In his first term,
- Trump’s policies and the COVID-19 pandemic led to WTI crude oil prices falling sharply to around $39.17 per barrel in 2020, compared to $65.20 per barrel in 2018.
- As Nigeria heavily relies on oil exports for government revenue and foreign exchange, prolonged low oil prices could impact budget stability and government spending, with knock-on effects on inflation and economic growth.
- Furthermore, Trump’s proposed tariffs on imports, including a 60% tariff on Chinese goods, could raise inflation within the U.S., which might trickle down to Nigeria by increasing the cost of imported goods and components.
- Since the U.S. is among Nigeria’s top trading partners (N2.2 trillion in imports and N2.8 trillion in exports in the first half of 2024), a U.S.-led price increase could influence Nigeria’s inflation through costlier imports of essential goods like machinery, pharmaceuticals, and agricultural products.
Immigration and Nigerian diaspora impact
Trump’s return to office raises concerns for Nigerians regarding U.S. immigration policy. His administration previously imposed travel restrictions on Nigeria, citing national security risks, which disrupted the movement of students, professionals, and family members.
- If Trump reinstates such policies, it could dampen the ability of Nigerians to pursue educational and work opportunities in the U.S.
- This restriction would not only impact Nigerian nationals but could also reduce remittance flows, which are a major source of foreign exchange for Nigeria.
- In recent years, remittances from the Nigerian diaspora have contributed over $20 billion annually to Nigeria’s economy, helping to offset FX shortages.
- A decrease in remittance inflows would reduce domestic consumption and place additional pressure on Nigeria’s foreign reserves, which are already under strain.
Geopolitical dynamics and U.S. aid to Nigeria
Under Trump’s “America First” foreign policy, military aid and development assistance to African nations were deprioritized in favour of reducing overseas commitments.
- For Nigeria, which partners with the U.S. in counter-terrorism and security, this could imply reduced military support.
- Nigeria has relied on U.S. assistance to combat Boko Haram and other insurgent groups, so any reduction in support could undermine Nigeria’s regional security efforts.
- A decline in aid could also impact Nigeria’s developmental projects and social programs funded by U.S. agencies.
- With high poverty rates and a significant need for investment in health, education, and infrastructure, a reduction in aid would necessitate increased spending by the Nigerian government, potentially redirecting funds away from other critical areas.
Trade Policies and Nigerian Exports to the U.S.
Trump’s “Buy American” policy has often focused on reducing imports and increasing tariffs, which could impact Nigeria’s trade relationship with the U.S.
- In the first half of 2024, Nigeria recorded a trade surplus with the U.S., with imports at N1.9 trillion and exports at N3.1 trillion.
- If Trump’s tariff policies discourage U.S. imports from Nigeria, this could negatively affect Nigeria’s export earnings, particularly for sectors like oil, minerals, and agricultural products.
- A decrease in exports to the U.S. might impact Nigeria’s current account balance, further complicating its exchange rate and foreign reserve challenges.
The African Growth and Opportunity Act (AGOA), which was introduced by Republican President George W. Bush to allow African exports into the U.S. duty-free, is set to expire in 2025, and there are limited indications that a Trump administration will renew it.
In fact, during his previous term, Trump stated that he would not support its renewal, casting uncertainty on the future of tax-free access for African exports to the U.S.
