By Uddin Ifeanyi
“In Nigeria, growth momentum is sustained at 4.1 percent in 2026, supported by improved macroeconomic stability and positive terms-of-trade effects, while higher goods and transport costs are headwinds. Growth is expected to strengthen in 2027 to 4.3 percent as these headwinds ease.” This is how the International Monetary Fund (IMF), writing in its recent edition of the World Economic Outlook (WEO), described the country’s economic prospects. The respective numbers (averages all) for Emerging and Developing Asia, and sub-Saharan Africa are better. While those for Latin America and the Caribbean and Middle East and Central Asia are not as good.
The reactions from discussing the IMF’s report from my favourite echo chambers were not as good. Nigerians have struggled for years to square palpable evidence of falling living standards with the sense of a strengthening economy. A small bit of this argument is readily resolved by the reminder that annual growth rate lesser than 7-10 percent will never be enough to meet the country’s needs. If nothing at all, the fact that the domestic economy’s trend growth rate over the past two decades has barely been higher than the rate of its population growth is a recipe for the economy’s continued impoverishment.
The discussions over the IMF’s estimates for this year and next, however, included other elements. While the domestic inflation rate is still rising, it is not doing so as fast as it was in the spurt that was ignited in 2023 by government’s price reforms. The consequent two-year spike in domestic prices which lasted until the first quarter of last year drove massive displacements in the economy. Domestic demand collapsed, and business confidence along with it. Direct investment into the economy consequently cratered. How in these circumstances could the economy have continued to grow?
The simple answer is that the computation of gross domestic product (GDP) brings in more than just consumer spending and business investment. Measured by domestic expenditure patterns, a country’s output is the sum of how much its people spend, how much its government spends, how much businesses spend, and how much more it exports over how much it imports. In other words, if exports rise faster than imports, GDP could increase even when domestic demand is weak. In our example, this has been the case for a while now. Still export volumes are up, not because of higher oil prices or increased crude production, nor because non-oil exports (e.g., agriculture, LNG) grew.
Rather, the reforms to the foreign exchange market (the Tinubu administration’s poster policy), by weakening consumer demand, pushed the country’s imports bill down. The gains from this improvement in the economy’s terms of trade (higher export earnings compared to import costs) also show up partially in the numbers for its gross external reserves. This, though, was not the only boost to national income. Government spending has been growing – up nominally by about N7 trillion between 2023 and 2024. Ideally, growth in government spending should reflect increases in its earnings, except where such spend is intended as fillip for a flagging economy. Either way, outlays would be for infrastructure development, public sector wages, funding social programmes, and enhancing national security.
The jury will not be in for some time over the extent to which the Tinubu administration’s spending has helped boost the local economy’s productivity. But two things are clear at this point. First, the second major reform of the government (the elimination of subsidies on the pump-station price of petrol) boosted government’s discretionary spending limits. As has its immense appetite for borrowing.
Much has been made of the importance of the stability in the domestic economy that is the main result of the federal government’s policies. Three questions arise from this. Is the 4 percent annual growth rate the local economy’s stable state? Is this “stability” sustainable over a much longer term? Is it enough for the economy. The last question is easier to respond to. No. The first, not so. Probably. The devil is in the detail of the second question.
The problem with the growth that Nigeria is currently experiencing is that it is not demand-driven. Yes, externally driven, or supply-side growth may improve headline GDP, but it does not immediately improve living standards. Quite often, as is the case with Nigeria today, it feels like a “jobless” or “income-light” recovery.
If domestic growth is to rise above the 4 percent annual threshold, real incomes will have to rise, consumer demand grow, lending to the private sector grow, private investment strengthen. None of this will happen by itself. Power sector reforms, improvements to the efficiency of the economy’s logistics, and the expansion of its industrial capacity – these will drive productivity figures up. A price-responsive agricultural value chain, a broader-based manufacturing sector, and strengthening of the services sector will do the same for our goal of a diversified export base. If we are to revive investment in the economy, then we must lower inflation (not more than 10-12% year on year, and not AI-generated), deepen financial markets, and drastically reduce policy uncertainty. Incomes on the other hand will recover only if we can engineer an increase in domestic levels of employment and keep inflation low enough for wage growth to stay ahead of it.
None of this is rocket science, right? Besides, Elon Musk, his many eccentricities notwithstanding, continues to show how overrated even rocket science is where there is the will to get things done.
. Uddin Ifeanyi, a journalist manqué and retired civil servant, can be reached @IfeanyiUddin.