In 2014, news websites worldwide were flush with news from Africa. For the first time in decades, a country had unseated South Africa as the largest economy on the continent. This country, posting a GDP of more than $500 billion, was Nigeria.
This news quickly attracted international investors’ eyes as people looked to the developing country to see where they could benefit from the sudden surge in the local economy. This investment and attention further helped bolster the economy’s growth.
In 2024, however, things have changed drastically. South Africa has once more claimed the top spot with a GDP of $347 billion. However, this resurgence by South Africa has not knocked Nigeria to second place. Instead, the former forerunner was knocked down to fourth, beaten by Egypt and Algeria.
Let’s dive into what has caused this monumental drop from the top and see what the likelihood of Nigeria rising to the lead in Africa again might be.
Recession
To understand how the country’s economy dropped from first to fourth place, let’s go back a few years to 2020. As mentioned earlier, this was the first year since 2014 that Nigeria did not boast the largest economy on the continent (since it was beaten by Egypt).
The reason for this at the time was due to a crippling and unbelievable recession that hit the country due to the loss of crude oil exports caused by the COVID-19 pandemic. With oil, which represented more than 80% of the country’s exports, no longer in high demand globally, the economy came close to a standstill.
This caused the estimated growth in the economy of 2.1% to be revised to a contraction of a staggering 3.2%, which led to the worst recession the country had seen since the 1980s. In turn, this pushed more citizens into poverty and caused an environment that was not conducive to trade.
Despite this recession, 2021 saw Nigeria return to the top spot, where it remained for the following two years. In 2024, however, multiple factors caused the economy to once more come crashing down.
Monetary Reforms
One of the most significant factors in the decline of the once-great economy was the new monetary reforms, particularly the country’s exchange rate standardization, instituted by
President Bola Tinubu.
Previously, the Central Bank of Nigeria set the daily exchange rate between the local currency (the naira) and foreign currencies. However, additional exchange rates were used across the country, particularly for importing commodities commonly priced using US dollar amounts.
Under the new monetary policy, the Central Bank of Nigeria will no longer be tasked with setting the exchange rate for forex trading. Instead, the rate will be determined by the market. Economists believed that this would boost investor confidence and lead to more significant inflows of money that could work to stabilize the economy.
However, the move had an adverse effect and caused the value of the naira to plummet. While some believe it will still yield positive results in the future, it has caused rampant increases in the cost of imported items, which the country relies heavily on.
Gas/Fuel Subsidies
Under the same monetary policy that removed the central bank’s role in determining exchange rates, the Nigerian government also opted to end gas (or fuel) subsidies in the country. These subsidies have been a staple for citizens for decades and have helped make gas affordable even to the poor in the nation.
Despite producing oil, Nigeria had no oil refineries until recently, when the largest oil refinery in Africa opened in the region. Due to this, refined petroleum has continuously been imported. To avoid citizens paying premium prices for it, the government previously subsidized the cost of fuel, budgeting $9.5 billion for these subsidies in 2022 alone.
With the end of these subsidies, gas prices in the country have increased by more than 220%. These increases have had a knock-on effect, making fuel used for transport and electricity production almost unattainable for many citizens.
Due to higher transport costs, general foodstuffs and other consumer goods have also seen record increases. These have been made to recover the associated costs of higher transport bills.
Inflation and Currency Value
Inflation in the country is rampant, adding to the woes already present due to the above circumstances. In January 2024, inflation in the region was recorded at 29.9%. This ranks the country among others like Venezuela, Zimbabwe, and Argentina—all of which have record inflation amounts.
Due to this high inflation rate, the local currency’s value has also been tumultuous. Starting the year at around 899 naira to 1 US dollar, it reached upward of 1,630 naira to the dollar by February.
While some losses have recovered since the middle of the year, the currency devaluation affected multiple aspects of the economy.
Industries
One of the final factors influencing Nigeria’s economic status drop is the slowing of industry in the region. With consumers having less disposable income, demand in almost all industries has slowed.
In the iGaming industry, for example, many players who previously spent money to get their thrills now turn to alternatives like the Mega Moolah demo from Microgaming, which requires no capital. Likewise, families are reluctant to purchase the latest fashion, instead choosing to continue wearing older clothes and saving money—resulting in losses for the industry.
Conclusion
With multiple factors affecting the Nigerian economy, it is impossible to say whether the country will soon return to the top position on the continent. New monetary policy, which at a glance seems reckless, is touted to have long-term benefits.
Should these benefits begin to take effect, there is hope that the economy may recover. Until then, however, Nigerians must tighten their purse strings and hold on as they struggle to survive and purchase even basic necessities.
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