Nigeria’s battle against soaring inflation, which reached 34.6 per cent in November 2024, demands decisive and multifaceted action to achieve the ambitious goal of reducing it to 15 percent in 2025. The country faces domestic challenges and external pressures, including global market dynamics influenced by President-elect Donald Trump’s plans to boost U.S. oil production. Trump’s agenda to increase U.S. energy output could lower global oil prices, creating mixed outcomes for Nigeria’s inflation trajectory.
As an OPEC member heavily dependent on oil exports for foreign exchange, Nigeria risks significant revenue losses if global oil prices fall. This could limit government spending on key anti-inflationary measures and strain the Central Bank of Nigeria’s ability to stabilise the naira. However, lower oil prices could also lead to reduced domestic transportation and production costs, which might help mitigate inflationary pressures.
A critical step in combating inflation is addressing structural issues in Nigeria’s energy sector. According to the chief economist at SPM Professionals, Dr. Paul Alaje, refining capacity, which is still critical to government revenue targets, and by extension, taming inflation, remains insufficient, with facilities like the Dangote Refinery still reliant on imported crude, while other refineries operate below optimal levels. “Strengthening domestic refining to reduce reliance on fuel imports is essential. If the Warri and Port Harcourt refineries, along with modular refineries, are optimised, Nigeria can stabilise energy prices, a major driver of inflation,” he said.
Addressing inefficiencies in agriculture is another priority. Food prices remain a major component of inflation, exacerbated by unorganised supply chains and insufficient government support for farmers. A coordinated approach involving federal, state, and local governments to boost agricultural productivity and create organised food supply mechanisms can help stabilise prices and enhance food security.
“As I speak with you there is no organised food supply mechanism in Nigeria. So farmers put whatever comes to them as seedlings into the soil. The federal, state and local governments have not decided to push the programme where we say, for example, each state will produce targeted tonnage of this food or that food,” he stated.
Alaje added, “If the naira loses value, especially as we are running some sort of floatation then the inflation will be higher. From the beginning of the year, SPM professionals projected the rate of inflation to rise within the 30 per cent corridor. What that means is that we are not convinced that the government will achieve the 15 per cent goal. Ordinarily, what we may see is that as the price of fuel drop consumers will buy fuel at a cheaper rate. That will be the case if all the produce are made in Nigeria — that is 100 per cent refining done in Nigeria. As we see today, Dangote Refinery imports crude, and the other two refineries alleged to be working are producing less that 50 per cent capacity.
“Diversifying the economy is equally urgent. Reliance on oil exposes the country to external shocks, as highlighted by economists who argue that Nigeria possesses untapped assets far more valuable than oil. These include potential investments in agriculture, tourism, and infrastructure, which could generate alternative revenue streams and reduce vulnerability to global market fluctuations.”
The chief executive of Economic Associates, Dr. Ayo Teriba, said Nigeria’s fortune is not tied to oil, noting that even Saudi Arabia is already positioning itself for the post-oil economy. He stressed that Nigeria has other assets that are more important than oil, although the country is neglecting them. Citing example, he said the market value of Saudi Aramco is more important than Saudi Aramco itself as the value is worth more than $2 trillion. He also noted that Saudi Arabia is investing money in sports tourism and other potential untapped assets, whereas Nigeria is doing nothing. He said Nigeria has assets that can attract investments instead of being concerned about oil prices.
In this context, Nigeria’s path to achieving its 15 per cent inflation target in 2025 will require a multifaceted approach. Diversifying the economy to reduce dependence on oil revenues, implementing effective fiscal policies, and maintaining monetary discipline are crucial steps. Additionally, monitoring global oil market developments, particularly policy shifts in major oil-producing countries like the United States, will be essential in navigating the challenges ahead.
Also commenting, the chief executive of AntHill Concepts Limited, and member of the Board of Economists, NATIONAL ECONOMY, Dr. Emeka Okengwu, said Trump’s intention to pump crude oil to bring down the price of petroleum will have limited impact on inflation in Nigeria if the government focuses on production. Okengwu stated that if the government were to get the Warri and Port Harcourt refineries working at optimal capacity, and the Dangote, as well as other modular refineries working then the price of petroleum products would reduce, independent of Trump’s position on crude production. In that case, energy prices, which is a major driver of inflation in Nigeria, will fall and impact headline inflation.
However, the relationship between oil prices and inflation is complex. Yvonne Mhango, Africa economist at Bloomberg Economics, noted that while tight monetary policy is expected to help reduce inflation in 2025, external factors like global oil price fluctuations add layers of uncertainty.
But the chief executive of the Center for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said energy cost is a major driver of inflation; hence if the prices of petroleum products fall it would cascade down globally. Noting that part of the energy problem we have in the world today is a result of the Russia/Ukraine war, he said if there is a major fall in energy prices other prices will fall. He stated that that is not related to government policies but just a function of the dynamics within the energy space influencing price.
“To that extent it will be an advantage for Nigerians because energy prices are likely to fall across board. The flip side is that because the government is reliant on crude for forex the FX revenue may drop; that may affect the capacity of the CBN and other agencies to be able to fund the foreign exchange market since exchange rate may depreciate if supply drops. If forex drops it will lead to exchange rate depreciation, which may fuel inflation.
“Another thing is if oil revenue, which accounts for about 50 per cent of revenue drops that might affect Nigeria’s 2025 budget projection, which may lead to deficit, which might in turn lead to more borrowing,” he added.
While President-elect Trump’s plans to increase U.S. oil production could lead to lower global oil prices, the impact on Nigeria’s inflation target is nuanced. Balancing the potential benefits of reduced domestic fuel costs against the drawbacks of decreased oil revenues will be key to Nigeria’s economic strategy in the 2025.
