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By Uche Usim
With inflation easing to 24.5 percent in January, a steady rise in Foreign Direct Investment (FDI) and a robust expansion of Nigeria’s Gross Domestic Product (GDP), the nation’s economic recovery is outpacing analysts’ expectations. Adding to this momentum, the Central Bank of Nigeria (CBN)-led Monetary Policy Committee (MPC) opted to maintain the interest rate at its last meeting, a decision that has ignited a rally in Nigeria’s Eurobond market and reinforced sustained investor confidence in the country’s economic prospects.
Without question, Nigeria’s economy possesses the fundamentals to attract and retain foreign investment. With key macroeconomic indicators improving and GDP size expanding, discerning investors are making their way back to the country.
Investment reports indicate that Nigeria’s Eurobond market ended February on a positive note, reflecting continued foreign investor interest. Data from the Debt Management Office (DMO) shows that the average yield on Nigeria’s Eurobonds stood at 8.80 percent, 41 basis points lower than the 9.21 percent recorded at the start of February, signaling strong investor appetite.
Across Sub-Saharan Africa, Eurobond yields also declined by 27 basis points to an average of 8.4 percent, with Nigeria outperforming the regional market.
Analysts at Afrinvest attribute this to the region’s ability to attract investment amid improving macroeconomic conditions and a shift towards lower interest rates. Similarly, CSL analysts point out that the decline in yields is largely driven by global risk-off trends, geopolitical uncertainties, and the release of key economic data.
Looking ahead, Afrinvest analysts project strong market performance, supported by liquidity inflows from coupon payments amounting to N642.6 billion and maturities of N562.5 billion.
“Additionally, a dovish interest rate outlook should reinforce the bullish bias. In the Sub-Saharan African market, the hunt for yield is likely to remain a dominant theme for sustained offshore interest in the region,” Afrinvest analysts noted.
The CBN-led MPC’s decision to hold interest rates steady is further strengthening global investor confidence in Nigeria’s economy.
Rebased GDP signals new economic strength
The economy received another boost as the National Bureau of Statistics (NBS) rebased Nigeria’s GDP after a nine-year hiatus. This revision makes the economy appear larger than previously estimated, incorporating high-growth sectors such as fintech, e-commerce, entertainment, and digital services.
The rebase will likely shift sectoral contributions to GDP, with industries like technology, telecommunications, and entertainment, such as Nollywood and digital startups, gaining prominence. Conversely, traditional sectors like agriculture and oil & gas may see a relative decline in their share of GDP.
According to Abuja-based public commentator Ayo Olodo, the rebasing will better capture informal sector activities, which are often underestimated, leading to potential adjustments in economic indicators.
“For instance, Nigeria’s Debt-to-GDP ratio may improve, suggesting greater fiscal space for borrowing, though debt servicing remains a critical concern. Additionally, per capita income could increase, although this does not necessarily translate to improved living standards if inflation remains elevated,” Olodo explained.
He also highlighted the policy and investment implications of the GDP rebase.
“Foreign investors may be drawn to newly emphasised sectors that were previously underreported. The government could also refine its fiscal and monetary policies to align with the rebased economy, and taxation policies may be reviewed, particularly if high-growth sectors are found to be under-taxed,” he added.
Moreover, a significantly larger GDP could move Nigeria closer to upper-middle-income status, impacting eligibility for concessional loans and development aid.
The Chief Executive Officer of FirstBank Group, Olusegun Alebiosu, noted that the improvement in government revenue, the enhanced revenue-to-debt service ratio (now at 68 percent), and the rise in foreign reserves to over $40 billion are all positive indicators for the economy.
Alebiosu further stated: “Early signs, such as the forex market stability following the introduction of the electronic foreign exchange matching system in December 2024; the increasing competition in the downstream sector, which is driving down premium motor spirit (PMS) prices; and the revival of the Port Harcourt and Warri refineries, all indicate that there is indeed light at the end of the tunnel for our economy.”
He emphasised that the timing of these developments has bolstered optimism about Nigeria’s economic prospects, particularly as the country enters 2025.
Additionally, the government’s proposed N49.7 trillion budget for 2025 is expected to provide strong economic stimulus, especially with improved revenue generation reducing the likelihood of budget implementation challenges. Alebiosu affirmed that the projected GDP growth rate of 3.68 percent for 2025 is a realistic target.
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Reflecting on 2024, he acknowledged that inflationary pressures, exacerbated by essential but difficult economic reforms, put significant strain on household and corporate incomes, with inflation peaking at a three-decade high of 34.60 percent in November 2024.
What the MPC decided
In response to evolving economic dynamics, the MPC voted to maintain the Monetary Policy Rate (MPR) at 27.50 percent while keeping all other policy parameters unchanged.
Nigeria’s annual inflation rate was reported at 24.48 percent in January, a notable decline from the previous month, following the rebasing of Nigeria’s Consumer Price Index (CPI) for the first time in over a decade.
CBN Governor Olayemi Cardoso underscored the bank’s commitment to market stability, stating:
“We will enhance collaboration with the fiscal sector by deepening and increasing the frequency of our engagements to drive economic growth. With a stabilizing forex market, strengthened price controls, and rising investor confidence, the economy exhibits strong resilience and recovery potential.”
Cardoso emphasised that sustaining liquidity and ensuring transparency in forex operations remain key objectives for the CBN.
“Our focus remains on achieving stability in the foreign exchange and financial markets. The CBN will continue embracing orthodox monetary policies. We remain vigilant and will not take anything for granted, inflation has been too high for too long, and our goal is to bring it down from double digits to single digits over the medium to long term,” he stated.
The naira appreciated by 6.95 percent in February, strengthening to N1,510/$ in the parallel market, driven by exchange rate expectations, subdued forex demand, and sustained CBN intervention.
Businesses, particularly those in the real sector, have welcomed the MPC’s decision to maintain interest rates, citing its role in supporting the naira’s rally and curbing the rising cost of borrowing.
The MPC’s economic outlook remains optimistic, forecasting robust GDP growth driven by strong non-oil sector contributions. The committee also noted the continued rise in domestic crude oil production (now at 1.74 million barrels per day), which is expected to further enhance overall GDP performance.
Additionally, the MPC acknowledged the recent rebasing of the CPI, which more accurately reflects current consumption patterns. It anticipates that inflationary pressures will ease in the near future, supported by a relatively stable naira and a gradual decline in PMS prices.
The committee highlighted the naira’s recent appreciation, underpinned by improved FX liquidity and measures aimed at fostering transparency in the forex market, including the adoption of the Electronic Foreign Exchange System (EFEMS) and the Nigerian Foreign Exchange Market (NFEM) FX Code.
Boost in investment and remittances
The impact of Nigeria’s FX reforms is evident in rising remittance inflows, with International Money Transfer Operators (IMTOs) recording a 79.4 percent surge to $4.18 billion in the first three quarters of 2024.
Additionally, the CBN lifted the 2015 restriction barring 41 items from accessing FX at the official market to facilitate trade and investment.
CBN Governor Cardoso reaffirmed the bank’s commitment to macroeconomic stability:
“As we transition from unorthodox to orthodox monetary policies, the CBN remains steadfast in restoring confidence, reinforcing policy credibility, and maintaining a clear focus on its core mandate of price stability.”
To combat inflation, the CBN raised the Monetary Policy Rate by 875 basis points to 27.5 percent in 2024, an essential move to contain inflationary pressures and stabilize the economy.
Under Cardoso’s leadership, analysts believe these measures have not only strengthened the forex market but also laid a strong foundation for sustainable economic growth, reinforcing Nigeria’s resilience and long-term investment appeal.
