To start with, the NBS reported that the Nigerian economy expanded in real terms y/y by 3.8% in Q4:2024 (12.4% q/ q), marking the highest quarterly y/y growth since Q4:2021 and bringing the total growth for the year to 3.4%, in line with our revised forecast.
From a structural perspective, the sturdy expansion of the broader economy was largely driven by the non-oil economy segment with a y/y growth of 4.0% in the quarter (annualised: 3.3%) while growth in the oil economy slowed to 1.5% from 5.2% in Q3:2024, though annualised growth crystalised at 5.5% aided by low base year effect (the oil economy ended a 3-year and 3-quarter recession spell in Q1:2024).
Against this backdrop, the annualised share of the oil economy in the broader macroeconomy increased to 5.5% from 5.4% in 2023.
From a sectoral perspective, the services sector sustained its position as the brightest segment of the Nigerian economy, expanding by 5.4% y/y (annualised: 4.7%) on the back of solid growth in major activity sub-sectors –finance & insurance (Q4: 27.8% and annualized: 29.6%), transportation & storage (Q4: 18.6% and annualised: 6.5%), Water Supply, Sewerage, Waste Management and Remediation (WSSWMR1) (Q4: 9.0% and annualised: 8.4%), and information & communications (Q4: 5.9% and annualised: 5.4%).
Meanwhile, growth in the agriculture and industries sectors weakened to 1.8% and 2.0% in Q4:2024 as compared to 2.1% and 3.9% in the corresponding period of 2023. Notwithstanding the annulised growth of the two sectors, 1.2% and 2.5%, bettered that of 2023 at 1.1% and 0.7% sequentially.
In our view, the stunted growth of the agriculture and industries sectors is worrisome, given the pivotal status of both sectors in Nigeria’s quest to attain inclusive & accelerated growth, and end the problem of food insecurity, elevated inflation, and exchange rate volatility.
For perspective, the agriculture and industries sectors combined account for more than 70.0% of the labour force, owing to their structural labour-intensive nature. Their slow growth implies that the economy’s job absorption capacity would remain weak, counteracting the goal of achieving inclusive growth. Food insecurity is also a major problem in Nigeria. Despite the recent rebasing of CPI, food inflation cleared at 26.1% in January 2025 (food inflation was 39.8% in December 2024 using the old method) – the third highest on the continent.
Barely six months ago, the Federal Ministry of Budget and Economic Planning conceded that about 31.8m Nigerians are suffering from acute food insecurity, due largely to the shortfall in domestic production capacity. Furthermore, Nigeria’s Q3:2024 trade statistics showed that the country is a net importer of both raw materials and manufactured goods, with deficits of ₦1.1tn and ₦5.9tn, respectively.
This underscores a major pressure point on the country’s volatile exchange rate (the Naira has lost about 87.0% against the USD in the last decade to ₦1,500.15/$ as of 28 February 2025) and declining relevance in the global export market.
That said, the next GDP data (Q1:2025) will reflect the impact of the recently announced new base period of 2019 for computing nominal and real values of sectoral activities compared to 2010 used up till 2024. With the inclusion of eight new activity sub-sectors – (1) Digital Economy (2) Activities of Pension Funds Administrators (3) National Health Insurance Scheme (NHIS) (4) Nigerian Social Insurance Trust (NSITF) (5) Activities of Modular Refineries (6) Domestic Households as Employers of Labour (7) Quarrying & Other Mining Activities and (8) Illegal and Hidden Activities – it is expected that growth print in the next GDP data would be cosmetically high, relative to recent trajectory.
As such, we advise that government at all levels (led by the FG), prioritise fixing fundamental drag factors to Nigeria’s potential optimisation – insecurity, poor infrastructure, and institutional fragility – to lay foundation for inclusive & accelerated growth.
Other Developments
In other developments, the NASS approved the request of the FG to increase the 2025 expenditure plan by ₦4.5tn –from the initial ₦49.7tn (presented in December 2024) to ₦54.2tn. According to the letter from President Bola Ahmed Tinubu to the National Assembly, the request was premised on a more optimistic outlook for the revenue generation of key government agencies.
Precisely, the FG expects additional contributions from the Federal Inland Revenue Service (FIRS) (₦1.4tn), Nigeria Customs Service (NCS) (₦1.2tn), and other Government-owned agencies (₦1.8tn). The proposal also outlines the allocation of the additional funds, with ₦1.1tn earmarked for the solid minerals sector, ₦1.5tn for the recapitalisation of the Bank of Agriculture (BoA), and ₦500.0bn for the recapitalisation of the Bank of Industry (BoI), in addition to other critical infrastructure projects. In our view, the optimistic adjustment of non-oil revenue is supported by historical performance, as these agencies have demonstrated strong revenue performance in recent years. For instance, over the past five years, the FIRS has consistently surpassed its budgeted revenue for each year.
In FY:2024, the agency surpassed its revenue target by ₦2.2tn (actual: ₦21.6tn vs budgeted: ₦19.4tn) aided by improved tax collection mechanisms underpinned by modern technology deployment (precisely, the deployment of TaxProMax technology) and enforcement of compliance measures.
Similarly, the NCS has consistently outperformed its annual revenue targets. In FY:2024, the agency had a revenue target of ₦5.1tn but generated ₦6.1tn during the fiscal year. We also note that the allocation of funds is commendable, given the potential of the strategic banks and sectors to drive economic growth and diversification.
The solid minerals sector, for instance, has long underperformed, contributing minimally to Nigeria’s GDP despite its vast and untapped potential. According to the Ministry of Solid Minerals Development, there are at least forty-four minerals located in over five hundred (500) locations across Nigeria’s thirty-six states. The development of the sector has been hampered by the lack of adequate funding to cater to the different stages of mining operations.
The proposed funding could serve as a catalyst, boosting investor confidence and unlocking the sector’s potential as a significant revenue stream. This would not only diversify the economy but also reduce Nigeria’s over-reliance on oil, which remains a volatile and unsustainable source of income. Another critical agency outlined is the BoA, to reinvigorate the agriculture sector.
Approximately 80.0% of Nigerian farmers are smallholders with minimal capital who suffer from lack of adequate financing options, which hampers agricultural output and efficiency, posing a critical barrier to growth. This funding is pivotal at further transforming Nigeria’s agricultural landscape by empowering smallholder farmers and agribusinesses by disbursing loans at cheaper rates to boost productivity, enhance food security, and also stimulate rural economic development.
Similarly, with BoI, the funding is expected to provide critical support to small and medium enterprises (SMEs), drive local manufacturing, and reduce dependence on imports. While the proposed allocations are laudable, there are concerns about the broader fiscal implications of the budget increase. We are of the view that at this critical point, the FG’s focus should be on deploying the anticipated additional revenue from these agencies to reduce the deficit, particularly given the existing risks to the revenue plan.
Revenue Projection
The government’s revenue projection (which was previously ₦36.4tn but is now ₦40.9tn) is heavily reliant on oil by around 48.0% share. The volatility of the global oil markets presents a significant risk, as the new US administration plans to increase oil drilling. Also, the US President has commenced diplomatic moves (in line with his election promises) to contain energy prices throughout his tenure which further casts shadow on Nigeria’s ambitious oil revenue.
Over the last five years, Nigeria’s actual oil revenue for the budget was below ₦5.0tn in each year, with a record high of ₦2.4tn recorded in 2023. With the 2025 budget, benchmark crude oil price set at $75.0/bbl and current prices hovering around $71.0 – $74.0/bbl (IEA projects an average of $74.00 for 2025), the revenue projections appear unattainable.
Additionally, the government’s overly ambitious crude oil production target of 2.06mbpd in 2025 appears unrealistic given that actual production in January 2025 settled at 1.58mbpd (with condensate 1.74mbpd) without any visible mechanism set in place to boost productivity in the near-term sustainability.
Beyond revenue risk, the fiscal authorities’ expansionary stance on driving expenditure remains misaligned with the monetary authority’s ongoing efforts to curb inflation. Ideally, a coordinated fiscal policy should focus on streamlining non-capex expenditures, narrowing the budget deficit, and ensuring sustainable management to complement monetary tightening effectively. Another pressing issue is Nigeria’s rising debt profile, which rose to ₦142.3tn as of 9M:2024, driven in part by the widening budget deficit, bringing debt to GDP to c.60.0%. Recall that the FG has announced plans to rebase the GDP, which could lead to an increase in the overall nominal GDP size.
However, there are concerns that once the rebasing of the GDP is done, debt to GDP could drop to c. 30.0% to 40.0%, which could be leveraged by the FG as a justification to further borrowing. This is worrisome, given the country’s looming debt obligations between 2027 and 2033, which include Eurobond maturities worth c. $10.0bn and bilateral & multilateral loans worth more than $7.0bn.
The government ’s current approach, which continues to rely on borrowing to fund deficits rather than building a fiscal war chest, raises concerns about long-term economic sustainability. Against this backdrop, we advise that the Nigerian government should rethink its strategy on fiscal sustainability. Also, the FG needs to maintain a balance between borrowing for development and maintaining fiscal sustainability. While targeted investments could drive progress, unchecked borrowing to fund the budget deficit could worsen Nigeria’s economic challenges.
Lastly, MPC at the end of its first bi-monthly policy meeting in February held all monetary policy variables steady – MPR: 27.75%, asymmetric corridor around the MPR: +500/100 bps, CRR of Deposit Money Banks and Merchant banks: 50.0% and 16.0%, and Liquidity Ratio: 30.0% -despite the cosmetic decline in headline inflation rate post NBS rebasing. We align with the committee’s decision to maintain the status quo on policy parameters in the current period as it helps strike a balance between FPI retention and inflation control on the one hand and the illusionary effect of the ongoing rebasing of key national statistics.
Looking ahead, we anticipate that the m/m reading should begin to realign and better reflect reality beginning in February. However, we hold that the y/y reading may reflect a false narrative for most of 2025 due to artificially low base year indices.
Afrinvest
