Wale Edun, Nigeria’s Finance Minister, Addresses Reforms

For numerous Nigerians, 2024 proved to be a challenging year. The nation’s inflation rate spiked for the third consecutive month in November, soaring to 34.6%, marking the highest point in over 28 years, according to the national statistics agency.

This inflation surge has been worsened by recent flooding in the northern regions, which led to significant increases in the prices of essential foods like yam, corn, and rice. Additionally, escalating gasoline prices have further strained economic conditions in Africa’s leading crude oil producer.

President Bola Tinubu’s move to permit the naira’s devaluation and eliminate fuel subsidies in an effort to stimulate economic growth has been described as a necessary but bitter remedy for an economy long overdue for reforms.

In an exclusive discussion, Finance Minister Wale Edun, who has been steering these reforms since taking office in August 2023, shares with African Business his perspective on why he believes the economy is on the brink of recovery and how maintaining the course will benefit Nigeria in 2025 and beyond.

After a tough year, you face the challenge of stabilizing and revitalizing the economy. Given the reforms your administration has initiated, are you optimistic about Nigeria’s economic outlook in 2025?

Absolutely, I am very optimistic about our country’s economic path, not just for 2025 but for the years that follow. In the upcoming year, we anticipate a boost in economic growth alongside a decrease in the rate of price increases. These projections are encapsulated in the Medium Term Expenditure Framework and the Fiscal Strategy Paper endorsed by the legislature. It’s important to note that we are not alone in this expectation; projections by the International Monetary Fund (IMF), the World Bank, and other analysts align in their forecasts of improved growth and slowing inflation. By 2025, many issues surrounding economic stability will likely be resolved.

The primary challenge in stabilizing our economy lies in reducing inflation and keeping it low. We are confident that significant advancements will be made in this area in the near future. Notably, we expect the downward trend in fuel prices, a significant driver of higher prices, to continue. This current decline is attributed to an increase in domestic refining capacity, particularly from the Dangote refinery, a stable exchange rate, and our policy of selling crude oil to domestic refiners in naira. These factors are facilitating the reduction in fuel prices, and we anticipate further declines as government-owned refineries and the BUA Group ramp up their capacity. Furthermore, a slowing rise in food prices is expected to contribute to lower inflation as well.

The reforms we have implemented were essential to unlocking the potential of this country and achieving the growth and development we need. It’s important to recognize that with reforms like these, costs must be absorbed before the benefits can be seen. Our major ongoing challenge in this regard is providing adequate support for vulnerable Nigerians. While improvements are being made, this has been a complex task, especially due to the lack of a universally accepted database. We are, however, making strides in resolving the issues surrounding the acceptance of the vulnerable population database. Our direct benefit transfers have now reached approximately 20 million Nigerians, and we expect to accelerate these efforts in Q1 2025. Therefore, I am not only confident about sustaining our positive trajectory, but also that we are working to improve outcomes and noticeably enhance the quality of life for every Nigerian.

Investors prioritize transparency and predictability. There’s been some discussion concerning Nigeria’s foreign exchange reserves, hovering around $40 billion—the levels last recorded in the late 2010s. Could you clarify this situation?

Establishing trust is crucial for restoring confidence among all stakeholders, domestic and international alike. Before delving into foreign exchange reserves, I want to highlight steps taken to ensure transparency and predictability in government finances, such as deploying technology to eliminate leakages and opacity in transactions. We have observed a notable reduction in financial leakages.

Beyond fiscal considerations, the Central Bank of Nigeria (CBN) has significantly enhanced its regulatory measures to instill confidence across all components of our financial system. Recently, it introduced the Bloomberg Electronic Foreign Exchange Matching System to facilitate efficient price discovery, allowing a reliable and transparent trading environment that will help stabilize stakeholder expectations and bolster market predictability. This follows a series of financial market reforms initiated with the unification of various exchange rate windows in June of the previous year.

As of December 14, foreign reserves stood at $42 billion. While the CBN is better positioned to provide detailed commentary on this matter, I am encouraged by the steady growth of our reserves. This is not surprising considering the ongoing improvement in our current account balance, supported by inflows from portfolio investors and remittances. It’s noteworthy that reserves have continued to rise even in a year when, until recently, fuel subsidy payments limited the CBN’s access to proceeds from crude oil exports. We anticipate that enhanced crude oil production will further boost the availability of foreign exchange in the economy, and it’s also essential to recognize the promising oil refining sector’s potential to generate both domestic value and export income for our nation.

Your administration has executed long-awaited reforms, including the removal of fuel subsidies. While these measures have been tough, are you beginning to observe tangible benefits for the economy?

Indeed, the benefits of these reforms are starting to materialize. We are seeing signs of growth that inspire hope for continued and significant progress along our chosen path. My earlier responses already highlight some of these improvements.

It’s important to clarify that despite the reforms, Nigeria’s economy has not ceased to grow at any time. Some comments have inaccurately described the economy as being in recession, which is entirely incorrect. The latest output growth data show that the economy grew by nearly 3.5% between July and September 2024, with an average growth rate of 3.23% from January to September. Furthermore, since the Tinubu administration took office at the end of May 2023, the economy has experienced consistent growth, which is widespread. Data from the Nigeria Bureau of Statistics for Q3 2024 indicates that 97% of our economy continues to expand.

An area of concern has been our financial system, particularly the foreign exchange market. The new CBN team led by Governor Yemi Cardoso has implemented extensive reform measures that have improved perceptions of safety and reliability within our financial system. By ensuring the disbursement of “trapped” funds and clearing outstanding debts, alongside various foreign exchange market reforms and capital enhancement requirements for banks, confidence in our financial framework has increased. By adhering strictly to legal parameters in borrowing from the Central Bank, our liquidity growth has been effectively managed. Collectively, these efforts have contributed to a more stable exchange rate.

In terms of energy, we continue to focus on enhancing the accessibility and availability of electricity along with oil and gas production. We are witnessing new investments that are crucial for improving production capabilities. In December, Shell Nigeria announced investments in the Bonga North Field. Other investments in the onshore sector by local firms such as Renaissance Africa Energy, OANDO, and SEPLAT suggest that our reform programs are making headway.

The legislature is currently evaluating a series of bills that could transform the government’s financial landscape. As a result of our efforts thus far, government revenue as a share of national output has risen to 13% in Q2 2024, compared to an average of 8% in previous years, helping to decrease the government deficit and the proportion of resources allocated to servicing debt.

What is next on the government’s reform agenda, and what significant insights have you gained over the past 18 months?

In the short term, we will concentrate on addressing critical issues related to ensuring protection for vulnerable populations, significantly enhancing food supply, lowering costs, and supporting key sectors to grow more rapidly.

As I’ve noted, we still have considerable work to do to reach the most vulnerable members of our society. Our cash transfer program has reached about one-third of the intended beneficiaries; this is far from ideal. We have identified the obstacles and are working diligently to ensure coverage for all intended recipients as soon as feasible. Access to food is a vital aspect of improving the quality of life for our citizens. Despite improvements in agricultural output, with a growth of 1.1% between July and September 2024, this is still too slow to sufficiently feed all citizens and our neighbors in the sub-region. We are actively working to stimulate agricultural growth beyond population growth rates.

Improving output in the energy sector—oil, gas, and electricity—is paramount. Nigeria has industrial aspirations that cannot be realized without adequate energy inputs. We must explore diverse options to stimulate investment in the energy sector. Without an efficient and cost-effective energy industry, we will struggle to position our manufacturing and processing sectors to capitalize on opportunities presented by the African Continental Free Trade Agreement (AfCFTA). Efforts are underway regarding tax reforms; the Presidential Committee on Fiscal and Tax Reforms has already produced bills currently under legislative consideration. These tax reforms will provide a more flexible fiscal space, enhancing the efficacy of monetary policy and improving the outcomes of fiscal-monetary policy coordination.

Central to our upcoming initiatives is the drive for rapid, sustainable, inclusive growth in our economy. As a government, we aim, while contemplating the successor to the current National Development Plan, to achieve output growth of 7% by 2027 while controlling inflation, stabilizing exchange rates, and maintaining interest rates within parameters that support organizations seeking external funding. Achieving these goals necessitates promoting investment by local wealth holders.

The challenges posed by reforms, especially given the substantial trust deficit we inherited, have made implementation difficult. Rebuilding lost trust is a challenging endeavor, particularly in a political climate that complicates consensus-building.

With international banks scaling back their operations in Africa and foreign direct investment diminishing, how concerned are you about these trends? What measures is your administration undertaking to attract both domestic and foreign investments?

Any development that limits access to capital for either government or private sectors is a concern. It’s vital to note that, despite your observation regarding dwindling foreign direct investment (FDI), current data shows that FDI growth is surpassing export growth, and this gap is expected to widen. This presents a strategic opportunity for capital-constrained economies.

A significant outcome of Covid-19 is the trend toward increasing regionalization of supply chains. Producer nations are recognizing the value of proximity to markets and are investing in hubs to serve a wider range of markets. It’s essential that Nigeria improves its attractiveness for investment—not just foreign, but also domestic investments. If we fail in this regard, we risk capital flight, exchange rate pressures, and further economic disruption. Maintaining low inflation is critical; otherwise, our ability to secure domestic markets and compete internationally suffers. Furthermore, high inflation rates deter domestic investors from holding assets in our currency, pushing them to adopt foreign currencies (like the US dollar), complicating domestic monetary policy management.

To be appealing for investment, the quality and size of our labor force must facilitate cost-effective production. The ongoing revisions to educational curricula are crucial in this regard. Regulatory certainty is another key consideration; creating and enforcing rules and regulations must not be arbitrary, as this would undermine our national interests. Additionally, I recognize the vital role of security—both at borders and within the country itself.

We are actively addressing the issues I’ve mentioned through various initiatives across the government. Our commitment to executing the reform measures signifies our understanding that without reform, maintaining the status quo will render our economy unattractive and at risk. Second, we aim to ensure that investment yields, adjusted for inflation, remain positive, acknowledging that jeopardizing local wealth holders’ resources further harms the economy. Lastly, we have restructured the Ministry of Finance Incorporated (MoFI) to improve national balance sheet management by identifying and managing assets aggressively in the national interest.

Relatedly, we are working to consolidate the public agencies responsible for managing state assets, namely the Infrastructure Concession and Regulatory Commission (ICRC), the Bureau of Public Enterprises (BPE), and MoFI.

How crucial is it to support national champions like the Dangote Group in advancing Nigeria’s industrial transformation and reducing import dependency?

We recognize the significance of producing for both domestic and international markets. We cannot capitalize on the advantages of the AfCFTA without competitive production capabilities. One pressing trend we must address in the Nigerian economy is the stagnant performance of our processing sectors in relation to national output. We need to elevate contributions from our processing sectors—manufacturing, construction, and utilities—to at least double their current levels.

I sometimes ponder our true import dependency. What is the definitive measure for defining a nation as import-dependent? With imports constituting less than 20% of national output, we perform favorably compared to many regional and continental peers. Some African nations rely on imports for as much as half of their national output. However, I concede that we have not sufficiently transformed our imports into export opportunities. This highlights the role of national champions; yet, it is vital for relevant agencies to ensure that our domestic market dominance does not negatively impact our national interest.

How significantly is the Dangote refinery contributing to enhancing Nigeria’s current account balance and overall balance of payments?

The Dangote Group operates in several critical sectors of the economy, alongside other prominent manufacturers. Boosting the manufacturing sector is a primary focus of this administration, aiming to reduce reliance on imported manufactured goods and improve the current account balance, thereby bolstering reserves. The Dangote Group has initiated production of petroleum motor spirit, boasting a capacity of 650,000 barrels. This will soon be supplemented by a 250,000-barrel capacity from the BUA Group refinery. These developments substantially alleviate demand pressures on foreign exchange, enhancing our current account balance and improving the balance of payments through increased domestic refining capacity and additional manufacturing activities.

During your recent Eurobond roadshow, what feedback did you receive from investors regarding Nigeria’s economic direction and investment opportunities?

The oversubscription of our recent Eurobond, totaling $9.1 billion instead of the anticipated $2.2 billion, highlights our successful reentry into the global market, reinforcing Nigeria’s position as an attractive investment destination. It’s worth noting that global contractionary monetary policies—prompted by the Russia-Ukraine conflict to combat inflation—have limited the appeal of developing nations’ Eurobonds.

This oversubscription further reflects improved confidence in the President’s economic strategy, general confidence in the economy, confidence in its debt repayment capabilities, and acknowledgment that the presidential investment targets directive for ministries, departments, and agencies is expected to enhance investment opportunities and lower associated risks.

Looking ahead, what are your key priorities, and why should investors remain confident in Nigeria?

My priorities center on lowering inflation while achieving robust economic growth along with a solid social protection framework. The US managed inflation through high interest rates while simultaneously fostering economic growth via investment founded on savings rather than debt. We aim to achieve a similar outcome.

Recent actions by investors indicate their confidence, as evidenced by subscriptions to our debt instruments. Both the latest Eurobond issue and previous domestic US dollar-denominated bond issuance have experienced oversubscription. Moving forward, our focus is on enabling a stable, rapidly growing, inclusive, and sustainable economy. This direction will undoubtedly facilitate the realization of aspirations for investors, particularly long-term ones, as all Nigerians, as well as residents, will witness a notable enhancement in their quality of life.

Nigeria has ambitious infrastructure plans, including major gas pipeline projects to Europe via Morocco and Algeria. What are the government’s broader plans?

The current share of infrastructure stock as a percentage of GDP is 35%; our ambitious investment goal is to reach 75%, as this is vital for unlocking sustained productivity.

Thus, the administration is dedicated to completing these ambitious projects and renewing momentum to move forward in 2025.

Plans for infrastructure investment are structured according to the Revised National Integrated Infrastructure Master Plan (NIIMP). The financing strategy encompasses debt, equity, and public-private partnerships.