The conclusion of the US elections was supposed to bring some certainty to global politics and the economy. It didn’t. Concerns over potential trade laws, the resolution of existing wars, and the US posture in key geopolitical flashpoints raise new uncertainties, with no clear idea of how the incoming administration will likely react. Internally, Nigeria’s effort at growing the economy and improving livelihoods faces multiple challenges from internal actions (or lack thereof) and external factors beyond our control. This article addresses some of these uncertainties and their potential impact on Nigeria.
The World in 2025
The sudden fall of the Assad regime in Syria added a new twist to an already messy geopolitical reality in the Middle East. The victory of the HTS, a rebel group that enjoyed some measure of support from Turkey and other neighboring countries, sent Russia packing, severely weakened the “Axis of Resistance” developed by Iran, and triggered a new wave of land grabs by Israel. But this is the first phase. With the possibility of counter-groups receiving support from Iran, Russia, and Hezbollah, 2025 might be the year of renewed conflicts in Syria, thereby adding further geopolitical uncertainties to the Middle East even as Israel’s war with Hamas and Hezbollah drags on. In the absence of US leadership, with Trump signaling a lack of interest in ongoing developments, regional countries and non-state groups are likely to have a field day, which could potentially have consequences for shipping and oil prices.
In the US, the assumption of office by the Trump administration comes with its own uncertainties. The incoming president has been vocal in his criticism of trade partners in Europe, China, even Canada, and Mexico. He is threatening tariffs and outright bans. How this is translated into coherent policies remains to be seen, especially in light of existing trade agreements with Canada and Mexico under the North American Free Trade Agreements. Excessive tariffs against China and Europe (Nigeria’s biggest trade partners) are likely to have spillover effects on our oil and non-oil exports. Beyond differences in trade policies, concerns over other sources of disagreements, including differences in contribution to NATO budgets and/or China’s Taiwan policies are likely to create frictions. The US administration might choose to resolve these through sanctions and tariffs, with similar consequences for Nigeria’s export revenues.
Finally, ongoing and expected political developments in parts of Europe and Africa are worth mentioning. The German Bundestag elections are billed for February 2025. With no party expected to win an outright majority, and with the lightning rise of the ultra-right-wing party AfD, there is likely to be major concessions made. While the primary focus has so far been on immigration, these conservative party’s brand “Germany first” politics might spill over into market access for goods from Nigeria and other developing countries. More worrying is the fact that other countries, including Sweden, France, and other major European economies have seen the rise of far-right parties that promote economic isolationism which could impact Nigeria’s export plans to a region that had long served as her biggest market.
Conditions at Home
In addition to the aforementioned challenges, Nigeria faces a multiplicity of internal challenges. High inflation, high interest rates, and low purchasing power hamper internal consumption, increase input costs for companies, and significantly reduce the range of options available to the government to react to the aforementioned external factors, if and when they occur. At 34.6%, Nigeria’s high inflation rate and the CBN’s continued hike in rates threaten the survival of small and medium enterprises that contribute nearly half of the country’s GDP and employ the majority of her workforce. More so, Nigeria’s quest for building a robust and diversified economy continues to face major challenges due to structural barriers that remain unaddressed as highlighted in our previous insight.
Beyond the economic and monetary policy challenges, Nigeria’s continued struggle with insecurity poses a major challenge. The recent rise of the Lakurawa terror group in addition to several existing bandit, terrorist, and separatist groups is a fresh source for concern, especially as these groups increasingly dominate key mining and food-producing states. This has consequences for the country’s attempts at growing and diversifying the economy. Furthermore, the continued threats to food production posed by these groups further worsen the trend of food inflation in the country; a trend that high interest rates alone are unlikely to resolve.
Is it all gloom? Not necessarily. The recent news of Shell’s $5 billion deepwater production project is a breath of fresh air in a year that has seen its fair share of bad news. Furthermore, the government’s attempt at putting its fiscal house in order through the tax reform bills is a welcome development. While the bills have generated a fair share of controversies and will likely be amended, the government’s choice of a comprehensive reform instead of piecemeal legislation could set the country on a more sustainable fiscal trajectory compared with previous years.
Conclusion
The world faces several uncertainties. From festering wars, through isolationist tendencies, to truncated elections and the activities of non-state actors, global politics and the economy could unleash a range of surprises. These could be ameliorated or worsened by the conditions that hold in Nigeria. There is a need to hasten attempts at tackling the root cause of the country’s intractable inflation, especially food inflation, and diversify the economy. Finally, the ongoing tax reforms must be completed albeit with consideration for key concerns raised by various stakeholders. For more on the likely state of the economy and politics at home and abroad, read the Veriv Africa macroeconomic outlook for 2025 here.
References
Reuters (2024). Syrian Rebels Topple Assad who flees to Russia in Mideast shakeup. https://www.reuters.com/world/middle-east/syria-rebels-celebrate-captured-homs-set-sights-damascus-2024-12-07/
AP News (2024). Trump Adds Europe to the list of US trade partners he is threatening with Tariffs. https://apnews.com/article/trump-europe-trade-tariffs-natural-gas-oil-08d762fdf17a0737aa6add3c9382c4bd
Council of Foreign Relations (2024). Ten Elections to watch in 2025. https://www.cfr.org/article/ten-elections-watch-2025
Presidential Fiscal Policy and Tax Reform Committee (2024). Nigeria Tax Bill, 2024. https://fiscalreforms.ng/wp-content/uploads/2024/12/HB.-1759-The-Nigeria-Tax-Bill-2024.pdf
