In 2014, Nigeria became the largest economy in Africa and the 26th largest in the world after the country’s GDP was recalculated using 2010 constant prices. This recalculation significantly increased the estimated size of the economy. Two years later, South Africa toppled Nigeria and reclaimed its status as the largest economy in Africa. Nigeria was the largest economy for a long time. However, a decline in oil production and the rapid fall of the naira saw the African giant become the third-best in 2023. The International Monetary Fund (IMF) says that the once continent’s undisputed leader is set to lose its spot in the top three.
Several factors are driving Nigeria’s economic decline. The country’s GDP has fallen behind South Africa, Egypt, and Algeria in 2024, at $253 billion compared to their projected figures of $373 billion, $348 billion, and $267 billion respectively. This recalculation is based on the current prices this year. This IMF’s update does not come as a surprise. Last year, the body predicted South Africa would overtake Nigeria and Egypt as Africa’s largest economy in 2024. The IMF had based its predictions on data generated after a series of currency devaluations have weakened the naira, impacting purchasing power and hindering economic growth.
Nigeria is implementing policies to adress its challenges. President Bola Tinubu, who took office in May 2023, has implemented significant economic reforms. His first move was to remove a years-long petrol subsidy that, according to the country’s formerly state-owned oil company, cost $10 billion in 2022. He then unified the exchange rate, replacing the previous multiple exchange rate regime. Since then the naira has been depreciating. A 40% decline in oil production and a fall in foreign investment have made it even harder for the naira to gain strength. In January 2024 alone, the naira lost 37.6% of its value. The naira’s fast devaluation has hurt the earnings and raised costs for many Nigerian businesses. Despite a recent rebound, the naira remains significantly weaker compared to pre-reform levels. This devaluation has led to increasing inflation. In March 2024, inflation reached a staggering 33.2%, further pressuring the already fragile economy. The IMF has stated that Nigeria’s economy is deteriorating due to its battle with rising inflation and currency depreciation.
South Africa, despite its challenges with load shedding and a high crime rate, is expected to remain the continent’s largest economy until 2027. The positive developments in its manufacturing, finance, and real estate sectors are expected to drive its economy. While Algeria, which is set to displace Nigeria as the third-largest economy, is benefiting from high oil and gas prices fueled by global tensions. As a member of the OPEC+ oil cartel, this resource wealth positions Algeria as a strong economic contender. The IMF has said Nigeria is expected to remain in fourth place for the next few years.
Eventually, Nigeria’s economic recovery hinges on addressing persistent inflation, stabilizing the naira, and diversifying the economy beyond oil dependence. The government has constantly stated that its economic reforms offer hope for long-term improvement. However, their success depends on effective implementation and tackling fundamental economic issues.
