Bridging Nigeria’s macro-micro divide: Why power, productivity and policy integration hold the key to inclusive growth

Nigeria’s economic reforms over the past few years have been among the most consequential since the return to democratic rule. The removal of fuel subsidies, exchange-rate reforms, fiscal adjustments, and proposed tax reforms demonstrate a willingness to address long-standing macroeconomic distortions. From a policy perspective, these are significant steps toward restoring economic stability.

Yet for many Nigerians, the lived experience tells a different story. Businesses continue to struggle with high operating costs, households face declining purchasing power, inflation remains elevated, and access to affordable finance is limited. The result is a growing perception that while the country may be getting its macroeconomic fundamentals increasingly aligned, it is still struggling with the microeconomics of everyday production and consumption.

The challenge before Nigeria is therefore no longer simply one of macroeconomic reform; it is how to translate those reforms into tangible improvements in productivity, investment, employment and living standards.

The missing link: Productivity

Economic history consistently shows that sustained national prosperity is built on productivity. Exchange-rate reforms, fiscal discipline and monetary policy create the environment for growth, but they do not, by themselves, produce goods, create jobs or lower production costs.

That requires functioning infrastructure, competitive industries and efficient markets. Among all infrastructure constraints, none has a greater economy-wide impact than electricity.

Reliable power reduces production costs across manufacturing, agriculture, services, healthcare, education and digital industries. It improves competitiveness, attracts investment and enables businesses to expand.

However, Nigeria’s electricity sector illustrates perhaps the country’s most difficult policy dilemma.

Today’s cost-reflective electricity tariffs—particularly under the Band A classification—are intended to encourage investment in generation and distribution. Investors understandably require tariffs that enable cost recovery and provide a reasonable return on capital.

The problem is that these tariffs remain unaffordable for a significant proportion of Nigerian households and even many small businesses. This creates a classic Catch-22. If tariffs remain artificially low, investors stay away and infrastructure deteriorates. If tariffs become fully cost-reflective, many consumers cannot afford the electricity. Neither outcome is sustainable.

Breaking this cycle requires more than simply adjusting tariffs. It demands addressing the underlying cost structure of the sector itself.

Why exchange rates matter

One important factor influencing electricity costs is the exchange rate. A substantial portion of Nigeria’s power sector remains directly or indirectly linked to the US dollar: imported turbines and equipment; transmission infrastructure; spare parts; debt servicing; foreign investor returns; and, in some cases, gas pricing arrangements.

Consequently, when the naira weakens significantly, electricity becomes more expensive to generate, transmit and distribute. A stronger and, equally importantly, more stable naira would therefore reduce many of these costs in local currency terms.

This explains why some economists argue that bringing the exchange rate below ₦1,000 to the dollar could materially improve affordability and investment confidence.

However, the level of the exchange rate alone is not enough. The crucial question is how such an exchange rate is achieved.

A stronger naira supported by higher exports, improved productivity, increased foreign investment and stronger foreign exchange earnings is fundamentally different from one maintained solely through administrative intervention.

Beyond Exchange Rates

Even with a stronger currency, several structural problems would remain, as Nigeria’s electricity sector still faces high technical and commercial losses, electricity theft, weak collection systems, ageing distribution infrastructure, financing constraints, and gas supply challenges.

These inefficiencies increase costs regardless of the exchange rate. Addressing them is essential if electricity is to become both commercially viable and broadly affordable.

From consumption subsidies to production support

Rather than relying primarily on broad consumption subsidies, government policy should increasingly focus on lowering the cost of production. This could include concessional finance for manufacturers; tax incentives tied to productive investment; support for technology upgrades; export incentives; and targeted industrial financing.

The objective is simple:

Reduce the cost of producing goods and services rather than merely reducing the cost of consuming them.

Think in economic ecosystems, not isolated projects.

Nigeria also needs to rethink how it approaches development. Too often, projects are conceived and executed in isolation. Successful economies instead build integrated economic ecosystems.

Consider the example of an energy corridor in the Niger Delta: a state-independent power plant provides reliable electricity and gases to petrochemical industries.

Petrochemical industries produce fertiliser and industrial inputs; fertiliser supports commercial agriculture, and agro-processing industries add value before export. Roads, ports and logistics connect producers to markets.

Residential and commercial real estate accommodates workers and businesses; each investment reinforces the others.

Infrastructure stops being a government expense and becomes an economic multiplier. This system’s approach should become central to national planning.

Nigeria has already begun the difficult journey of macroeconomic reform; the next phase must be one of productive transformation.

Success will not ultimately be measured by stable exchange rates or balanced fiscal accounts alone but by factories operating at full capacity, farms producing competitively, businesses expanding with confidence, and households enjoying rising living standards.

Only when macroeconomic stability translates into microeconomic opportunities will Nigeria realise the full promise of its reform.

Ebí Bomodi, a real estate investor and economic analyst.