Nigeria’s reliance on oil has long defined its economic structure, but experts argue that the key to saving its currency, the Naira, lies in diversifying away from this sector.
For decades, Nigeria’s economic health has been heavily tied to oil exports. Oil contributes over 90 percent of the country’s foreign exchange earnings, despite the non-oil sector accounting for more than 90 percent of Nigeria’s Gross Domestic Product (GDP).
This imbalance leaves Nigeria vulnerable to global oil price fluctuations, and in recent times, it has contributed significantly to the sharp depreciation of the Naira.
As of January 10, 2025, the Naira is trading at ₦1,547.49 to the US dollar, a substantial drop from previous years. The fall has raised the costs of living across the country, including for everyday purchases like cars.
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For instance, a used 2010 Toyota Camry, which cost around ₦2-3 million in 2018, now costs ₦10-12 million. For many Nigerians, particularly those with average incomes ranging from ₦4-5 million per annum, this makes the possibility of owning a car increasingly out of reach.
“These economic strains make the Naira vulnerable to external market shocks, such as shifts in global oil prices or changes in international demand for Nigerian exports.”
Why is the naira struggling?
The Naira’s dramatic depreciation is driven by multiple factors. Among the key contributors are the increasing demand for US dollars, a unified exchange rate, and the removal of fuel subsidies in mid-2023.
This has triggered higher transportation and living costs across Nigeria, which has led to inflation, further weakening the Naira.
According to the National Bureau of Statistics (NBS), inflation rates have been surging, with prices of essential goods reaching new highs. These economic strains make the Naira vulnerable to external market shocks, such as shifts in global oil prices or changes in international demand for Nigerian exports.
As experts argue, Nigeria’s over-reliance on oil for foreign exchange is a major factor in its economic instability.
Lessons from developing nations
While Nigeria grapples with the volatility of the oil market, several developing nations have managed to build strong, diversified economies that thrive outside the oil sector. Vietnam, Brazil, and Indonesia provide important case studies of how investment in non-oil sectors can lead to economic stability.
According to the General Statistics Office of Vietnam, the country generates over $50 billion annually from electronics exports. Additionally, it earns $4 billion yearly from rice exports, solidifying its position as the world’s second-largest rice exporter.
Brazil’s economy generates approximately $41 billion from soybean exports alone, making it the largest global exporter of soybeans. Its beef exports add another $9 billion to foreign exchange earnings, as noted by the Ministry of Agriculture, Livestock, and Food Supply of Brazil.
Through its robust palm oil and rubber export sectors, Indonesia generates over $30 billion annually, positioning itself as a leading exporter of agricultural commodities, as reported by the Ministry of Trade of Indonesia.
“By scaling up the export of high-demand crops like cocoa, cashew nuts, and palm oil, Nigeria can reduce the pressure on the Naira and stimulate foreign exchange generation.”
Nigeria’s agricultural potential
Nigeria is not without its own assets that could help diversify its economy. The country is a global leader in several agricultural products, including cassava, yams, sorghum, and palm oil.
Nigeria is the world’s largest producer, contributing over 20 percent of global output, according to the Food and Agriculture Organisation (FAO). The country accounts for more than 70 percent of global yam production (International Fund for Agricultural Development).
Nigeria is the second-largest producer of sorghum, contributing around 10 percent to global production (FAO). Palm oil, although its share has declined compared to Malaysia and Indonesia, remains among the top five global producers as reported by the International Palm Oil Council.
Read also: Revitalising Nigeria’s economy through manufacturing-driven non-oil exports
By capitalising on these strengths, Nigeria could replicate the success of Brazil with soybeans or Indonesia with palm oil. Processing and exporting more value-added products, like cassava starch or palm oil-based goods, could significantly boost the country’s foreign exchange earnings.
The path forward
Diversifying Nigeria’s economy beyond oil is not just a dream but an achievable goal. Agriculture, manufacturing, and technology are all key sectors where Nigeria can make substantial gains, Joseph Ayeola, a commodity market analyst, said.
By scaling up the export of high-demand crops like cocoa, cashew nuts, and palm oil, Nigeria can reduce the pressure on the Naira and stimulate foreign exchange generation, he added.
The facts show that Nigeria’s agricultural exports surged by 48 percent in 2023, largely due to the depreciation of the Naira and increased global food prices. This increase in exports has contributed significantly to Nigeria’s foreign exchange earnings, according to a BusinessDay report.
Between 2011 and 2018, Nigeria’s fintech sector secured over $200 million in funding, as reported by the Central Bank of Nigeria (CBN). In 2019, Nigerian fintech startups attracted more than $400 million, positioning the country among the top three destinations for fintech investment in Africa, as noted by DataIntelligence.com.
In the first half of 2023, Nigerian fintech startups secured $170 million, making Nigeria the fourth-largest recipient of fintech investment in Africa during that period, according to Fintech News Africa. As of 2023, Nigeria is home to 217 fintech startups, reflecting a significant increase from previous years, according to Statista.
To further enhance these sectors, substantial investment in infrastructure is crucial. In agriculture, improving storage and transport systems can reduce post-harvest losses and boost export competitiveness. Similarly, enhancing infrastructure in tech and innovation will be vital for sustaining growth in this rapidly developing sector.
Addressing the obstacles
Oyekan Idris, a capital market analyst, says, “The non-oil sector faces several challenges that must be overcome. Many of Nigeria’s exports are still raw and unprocessed, which limits their value on the global market. Investing in manufacturing and enhancing agricultural value chains could help add value to these exports.
“Poor infrastructure also remains a critical barrier to export efficiency. Long delays at ports and underdeveloped transport networks hinder trade. Improving port facilities and upgrading transport links will streamline the export process.
“Additionally, regulatory agencies like NAFDAC and SON must enforce higher product standards to ensure Nigerian goods meet global quality expectations.
“Finally, access to finance remains a challenge. High-interest rates discourage investment and hinder the growth of small and medium-sized enterprises (SMEs) in non-oil sectors. Strengthening institutions like NEXIM Bank and the Bank of Industry could provide the necessary financial support to help businesses scale and increase exports.”
Read also: Onne Port processes $953m worth of non-oil export in 2024, doubles revenue
What’s next?
Investing in Nigeria’s non-oil sector is not only a path to economic diversification but also a solution to stabilise the Naira. By focusing on building infrastructure, improving the regulatory environment, and fostering innovation across agriculture, manufacturing, and technology, Nigeria can reduce its dependence on oil and strengthen its economic foundations.
Oyekan further explains, “Pre-independence Nigeria thrived on non-oil exports such as cocoa, groundnuts, and cotton. Shifting back to these roots could reduce reliance on oil and shield the economy from global market volatility.”
By reinvigorating its non-oil sectors, Nigeria has the potential to not only stabilise the Naira but also build a more resilient and sustainable economy for the future.
Oluwatobi Ojabello, senior economic analyst at BusinessDay, holds a BSc and an MSc in Economics as well as a PhD (in view) in Economics (Covenant, Ota).
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