Nigeria: Drowning in debt or rising above?

Nigeria, Africa’s largest economy, is once again at the centre of a familiar crisis: escalating debt, diminishing foreign investment, and an overreliance on external aid. These challenges, if not decisively addressed, risk entrenching the country in a cycle of financial dependency that stifles long-term development and erodes its economic sovereignty.

The data is sobering. Nigeria’s debt burden has surged to alarming levels, with gasoline-related debts alone reaching $6 billion, forcing international traders to pull back. More broadly, rising debt-servicing costs are consuming an ever-growing share of government revenue, diverting funds from critical sectors such as infrastructure, healthcare, and education. In a country where basic services remain grossly underfunded, this is an unsustainable history.

“In a world where capital is increasingly mobile, Nigeria’s failure to foster a stable investment climate is a self-inflicted wound.”

Foreign direct investment (FDI), once a lifeline for Nigeria’s economic expansion, has plummeted. Africa attracted just $53 billion in FDI in 2023—merely 4 percent of the global total—while Nigeria, which should be an economic magnet given its vast market potential, has struggled to claim its share. Investors point to chronic policy inconsistency, weak infrastructure, and opaque regulations as deterrents. In a world where capital is increasingly mobile, Nigeria’s failure to foster a stable investment climate is a self-inflicted wound.

Compounding these economic vulnerabilities is Nigeria’s entrenched reliance on external aid and bailouts. The country has become a microcosm of a broader African trend: while urbanisation and demographic expansion accelerate, economic transformation remains elusive. Instead of developing a diversified, high-productivity industrial base, Nigeria remains tethered to extractive industries, agricultural exports, and donor funds—a model that stifles long-term growth.

The consequences are dire. The IMF warns that nearly half of African nations, including Nigeria, suffer from severe macroeconomic imbalances: runaway inflation, currency depreciation, and unsustainable fiscal deficits. The naira’s sharp decline following exchange rate unification efforts has eroded purchasing power, exacerbating inflationary pressures. The government’s removal of fuel subsidies—while fiscally necessary—has further strained households, fuelling public discontent and dampening economic activity.

Read also: Nigeria’s debt stock surges to N142trn on weak naira

To break free from this financial squeeze, Nigeria must act with urgency. First, it must prioritise domestic revenue mobilisation. The country’s tax-to-GDP ratio remains among the lowest globally, limiting the government’s ability to fund essential services. Expanding the tax base through comprehensive reform and cracking down on tax evasion must become a central policy focus.

Second, Nigeria must restore investor confidence. Policy U-turns, erratic forex regulations, and excessive red tape have deterred much-needed capital inflows. The successes of Ivory Coast and Rwanda demonstrate that a stable, transparent regulatory environment can attract sustained FDI and drive economic expansion.

Finally, Nigeria must pivot towards a productivity-driven growth model. Manufacturing remains underdeveloped, and the country has failed to capitalise on its large labour force to drive industrialisation. The African Continental Free Trade Agreement (AfCFTA) offers a strategic opportunity, but without infrastructure investment, efficient logistics, and reliable energy, Nigeria risks being sidelined in regional trade.

For decades, Nigeria has oscillated between promise and peril—touted as an economic powerhouse while being plagued by structural fragilities. The time for half-measures is over. To avoid becoming a case study in unrealised potential, Nigeria must shed its reliance on external lifelines, embrace bold reforms, and chart a course towards sustainable, self-sufficient growth. This requires a comprehensive and coordinated approach, involving not just government action but also active participation from the private sector, civil society, and academia.

Investing in human capital through improved education and healthcare systems is crucial. A skilled and healthy workforce is essential for driving innovation and productivity. Diversifying the economy beyond oil is paramount. This involves fostering growth in sectors such as agriculture, manufacturing, and technology, and creating an enabling environment for entrepreneurship and innovation.

Strengthening democratic institutions and promoting good governance are equally important. Transparent and accountable governance is essential for attracting investment, combating corruption, and ensuring that the benefits of economic growth are shared equitably among all citizens.

With severe repercussions for both its citizens and the continent as a whole, anything less than an all-encompassing and determined strategy would solidify its position in Africa’s financial quagmire. Nigeria has the potential to be an economic powerhouse in Africa, but it must overcome its current challenges and seize the opportunities that lie ahead. The future of Nigeria, and perhaps even the future of Africa, depends on it.