2025: Power Sector Reforms Key To Accelerating Nigeria’s Economic Growth

Economist Bismarck Rewane highlights the importance of power sector reforms in achieving Nigeria’s 2025 economic growth targets. Explore insights on inflation, Naira stability, and GDP forecasts.

Prominent economist and CEO of Financial Derivatives Company Limited (FDC), Bismarck Rewane, has projected that power sector reforms will be crucial to achieving Nigeria’s 4.6% economic growth target for 2025. In an in-depth interview, he provided insights into inflation trends, currency valuation, and factors influencing the country’s economic trajectory.

Inflation Projection for 2025: Why Lower Rates Are Unlikely

Rewane anticipates a 25% inflation rate in 2025, despite the Federal Government’s optimistic projection of 15%. He explains that inflation is historically persistent, with November 2024’s figure reaching 34.6% and a marginal increase expected for December. While inflationary growth may decelerate, significant reductions depend on increased productivity and faster GDP growth, as inflation results from limited supply relative to cash circulation.

Rewane highlights that the Central Bank of Nigeria (CBN) is working to control liquidity by reducing excess cash flow. However, he cautions that a substantial drop in inflation would require consistent productivity growth, emphasizing the gap between public expectations and economic realities.

Naira Exchange Rate Forecast: Stabilization Predicted

Regarding currency valuation, Rewane predicts the Naira will appreciate to ₦1,550 per US dollar by early 2025. His projection is based on improving economic equilibrium, where the gap between the official and parallel market exchange rates has narrowed. Other contributing factors include:

Reduced interest-inflation rate disparity
Balanced fuel pricing across borders
Stabilizing oil prices around $70 per barrel
Rising global commodity prices, particularly cocoa

He further explains that the Naira remains undervalued, but with cautious optimism, a 10% appreciation is feasible under current monetary policies and stable commodity prices.

Banking Sector: Reduced Profitability Expected in 2025

The Nigerian banking sector, which experienced significant profits due to exchange rate gains in 2024, is expected to face lower profitability in 2025. Rewane predicts that the current exchange rate gains will reverse, leading to potential losses for banks. Increased market competition and the ongoing recapitalization efforts will further pressure profit margins.

He emphasizes that while the banking sector will remain vital for economic activities, its relative influence will decline due to heightened rivalry and evolving market conditions.

GDP Growth Projections and Power Sector Reforms

Rewane views the Federal Government’s 4.6% GDP growth target for 2025 as achievable but emphasizes the urgent need for power sector reforms. He asserts that resolving issues within the power sector could potentially elevate GDP growth to 6% or higher. Key recommendations for reform include:

Conversion of debt to equity
Improved governance within electricity distribution companies (Discos)
Institutional reforms for better efficiency

Without these changes, Rewane cautions that growth may remain stagnant at around 2.5%, which would merely match Nigeria’s population growth, limiting economic advancement.

Key Surprises and Risks in 2025

Rewane differentiates between growth and development, emphasizing the need for both physical and institutional infrastructure. He calls for:

Judicial reforms
Police system overhauls
Educational sector improvements
Stronger banking regulations

He stresses that while physical infrastructure such as roads and bridges remains essential, institutional frameworks are equally critical for sustainable development. Accountability, both financial and moral, must be upheld to drive Nigeria’s progress effectively.