Inclusion in the Brics bloc could help to unleash Nigeria’s huge potential

Creating external demand for its currency could have a positive effect on the West African nation’s economy

Nigeria is the most populous country in Africa, making the West African state a prime candidate for Brics membership. The nation has plenty of economic potential with huge oil reserves and strong demographics, and its inclusion in Brics could see the bloc grow to represent more than half the world’s population and oil output. Combined with recent structural reforms and critical infrastructure projects, this could help Nigeria overcome a challenging economic environment characterised by a shortage of foreign currency, declining investment and high levels of inflation.

Despite its enormous potential, Nigeria faces several challenges. Though the country is the largest oil producer in Africa, it still imports refined petroleum. This is a major structural issue that places pressure on the nation’s foreign exchange reserves, which have been further depleted by the Nigerian central bank’s efforts to prop up the naira.

Years of government-sponsored fuel subsidies have created additional fiscal pressures, diverting spending from much-needed infrastructure spending and scaring away investors wary of risking capital in a country with a declining currency and a strained fiscus. This combination of a balance of payment crisis, compounded by loose monetary and fiscal policy has led to a shortage of foreign currency and a loss of investor confidence in Nigeria.

Nevertheless, the country is making incremental progress.

A new oil refinery has been constructed in Lagos to reduce the country’s reliance on imported petroleum and the development was undertaken with private sector capital, reducing the burden on the fiscus. The project is the brainchild of Aliko Dangote, Africa’s richest man, who funded the mega-project himself.

The Dangote Refinery, the largest oil refinery in the world, received its first shipment of crude at the end of 2024 and has been constructed to include fertiliser production facilities as well as its own port. The project is expected to improve Nigeria’s balance of payments and is a good example of a developing country increasing its self-sufficiency without relying on foreign capital.

While the new oil refinery began construction under the previous administration, the newly elected government in Abuja has gone a step further, initiating major structural reforms to liberalise the economy. After the election, Nigeria’s new president, Bola Tinubu, immediately suspended central bank governor Godwin Emefiele, who had served in the role since 2014.

Emefiele had used portions of the country’s foreign reserves to support the Nigerian currency, a policy that has subsequently been abandoned. His removal came alongside Tinubu’s bold decision to eliminate fuel subsidies, which were estimated to cost the Nigerian government as much as $10bn a year.

These market-friendly reforms are expected to produce beneficial outcomes in the long run, but in a challenging global economic environment they have led to a sharp increase in fuel prices and inflation. Without support from the central bank, the naira lost more than 70% of its value in the past year, making it one of the world’s worstperforming currencies.

This has hurt ordinary citizens and led to calls for the country of 230-million people to join the Brics in the hope that de-dollarisation will reduce pressure on Nigeria’s currency and foreign exchange reserves.

Many Brics countries share a history of colonialism, which creates room for political alignment. In Nigeria’s case this can be seen in efforts to repatriate the Benin Bronzes from Britain, just as India seeks the return of the Koh-INoor diamond, and some South Africans still covet the return of the stones that form part of the British crown jewels.

However, besides these obvious historical similarities, Nigeria may be interested in developing its economy by working with other emerging markets to de-dollarise its oil exports and promote declining levels of direct investment.

In an interview on Channels TV, Femi Falana, a Nigerian lawyer and human rights activist, called for the federal government to join Brics and adopt the practice of selling crude oil in naira rather than dollars. He questioned why Nigeria was not a member of the bloc, which already includes Western friendly states such as India and Saudi Arabia.

Falana envisions the naira becoming a major currency for oil transactions, promoting its usage and strengthening its value. The senior advocate suggested that selling Nigerian gas and crude oil exclusively in naira could be a crucial step towards promoting much-needed economic stability in Nigeria.

Direct investment reached a peak of $9bn in 2011 but has since reversed to become a net outflow of capital from Nigeria in 2023. Foreign firms are fleeing as a lack of foreign exchange makes it difficult to pay for imports and service debt. SA companies, including Shoprite, Woolworths, Truworths and Tiger Brands, have packed their bags, while MTN expects profits to fall by up to 90% due to the declining currency.

POSITIVE EFFECT

Under these circumstances, Nigeria joining Brics is certainly worth considering. Creating external demand for the Nigerian currency could have a positive effect on the economy, and being able to pay for a portion of the country’s imports with the local unit would also help prevent the state from depleting its dollar reserves.

Household names such as Nestlé and Heineken have also reported losses in Nigeria, while several other major international companies such as GSK, Bayer, Sanofi, Unilever and Proctor & Gamble have all scaled back their operations or exited the Nigerian market altogether.

The Nigerian government has attempted to stem the tide by banning cryptocurrency exchanges, accusing them of currency speculation that weakens the naira, but this measure will do little to make the naira more attractive as millions of Nigerians seek ways to preserve their savings.

Lower interest rates in the coming years, combined with the recent structural reforms, may see a return of foreign investors over time. Regardless, even when emerging markets offer decent returns in local currency, these returns can end up being far less attractive when converted back to foreign currency.

The Brics drive to strengthen local currencies could help resolve this issue and lead to a wave of investment in emerging markets, including Nigeria. Trade in local currencies could ultimately lead to better real returns for foreign investors while promoting increased domestic economic stability.