Global Context
The year 2025 has ended, and there have been many commentaries reflecting on the context in which it rolled by. Twelve months ago, the year opened with a deep sense of caution and anxiety across both the corporate and public sectors. The global, profit-oriented business environment was grappling with conflicting market-driven philosophical realignments that were disrupting supply chains, altering organisational structures, and reshaping localisation strategies, largely driven by the evolving economic postures of the United States of America and the People’s Republic of China.
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At the same time, the non-profit and development space was thrown into uncertainty by the freezing of United States Agency for International Development (USAID) funding, leaving many organisations in precarious financial and operational positions.
Within the public sector, global and regional instability continued to deepen. Protracted conflicts between and within sovereign states, most notably the Russia–Ukraine war, which has generated widespread instability across Europe, and the persistent crisis in the Middle East, have further fragmented the global political and economic landscape. Closer to home, the resurgence of military rule in parts of West Africa has introduced significant socio-political uncertainty within a region once regarded as one of the continent’s most advanced and institutionally stable economic blocs.
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This was the global and regional context with which 2025 began. Unfortunately, rather than easing, many of these pressures have intensified, reinforcing uncertainty and casting a more disillusioning shadow over the political economy outlook for 2026.
The Nigerian Scenario
Nigeria, often described as the giant of Africa, is a nation endowed with vast natural resources, a large and dynamic population, and a significant regional and global presence. The mixed economic outcomes recorded in 2025 reflect the combined effects of far-reaching reforms introduced by the administration of President Bola Ahmed Tinubu, rising domestic insecurity that has constrained agricultural productivity, the slow pace of AfCFTA implementation, and an evolving global business governance and geopolitical landscape.
These factors are unpacked below.
- Reforms Under the Tinubu Administration: The reforms introduced by the Tinubu administration are systemic, reflecting a fundamental shift in the philosophy of political and economic management. They seek to recalibrate the role of the state, restructure fiscal and monetary frameworks, and address long-standing distortions across key sectors. Central to these reforms are fuel subsidy removal, foreign exchange liberalisation, and fiscal and tax reforms.
While many, including myself, acknowledge that these reforms are structurally necessary, they have imposed significant short-term adjustment costs, including elevated inflation, weakened purchasing power, compressed consumer demand, and heightened uncertainty for businesses adapting to new policies. Weak reform communication compounded public anxiety and reduced social buy-in.
A key constraint of the reforms is the poor alignment of implementation architecture and associated performance indicators, which has limited their effective assimilation and impact. More critically, these reforms are being implemented within a polity eager for structural transformation yet deeply concerned about immediate social and economic costs. The failure to factor these realities into design, sequencing, and communication has constrained outcomes, with potential implications as the new fiscal regime under the ongoing tax reforms takes effect.
- Rising Domestic Insecurity and Low Agricultural Productivity: Escalated insecurity across the country has increasingly disrupted farming activities and the movement of goods and people. What began as a social challenge has evolved into a direct economic shock. Consequences include reduced agricultural output, widespread abandonment of farmlands, intensified rural–urban migration, rising food prices, persistent inflationary pressures, and weakened rural incomes and supply chains.
Given agriculture’s central role in employment, food security, and inflation dynamics, insecurity has had a disproportionate and adverse impact on Nigeria’s socio-economic growth.
- Slow Progress on AfCFTA: Although Nigeria initially approached the African Continental Free Trade Area (AfCFTA) with caution, the philosophy underpinning the agreement has gradually gained acceptance as a strategic platform for private sector expansion. Nigerian services firms, in particular, have continued to expand across the continent. However, the manufacturing sector has struggled to leverage AfCFTA opportunities, and in some cases is losing competitiveness to more favourable production locations in Africa.
AfCFTA was expected to expand market access, boost manufacturing capacity, and support non-oil exports. Unfortunately, progress has been slow with uneven operationalisation resulting in Nigeria continuing to rely on a narrow export base, firms are unable to fully benefit from economies of scale and regional value chains, and services and imports continue to dominate over tradable and value-adding production.
This has delayed the structural transformation required for inclusive, productivity-driven growth.
- Evolving global business governance and geopolitics: The global economic environment has undergone profound changes, shaped largely by intensifying geopolitical tensions and a reconfiguration of business governance norms. The deepening US–China rivalry has accelerated the fragmentation of global markets, prompting countries and multinational firms to reassess supply-chain dependencies and strategic exposures. This has given rise to reshoring, near-shoring, and “friend-shoring” policies, favouring geopolitically aligned jurisdictions over cost efficiency.
In parallel, the global development finance landscape has become more constrained. Heightened risk aversion, tighter monetary conditions in advanced economies, and shifting donor priorities have reduced concessional finance, while commercial borrowing costs have risen. Ongoing geopolitical conflicts, from the Russia–Ukraine war to instability in parts of the Middle East, have amplified global uncertainty and redirected capital toward perceived safe havens.
Collectively, these developments have increased capital selectivity, making investors more cautious and demanding in their assessment of country risk, policy consistency, and macroeconomic stability. For Nigeria, a capital-importing and commodity-exporting economy, this environment presents significant challenges. Reduced access to affordable external financing, heightened competition for investment, and increased scrutiny of policy credibility limit the scope for leveraging foreign capital to support growth, industrialisation, and infrastructure development. External shocks and global policy shifts now transmit more quickly and strongly into Nigeria’s domestic economic outcomes.
The 2026 Outlook
Although macroeconomic indicators for 2025 suggest the Nigerian economy is on a gradual path to recovery, the impact on living standards has been limited. While some published outlooks for 2026 project continued growth, it is important to recognise the contending structural, fiscal, and political challenges facing Nigeria in the year ahead.
- Q1 2026: Adjustment shock from the new tax regime: Q1 2026 is likely to be characterised by significant adjustment challenges, particularly for SMEs, as firms struggle to comply with the new tax regime. This transition is expected to suppress productivity, disrupt cash flows, and delay investment decisions, with limited short-term gains in efficiency or revenue mobilisation.
- Lingering effects of weak 2025 budget implementation: The poor implementation of the 2025 budget will likely spill over into H1 2026. According to government directives, about 70 % of the 2025 capital budget is being rolled over into the 2026 fiscal year as part of the 2026 Budget Call Circular, with only roughly 30 % of the capital allocation expected to be released in the current year. This reflects weak revenue performance and constrained fiscal space, and signals that much of the 2025 budget could not be executed as planned.
The rollover directive is aimed at ensuring continuity of ongoing projects and prioritising spending, but it also highlights structural fiscal governance concerns. The apparent under‑execution could stem from a lack of available liquidity to fund project releases, procedural delays and bureaucratic hurdles in procurement and project commencement, and broader revenue shortfalls relative to projections. Either way, this underperformance indicates fiscal stress and limited government capacity to stimulate the economy through capital spending, infrastructure delivery, or counter-cyclical interventions.
- Rising domestic debt and private sector crowding‑out: Increasing domestic borrowing by the government risks crowding out the private sector and constraining access to affordable credit. Although external reserves have shown some improvement, this often provides only artificial exchange‑rate stability that benefits importers more than exporters in Nigeria’s largely consumption-driven economy.
Moreover, private capital inflows continue to be skewed towards portfolio investments, particularly Federal Government of Nigeria (FGN) bonds, rather than equity or direct investment in productive sectors. This trend suggests that government borrowing is absorbing a significant share of investible capital, potentially at the expense of credit availability for businesses engaged in production and job creation. If this dynamic persists into 2026, Nigeria’s economic competitiveness could deteriorate further.
- Services‑heavy economic structure and weak job creation: Nigeria’s economy remains heavily skewed toward services, which dominate output but offer limited scope for broad-based employment and productivity gains. According to recent data from the National Bureau of Statistics (NBS), the services sector accounts for a substantial share of output, with estimates around 56–59 % of GDP, driven by trade, telecommunications, finance, transport, and other services.
However, this large services share has not translated into commensurate job creation. In structural terms, services activities, especially low‑productivity segments such as retail trade and informal personal services, tend to generate fewer quality jobs and weaker productivity growth relative to manufacturing and value-added industrial sectors. This dynamic reinforces the pattern of growth without inclusion and contributes to persistent underemployment.
Taken together, this combination of a services‑dominant economy, infrastructure deficits, and limited technology adoption indicates a structural constraint on sustainable development and inclusive growth.
- Continued mono-product dependence: Despite repeated reform efforts, Nigeria’s economy remains largely mono-product, with crude oil revenues still anchoring fiscal and external balances. Oil accounts for over 90 % of export earnings and roughly 35–40 % of government revenue, highlighting the country’s continued vulnerability to external shocks, including commodity price volatility, geopolitical risks, and global financial conditions. While oil generates substantial foreign exchange, its capacity to stimulate broad-based domestic value creation remains limited. As a result, growth has often been import-driven, resource-dependent, and insufficiently diversified, constraining long-term structural transformation. As a result, fiscal and external balances remain pro-cyclical, amplifying the transmission of external shocks into domestic macroeconomic instability.
There are emerging signs of progress, however. Local refining capacity is expanding, with ongoing investments in modular refineries and upgrades of existing facilities. This could gradually strengthen the downstream oil and gas sector, generating opportunities for domestic value addition in related sectors such as petrochemicals, manufacturing, pharmaceuticals, and industrial inputs. To fully leverage this potential, strategic policy interventions are needed, including:
- strengthening local content requirements,
- facilitating access to finance for downstream players,
- improving infrastructure for industrial clusters, and
- enhancing regulatory clarity to attract private and foreign investment.
Without deliberate and coordinated policies, the risk remains that growth will continue to rely on crude oil exports, leaving the economy exposed to price shocks and external volatility.
- Political cycle effects in 2026: The year 2026 marks the start of the political campaign cycle in Nigeria, with national and subnational elections creating a shift in policy priorities. Historically, the election period is characterised by a greater focus on political positioning and short-term populist measures, often at the expense of fiscal discipline, structural reforms, and long-term economic planning.
The political cycle can have several implications for the economy:
- Policy uncertainty – Investors may adopt a “wait-and-see” approach, delaying capital expenditure and new projects until the post-election policy direction becomes clear.
- Fiscal relaxation – Governments often increase spending on social programs, subsidies, and constituency projects to garner political support, potentially exacerbating fiscal deficits.
- Reduced reform momentum – Critical reforms, such as tax administration, regulatory streamlining, and public sector efficiency initiatives, may stall as political expediency takes precedence over technical priorities.
- Increased macroeconomic volatility – Expansionary fiscal and monetary pressures, coupled with subdued investment, can contribute to inflationary pressures, exchange rate instability, and slower private sector growth.
Taken together, the political cycle introduces both short-term economic distortions and medium-term strategic uncertainty, which could dampen the impact of existing reform measures and slow Nigeria’s progress toward inclusive and sustainable growth.
Conclusion
The emerging global investment landscape continues to present both uncertainty and opportunity. While the competing economic and geopolitical philosophies carry inherent gains and risks, the political ramifications of alignment make decision-making for countries like Nigeria particularly delicate. The involvement of major partners such as the European Union, the United Kingdom and China under the South-South Development Cooperation adds further complexity, but also presents exciting prospects for 2026 and beyond. Strategic engagement with these partners could accelerate structural economic reforms, support industrialisation, and promote inclusive and sustainable development.
Regarding Nigeria’s economic performance in 2026, prospects for continued progress exist, but success will depend on how effectively internal contending factors are managed. Weak budget implementation, rising domestic debt, a services-heavy economic structure, mono-product dependence, and the onset of the political cycle all represent potential constraints. Both government and citizens must remain fully aware of these dynamics and be prepared to adapt policies, strengthen institutional governance, and promote productive private sector participation to ensure that growth translates into real improvements in livelihoods and broad-based development.
Ultimately, Nigeria’s path to inclusive and sustainable economic transformation will require a careful balance between global opportunities, domestic policy coherence, and proactive structural reforms, ensuring that both short-term adjustments and long-term strategic objectives are simultaneously addressed. The central challenge for 2026 will therefore not be the absence of reform intent, but the capacity to translate reform ambition into socially sustainable, productivity-enhancing outcomes.
Dipo Baruwa is a business climate development analyst.
