Following a stunning victory over Kamala Harris, Donald Trump returned to the White House as the 47th President of the United States, raising new concerns for Nigeria’s economic future.
Trump’s “America First” economic plans prioritize promoting low interest rates, imposing import taxes, and producing energy domestically.
These policies may significantly impact Nigeria’s economy, especially in the areas of immigration, inflation, capital flows, and exchange rates. Below is a study of the potential effects of these changes on Nigeria’s economic environment.
Important Takeaways
Donald Trump’s second term may significantly impact Nigeria’s economy.
- Low global oil prices, possible U.S. capital flight, and a rising dollar might all contribute to Nigeria’s exchange rate volatility, straining the naira and raising inflation.
- Geopolitical changes may result in less U.S. support for Nigeria’s security and development needs, while immigration limitations may decrease remittance flows.
- To counteract the possible difficulties presented by Trump’s proposals, Nigerian officials might need to consider alternate tactics like promoting regional trade, raising non-oil exports, and pursuing structural changes.
Exchange Rate Pressures of a Stronger Dollar
Trump’s plans could result in a stronger dollar, especially if his administration applies tariffs that raise demand for goods and services made in the United States.
- The Central Bank of Nigeria’s (CBN) attempts to stabilise the naira may be hampered by a higher dollar, which would make it more costly for developing nations like Nigeria to obtain foreign exchange.
- Nigeria’s naira has lost more than 45% of its value this year, and a rise in the dollar might make it further weaker, which would affect inflation, purchasing power, and import prices.
- Given that most of Nigeria’s debts are dollar-denominated, a higher currency also raises the country’s debt-servicing expenses.
- Because Nigeria depends on imports for consumer goods, raw materials, and gasoline, further strengthening of the dollar could increase inflationary pressures on already high living expenses.
Interest Rates And Nigerian Capital Flows
Trump has a history of advocating for a low-interest-rate environment and pressuring the Fed to keep its monetary policy loose even while the economy is expanding.
- In order to offset the economic effects of COVID-19, the Federal Reserve boosted interest rates throughout Trump’s first term in office, reaching a peak of 2.5% in 2018 before lowering them to almost zero by March 2020.
- The Federal Reserve’s policy stance may be influenced by Trump’s renewed calls for lower interest rates.
- Theoretically, capital outflows from the United States could occur if the Federal Reserve maintains low interest rates and investors look to emerging nations for greater returns.
- Nonetheless, investor sentiment may continue to favour U.S. assets as a shelter if dollar strength endures and other international markets continue to be turbulent.
Nigeria received over $58.1 billion in capital imports between 2016 and 2020, with the largest inflows in 2019, at $23 billion.
- This was partly because Nigeria attracted international investors, including $4.69 billion from U.S. sources that year, with high-yielding securities, including government bonds.
- Nigeria may once more draw in American money seeking greater returns if Trump’s policies continue to produce a low-yield environment in the US, especially if the country continues to offer its debt instruments at competitive interest rates.
- Nigeria’s foreign exchange pressures may be lessened, and this capital infusion may support naira’s stability.
Trump’s Energy Policy And Inflation
Trump’s emphasis on drilling on federal lands and boosting domestic oil output in order to lower U.S. energy expenses may result in persistently low oil prices worldwide. During his first term,
- WTI crude oil prices dropped precipitously to about $39.17 per barrel in 2020 from $65.20 per barrel in 2018 due to Trump’s actions and the COVID-19 epidemic.
- Given that so much of Nigeria’s government income and foreign cash comes from oil exports sustained low oil prices may hurt government expenditures and budget stability, which might then influence inflation and economic expansion.
- Furthermore, Trump’s planned import taxes, which include a 60% duty on Chinese goods, would raise the price of imported goods and components, which might increase inflation in the United States and potentially affect Nigeria.
- A U.S.-led price increase could affect Nigeria’s inflation through more expensive imports of necessities like machinery, pharmaceuticals, and agricultural products, as the U.S. is one of Nigeria’s top trading partners (N2.2 trillion in imports and N2.8 trillion in exports in the first half of 2024).
Immigration’s effects on the Nigerian diaspora
Nigerians are worried about U.S. immigration policy after Trump’s return to office. His administration previously restricted travel to Nigeria and impeded the movement of professionals, family members, and students due to national security concerns.
- If Trump reinstates such regulations, Nigerians may find it more difficult to pursue employment and educational opportunities in the United States.
- This limitation may affect Nigerian citizens and lessen remittance flows, which are a significant source of foreign cash for the country.
- Remittances from the Nigerian diaspora have helped to compensate for foreign exchange shortages in recent years, contributing about $20 billion yearly to Nigeria’s economy.
- Nigeria’s already precarious foreign reserves would be further strained if remittance inflows decreased, lowering local consumption.
US Assistance To Nigeria And Geopolitical Dynamics
Trump’s “America First” foreign policy prioritised cutting abroad obligations over providing military and development aid to African countries.
- This may mean less military assistance for Nigeria, which collaborates with the United States on security and counterterrorism.
- Nigeria’s efforts to maintain regional security may be jeopardised if U.S. aid is cut off, as the country has depended on it to fight Boko Haram and other rebel groups.
- A reduction in aid may also impact Nigeria’s social programs and development initiatives supported by US organisations.
- Given the high rates of poverty and the substantial need for infrastructure, health care, and education investments, a cutback in aid would force the Nigerian government to spend more, which might divert money from other vital sectors.
Nigerian Exports To The United States And Trade Policies
Trump’s “Buy American” program, which has frequently focused on raising tariffs and lowering imports, may impact Nigeria’s commercial relationship with the United States.
- Nigeria had a trade surplus with the United States in the first half of 2024, with N1.9 trillion in imports and N3.1 trillion in exports.
- Nigeria’s export revenues may suffer if Trump’s tariffs deter American purchases from Nigeria, especially in industries like agriculture, minerals, and oil.
- A decline in exports to the United States may impact Nigeria’s current account balance, making its currency rate and foreign reserve issues even more complex.
