Nigeria's External Position Under Pressure: Current Account Surplus Collapses 26% as Manufacturing Policy Seeks to Stabilize Growth

Nigeria's macroeconomic resilience faces a critical test as the country's current account surplus contracted sharply to $14.04 billion in 2025, representing a 26 percent year-on-year decline from $19.03 billion in 2024. For European investors and entrepreneurs operating within Nigeria's ecosystem, this deterioration signals both mounting external vulnerabilities and a pivotal moment for domestic industrial repositioning.

The contraction reflects deeper structural imbalances in Africa's largest economy. While Nigeria remains a net foreign exchange earner through petroleum exports, the widening gap between 2024 and 2025 figures reveals tightening export margins, subdued global crude pricing, and persistent import demand pressures. The naira has shown modest resilience, trading at approximately N1,345 to the dollar at the official market and N1,403 in parallel trading—a stabilization effort underpinned by the Central Bank's aggressive treasury bill auctions, which mobilized nearly N3 trillion in short-term borrowing over just two weeks in mid-March 2026. This monetary tightening, while temporarily supporting currency stability, reflects underlying fiscal pressures that demand policy resolution.

Against this backdrop, the federal government has launched its New Industrial Policy (NIP) with a commitment to allocate up to five percent of GDP—a substantial commitment—to industrial financing. The Pan-African Manufacturers Association has signalled cautious optimism, recognizing that such capital injections could meaningfully reduce borrowing costs for manufacturers and unlock large-scale investments. For European entrepreneurs in Nigeria's manufacturing and light industrial sectors, this represents a genuine inflection point. The policy addresses a longstanding complaint: prohibitive capital costs that have historically favoured import-based business models over domestic production.

However, structural headwinds persist. Headline inflation, while showing marginal decline, remains elevated—a reality that has tempered business sentiment despite improved market conditions. The Lagos Chamber of Commerce and Industry, while acknowledging the decline as offering "cautious optimism," explicitly warned against complacency, noting that underlying risks could reverse fragile progress. For investors, this translates to sustained pressure on working capital management and margin compression, particularly in sectors dependent on imported raw materials or energy inputs.

The parallel collapse of the current account surplus and the aggressive fiscal response via treasury bill issuance create an unfavorable policy mix. Rising domestic interest rates—necessary to attract short-term capital inflows and support the naira—increase borrowing costs precisely when the NIP seeks to stimulate manufacturing investment. This contradiction suggests that the government's industrial ambitions may face execution challenges without complementary foreign direct investment or concessional financing mechanisms.

The broader geopolitical context adds uncertainty. President Tinubu's state visit to the United Kingdom—Nigeria's first in nearly four decades—signals diplomatic intent to deepen bilateral economic engagement. Yet domestic security challenges, including coordinated terror attacks in Maiduguri that killed at least 23 civilians, continue to disrupt business confidence and divert government resources from economic stabilization.

For European investors, the message is clear: Nigeria's medium-term growth story depends on successful execution of industrial policy and external sector rebalancing. The current account compression is neither temporary nor trivial, but the NIP represents a genuine structural policy shift toward domestic value creation. Those positioned to capitalise on manufacturing incentives may find opportunity within the volatility.

---

#