In a bold yet controversial move, Nigeria’s federal government has announced plans to peg the naira at ₦1,400 to $1 in the 2025 budget, marking a 75% depreciation from the ₦800 benchmark set in the previous year. The decision, coupled with a targeted GDP growth of 6.4%, signals an attempt to stabilize an economy battered by inflation, dwindling reserves, and declining investor confidence. However, this substantial devaluation has triggered alarm bells across industries, particularly in the tech sector, which is grappling with mounting challenges in Africa’s most populous nation.
The naira’s fall from grace has been dramatic. Despite an official rate of ₦800 to $1 in early 2024, the currency traded as low as ₦1,700 to $1 in the unofficial market — a staggering 112.5% depreciation. Inflation has soared to over 30%, driven by skyrocketing costs of food, fuel, and electricity. According to International Monetary Fund (IMF) data, Nigeria has slipped to fourth place in 2024 as the largest economy on the continent, trailing South Africa, Egypt, and Kenya. Minister for Budget and Economic Planning Atiku Bagudu labeled the new rate “conservative,” emphasizing the government’s intention to “study the course” while remaining optimistic about surpassing growth projections.
The depreciation cements the naira’s status as one of Sub-Saharan Africa’s worst-performing currencies in 2024. The implications extend beyond macroeconomic statistics, affecting businesses and consumers alike, and compounding challenges for a tech industry already under strain.
Once a beacon of hope for economic diversification, Nigeria’s tech sector is now reeling. Local startups face dwindling access to foreign investment as the cost of doing business surges. Many international firms have scaled back or exited altogether, citing insurmountable economic hurdles.
- Multichoice Nigeria, the South African pay-TV giant, recently reported losing 243,000 subscribers in the first half of 2024 due to inflationary pressures that eroded household incomes.
- MTN Nigeria, the telecommunications behemoth, saw a 48.7% revenue decline in Q3 2024, with voice and data revenues plunging by 31.3% and 15.3%, respectively. The company attributed the losses to the naira’s sharp depreciation.
- dLocal, a Uruguay-based cross-border payments firm, reported an 80% year-over-year revenue drop in Nigeria during the same period, while its Egyptian operations surged by 318%, highlighting the stark divergence between the two markets.
The naira’s instability has also forced foreign firms to reassess their presence in Nigeria. Pick n Pay, a South African grocery retailer, exited the market this year, selling its 51% stake in a joint venture. Microsoft recently closed its development center in Lagos earlier this year, less than two years after a $70 million investment in its state-of-the-art Kings Tower office. Other high-profile exits include Unilever, Procter & Gamble, Sanofi-Aventis, and ShopRite.
The startup ecosystem, once a magnet for foreign capital, has been decimated. In 2024, Kenya and Egypt overtook Nigeria as Africa’s top destinations for startup funding, collectively capturing 75% of all investments in Q3. Egypt led with $272 million, followed by Kenya with $201 million. Nigeria managed to secure only a fraction of this, as investor confidence plummeted amid economic instability.
“Foreign investors are hesitant, and local funding sources are too limited to fill the gap,” a Lagos-based fintech founder told Launch Base Africa.
The federal government is betting that the devaluation will attract foreign direct investment and improve competitiveness in the export market. Yet critics argue that it could deepen the economic divide and further strain an already embattled private sector.
While the 2025 budget also targets infrastructure and social investment to stimulate growth, analysts are skeptical about its feasibility in the face of mounting fiscal deficits and debt servicing obligations.
“The budget’s growth projections are ambitious, but the government needs to address structural issues in the economy, including over-reliance on imports and systemic inefficiencies,” added a policy expert at a Lagos-based think tank.
Implications of the 2025 Budget
The decision to peg the naira at ₦1,400 to $1 reflects the government’s struggle to balance fiscal discipline with economic reality. While proponents argue that the move could enhance foreign exchange stability, critics fear it will exacerbate inflation and erode purchasing power further.
For the tech industry in Nigeria, the implications in 2025 are severe:
- Funding Challenges: Startups reliant on foreign investment will face reduced inflows due to the unfavorable exchange rate.
- Operational Costs: Import-dependent sectors like tech hardware and software services will see costs soar.
- Talent Drain: The uncertainty may prompt skilled professionals to seek opportunities abroad, further weakening the local talent pool.
A Critical Crossroads
The coming year will test the resilience of Nigeria’s tech sector and broader economy. With currency instability and inflation showing no signs of abating, the road ahead appears fraught with challenges.
For Nigeria ’s once-buoyant tech ecosystem, the focus in 2025 will now, most likely, shift to survival, innovation, and a cautious recalibration of expectations in a tough and unpredictable economic landscape.
As Nigeria ’s 2025 budget is debated in the coming weeks, the country’s future, and tech ecosystem particularly, face a pivotal moment. Will the measures stabilize Africa’s former largest economy, or will they deepen the woes of an already fragile system? For now, the tech sector remains on red alert, bracing for the impact of an increasingly precarious economic environment.