Nigeria’s 7% growth bet faces high costs, weak productivity

Nigeria is betting on its economy to grow by seven percent in 2027 while ruling out a return to fuel subsidies and multiple exchange rates, while businesses still face expensive credit, high energy costs and weak infrastructure.

Taiwo Oyedele, finance minister, announced the ambition on October 17 at the Nigerian delegation’s closing briefing during the IMF and World Bank annual meetings in Bangkok, dismissing the International Monetary Fund’s 4.3 percent growth forecast for 2027 as too conservative.

He warned that reversing the removal of fuel subsidies and foreign-exchange liberalisation could undermine investor confidence, trigger capital flight and weaken the naira. He also argued that bringing inflation to low single digits could create conditions for single-digit lending rates, compared with borrowing costs approaching 30 percent for businesses.

The current gap between its current state and the ambition is substantial. Nigeria’s economy grew by 3.87 percent in 2025 and 4.43 percent year on year in the second quarter of 2026, according to the National Bureau of Statistics.

Achieving seven percent would require growth to accelerate well beyond its recent pace. The question is whether macroeconomic stability can now unlock a stronger expansion in productive capacity, rather than merely improve headline indicators.

The government must show how its reform programme will translate into the investment and productivity needed to reach that target.

Which sectors can drive the acceleration?

Nigeria’s latest GDP figures point to opportunities, but also reveal the unevenness of the recovery. Information and communication grew by 9.62 percent in the second quarter, financial services by 9.29 percent and oil and gas by 7.31 percent. Construction expanded by 6.75 percent and agriculture by 4.39 percent. Manufacturing, however, grew by only 3.24 percent, while electricity and gas contracted by 10.63 percent.

Muda Yusuf, chief executive of the Centre for the Promotion of Private Enterprise, believes the services sector is best positioned to sustain growth in the short to medium term, pointing to its strong contribution to aggregate GDP performance.

“The sector that can drive this optimism is the services sector. It has demonstrated significant promise and potential, and the GDP data validate this position. If you look at economic growth, the services sector has been the strongest performer in aggregate,” Yusuf said.

He noted that oil and gas was beginning to show more significant shifts, partly driven by the operations of the Dangote refinery, while identifying financial services, telecommunications, transport and logistics as potential growth drivers. Agriculture, particularly agribusiness, and manufacturing could also contribute more, but their prospects depend heavily on addressing structural constraints to investment.

“However, growth in agriculture and manufacturing will depend largely on the progress we make in addressing the structural constraints to investment. These constraints remain a major obstacle to productivity in the real sector,” he said.

“For Nigeria to achieve 7 percent growth, the economy must move beyond macroeconomic stabilisation to a sustained expansion in productive activity. The priority should be to lower the cost of doing business, improve access to affordable credit, address energy and logistics constraints, and create conditions for private investment to expand across agriculture, manufacturing and services. Without these changes, stronger growth in a few sectors may not be sufficient to lift the wider economy to the government’s target,” said Faruq Quadri, an economist at SPEC-Matrix.

The distinction matters because rapid growth in services does not automatically translate into a broad-based expansion in productive capacity. Manufacturing can create jobs, deepen local supply chains and increase domestic value added, but factories cannot expand sustainably without reliable electricity, affordable working capital and lower transport costs. The contraction in electricity and gas highlights a constraint that could undermine growth elsewhere.

Agriculture offers another route. Higher yields, irrigation, storage and rural security could raise output while supplying processors with more reliable raw materials. Connecting farms to food processing, packaging and distribution would allow Nigeria to capture more value than it does by selling unprocessed produce.

Telecommunications and financial services are already expanding rapidly. Their contribution will be greater if digital infrastructure and credit help smaller businesses improve efficiency, reach new customers and invest in equipment. Oil and gas remain important for foreign exchange and government revenue, but gains from production must support wider investment rather than leave the economy dependent on crude exports.

Reform must deliver a return to households

The central test of Oyedele’s strategy is whether economic reforms translate into stronger investment, jobs and household welfare. Removing subsidies and liberalising the foreign-exchange market may reduce distortions, but they do not automatically lower the cost of producing goods or increase real incomes. Higher fuel costs can feed through to transport and food prices, while expensive borrowing discourages firms from expanding capacity.

Headline inflation fell to 14.63 percent in September 2026, but food inflation remained high at 19.59 percent, according to reported NBS figures. Disinflation is welcome, but businesses need lower operating costs, and households need their incomes to buy more.

Lower inflation could eventually allow interest rates to decline, but single-digit lending is not guaranteed. Banks also price in funding costs, credit risk and government borrowing. The government must therefore combine prudent macroeconomic management with better power supply, infrastructure, and targeted support for vulnerable households and policies that crowd private investment into productive sectors.

From ambition to measurable growth

The IMF’s 4.3 percent forecast is not a ceiling on Nigeria’s potential. But exceeding it will require evidence of stronger capital investment, industrial production, agricultural productivity and employment.

The government should explain how its fiscal measures and sector policies will close the growth gap, then publish measurable results. The seven percent target will become credible when firms can produce more competitively, invest without prohibitive financing costs and hire more workers.

Nigeria has sectors capable of driving faster growth. Its challenge is to remove the constraints that prevent them from doing so. The success of reform will ultimately be judged not by the rejection of subsidies or the size of a growth target, but by whether a more productive economy delivers better jobs, lower costs and rising living standards.