What Donald Trump’s Second Presidency Means for Nigeria’s Economy

Exchange rate, interest rate, inflation, immigration, geopolitical implications and bailout implications

Donald Trump’s return to the White House as the 47th President of the United States after his dramatic victory over Kamala Harris raises new questions for Nigeria’s economic prospects.

Trump’s economic policies built around “America First” Prioritize domestic energy production, import tariffs, and push for low interest rates.

These policies could have a significant impact on the Nigerian economy, especially in the areas of exchange rates, capital flows, inflation and immigration. Below is an analysis of how these shifts could impact Nigeria’s economic landscape.

Key Findings

A second term for Donald Trump could have huge consequences for the Nigerian economy.

A stronger dollar, potential capital outflows from the US and low global oil prices could increase Nigeria’s exchange rate volatility, putting pressure on the naira and increasing inflation.

Immigration restrictions could reduce remittance flows, and geopolitical shifts could reduce U.S. support for Nigeria’s security and development needs.

Nigeria’s policymakers may need to consider alternative policies, such as promoting regional trade, increasing non-oil exports, and pursuing structural reforms, to balance the potential challenges posed by Trump’s policies.”

Pressure on the exchange rate from a stronger dollar

Trump’s policies could lead to a stronger US dollar, especially if his administration imposes tariffs that will increase demand for domestically produced goods and services.

A stronger dollar typically makes purchasing foreign currency more expensive for developing countries such as Nigeria, potentially complicating the Central Bank of Nigeria’s (CBN) efforts to stabilize the naira.

The Nigerian naira has depreciated by more than 45% this year, and a stronger dollar could weaken the naira further, affecting import costs, inflation and purchasing power.

A stronger dollar also increases Nigeria’s debt servicing costs, since many of Nigeria’s liabilities are denominated in dollars.

Given Nigeria’s dependence on imported fuels, raw materials and consumer goods, the additional strength of the dollar could add inflationary pressure to the already high cost of living.

Interest rates and capital flows to Nigeria

Trump has historically championed a low-interest rate environment, pushing the Federal Reserve to maintain loose monetary policy even during periods of economic expansion.

During Trump’s first presidency, the Federal Reserve raised interest rates, peaking at 2.5% in 2018, before cutting them to near zero by March 2020 to counter the economic fallout from COVID-19.

Trump’s renewed pressure to cut interest rates could again influence the direction of Federal Reserve policy.

If the Federal Reserve keeps rates low, it could theoretically lead to an outflow of capital from the US as investors seek higher yields in emerging markets.

However, if the dollar’s strength continues and other global markets remain volatile, investor sentiment may continue to favor U.S. assets as a safe haven.

From 2016 to 2020, Nigeria attracted about US$58.1 billion in capital imports, with 2019 seeing the highest inflow of US$23 billion.

This was partly because Nigeria offered high-yield instruments such as government bonds, which attracted foreign investors, including $4.69 billion from US sources that year.

If Trump’s policies result in continued low yield conditions in the US, Nigeria could once again attract US capital in search of higher yields, especially if Nigeria maintains attractive interest rates on its debt instruments.

This capital inflow could help ease currency pressures in Nigeria and support the stability of the naira.

Inflation and Trump’s energy policy

Trump’s focus on cutting U.S. energy costs by increasing domestic oil production and drilling on federal lands could mean persistently low global oil prices. In his first term

Trump’s policies and the COVID-19 pandemic caused WTI crude oil prices to plummet to approximately $39.17 per barrel in 2020, down from $65.20 per barrel in 2018.

Since Nigeria relies heavily on oil exports for government revenue and foreign exchange, prolonged low oil prices could impact fiscal stability and government spending, which would have a knock-on effect on inflation and economic growth.

Moreover, Trump’s proposed tariffs on imports, including a 60% tariff on Chinese goods, could increase inflation in the United States, which could spread to Nigeria by increasing the cost of imported goods and components.

With the US among Nigeria’s largest trading partners (2.2 trillion naira in imports and 2.8 trillion naira in exports in the first half of 2024), US-led price increases could impact inflation in Nigeria by making imports of essential goods more expensive , such as equipment. pharmaceuticals and agricultural products.

Impact of immigration and the Nigerian diaspora

Trump’s return to power has Nigerians concerned about US immigration policies. His administration previously imposed travel restrictions on Nigeria, citing national security risks, hampering the movement of students, professionals and family members.

If Trump reinstates such policies, it could weaken the ability of Nigerians to study and work in the US.

This restriction will not only impact Nigerian citizens, but may also reduce remittance flows, which are a major source of foreign exchange for Nigeria.

In recent years, remittances from the Nigerian diaspora have contributed more than $20 billion annually to the Nigerian economy, helping offset foreign exchange shortages.

The decline in remittance inflows will reduce domestic consumption and put further pressure on Nigeria’s foreign exchange reserves, which are already under strain.

Geopolitical dynamics and US assistance to Nigeria

Under Trump “America First” foreign policy, military aid, and development assistance to African countries were deprioritized in favor of reducing foreign commitments.

For Nigeria, which cooperates with the US on counterterrorism and security, this could mean a reduction in military support.

Nigeria relies on U.S. assistance to fight Boko Haram and other insurgent groups, so any reduction in support could undermine Nigeria’s regional security efforts.

Aid cuts could also impact Nigeria’s development projects and social programs funded by U.S. agencies.

Given high levels of poverty and significant needs for investment in health, education and infrastructure, aid cuts will require increased spending by the Nigerian government, potentially diverting funds from other critical areas.

Trade Policy and Nigeria’s Exports to the United States

Trump “Buy American” policies often focus on reducing imports and increasing tariffs, which could impact Nigeria’s trade relationship with the US.

In the first half of 2024, Nigeria recorded a trade surplus with the United States with imports of N1.9 trillion and exports of N3.1 trillion.

If Trump’s tariff policies discourage US imports from Nigeria, it could negatively impact Nigeria’s export earnings, especially in sectors such as oil, minerals and agricultural products.

A decline in exports to the US could impact Nigeria’s current account balance, further complicating its exchange rate and foreign exchange reserve problems.