Nigeria’s Growth Outlook Improves, But Fuel Costs Threaten Poverty Gains - World Bank
Higher Fuel Costs Could Deepen Nigeria’s Living Cost Pressure
The World Bank has warned that elevated fuel prices could slow Nigeria’s poverty reduction efforts even as the country’s economic growth is expected to strengthen and inflation continues to moderate in 2026.
The warning formed part of the World Bank’s latest Africa Economic Update, which raised Nigeria’s 2026 growth forecast to 4.3 per cent from 4.0 per cent in 2025. The bank expects growth to increase further to an average of 4.4 per cent in 2027 and 2028, supported by improving macroeconomic stability, stronger investor confidence and a gradual recovery in private investment.
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The World Bank said services remain the main driver of Nigeria’s economic expansion, with financial services, ICT and real estate benefiting from digitalisation and resilient domestic demand.
However, the stronger growth outlook does not necessarily translate into faster improvements in living standards, particularly for lower-income households facing higher energy and transportation costs.
Fuel Prices Could Slow Poverty Reduction
The World Bank expects Nigeria’s inflation rate to decline substantially from 23.0 per cent in 2025 to 15.7 per cent in 2026, with a further reduction to 12.2 per cent projected by 2028.
The decline in inflation should gradually improve household purchasing power as monetary tightening, exchange-rate stabilisation and improving supply conditions feed through the economy.
However, the bank cautioned that elevated fuel prices associated with the conflict in the Middle East could limit the pace of poverty reduction.
Higher fuel costs affect households directly through transportation and energy expenses while also increasing the cost of moving goods and services across the economy. The impact is particularly significant for low-income households, which generally have less capacity to absorb increases in essential expenditure.
The warning comes amid renewed pressure on global oil markets, with Brent crude trading around $100 per barrel and the US Energy Information Administration raising its oil-price outlook because of declining global inventories and tight diesel markets.
Stronger Oil Earnings Could Support Nigeria’s Finances
Higher international oil prices could provide some benefits for Nigeria by strengthening government revenues and the country's external position.
The World Bank projects Nigeria’s current-account surplus to widen from 4.8 per cent of GDP in 2025 to 6.0 per cent in 2026, before narrowing to 3.4 per cent by 2028 as oil prices normalise and import demand increases.
The potential fiscal benefit, however, must be weighed against the domestic impact of higher energy costs.
For households and businesses, more expensive fuel can increase transportation, logistics and operating expenses. This can feed into the prices of goods and services and limit the real benefits of declining headline inflation.
Housing and Construction Face Fresh Cost Pressures
The World Bank's assessment has important implications for Nigeria's housing and real estate market because fuel prices influence several costs associated with property development.
Higher petrol and diesel prices can raise the cost of transporting cement, steel, blocks, aggregates and other construction materials to project sites. Developers and contractors also face higher costs for machinery, generators and logistics when energy prices rise.
These additional expenses can ultimately feed into construction budgets and property prices, particularly where developers have limited capacity to absorb rising input costs.
For households, the effect can be equally significant. Higher transport and energy bills reduce the amount of disposable income available for rent, mortgage payments, home purchases and savings towards homeownership.
This creates a difficult environment for affordable housing delivery because the same households that require lower-cost housing may also face the greatest pressure from rising living expenses.
Real Estate Remains Part of Nigeria’s Growth Story
Despite the risks, the World Bank identified real estate alongside financial services and ICT as one of the sectors supporting Nigeria's economic growth.
That highlights the importance of maintaining investment in housing and property markets as part of the country's broader economic recovery.
A stronger economy can improve employment, household incomes and investment activity, but sustained growth in real estate will also depend on whether housing supply can respond to affordability pressures.
If fuel and transportation costs remain elevated, developers could face higher project costs while households struggle to maintain purchasing power. The resulting gap between construction costs and household affordability could continue to constrain effective housing demand.
Pre-Election Spending Poses Additional Risk
The World Bank also identified increased government spending ahead of Nigeria's 2027 general elections as a potential domestic risk to the economic outlook.
It warned that higher pre-election spending could weaken reform momentum and undermine the social support needed to sustain ongoing macroeconomic adjustments.
Other risks identified by the bank include tighter global financial conditions, a prolonged Middle East conflict, insecurity, climate-related shocks and disruptions to oil production.
For the housing sector, these risks matter because sustained investment in infrastructure, housing finance and urban development requires a relatively stable macroeconomic environment.
Infrastructure Constraints Could Limit AI and Economic Gains
The World Bank also highlighted Nigeria's emerging position in Africa's artificial intelligence ecosystem, while warning that infrastructure constraints could limit the sector's contribution to economic growth.
About 44 per cent of surveyed firms in Nigeria and Kenya with at least 20 employees reported using AI technologies, compared with 61 per cent of surveyed firms in the United States.
However, the bank identified unreliable electricity, limited internet access, high data and device costs and inadequate computing infrastructure as major constraints to deeper adoption.
The infrastructure challenge extends beyond the technology sector. Reliable electricity, transport networks and digital connectivity are also critical to the development of modern commercial districts, industrial areas and residential communities.
Outlook
Nigeria's improved growth forecast points to stronger economic activity, but the World Bank's warning highlights the difference between macroeconomic expansion and improvements in household welfare.
Lower inflation could gradually strengthen purchasing power, while stronger growth and investment could support employment and real estate activity. However, elevated fuel prices could continue to absorb household income and increase business and construction costs.
For Nigeria's housing market, the key challenge will be ensuring that economic recovery translates into stronger household incomes and more affordable housing supply rather than being offset by rising energy, transportation and development costs.
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