West Africa in Focus /

Higher costs for bakers raise the temperature in Nigeria and Ghana

  • Nigeria's oil minister claims Nigeria can meet its OPEC quota by August – we disagree

  • The IMF has approved the release of US$216mn in the form of special drawing rights to Senegal

  • Higher bread prices in Ghana and Nigeria might intensify the chances of disquiet in both countries

Higher costs for bakers raise the temperature in Nigeria and Ghana
Janet Ogabi
Janet Ogabi

Senior Research Analyst

Tellimer Research
30 June 2022
Published byTellimer Research

Nigeria takes centre stage this week with mostly negative news: the government has confirmed there have been huge swarms of locusts in the northwest; bakers are threatening to strike; the country's ejection from the MSCI frontier index looms; and the country's leading telco has faced a huge setback just a month after commencing mobile money operations.

Meanwhile, Senegal offers a ray of sunshine as the IMF approves the release of US$216mn of special drawing rights to help cushion the country from impact of the Russia-Ukraine war.

Nigeria's oil recovery target sounds too good to be true

Nigeria's Minister of State of Petroleum Resources, Timipre Marlin Sylva, has set a target to increase oil production to OPEC quota levels by August. This will supposedly be achieved by improving security at oil and gas facilities to curb oil theft and vandalism, while also activating oil wells that have been shut since the oil price crash more than two years ago at the onset of the Covid pandemic.

The significant shortfall in Nigeria's oil production comprises the bulk of OPEC's total underproduction and is also causing a substantial decline in oil receipts to the country's coffers. We agree the factors Sylva outlined are the key reasons for the decrease in production, but the likelihood of the government improving oil production to the extent that Nigeria can meet its OPEC quota this year, let alone by August, is very low. The sector needs much more investment and more than one month to achieve critical improvements. Read our full report here.

Africa's top producers are the biggest laggards in meeting OPEC stipulated quota

The bread revolution

Bread makers in Nigeria plan to strike because of the skyrocketing cost of baking ingredients and, in Ghana, bread prices have increased significantly over the past few months. We have previously shared some of our experiences with higher food prices, especially bread – in Lagos, the price of a loaf has doubled over the past year.

This is by no means isolated to West Africa – our colleague in Mauritius told us that prices of the famous dholl puri (Mauritian flatbread) and rotis, which are typical lunchtime meals, have risen significantly. A few months ago, protests erupted on the island, partly fuelled by inflation, and we think that higher food costs across the continent increase the likelihood of protests and disquiet.

The factors driving higher wheat prices this year are beyond the control of governments, and subsidies are not a sustainable solution.

Nigeria's ejection from MSCI Frontier looms

MSCI announced on 23 June a consultation to consider the ejection of Nigeria from its MSCI FM and FM 100 equity indices, in which Nigeria has weights of c4.7% and c7.2%, respectively. The consultation period ends on 31 August.

Since March 2020, low FX liquidity has inhibited repatriation and accurate marking to market of foreign investor positions in Nigeria equities. But our colleague Hasnain Malik argues in a recent report that four factors could mute the impact of ejection on share prices in Nigeria. Meanwhile, the NGX All Share index is up 27% ytd.

MSCI Frontier Markets index: Nigeria potential ejection

IMF releases US$216mn to Senegal 

The IMF has approved the release of US$216mn of special drawing rights (SDR161.82mn) to Senegal. The Fund also increased the country's 18-month credit facility to cUS$777mn, from the US$650mn initially approved in June 2021. Earlier in May, the Fund's representatives reached staff-level agreement on the second review of the joint stand-by arrangement/stand-by credit facility.

The funds are intended to cushion the impact of the Russia-Ukraine war and the severe second-order challenges that have affected Senegal and other countries in the region. These challenges have disrupted the post-pandemic recovery, with 2022 GDP growth now revised lower to 5% from 5.5% (2021 growth was 6.1%).

To help, the government approved a supplementary budget that will bring the fiscal deficit this year to 6.2% of GDP from the previous 4.8%. Public debt could reach c75% of GDP.

Locust infestation: Another plague for Nigeria

A few days ago, Nigeria's federal government confirmed that bird and locust swarms have invaded states in northwest Nigeria, potentially devastating crops. East Africa has been battling similar locust invasions for some time, which has had a huge effect on the region's food insecurity.

States in northwest Nigeria produce beans, soya beans, tomatoes and onions – essential food items in the local diet. Alongside the insecurity-related supply chain challenges, this could exacerbate the inflationary squeeze, with Nigeria's inflation having reached an 11-month high.

An early blow for MTN Nigeria's mobile money business

Leading mobile network operator, MTN Nigeria (MTNN), is suing 18 Nigerian banks in court over a NGN22bn (US$53.7mn) loss for its mobile money business. Media reports claim that NGN22bn was transferred to 8,000 accounts (across the 18 banks) fraudulently or in error, and the banks have refused to reverse the transactions.

Whatever the details of the loss, we view fraud as a significant threat to the success of digital banking in Nigeria as it reduces the trust Nigerians have in financial services providers.

Classification of fraud techniques in Nigeria

The marketing efforts for MTNN's mobile money services seem to have been ineffectual, and customers could not register for accounts for some time. These factors, combined with the lack of trust in the sector and the considerable loss, have made for a rocky start. Nevertheless, we are still optimistic about the stock

Our recent West Africa research


The Nigerian equities market has gained 0.8% in the past week, an improvement from the 3.3% decline in the previous week, bringing the ytd return to 21.3%. Sentiment was neutral, with 65 gainers versus 64 losers. Gains in FBNH, OKOMU, INTBREW and ECOBANK made up for the losses in stocks like FCMB, AIRTELAFRI and ZENITH.

Our views have not changed. We are not optimistic about the Nigerian equities market as an anticipated increase in domestic bond yields in the coming months and the absence of foreign investors will put a dampener on local participation.

Tellimer's West Africa Equities Coverage
Market indicators

Nigeria's yield curve (%)

Ghana's yield curve (%)