West Africa in Focus /

Locals sell out of equities after surprise rate hike in Nigeria

  • IOCs are hitting difficulties in exiting Nigeria after regulators refused to consent to a sale of assets

  • Nigeria equities sell off as investors process the rate hike. In FI, stay short duration

  • As yields rise and US$ strengthens, more African countries ditch international bond markets, e.g. Cote d'Ivoire

Locals sell out of equities after surprise rate hike in Nigeria
Janet Ogabi
Janet Ogabi

Senior Research Analyst

Tellimer Research
26 May 2022
Published byTellimer Research

This week, macroeconomic updates take the spotlight after Nigeria’s surprise rate hike sent shock waves through both equity and fixed income markets. In Ivory Coast, the increase in eurobond yields is forcing the government to halt plans for an international bond sale and instead issue debt in the West Africa securities market. Other African countries could follow.

We also take a look at the difficulties facing IOC exits in Nigeria as regulators failed to consent to the Seplat-Mobil sale, shortly after TotalEnergies announced it also plans to exit Nigeria’s oil onshore assets. Meanwhile, the passing of Nigeria’s new health insurance bill is good news for investors in the sector.

The IOCs' shaky exits in Nigeria, as TotalEnergies joins the bandwagon

TotalEnergies has joined the list of international oil companies (IOCs) looking to exit onshore oil assets in Nigeria. This comes after Exxon Mobil and Shell also announced plans for exits, despite the passing of the prolonged Petroleum Act. In fact, Seplat, Nigeria’s biggest indigenous producer, is in the process of acquiring Mobil Nigeria. However, this has now faced a roadblock after regulators failed to grant Seplat the necessary approvals.

This unexpected move suggests that the IOC exits may not be as smooth as expected. The regulator's action is surprising because:

  1. The state oil firm has been an advocate for increasing local content in the sector; and

  2. Seplat is one of the few domestic players capable of taking over the IOCs given its strong management.

This clearly a setback for the sector, as the country is missing out on high oil prices due to low production. Nigeria either needs to make more favourable fiscal terms to attract IOC investment or ensure smooth IOC exits to enable a swift increase in oil production. Low production cost the economy cUS$1.8bn in Jan-April.

Nigeria: IOCs account for bulk of Nigeria's crude oil production (1,000 bbl/day)

Interest rate hikes in the region: Nigeria surprises

Last week, we highlighted the likelihood of an interest rate hike in Ghana, where the central bank has been doing the heavy lifting to protect its currency. So, it was of no surprise to see Ghana increase its main interest rate by 200bps from 17% to 19%, in line with Bloomberg consensus. For Nigeria, the central bank’s preference for heterodox policies meant consensus had been for no change to benchmark rates, but the MPC delivered a surprise 150bps hike, its first since 2016.

However, we believe the move is nothing more than a token hike, given Nigeria’s weak transmission mechanism. Also, the CBN continues to implement monetary policy in an unorthodox way, focusing on ad hoc cash reserve ratio (CRR) debits to manage liquidity in the system and effectively acting as a development bank by directly providing credit at preferential rates to strategic sectors.  

On a positive note, we think the fallout from Governor Emefiele’s abandoned presidential run could be the best hope for a shift towards more orthodox policy.

Meanwhile, the selloff in Nigeria's equities market yesterday (-0.73%, ex-AIRTELAF, read more below) only reinforces our view that Nigeria’s position as the top-performing global equity market this year could be short lived.

And we think fixed-income investors are likely to stay in short durations, as yields are expected to rise in the short term.

Nigeria policy rate versus market rates (%)

Cote d'Ivoire ditches Eurobond plans for regional borrowings instead, more countries could follow

The Ivorian government has announced it will halt plans for a US$1bn international bond issue needed to meet rising fiscal costs, due to eurobond yields rising above 6%. Instead, the government will sell bonds in the regional West African Economic and Monetary Union (WAEMU) Government Securities Market.

The new international bond issue (with an ESG label) would have been the third sale by the junk-rated issuer within 18 months, after raising EUR1bn in November 2020 and EUR850mn in February 2021. The government has had some successful issuances on the WAEMU, including XOF41bn (US$66mn) on 17 May – a 5-year tenor at 5.2%.

Asides from Cote d'Ivoire, the likes of Kenya have also announced plans to scrap eurobond plans, while Nigeria announced its intention to sell in May/June. However, as markets turn hawkish, yields rise and the dollar strengthens, it would not be a surprise to see more sovereigns opt for local borrowing rather than international market issues.

Stronger dollar, increasing africa eurobond yields could discourage international bond issuances from the continent

Senegal reaches staff-level agreement with IMF on US$217mn loan

The IMF and Senegal have reached staff-level agreement on the second review of the joint Stand-By Arrangement(SBA)/Standby Credit Facility (SCF), under which Senegal will receive a US$217mn loan. The loan is to cushion the effect of the ongoing Russia-Ukraine war and the severe second-order challenges that have affected Senegal and other countries in the region.

Similarly, Benin reached a staff-level agreement with the IMF team a few weeks ago. The loan arrangement is an innovative 42-month blended Extended Credit Facility (ECF) and Extended Fund Facility (EFF) to help Benin address pressing financing needs—related to security, CovidD-19 scars, and the war in Ukraine – and anchor the country’s National Development Plan.

MTN Nigeria and Airtel Africa commence mobile money operation

MTN Nigeria and Airtel Nigeria have announced the commencement of their mobile money operations (Payment Services Bank). This comes a few weeks after both players received their final payment service banking license from the central bank.

In its announcement, MTN Nigeria stated that its mobile money service is open to anybody, regardless of their mobile services network. With this move, competition between service providers will intensify as there is no restriction on the potential addressable market. The providers with superior service offerings, marketing and last-mile delivery will conquer the market.

MTNN has built a strong foundation

In addition to a superior service offering and robust marketing strategy, a strong agent network that can ensure last-mile delivery is very important for the success of a payment service bank and MTNN took advantage of its super-agent licence (which Airtel Nigeria has just acquired) to build a strong network of agents.  We raised our target price for MTNN here.

Nigeria approves new healthcare bill to boost health insurance uptake and the sector

The Nigerian government has passed a new health insurance law that repeals the provisions in the old 2004 Act. The new law aims to increase the reach of healthcare services to vulnerable groups of the population, increase access to health insurance cover and make health insurance compulsory for employers.

The new law could drive growth in the health and insurance sector as more people can now have access to healthcare. Currently, the quality of healthcare supply is below par, with only four medical physicians per 10,000 people and health expenditure making up only 3% of GDP, according to the latest World Bank data.

Upcoming events

Africa CEO Forum 2022 (13-14 June)

The annual summit of the Africa CEO Forum, in partnership with the International Finance Corporation (member of the World Bank Group), will be held on 13-14 June 2022, in Abidjan, Côte d’Ivoire.

Nigeria & Ghana PMI data (01 & 03 June)

The Purchasing Managers' Index (PMI) for both Ghana and Nigeria defied expectations with increases in the readings in April. However, while Nigeria continues to print above 50, signifying expansion in the economy, Ghana's PMI showed contraction with a reading below 50 for the third consecutive month. We expect the readings for May to be released on 1 and 3 June.

Our recent West Africa reports

  • Fintechs are growing the pie by tackling financial exclusion, notably for business/property loans and general insurance. In this report, we gauge emerging market consumers’ expectations regarding their usage of 11 different financial services products.

  • Nigerian central bank surprises with symbolic 150bps rate hike. The surprise rate hike shows a renewed focus on inflation but is largely symbolic, given the weak transmission mechanism. The fallout from Governor Emefiele’s abandoned presidential run could be the best hope for an orthodox policy shift.

  • Nigeria equities are the best performing globally, having delivered a US$ return of 26% ytd. Three major drivers: (1) minimal global contagion; (2) low FI yields; and (3) foreigners exiting via dual listings. However, higher local FI yields in 2H may turn locals away from equities, while foreigners likely remain alienated by FX restrictions.

  • MTN Nigeria and Airtel Nigeria have announced the start of mobile money operations, a few weeks after final approval. MTNN has big competitive advantages: there is no restriction on its addressable market and it has a huge agent network. We upgrade our target price for MTNN from NGN240 to NGN299 and reiterate our Buy recommendation on the stock.


Nigeria equities (NGXASI) declined by 0.2% wow, bringing the ytd return down a fraction to 23%. The market's meagre loss was eclipsed by yesterday's 1.2% gain, which was driven by the bull run in AIRTELAF. Excluding gains in AIRTELAF over the week, the market would have closed down 0.73% yesterday and down 3.7% on the week. The market's negative sentiment during the week is depicted in the wide negative market breadth, with 61 losers and 22 gainers.

Although the central bank's rate hike on Tuesday was unexpected, the selloffs in the market are in line with expectations, as the rate hike will translate to higher yields in fixed income, making it a more attractive play for investors. Thus, we retain our negative outlook for Nigerian equities, as locals sell off and FX restrictions continue to keep Nigeria off-limits for fresh foreign capital.

Tellimer's West Africa Equities Coverage

Market indicators

Nigeria's yield curve (%)

Ghana's yield curve (%)