West Africa in Focus /

Nigeria holds interest rates despite surging inflation

  • Most African countries are hiking interest rates, but Nigeria didn't budge despite high inflation and low FPI inflows

  • Google is investing in Africa's internet economy but there are many challenges

  • We share our experiences with inflation, food, and water shortages in Mauritius and Nigeria – Africa fears a food crisis

Nigeria holds interest rates despite surging inflation
Janet Ogabi
Janet Ogabi

Senior Research Analyst

Tellimer Research
24 March 2022
Published byTellimer Research

As global inflation rises, African countries are raising interest rates – except for Nigeria. We share some of our personal and household experiences with inflation in Africa and our fears of a looming food crisis.

Higher oil prices are increasing the incentive for illegal oil bunkering, yet another problem for Nigeria's struggling oil industry. There is some positive news though... Google is investing massively in Africa's internet economy – it might not solve all the problems, but it will help.

African central banks hike rates to fight inflation, with one exception  

Africa's central banks are urgently adjusting policy with the warning lights flashing for the inflation outlook across the continent. Ghana raised interest rates by 250 bps to 17% (Bloomberg consensus 16%) at the begining of this week, to rein in the depreciation of the cedi (GHS:USD -15% ytd). Egypt also held a surprise meeting to hike rates, for the first time in 5 years, by 100bps.

In Nigeria, although the majority voted to hold rates at 11.5%, four of the ten members of the MPC voted for a raise (compared to an unanimous hold decision in the January meeting).

Even though most African central banks are taking steps to curb the risks of rising inflation, it will take more than rate hikes to salvage their economies and currencies. For Ghana, fiscal stability is required, and for Nigeria it is the unification of the naira. Our research shows the implications of spiralling inflation for EM banks.

Inflation in Sub Sahara Africa

Google wants to improve Africa's internet

As part of the firm's plan to invest US$1bn in Africa's digital transformation, Google announced that its subsea internet cable, Project Equiano, will travel from Portugal to South Africa, passing through Togo, Namibia and Nigeria.

For Togo, it is great news that it is one of the landing sites, given the country's current low level of internet penetration and poor internet affordability.

As we have highlighted previously, lack of infrastructure is a significant barrier to connectivity and internet affordability. However, there are plenty of other hindrances too, including lack of terrestrial cable networks, smartphone affordability, poor policymaking, lack of suitable content and low income.

Togo's internet penetration is one of the lowest in Africa

Feeling the effects of inflation first hand – even sachet water is more expensive

I never thought I would have to think of ways to purify water for drinking, but I found myself on the internet looking for the best and cheapest ways to do so. In my area of Lagos, Nigeria, tap water is undrinkable and shouldn't be used for cooking. So, most people use sachet water (purified water packed in 50cl plastic sachets). Unfortunately, as with most goods and services, the price of sachet water has increased. In 2020, just before the Covid lockdown, it was cNGN80 for a bag of 20 sachets. By January this year, it had risen to NGN120. Now it is NGN200. It was challenging to buy in bulk for about a week as sachet water companies find absorbing the costs of higher diesel prices difficult.

My colleague in Mauritius tells me there are also signs of strain. Cooking oil is limited to 2 litres per shopper because of supply shortages, the popular dholl puri and rotis that are a typical lunchtime meal have risen by over 10% in recent weeks, and the country's biggest brewer has blamed higher aluminium costs for a 5% rise in the price of canned drinks.

I hope there is no food crisis, but it seems ever closer... did I mention that a loaf of bread in Lagos has doubled in price in a year? Our wheat forecast suggests it will get worse before it gets better.

Nigeria's Eurobond flash sale

Last week, the Nigerian government sold US$1.25bn worth of Eurobonds, with the offering 120% oversubscribed (2.2 cover ratio). The funds will be used to plug the country's widening fiscal deficit. Yet earlier last week, when the question of subsidy financing came up, the finance minister had said that the federal government would not be raising any Eurobond. So the debt offering came as a surprise to most investors.

As we have highlighted before, Nigeria is caught in the murky waters of high crude oil prices, high petrol subsidies, and high crude oil theft causing low reported production. As a result, Nigeria's debt stock continues to balloon and raises questions about debt sustainability, especially given the government's difficulty capturing more non-oil revenue.

Gross public debt stock (% of GDP)

Oil theft adds to woes in Nigeria's oil and gas sector

As if Nigeria's IOC exits and lack of investment are not enough of a blow to the country's crude oil production, the energy sector also faces incessant oil thefts. The surge in thefts led ENI and Shell to declare force majeure on major oil facilities – the Bonny and Brass oil and gas terminals. Together, the two terminals produced only c160kbpd in February 2022 compared to 225kbpd on average in 2021.

Overall, these problems damage the case for oil and gas investment in Nigeria and increase the risk of more IOC exits, as Shell and Mobil are already exiting onshore assets.

Flows in Nigeria's crude oil and condensate production per terminal (in '000 bpd)

Our latest West Africa research

Upcoming events

Ghana vs Nigeria world cup playoff – 25 March 2022

Ghana and Nigeria face each other in a playoff for the 2022 FIFA World Cup. Nigeria has qualified for six of the last seven World Cup tournaments while Ghana participated in three of the last seven (2006, 2010 and 2014). The two neighbouring countries are age-old rivals, not just in football and jollof rice, but economically as well. Both countries could benefit from an injection of the feel-good factor at the moment.

Nigeria's Q1 GDP – 12 April

Nigeria's GDP grew by 3.4% in FY 2021, the strongest growth since 2014 – partly attributable to the low base effect of the Covid-induced lockdown in 2020. However, for Q1 22, we expect slightly lower economic growth, primarily due to the disruption caused by fuel scarcity, collapse of the national grid and extremely high energy costs.


Nigeria’s all-share index reversed the previous week’s gain, declining 0.4% (vs a 0.45% gain in the week before). It is not surprising that market sentiment was negative as 24 stocks gained while 50 declined. The market direction can be attributed to profit-taking.

Some of the major gainers include Fidelity Bank, Presco, Sterling Bank, UACN, Guinness and First Bank. Elsewhere, the losers are made up of a mix of consumer goods companies, banks and industrials.

The outlook for Nigerian equities is unchanged: FX restrictions will keep Nigeria off-limits for fresh capital from foreign investors, while locals will dominate. Also, several factors point to increased domestic yields towards H2, which might put a dampener on local participation in equities.

Tellimer's West Africa Equities Coverage

Market indicators

Nigeria's yield curve (%)

Ghana's yield curve (%)