West Africa in Focus /

Nigeria to fund oil subsidies with 2021 Eurobond receipts and local borrowing

  • Nigeria to help Senegal boost oil and gas local content, as the two countries sign MoU

  • Higher oil prices and ballooning subsidies push Nigeria to utilise 2021 Eurobonds and increase local borrowings

  • Africa inflation numbers confirm our fears and could drive hawkish tone of central banks.

Nigeria to fund oil subsidies with 2021 Eurobond receipts and local borrowing
Janet Ogabi
Janet Ogabi

Senior Research Analyst

Ayobami Omole
Busola Jeje
Tellimer Research
17 March 2022
Published byTellimer Research

In this week's West Africa in Focus, Senegal is posed to join the oil and gas industry. The country expects to deliver its first oil and gas in 2023, and is seeking guidance from Nigeria. High oil prices are actually hurting Nigeria's own economy, and the government has said it will use its Eurobond receipts and local borrowing to finance fuel subsidies.

Nigeria is cracking down on illegal loan agencies and their practices of charging eye-watering rates and intimidating borrowers who get into payment difficulties. However, as high inflation and economic strains strangle consumers' wallets, many will have no alternative. And as inflation begins to bite, we take a look at efforts by Nigeria's government to ensure food security, and the candidates likely to run for the 2023 presidential elections – including Vice-President Osibanjo.

Nigeria to help Senegal boost oil and gas local participation as first oil comes 2023

The Senegalese Petroleum Industry and Nigerian Content Development and Monitoring Board (NCDMB) signed a Memorandum of Understanding (MoU) with Nigeria to provide support to boost local participation in Senegal’s growing oil and gas sector. Senegal is set to deliver its first oil and gas in 2023 from the Grande Tortue Ahmeyim (GTA) gas field, operated by BP.

Although the deluge of IOC exits in Nigeria has negatively impacted investment in the sector and led to lower oil production, local content in the sector has improved from 3% a decade ago to 43% now and Nigeria's state oil firm aims to reach 70% by 2027.

As we have highlighted previously, local players stand to benefit from IOC exits. However, the transition is not likely to come easy and it remains to be seen if the oil sector can come through completely unscathed. That said, Nigeria might be in the best position to provide guidance on boosting local content.

Senegal set to join Africa's leading oil and gas producers by 2023

Nigeria to fund oil subsidies with 2021 Eurobond receipts and local borrowing

Although it might seem counterintuitive for an oil producer, higher oil prices spell big trouble for Nigeria's economy. The impact is being felt due to ballooning oil subsidies which the World Bank estimates could spike to US$9.6bn (NGN4tn) in 2022, assuming a US$100/bbl oil price.

To finance the additional spending needed for subsidies this year (the initial budget only provided NGN443.0bn for subsidies through to June 2022), the finance minister announced that the federal government will have to utilise US$2.2bn from the US$4.0bn Eurobond sale conducted in September last year. This will also be supplemented with increased local borrowing, which is likely to translate to higher yields on local debt this year.

Rising crude oil prices is significantly reducing the NNPC's transfer to federation account

More February inflation data confirms what is to come for Africa

The latest inflation data from Ghana and Senegal confirmed that warning lights are flashing for the inflation outlook in Africa. Ghana inflation reached 15.7% yoy in February, up from 13.9% in January, while in Senegal it accelerated to 6.5% yoy, from 5.5%. Nigeria reversed the downtrend seen in the previous month, recording inflation of 15.7% yoy in February (up from 15.6% in January). The major contributors to higher inflation were housing, water, electricity, gas and other fuels, as well as transportation.

In the coming weeks, the inflationary pressures are expected to worsen, given how the Russia-Ukraine conflict is driving up prices of staple foods, energy products and transportation. But Ghana and Nigeria's central banks are likely to take different approaches to tackle the problem. While we expect Ghana’s MPC to hike rates given the rapid increase in inflation, we think Nigeria will hold as the central bank continues to prefer unorthodox means (CRR debits) to try to enforce price stability.

Inflation in Sub Sahara Africa

Nigeria cracks down on dodgy lending firms

Nigeria’s consumer protection agency is leading a crackdown, closing down six illegal lending firms. Since the pandemic, several of these unlicensed lending businesses have sprung up, offering short-term loans to Nigerians with no collateral and less bureaucracy than Nigerian banks. However, the interest rates are as high as 50% pa, and these agencies use tactics such as harassment, cyberbullying and data breaches for customers who default on their loans.

Unfortunately, with the rising economic strain, many Nigerians will still resort to such underground lending firms. Although several Nigerian banks have increased lending to the retail space, lending to corporates and governments is still much higher, given how easy it is for NPLs to form from retail loans.

Nigerian Banks have a bulk of their loans to corporates and commercials

Osibanjo to join Nigeria’s race to 2023 presidential elections

The race for Nigeria's 2023 presidential elections is taking shape and contenders are positioning themselves. The current vice president, Osibanjo, has reportedly communicated his intention to run to President Buhari. While Osibanjo is yet to officially declare his intention to run, it appears likely.

This would be interesting as it would pit him against the ruling party’s (APC) national leader, Tinubu, for the party’s presidential ticket.

There are also press reports that current CBN Governor Emiefele could also run for the 2023 presidency, which is surprising considering his second tenure as the CBN governor runs until 2024. CBN aides have previously refuted the reports, but it can't be ruled out.    

Buhari (APC) won 2019 elections with 55% of votes

Nigeria’s little effort to battle food crises

Amidst the commodity super-cycle, the Nigerian government has banned foreigners and their agents from purchasing agricultural commodities directly from indigenous farmers.  One of the country’s industrialists and the owner of one of its main food manufacturing company, Aliko Dangote, also advised the federal government to ban the export of maize because of the anticipated global shortage of grains.

Nigeria has been able to increase maize production significantly in the past few years and banning the export of such products may help cushion against the anticipated food crisis. However, we have a couple of caveats: 1) producers are likely to smuggle products if local prices are unfavourable compared with what can be achieved by exporting; and 2) Nigeria still has to rely on imports, as it lacks capacity to produce other staples such as wheat.

Nigeria's historical Maize export is small compared to production

Our latest West Africa research

  • Higher oil prices should in theory be good news for Nigeria, but weak oil production and fuel subsidies erode the positive impact. This spells big trouble for Nigeria.

  • Africa tech startups raised US$767mn in debt in 2021. Fintechs received more than half of this funding, and Nigeria took 45%. For lenders, debt becomes more viable in later funding stages with more cashflow certainty and asset collateralisation. Read more to understand debt funding for African startups.

  • Mauritius CPI hit 9% yoy in February and portends an acceleration in inflation across Sub-Saharan Africa. Especially as the impact on global fuel and commodity prices of Vladimir Putin's invasion of Ukraine is still to feed through.

  • Earnings and dividend season for Nigeria's major banks have begun. GTCO and Zenith Bank recorded declines in profit but remain our top banking stocks. Meanwhile, UBA’s profit grew only slightly, as tax policies from its African subsidiaries weighed negatively on profits.

Upcoming events

Africa Investment Forum virtual boardroom sessions result announcements and press conference - 17 March 2022 (today)

The Africa Investment Forum (championed by the African Development Bank and its partners) have this week been examining more than US$50 billion of curated bankable projects in key priority sectors identified in the Africa Investment Forum’s 2020 Unified Response to Covid-19 initiative. The sectors cut accross agriculture and agro-processing; education; energy and climate; healthcare; minerals and mining; information and communications technology and telecommunication; and industrialization and trade. The Forum is set to announce the results of the chosen investments today.

Nigeria MPC rate decision – 22 March 2022

At the last MPC meeting, the committee voted unanimously to leave policy parameters unchanged – the benchmark Monetary Policy Rate (MPR) at 11.5%, the asymmetric corridor around the MPR at +100bps/- 700bps, cash reserve requirement (CRR) at 27.5%, and liquidity ratio at 30.0%. We expect the MPC to hold rates again despite high inflation and low levels of foreign portfolio investment. In our view, we could see possible rate hikes in the second half of the year.

Ghana MPC rate decision – 28 March 2022

The Bank of Ghana’s rate decision is likely to result in a hike in rate to 16% from 14.5%, according to consensus estimates. This is due to rising concerns about inflation. Recent inflation numbers for February showed a  faster than expected hike in consumer prices to 15.7%. This was 150bps higher than consensus and was the highest rate since 2016.


Nigeria’s all-share index crept into positive territory this week, with a 0.45% wow gain, after the 0.2% decline in the previous week. But market breadth was negative as 37 stocks declined while only 29 gained. Some of the major gainers include MTNN, ETI, ACCESS and PRESCO.

At the other end of the spectrum, SEPLAT continued to trade south after reports that the Nigerian National Petroleum Corporation (NNPC) blocked its purchase of Exxon Mobil's Nigerian business. However, SEPLAT issued a statement reaffirming the validity of the transaction and dismissing the rumours. Meanwhile NB, INTBREW and ZENITHBA also lost ground.

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 (%)