JH Explorer “Jollof Wars” in West Africa: political changes in Nigeria and Ghana are stirring the pot

The “Jollof Wars” is a friendly rivalry between Ghana and Nigeria over who makes the best version of Jollof rice, a popular West African dish. Each country claims superiority in preparing this flavourful meal, leading to lively debates, social media banter, and culinary competitions. 

Judging a political transition is always a matter of perspective

The election of new leadership in any country is invariably viewed through a dual prism. On one side, proponents of the incoming administration view it as a beacon of change, an opportunity to rectify inefficiencies and eliminate obstacles that have hindered national progress. Conversely, critics of the new regime perceive these changes with scepticism, often endeavouring to impede the impact of the new policies — whether real or anticipated — until such time as they can regain influence. This dynamic is applicable to both Developed Markets (DM) and Emerging Markets (EM), which we witnessed firsthand during our recent visit to Ghana and Nigeria.

As highlighted in our Sri Lanka Explorer, embarking on a visit post-election—once the fervour of the campaign has subsided—enables investors to engage in more enlightened dialogue, concentrating on specific policies and their macroeconomic ramifications.

The low-hanging reform fruits in Nigeria are gone – are there riper ones for the picking?

In Nigeria, we found a nation still coming to terms with the far-reaching developments post the election of President Bola Tinubu in early 2023. From then and through to 2024, the landmark reforms have significantly reshaped the economic landscape. The unification of exchange rates in the summer of 2023 led to the Naira depreciating by over two-thirds of its value relative to the US Dollar[1]. Additionally, since October 2024, fuel prices have been completely liberalised (subsidies removed), facilitated by the launch of the Dangote refinery[2]. The combined fiscal cost of these subsidies was above 5% of GDP in 2022, according to the World Bank[3]. For a country which is struggling to raise its government revenues above 10% of GDP for so many years[4], these figures are staggering and underscore the unsustainable nature of the prior policy.

Central Bank of Nigeria

Under the stewardship of its new governor, Olayemi Cardoso, the Central Bank of Nigeria (CBN) played a pivotal role in securing some of the initial successes of President Tinubu’s administration. These include:

• halting deficit monetisation through “ways and means advances”,
• eliminating widespread foreign exchange (FX) and import restrictions,
• implementing monetary policy tightening,
• and liberalizing FX.

These measures were instrumental in rejuvenating activity in the interbank FX market and in bolstering gross international reserves. Despite the positive developments, the net reserve position – a measure of a country’s liquidity – continues to be an enigma. We were heartened by the governor’s pledge to begin issuing regular updates on this figure starting later this year. Although the exact figure remains unclear, the trend has been unmistakably favourable since the release of the CBN’s audited financial statements back in August 2023, which had revealed a much weaker net reserves position than the market had anticipated.

“People don’t eat reforms”.

This was a mantra we heard in more than one meeting. In our discussions, these pivoted towards strategies for ensuring that the benefits of these reforms result in concrete social advancements. The authorities are currently concentrating on creating additional fiscal room to support increased social expenditure, necessary to counter the escalation in food insecurity and poverty, alongside managing heightened debt servicing obligations.

Improving Africa’s largest oil producer’s fiscal position

From a fiscal perspective, the 2025 budget was characterised by many of our interlocutors as being built on rosy assumptions on growth and oil production, which is targeted to reach 2.06m barrels per day (bpd) this year. Recent data indicates a production level of around 1.7m bpd[5], but since the easy gains are already achieved, there was widespread scepticism about Nigeria’s ability to close the remaining gap by the end of the year. Nevertheless, the pursuit of these ambitions raises the question of whether Nigeria might find itself at odds with OPEC, given its quota of 1.5m bpd. We believe that the pressing need for increased revenue in the short term creates a compelling incentive to surpass this quota, should the opportunity arise.

Debt management Office, Abuja, Nigeria

Sorin Pirău at the Debt Management Office (DMO), Abuja, Nigeria

Locals were keenly awaiting further details on an impending audit designed to reconcile what is owed by the Nigeria National Petroleum Corporation or NNPC – the fully state-owned oil company of Nigeria – to the Federal Government and vice versa to better estimate the fiscal space created by the abolition of fuel subsidies. Enhancing the transparency of oil revenues remains a critical yet unresolved area of reform under President Tinubu’s administration. However, addressing this issue is essential before NNPC can proceed with plans to issue a Eurobond or undertake an Initial Public Offering (IPO).

During our visit, the ‘Tax Reform Bills’, aimed at simplifying, improving and enhancing the efficiency of tax administration, were progressing through the National Assembly. They were anticipated to be implemented in the latter half of this year, but the size of their impact on the fiscal position remains uncertain. Overall, we anticipate an improvement in Nigeria’s fiscal situation over the medium term, despite the ongoing challenge of debt affordability, as interest payments continue to consume approximately 30% of general government revenues, one of the highest ratios in our investment universe[6].

Going forward Nigeria’s market perception will hinge on the government’s success in executing the more challenging second phase of reforms. These are centred on diversifying the economy, improving security, expanding the tax base, and boosting the quality and reliability of data. The latter represents a significant hurdle for the country, complicating the work of investors and hindering efficient policymaking by requiring decision-makers to sift through a haze of uncertainty.

Ghana forges ahead on its tough trek from debt default to economic recovery

For years, Ghana has been a staple investment destination for many investors in Sub-Saharan Africa. It led the way as an early participant in the region’s Eurobond market with its debut issuance in 2007 and enjoyed a series of macro tailwinds, such as a boost in oil production, which contributed to significant social progress. However, this growth was underpinned by increasing fiscal and external imbalances, leading to a fragile economic structure that ultimately collapsed following the pandemic. The country consequently defaulted on its external debt in late 2022, marking Africa’s largest Eurobond default to date[7].

Jubilee House, Accra

Unlike our last visit in early 2023, Ghana’s capital Accra had a markedly different atmosphere. It was no longer a country battling crisis on multiple fronts, but one that had emerged from a painful debt restructuring process, making commendable progress in its IMF programme and going through a political transition after the elections. These resulted in a significant win for the former president, John Mahama, and his party, the National Democratic Congress, granting them a constitutional majority and a strong popular mandate to steer the country back on course.

The focus of our discussions now revolved around whether the new government would adhere to the fiscal responsibilities outlined in the country’s Extended Credit Facility (ECF) arrangement, which is up for review in April. The previous government’s commitment to increase revenues—a crucial requirement for both fiscal consolidation and to achieve the 18% external debt service-to-revenues target by 2028[8]—seems to conflict with Mahama’s campaign pledges to eliminate certain unpopular taxes introduced during the crisis. Nonetheless, it was reassuring to learn that the authorities are still dedicated to meeting the primary objectives of the programme and are only considering minor adjustments rather than a complete overhaul. There was also general optimism towards its 2025 budget, expected to be announced towards the end of the first quarter.

Officials were also hopeful regarding the schedule for completing all pending restructuring deals, including with bilateral creditors[9] and in the energy sector. Such advancements should pave the way for Ghana to transition out of its default status, initially moving up to CCC+, and subsequently aiming for a B- rating once the current IMF programme is completed successfully in 2026.

Gold rush

Examining Ghana’s external balance sheet reveals that it has gained from both debt relief provided by its external creditors and robust gold exports, which have bolstered its international reserves position. A significant boom in gold exports saw revenues climb to US$11.6 billion in 2024, accounting for nearly 60% of the country’s total exports[10]. Since late 2022, the Bank of Ghana (BoG) has initiated an extensive gold purchasing programme, known as “gold-for-reserves” which has enabled the country to exceed its net international reserves (NIR) targets[11] .

Sorin Pirău at the Ministry of Finance, Accra, Ghana

Ultimately, Ghana is favourably positioned at least over the short and medium term, thanks to a comprehensive IMF programme that anchors a constructive macroeconomic outlook and allows the country to stay outside international capital markets until at least mid-2026 when the ECF expires. The absence of any near-term bond issuance coupled with a relatively high carry, presents a compelling opportunity for active investors willing to reconsider Ghana as it rebounds from the aftermath of its last crisis.

Just as with Jollof, multiple recipes exist to address a debt crisis

While both countries share similarities, such as political transitions, challenges in revenue mobilisation, and exposure to commodity price fluctuations (oil for Nigeria, and primarily gold, along with oil to a lesser extent, for Ghana), their situations also diverge in significant ways. Ghana’s pre-existing vulnerabilities and insufficient policy response meant that the pandemic and tightening global financial conditions left it unable to rollover existing debt obligations, ultimately pushing it into a sovereign default. On the other hand, Nigeria, despite running a mix of unsustainable fiscal and monetary policies had a much longer runway, which gave just enough time for the new administration to reverse this toxic mix of policies without triggering a full-blown debt crisis.

However, Nigeria must now deal with the fallout from its previous missteps, including inflationary pressures, increased debt servicing costs amid growing public debt, domestic arrears, and deteriorating social indicators. In contrast, Ghana embarked on a different path by seeking debt service relief through restructuring, which technically improved the quality of its balance sheet. However, this came with considerable negative repercussions, as defaulting on debt is never a cost-free solution[12]. As both nations navigate through the aftermath of their previous policy choices, investors will closely scrutinise their journey ahead. Investors can find attractive opportunities in high yield countries regardless of their restructuring history, but careful consideration – including ‘on-site’ research visits like these – is essential to grasp each country’s distinctive path and accurately assess if current valuations reflect the associated risks.

Voetnoten

[1] Source: Macrobond, depreciation since 19 June 2023 to 27 February 2025. The policy was meant to unify all exchange rates into a single market-driven exchange rate to enhance transparency and appropriate price discovery in the foreign exchange market.

[2] The 650,000 barrel-per-day refinery built by Nigerian billionaire Aliko Dangote in Lagos started processing petrol in September 2024 and will soon hit full capacity, making it one of the world’s largest crude processing sites.

[3] Source: World Bank – Nigeria Development Update, October 2024.

[4] Source: Macrobond, IMF WEO, General Government Revenue, as at 27 February 2025.

[5] Source: Macrobond, Nigerian Upstream Petroleum Regulatory Commission (NUPRC), as at 27 February 2025. Production level includes condensates.

[6] Source: Fitch Ratings, 25 November 2024.

[7] In December 2022, Ghana announced a domestic debt exchange programme and a suspension of payments on external debt, including US$13bn of sovereign Eurobonds.

[8] Source: IMF, third review under the ECF, December 2024.

[9] On the day of our visit to Accra, the government  announced an MoU with its Official Creditor Committee (OCC), paving the way for signing bilateral agreements with each official creditor in the near term: Ghana’s Government has Signed a Memorandum of Understanding with its Official Creditor Committee | Ministry of Finance | Ghana

[10] Source: Ghana Central Bank, 27 January 2025.

[11] Source: Bank of Ghana, IMF, January 2025 and December 2024 respectively.

[12] For a more comprehensive analysis on the costs of sovereign defaults, see Costs of Sovereign Defaults: Restructuring Strategies, Bank Distress and the Capital Inflow-Credit Channel and The Social Costs of Sovereign Default | NBER