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Global economic shocks have had a sharper impact on Nigeria’s currency and inflation dynamics than in South Africa, a Central Bank of Nigeria (CBN) study has found, highlighting the importance of stronger buffers, deeper financial markets and structural reforms in helping African economies absorb external pressures.

Victor Ugbem Oboh, director of the monetary policy department at the CBN, said a study examining the transmission of global shocks into Nigeria and South Africa showed that both economies were affected by external disruptions, but the magnitude of the impact was stronger in Nigeria.

“What the numbers suggest to us is that in Nigeria, the impact recorded an immediate and larger depreciation in the local currency than what we saw in South Africa,” Oboh said at the ongoing 7th Africa Emerging Markets Forum in Abuja.

Presenting a keynote paper titled “Navigating Global Shocks: Monetary Policy Challenges for African Central Banks”, Oboh said recurring global disruptions had become a permanent feature of the economic environment, requiring countries to focus on resilience rather than simply reacting to crises.

“Shocks seem to have come to stay, because while you are dealing with one, another one occurs. So it is no longer about whether shocks will occur or not. The question now is how to deal with it,” Oboh said.

The study examined the impact of major global shocks, including the Covid-19 pandemic, the Russia-Ukraine war, supply-chain disruptions, commodity price movements, geopolitical tensions and changes in monetary policy in advanced economies, particularly the US Federal Reserve.

Oboh said the research focused on Nigeria and South Africa because they are among Africa’s largest economies but have different economic structures, monetary policy frameworks and levels of market development.

South Africa operates a formal inflation-targeting regime and has a longer-established floating exchange-rate system, while Nigeria is transitioning its monetary framework and recently unified its foreign exchange market.

South Africa also has deeper financial markets, while Nigeria remains more exposed to oil price shocks, food import pressures and currency volatility.

Using global vector autoregression and local projection models to trace how international shocks affect domestic economies, the study found that US monetary policy tightening had a stronger impact on Nigeria’s inflation compared with South Africa.

Oboh said both countries initially experienced a decline in inflation following a US monetary policy shock, before inflation later increased. However, the rise was “much sharper” in Nigeria before gradually declining.

“The inflationary effect of US monetary policy tightening is not persistent in both economies. However, the impact and severity is sharper and higher in Nigeria,” he said.

The study also found a stronger exchange-rate transmission effect in Nigeria, with the naira experiencing a larger immediate depreciation compared with South Africa’s rand following global shocks.

Oboh said the difference reflected underlying economic fundamentals, including market depth, reserve levels and the strength of buffers available to absorb external pressures.

“If you have a bigger market, you have a bigger reserve level, you have a stronger base and buffers, then that determines how far you will be able to respond to those shocks and absorb those shocks in terms of exchange rate,” he said.

He said the findings showed that policymakers should look beyond interest-rate adjustments when responding to external shocks, stressing the importance of policy credibility and structural reforms.

According to the study, external shocks accounted for a significant share of inflation movements in both Nigeria and South Africa, reinforcing the need for credible policies that shape expectations among households and businesses.

Oboh said African economies must treat exchange-rate management as a central policy issue rather than a secondary concern, while complementing monetary policy frameworks with broader economic reforms.

“Monetary policy framework alone is not enough. It depends on how much you are able to supplement it with reforms,” he said.

He added that stronger institutions, improved market structures and credible policies would determine how effectively African economies respond to future external shocks.