Editorial

Can Nigeria replace South Africa as the gateway to Africa?

 

South Africa, which sees itself as the gateway to Africa, is set to be displacedas the continent’s largest economy in terms of gross domestic product (GDP) data. This will not only question South Africa’s place in the Brics (Brazil, Russia, India, China, South Africa) group of powerful emerging economies, but also its attraction as the first choice for foreign investment in Africa.

This is the gist of an article which appeared today (Saturday, February 1), in South Africa’s influential national business daily, Business Day, written by Mnyanda, who is a philosophy and politics major at the University of Cape Town.

And it’s got tongues wagging.

To back up his argument, Mnyanda uses 2012 World Bank estimates whichput Nigeria’s economic output at $263bn and South Africa’s at $384bn, but that  economists see Nigeria’s GDP increase to between $384bn and $424bn in the near future, making it Africa’s new economic powerhouse.

“Over the past decade, Nigeria has boasted superior economic growth. The West African nation, with a population of more than 170-million people — three times South Africa’s 51-million — has outpaced South Africa’s sluggish growth by expanding by an average of 7% a year, compared with South Africa’s meagre 3% average,” Mnyanda says.

In the same breath he argues that this new position will have little effect on the estimated 100-million people living in Nigeria who survive on less than $1 a day and points out that Nigeria’s single-commodity dependence; oil accounts for almost 80% of the Nigerian government’s revenue at present.

“Having a bigger economy does not always mean a country is better off than one with a smaller economy. Countries with larger populations often have bigger economies owing to the fact that there are more people. One cannot simply infer that this means that there is a more developed economy or even that living standards are better.”

He then argues that one in five Africans is Nigerian by virtue of which it should the biggest economy on the continent.

“This is not to say that it is the most advanced economy on the continent. Even if the Nigerian economy is declared the largest in Africa, its GDP per capita is expected to be about $2,400, whereas South Africa’s is almost $7,000.

“Much like China and the US, the Nigerian economy would have to be much larger for living standards to be comparable with those in South Africa.”

Dealing with future foreign investment, he argues that investors were likely to be Nigeria.

“However, one must still remember that the South African economy will remain more diversified and developed than that of Nigeria for some time to come. South African financial markets rank among the world’s most advanced; the JSE has a total market capitalisation of $903bn, compared with the Nigerian Stock Exchange’s total market capitalisation of $81bn.”

He also points out that South Africa also has world-class infrastructure and superior services industries that make it far easier to do business with South Africa than Nigeria.

“On the flip side, the South African market is often described as “saturated” and its underwhelming growth and frequent labour unrest often increase the appeal of other emerging African markets, such as Nigeria.”

And then he ends of with a warning: “For too long, South Africans have taken their leading economic position on the continent for granted.It will be good to have a newcomer that threatens to change the traditional route for foreign direct investment into Africa. Nigeria’s new position might also have interesting geopolitical implications, which will not only question South Africa’s place in the Brics (Brazil, Russia, India, China, South Africa) group of powerful emerging economies, but also its sole African representation in the Group of 20.”

Fact is that Nigeria is making big strides improving its infrastructure and diversifying its economy beyond oil.

Examples:

Just like South Africa has done, Nigeria is in the process of establishing a vehicle manufacturing/assembly industry via its recently approved National Automotive Industry Development Plan (NAIDP). Two Indian vehicle manufacturers, TATA Motors and TVS Motor, have recently signed a memorandum of understanding last year by the Renault-Nissan Alliance and Nigeria’s Stallion Group to start vehicle assembly in Nigeria.

Officials of Tata, which manufactures a full range of trucks, buses, vans, pick-ups, cars (it owns the Jaguar and Landrover brands) and TVS Motor, which manufactures three-wheelers and motorcycles, had separate meetings with the country’s National Automotive Council (NAC) recently, according several Nigerian newspaper reports.

Both automobile companies visited the council with the intention of obtaining information on all the needed technical details, administrative requirements and guidelines in setting up of vehicle industrial plants, NAC Principal Executive Officer (Information), Bello Rasheed said.

Nigeria’s NAIDP is targeted at discouraging vehicle importation and encouraging investment from auto manufacturers to produce less expensive vehicle models in the country. In the process, it should generate job opportunities, contribute significantly to the GDP, meet the annual demand for vehicles, and strenghten Nigeria’s position in the global automotive industry.

Other major manufacturers like Toyota, Hyundai, Kia, and Geely are also reported to have shown interest in establishing plants in Nigeria, according to reports.

FOREIGN INVESTMENT

Nigeria has been ranked Africa’s number one destination for Foreign Direct Investment by UNCTAD for three years in a row.

In their latest report entitled “Global Value Chains: Investment and Trade for Development”, issued in July 2013, UNCTAD’s estimates of FDI inflows in 2012 for the leading countries are:

Nigeria $7.03billion

Angola $6.898billion

South Africa $4.572billion

Ghana $3.295billion

Egypt $2.798billion,

FDI continues flow into Nigeria, the latest major inflow being General Electric’s $1 billion service and manufacturing facility.

A report by PricewaterhouseCoopers (PwC) on ten African countries released in Johannesburg recently names Nigeria and Ghana as Africa’s rising stars in terms of their future prospects for the transportation and logistics industry.

This is ahead of the other eight countries covered – Algeria, Angola, the Democratic Republic of the Congo (DRC), Egypt, Kenya, Mozambique, South Africa and Tanzania.

The countries were judged against one another in terms of demographics and resources; economics; business environment; trade and logistics; and transport infrastructure, with each rated as either ‘attractive’, ‘average’ or ‘unattractive’.

South Africa fared best overall, with attractive economics, business environment, trade and logistics and transport infrastructure, but scored only an “average” on demographics and resources.

Looking ahead at prospects for the 2012-2017 period, the DRC  was  forecast to record average GDP growth of 8.6%, Mozambique 8%, Nigeria 6.8%,  Tanzania 7%, Kenya 6.2%, Ghana 5.9%, Angola  5.7% , Algeria 3.6%, Egypt 3.5% and South Africa 3%.

The report, which can be downloaded from PwC’s South African website (see link below) was compiled by PwC Transportation & Logistics leader and associate director Andrew Shaw, and two global T&L leaders, Klaus Dieter Ruske and Peter Kauschke. There was also input from Econometrics, South Africa.