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The changing of the guard

25th April 2014

By: Keith Campbell

Creamer Media Senior Deputy Editor

  

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It had been expected, but not, I think, so soon. And the scale was greater than expected. So it came as quite a jolt. I am, of course, referring to Nigeria’s rather dramatic leapfrogging of South Africa to become by far the biggest African economy. This followed the rebasing of the West African country’s gross domestic product (GDP) by its National Bureau of Statistics. Rebasing is something that should be done at least every few years. The Nigerians hadn’t done such an exercise since 1990. Hence, the dramatic jump in GDP from $270-billion (pre-rebasing) to $510-billion now.

In comparison, South Africa’s GDP is currently $350-billion, making Nigeria’s 60% greater. Now, Pretoria will rebase its GDP calculations later this year, and this should boost the size of the local economy, but likely by only a few per cent – certainly no where near enough to significantly dent Nigeria’s lead.

It is interesting to look at how Nigeria’s rebased economy is structured. Agriculture is responsible for 21.97%, manufacturing 6.81% (up from some 4% in the pre-rebasing calculations), real estate 8.01%, crude petroleum and natural gas 14.4% (down from 32%, pre-rebasing), tele- communications and information services 8.68%, while the Nigerian film industry, popu- larly known as Nollywood, contributes 1.4%.

Nigeria launched a major economic reform programme in 2003 to end a long period of economic stagnation. From 1992 to 2002, GDP growth averaged some 2.25% a year. Reforms were instituted to bring about macroeconomic stability. The country’s external debt was renegotiated, with $18-billion (or 60% of the total) written off, in return for Nigeria paying $12.4-billion for arrears and debt buy-back. Structural reforms were undertaken, including privatisation (between 1999 and 2006, some 116 State-owned companies were privatised, including the national electricity utility, which was split up into 18 companies) and deregulation. The banking sector was reformed, as was trade policy, with Nigeria liberalising its tariffs by finally adopting the Common External Tariff of the Economic Community of West African States, of which the country is a founder member. As a result, the average unweighted Nigerian tariff declined from 29% to 18% and the average weighted tariff from 25% to 17%.

There were civil service, institutional and governance reforms. Studies indicate that the incidence of bribery and misappropriation of public funds, while still high, have generally declined, although the degree depends on the sector concerned. In a 2007 paper for the Brookings Institute (‘Nigeria’s Economic Reforms: Progress and Challenges’ – also the source for the information in the previous paragraph), Ngozi Okonjo-Iweala and Philip Osafo-Kwaako reproduced tables which showed that, while about 70% of companies surveyed reported bribery in the area of trade permits in 2002, this had fallen to around 61% in 2005. Bribery in taxation was some 63% in 2002, spiking at more than 70% in 2003, before falling about 45% in 2005. Bribery in procurement declined from 90% in 2002 to about 63% in 2005, while bribery in the judiciary fell from some 70% to 40% over the same period. Only in utilities was the level of bribery about the same in 2005 as in 2002, at more than 80%.

The result of all these reforms was growth. The Nigerian economy grew (reports the website www.africaneconomicoutlook.org) at 10.5% in 2005, 6.5% in 2006, 6% in 2007, 6.4% in 2008, 6% in 2009, 7% in 2010, 8% in 2011 and 7.4% in 2012.

Of course, the rebasing of the Nigerian GDP has absolutely no impact on the lives of Nigerians – in the short term. But, in the medium to long terms, it is likely to attract more foreign investment and create more jobs. Investing in Nigeria, by all accounts, takes effort. But more companies will now be willing to make that effort.

But what does this mean for Africa’s now number two economy, South Africa? In the short term, regarding the economy, there will be no discernible effect. But, later, investment that once would almost automatically have gone to South Africa may very well go to Nigeria instead. On the other hand, we may (probably will) see Nigerian investment in South Africa, and growing South African exports to that country (as well as, in due course, imports from it).

It is in foreign policy that the impact will be felt. In international politics, as in many things, there is a degree of inertia. So the impact may not be felt at once, but when it is felt, it is going to hit hard. There is a huge difference between being number one and being number two. That South Africa still has a much higher per capita GDP than Nigeria will cut no ice – Argentina still has a higher per capita GDP than Brazil. South Africa’s voice in the world and in Africa has been diminished.

The ramifications are significant. The India, Brazil, South African Dialogue Forum (better known as Ibsa) was set up as a trilateral grouping of three countries that were the leading developing economies of their continents. That is no longer the case. While Ibsa can continue to operate successfully as a trilateral alignment pursuing concrete cooperation in specific areas, its ability to act in any broader sense has been undermined. The legitimacy of the Brics (Brazil, Russia, India, China and South Africa) alignment has been damaged: South Africa isn’t in the same league as the other four and was widely seen as being admitted because it was Africa’s biggest economy. But it no longer is. And the credibility of the Group of 20 (G20) countries is damaged for as long as it has Africa’s now number two economy as a member and not the new number one. (South Africa is a member of the G20, Nigeria is not.)

Don’t expect the Nigerians to hold back: the new GDP figures will give their political elites a great confidence boost (despite the country’s still severe problems). Way back in 1966, a working paper presented at a conference of Nigerian ambassadors stated bluntly: “Africa is Nigeria’s natural sphere of influence. To shirk this manifest destiny is not to heed the logic of history.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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