As Nigeria’s economy continues to post promising growth figures, the State’s ability to maintain economic momentum will rely on its ability to diversify its economy away from a hefty reliance on its burgeoning oil and gas sector.

“As soon as an economy focuses too much on one component [or contributor] of its economy, it weakens. While the oil and gas industry is driving Nigeria’s impressive growth figures, as it develops further, it will have to diversify [to remain competitive],” advisory firm KPMG senior economist Lullu Krugel said on Thursday.

The West African State boasted the largest gas and second-largest oil reserves on the continent, with the country’s $262.6-billion gross domestic product (GDP) in 2012 driven largely by an investment rush into the growing industry, a report by professional services firm PwC had shown.

Moreover, Business Day Online earlier this week said that expectations from Nigeria’s GDP rebasing, expected by the end of this month, were “high”, with experts predicting it may increase the size of the nation’s economy by up to 60%, which would see the country’s estimated GDP increase to about $405-billion.

This would considerably exceed South Africa’s 2012 GDP of $384.3-billion, making Nigeria the largest economy on the continent.

“On paper, this may make Nigeria look as though it’s bigger than South Africa, but it calculates its GDP very differently to us, making this open for debate.

“Despite Nigeria having three or four times our population size and, thus, more buying power, South Africa remains the largest economy, in terms of input and output, in Africa,” Krugel commented at an Africa Exchange business seminar in Johannesburg.

MIXED BAG

She cautioned, however, that the South African economy was “not firing on all cylinders,” battling endemic threats to growth, which included labour market unrest, increased government debt levels and “uneven” international competitiveness.

KPMG expected South African growth to average 3% a year for at least the next ten years, exceeded by growth in the Nigerian economy, which was expected to be about 6.9% a year.

Krugel further warned against South Africa relying too heavily on its currently weakened currency, which, while providing an enabling environment for export products, was indicative of an inherent lack of confidence in the country’s economy.

“The current exchange rate is not sustainable and business cannot simply rely on a weak currency. We need to rather focus on [our low levels of] productivity and the [high] cost of doing business here, which affect our level of competitiveness,” she explained.

This was in evidence in the South African Chamber of Commerce and Industry’s Business Confidence Index, which, over the last four quarters, posted a decline in overall business confidence to 41 in March, largely off the back of a weakened and volatile currency, the potential for interest rate hikes and continued strikes in the platinum sector and elsewhere.

ENHANCING COMPETITIVENESS

In terms of its level of international competitiveness, the country faired somewhat better, but still produced an “uneven” set of results, which Krugel attributed to “pockets” of excellence.

Chief constraints to competitiveness in South Africa, which was ranked by KPMG as the fifty-third most economically competitive State globally, were identified as an inadequately educated workforce, restrictive labour regulations and inefficient government beauracracy.

“While we were recently overtaken by fellow African country Mauritius in terms of our level of competiveness, we do still have areas in which we excel. These include our formal institutions, financial markets and our level of innovation,” Krugel said.

Central to South African economic recovery, she added, was a concerted shift from a consumption-focused economy to a production-focused economy, which was “something we’ve been saying for a while”.

This would require the implementation and integration of the country’s numerous policies – “we’ve got lots and lots of policy”– complete reform of the labour market, which remained a “touchy subject”, an overhaul of the educational system and a move into new markets, particularly those in Africa.

“We’ve got lots of things going for us, but we need to understand where to shift the gears. If we do this, we’ll remain a favoured destination on the continent,” Krugel said.