Nigeria will overtake South Africa as Africa's largest economy in the next two years, experts predict. But concern is also rising that by not doing “enough” business in Africa, the country is missing an opportunity to benefit from the continent's economic resurgence.
According to experts, Nigeria's leap will be confirmed by the results of an ongoing revision of the country's gross domestic product (GDP), expected to be concluded in January 2014.
Initial findings of the rebasing exercise indicate that Nigeria's economy has grown more that earlier estimated.
This growth has been fueled by Nigeria's efforts at changing its dependence on oil revenues by encouraging more investments in other sectors of the economy, while its rivals, South Africa has struggled with low business confidence, confirmed by its big retailers (Shoprite, Mr Price, Foschini) northward investment trend, as revenues on the home front dwindle, and persistent strikes which continue setback production in its mining sector.
“If confirmed, the 40% upward revision will bring Nigeria's GDP to about $370 billion, just shy of South Africa's output [$391 billion forecast for 2012], with the country subsequently becoming the largest economy in Africa within a year or two," says Samir Gadio, an Emerging Markets Strategist at Standard Bank in Nigeria.
Some Africa watchers say the revision will only see Nigeria catch up with, instead of overtake, South Africa.
“Latest IMF data puts Nigeria's GDP in current USD as $273 billion in 2012. South Africa's (projected) 2012 GDP in US dollars is estimated at $420 billion,” says Razia Khan, Head of Africa Research at Standard Chartered Bank in a recent briefing.
“With rebasing, Nigeria's economy comes closer to catching up. It becomes a $382 billion economy roughly and only 10 percent smaller than South Africa.”
Whatever the final figures, Nigeria has made impressive economic gains over the past decade, mostly driven by oil.
According to Nigeria's Finance Ministry, oil constitutes more than 80% of revenue and 95% of export income. Other revenue streams are emerging with investment in telecoms, e-commerce, and more recently, agriculture.
But it is concentrated in investment and trading partnerships in Europe, Asia and America - with almost complete absence in Africa.
In February this year, British Deputy High Commissioner to Nigeria, Peter Carter predicted trade between Nigeria and UK would hit $12.2 billion by 2014, mostly coming from oil.
In April, Canada agreed to partner and explore crude oil export, raw materials and services exports to boost bilateral trade to about $6 billion. Trade with China is pegged at over $13 billion annually, also mostly in oil.
The Visa Africa Integration Index 2013, which measures the degree of economic integration within key trade corridors of sub-Saharan Africa, describes Nigeria as one of the least regionally integrated economies on the continent.
Nigeria's global integration score of 40.6 percent represents its greater links with the rest of the world, while the regional score of 35.7 percent shows its lesser links with Africa.
The ‘depth' of Nigeria's regional integration is scored at an even lesser 19.2 percent, meaning that even where trade relations exist, their commercial output is limited.
By comparison South Africa, Nigeria's main rival for the spot of Africa's leading economy, scores 63.3 percent, indicating greater economic links on both the regional and global level.
Nigeria's status must change for the country to truly lead, and benefit from, Africa's economic resurgence.
“The size and influence of Nigeria in Africa cannot be overstated,” said the Visa report. “While the country's levels of regional and global integration are still relatively low, Nigeria is likely to be one of the key drivers of integration in Africa and one of the primary forces of African integration with the rest of the world.”
Individual businessmen like Alhaji Aliko Dangote, who has cement interests in 13 African countries, and Michael Adenuga, whose telecommunications company Globacom claims significant market share in Benin Republic and Ghana, have made substantial investments on the continent, but as a country Nigeria has overlooked the benefits of economic integration, even as its growing market matures and modernizes, and the movement of goods and services, capital, information and people increases.
While Nigeria's trade with other African countries, especially its West African neighbours, has increased over the past three years, it remains dismal in the key areas that drive growth - including trade, capital investments, information exchange and movement of people, according to the report.
Its dominance of the continent's cultural market, with the popularity of Nollywood movies (reported to rake in up to $ 200 million a year in revenues) and musical exports like P-Square (virtually a household name), has reaped minimal economic dividends.
With Ghana, its Economic Community of West Africa (ECOWAS) neighbour, there is evidence of growing investment in the banking sector with Nigeria's Zenith Bank, Access Bank, First Bank, Guaranty Trust Bank and United Bank for Africa (UBA), owning stakes or subsidiaries in the country. But the rest is petty retail trading - dogged by the complications of border crossing in the region.
“We both [countries] just don't do business,” said a Ghanaian business journalist at a training workshop organized by the Thomson Reuters Foundation in Addis Ababa recently.
Further afield in Eastern Africa, an emerging economic bloc that also includes Kenya, Tanzania and Rwanda, a few pockets of Nigerian investments can be found.
In Uganda, significant investments have been made in the financial sector, including IGI's 51% stake in National Insurance Company (NIC), a former state enterprise that is listed on the country's stock exchange, and its 49% stake in Global Trust Bank; and a UBA subsidiary. NIC itself owns 60% of GTB.
In southern African countries like Zimbabwe, Nigerians are mostly engaged in small-scale retail and the sale of Nollywood films - mostly pirated - on the streets.
By contrast, South Africa's footprint covers most countries on the continent, notably through telecom giant MTN, Standard Bank (as Stanbic) and retail giants like Shoprite.
Part of Nigeria's problem has been the failure to diversify from oil, which has seen other pillars of commerce weaken.
“It has “struggled to advance industrial complexity,” says Prof. Adrian Saville, Chief Investment Officer, Cannon Asset Managers and co-author of the Visa Africa Integration Index 2013 report.
“75.0% of Nigeria's exports in 2010 were made up of crude oil and 4.7% of refined petroleum, whilst 18.0% of imports in 2010 were made up of refined petroleum and another 1.0% were made up of petroleum coke and petroleum jelly,” he furthers.
According to him, “Nigeria [must start] increasingly refining and processing crude exports into more complex products - such as refined petroleum or petroleum jelly to replace imports with domestic production and, in a fuller state of economic development, start to sell refined products into export markets.”
The Visa report argues that Nigeria will be the main beneficiary; “Nigeria will benefit enormously from greater integration, as its growing market matures and modernises, and the demand for capital and a diversity of trade partners rises to address the needs of increasing industrialisation, a rising appetite for production and services and growing sophistication in lifestyles.”
This development will also inform the economic decisions of policy makers and business leaders in the country as it seeks to cement its position in Africa.