On March 31 Nigeria is going to shoot past South Africa to become the largest economy in Africa, says Peter Fabricius.
GDP – Gross Domestic Product – has always seemed to be one of the most objective measures of a country, like population size or land area. Turns out that it’s not. There isn’t, after all, a gynormous till somewhere at the Reserve Bank that automatically rings up every single commercial transaction in the country to total the nation’s GDP.
It is instead based on certain assumptions, not least how much weight the gnomes who calculate such things assign to different sectors of the economy.
That’s why Nigeria is going to shoot past South Africa to become the largest economy in Africa on March 31. Nigeria is rebasing its calculation of GDP, from the current base of 1990 to 2010.
That means, essentially, that GDP will give greater weight to new sectors of the Nigerian economy that have become more important since 1990 such as telecoms, IT, Nollywood and the rest of the entertainment industry.
Nigeria’s nominal GDP is now about $305 billion and South Africa’s about $350 billion. Rebasing will boost Nigeria’s GDP by 40 to 60 percent, according to Bismarck Rewane, MD of Nigeria’s Financial Derivatives Company, speaking at a seminar on the subject at the Gordon Institute of Business Science this month.
That means Nigeria’s GDP will immediately expand to somewhere between $427 billion and $488 billion, leaving South Africa a distant second.
What will that mean for both countries?
Rewane thought it would be mostly good for Nigeria, lowering its debt and fiscal deficit ratios and boosting investment.
On the downside, it would widen inequality and by lifting Nigeria from an officially low-income to a middle-income country, would reduce the amount of foreign development aid it received.
And for South Africa?
Well, clearly it will lose its coveted bragging rights as Africa’s largest economy. That will be particularly galling to some in the government and elsewhere who regard Nigeria as a rival.
Some fear that South Africa might also lose its position as Africa’s – unofficial – representative at international organisations like the G20 and Brics.
The consensus at the seminar, however, seemed to be that, if anything, Nigeria might become Africa’s second representative in those clubs, which would be a good thing.
In any case, the G20 and Brics would probably be reluctant to kick South Africa out.
Likewise, if the UN Security Council is ever expanded and two new permanent seats are created for Africa – as Africa wants – there should be no problem. If Africa gets only one seat, Nigeria’s chances of winning it will presumably now be improved.
Economically the impact on South Africa is harder to assess. Rewane suggested that when Nigeria became number one, “South Africa’s anaemic economy and faltering currency may appear less appealing” to investors.
However, Annabel Bishop of Investec Bank and Yvette Babb of Standard Bank did not forsee any great economic impact on South Africa.
Both pointed out the advantages that South Africa would continue to enjoy as the main gateway to Africa, including superior infrastructure, institutions, and financial systems and a vastly bigger capital market of about $1 trillion compared to Nigeria’s $100 billion.
A Nigerian in the audience objected that his country was being painted almost as a failed state, ignoring its high education standards and the dynamism of its entrepreneurs.
By contrast South Africa had been “almost a banana republic” last year as strikes had crippled the economy.
Babb insisted she was merely presenting a nuanced picture and that Nigeria would have to improve institutions and infrastructure if it was really to boom.
Ade Ayeyemi, a Nigerian who heads Citibank’s sub-Saharan operations from Joburg, had the second-last word, saying it was a quibble whether Nigeria or South Africa was the biggest.
“We’re all pygmies in Africa. We need to join forces to make Africa as a whole more attractive.”
The last word came from Lyal White of the Gordon Institute of Business Science who proposed that being overtaken by Nigeria would be good for South Africa, jolting it out of its complacency and spurring it on to greater things.