Shining a light on Nigeria-South Africa economic ties

Wasted opportunity, says the Institute for Global Dialogue (IGD), is a phrase that best captures the unexplored possibilities for cooperation between two of Africa’s major powers — Nigeria and South Africa.

The battle for a potential African seat on the United Nations Security Council (UNSC), notes the IGD, “has been a major source of contention between South Africa and Nigeria.

As the most populous African nation, Nigeria’s permanent membership on the UNSC would more proportionately represent the African continent.

Similarly, as the most economically advanced country in Africa, a seat for South Africa could signify increased economic possibilities for UN operations in Africa”.

This, the persistent xenophobic attacks against Nigerians in South Africa, and the inability of Nigerian companies to penetrate the South African market have all added up to fuel political and economic tensions between both countries.

Nigeria and South Africa account for nearly a third of Africa’s economic power, and have driven much of the conflict management initiatives in the continent over the last two-and-a-half decades. Both account for at least 60 percent of the economy of their respective sub-regions in the continent.

South Africa has emerged among the top investors in many sectors of the Nigerian economy. South African companies’ presence is visible in the Nigerian economy, especially in areas such as telecommunication, engineering, banking, retail, hospitality, property development, construction and tourism.

MTN is Nigeria’s biggest telecoms firm. After MTN’s well-executed entry into the Nigerian market in 2001, many other South African companies followed, including Standard Bank (which trades as Stanbic in Nigeria); and Rand Merchant Bank, which is involved in equity funding deals.

Dawn Nagar and Mark Paterson of the Centre for Conflict resolution in Cape Town noted in a 2012 report that “within three years of entering the Nigerian market, which is three times larger than South Africa’s, MTN was making more profit in Nigeria than in South Africa.

Between 2003 and 2004, MTN Nigeria’s post-tax profit stood at 2.36 billion rand, which surpassed MTN South Africa’s profit of 2.24 billion rand. MTN’s phenomenal success encouraged other South African companies to enter the Nigerian market. Within a year of starting its operations, Stanbic’s Nigeria affiliate was contributing 13 percent of its parent company’s Africa wide revenues (1.26 billion rand).”

According to the report, in 2008, Alexander Forbes bought a 40 percent stake in Nigeria’s pension sector, comprising a potential eight million state employees. It said: “South Africa’s Protea group was running four hotels in Lagos by the end of the same year, with another eight under construction. Fast-food chains Chicken Licken and Debonairs Pizza established franchises in Nigeria.

SABMiller is operating a brewery and building another. South African media house Johncom opened Nu Metro cinemas and multimedia stores in Abuja and Lagos, as well as DVD and CD manufacturing plants.

Satellite television provider, Multichoice, boasted 700,000 Nigerian customers in 2012, and has spent $100 million on developing local content.

Retailer, Shoprite Checkers, opened an outlet in Lagos in 2005 that became profitable within a year.”

The economic relationship between both countries is important to the continent. Nigeria and South Africa are critical to the success of the African Continental Free Trade Area (AfCFTA).

South African President, Cyril Ramaphosa, said last year that the AfCFTA would boost intra-African trade, promote industrialisation and competitiveness and contribute to job creation, as well as unleash regional value chains that would facilitate Africa’s meaningful integration into the global economy.

The AfCFTA is expected to improve the prospects of Africa as an attractive investment destination.

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Nigeria is not doing much trade with other African countries and the AfCFTA represents a veritable opportunity to expand trade, grow the economy and engender development.

As noted by the European Centre for Development Policy Management in a recent discussion paper, “Nigeria and South Africa are certainly not the only actors influencing the AfCFTA. Many other African countries and leaders have played important roles during the AfCFTA negotiations.

Nonetheless, Nigeria and South Africa are particularly crucial to the success of the AfCFTA for two related reasons. The first is purely economic. Nigeria and South Africa are Africa’s two largest economies, together accounting for around a third of the gross domestic product of the African continent.”

The report said: “The size of their domestic markets also means they account for a high proportion of intra-African trade. South Africa is by far the biggest contributor to intra-African trade in goods, accounting for just under a quarter (24.9 percent) of such trade, while Nigeria is the third biggest contributor (after Namibia), accounting for 5.51 percent.

Clearly, the benefits of an integrated continental market would be significantly diminished without these two African economic powerhouses.
“The second reason they are so important to the AfCFTA is that their relative economic, military and diplomatic weight enables them to act as ‘swing states’ (or ‘regional hegemons’) in regional and continental processes.

While a number of countries could claim to be swing states in Africa, few would argue against the claims of Nigeria and South Africa. Both have played prominent roles in the integration processes of their respective regions. The two countries have also exerted influence at a continental level.”