Nigeria vs South Africa: Size mat­ters, but so does de­vel­op­ment

Daily Trust - - REUTERS -

What mat­ters more: the size of the pie or how many mouths it has to feed? It de­pends whether you’re eat­ing pies, or sell­ing them.

Most of Nigeria’s 170 mil­lion people live be­low the poverty line, so many com­plained they didn’t feel any richer when the oil pro­duc­ing na­tion’s sta­tis­tics bureau an­nounced on Sun­day the econ­omy had re­placed South Africa as the con­ti­nent’s big­gest.

Nigeria’s 2013 GDP was re­based up to an es­ti­mated nearly $510 bil­lion - a “pie” one and half times the size of South Africa’s, but feed­ing more than three times as many people.

Nige­rian lead­ers hope the sta­tis­ti­cal re­vamp will help them “sell” Africa’s most pop­u­lous mar­ket to in­vestors, in­clud­ing mall-builders, man­u­fac­tur­ers and re­tail­ers of­fer­ing ev­ery­thing from pro­cessed foods and house­hold ap­pli­ances to lux­ury cars.

But de­vel­op­ment econ­o­mists ar­gue that their at­ten­tion should be on im­prov­ing the health, ed­u­ca­tion and in­comes of or­di­nary Nige­ri­ans, many of whom strug­gle to feed their fam­i­lies. In 2013, the Econ­o­mist In­tel­li­gence Unit rated Nigeria the worst place for a child to be born out of 80 coun­tries sur­veyed.

“Re­ally what mat­ters in the end is per capita, how well our in­di­vid­u­als are do­ing,” World Bank chief Africa econ­o­mist Fran­cisco Fer­reira said af­ter the sta­tis­ti­cal change in Abuja.

“I don’t want to rain on Nigeria’s pa­rade ... but what mat­ters are liv­ing stan­dards for ev­ery­one.”

In GDP per capita terms, Nigeria is look­ing health­ier than be­fore re­bas­ing: per capita GDP was $2,688 last year, from an es­ti­mated $1,437 in 2012. Yet that masks grow­ing in­equal­ity: at around 60 per­cent, ab­so­lute poverty in Nigeria is stub­bornly high de­spite five years of aver­age 7 per­cent an­nual GDP growth.

But are bet­ter liv­ing stan­dards for all re­ally what mat­ters to in­vestors look­ing to cash in on a big econ­omy?

On a per capita ba­sis, Botswana, Mau­ri­tius and Sey­chelles are among Africa’s top five rich­est states. None has a pop­u­la­tion of more than 2 mil­lion, so they are ad­mired but can­not claim heavy­weight sta­tus when it comes to com­pet­ing with other African coun­tries for the at­ten­tion of for­eign in­vestors.

“Sey­chelles is the only African coun­try listed un­der ‘very high hu­man de­vel­op­ment’. But when did you last hear Sey­chelles men­tioned dur­ing dis­cus­sions on global po­lit­i­cal econ­omy?” com­men­ta­tor Azuka On­wuka wrote in Nigeria’s Punch news­pa­per.

“A high GDP means ex­ter­nal ... in­vestors pay more at­ten­tion. The U.S. and Europe no longer look down on China and In­dia.”


Nigeria’s po­ten­tial is pred­i­cated on its large pop­u­la­tion.

Econ­o­mist Jim O’Neill no­tably in­cluded it in his MINT group of coun­tries, along­side Mex­ico, In­done­sia and Turkey, which he thinks will join the BRICs (Brazil, In­dia, Rus­sia, China) he named as the emerg­ing economies shap­ing the world’s fu­ture.

All have large, swelling pop­u­la­tions, with a de­mo­graphic bulge around the soon-to-be-most-pro­duc­tive younger gen­er­a­tions.

For businesses de­cid­ing where to in­vest next, a con­sumer mar­ket of 170 mil­lion beats the Sey­chelles’ 85,000.

“Size mat­ters,” Os­car Onyema, chief ex­ec­u­tive of the Nigeria Stock Ex­change, said. “Size means you will be able to do ... projects you would not have con­sid­ered in smaller economies.”

For re­tail­ers tar­get­ing cus­tomers at the bot­tom of the so­cioe­co­nomic pyramid, a na­tional in­come spread around more house­holds - lower GDP per capita, in other words - might ac­tu­ally be a good thing, many econ­o­mists ar­gue.

If you are sell­ing wash­ing pow­der or fizzy drinks, bet­ter a large num­ber of con­sumers on mod­est in­comes than a small num­ber of wealthy. There is only so much cola most people can drink.

For Kenyan in­dus­tri­al­ist Manu Chan­daria, chair­man of Com­craft Group, which sells iron­ware, in­clud­ing cor­ru­gated roofs and pots and pans, Nigeria has mas­sive po­ten­tial.

Com­craft is in 18 lo­ca­tions there, de­spite the fact that its Nigeria man­ager has been kid­napped three times by crim­i­nal gangs - a com­mon risk fac­ing businesses in south­ern Nigeria.

“Nigeria is just colos­sal,” he told the Reuters Africa Sum­mit in Nairobi. “Ev­ery­body needs to eat. Ev­ery­body needs shel­ter ... Any­body that brings in money needs a pot to cook in, they need a roof - so we are in the right place.”.


Higher up that pyramid, liv­ing stan­dards mat­ter more. In this re­gard South Africa, which still has poverty but also a big mid­dle class and an ad­vanced con­sumer so­ci­ety, beats Nigeria.

Africa’s top en­ergy pro­ducer re­lies heav­ily on oil, which tends to con­cen­trate wealth in an elite at the top of the so­cial scale - good for lux­ury goods firms like LVMH and Porsche, both of which have thriv­ing op­er­a­tions in Nigeria.

But re­tail­ers tar­get­ing a broader con­sumer class say Nigeria still needs bet­ter in­fra­struc­ture and a more di­ver­si­fied econ­omy to achieve its full po­ten­tial as a mass mar­ket.

“Un­til the coun­try in­vests more in in­fra­struc­ture, in­vests more on other ac­tiv­i­ties out­side of oil, un­til that starts to de­velop the econ­omy ... I think the po­ten­tial is not like it is in South Africa,” said Mark Turner, Africa Di­rec­tor for Mass­mart Hold­ings, a unit of U.S. re­tailer Wal-Mart.

Mass­mart cur­rently has two stores in Nigeria, with an­other open­ing in the com­ing weeks - com­pared with 300 in South Africa.

Turner said he could see the com­pany open­ing as many as 15 stores in Nigeria, if the coun­try could deepen de­vel­op­ment.

Yet the mar­ket at­trac­tion of Nigeria’s grow­ing mid­dle class is al­ready there - Sho­prite just opened a store in Kano, de­spite the threat of an in­sur­gency in the north, and a Mass­mart ‘ Game’ store will soon join it there. [ID:nL6N0N03ZY]

But Nigeria’s grow­ing in­equal­i­ties add to “po­lit­i­cal risks, as a re­sult of per­ceived marginal­i­sa­tion,” said Razia Khan, chief Africa econ­o­mist at Stan­dard Char­tered Bank. Un­less some­thing is done to lift the im­pov­er­ished masses, the risk of so­cial un­rest, al­ready be­ing reaped in a bloody in­sur­gency in the des­ti­tute north­east and oil theft in the south, will grow.

She said: “The pres­sure on the au­thor­i­ties to cre­ate some sort of so­cial safety net in re­sponse will be sig­nif­i­cant.”

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