Nigeria's new status a 'wake-up call'

The long-expected passing of the baton is now a reality – but what are the practical implications of Nigeria’s new status as the biggest economy in Africa? After rebasing its gross domestic product (GDP) data, the size of the economy is estimated by Bloomberg News to be US$491billion for 2013 compared to South Africa’s $370.3bn. Nigerian GDP now includes previously uncounted industries like telecoms, information technology, music, online sales, airlines, and film production. While the BBC quotes Nigerian financial analyst Bismarck Rewane as saying: “The Nigerian population is not better off tomorrow because of that announcement. It doesn’t put more money in the bank, more food in their stomach. It changes nothing.” Is the same true from a South African perspective? “It doesn’t do anything to our economy,” says economist Mike Schüssler. “If anything it makes the African economy look more successful in general and that should help everybody. “But diplomatically it’s a bloody nose because if you selected South Africa to be part of BRICS because we represent Africa would you not have rather selected Nigeria which has more people and is the bigger economy? And obviously if you were to look at Security Council seats, Nigeria now has more of a stake than we have.” Liz Whitehouse of Whitehouse and Associates agrees that there will be no practical implications, but believes it should give us a wake-up call. Companies must be engaged in Nigeria. A lot of them are anxious and nervous but from our perspective we’ve seen more and more companies moving into Nigeria and making strategic decisions in terms of acquisitions. “Premier has gone the acquisition route. They have spent a lot of time researching the market and have gone in with Nigerian companies. “Shoprite is rolling out even in the north of the country where there’s so much unrest – and achieving success. It’s a question of adaptability to market conditions. For Woolworths it was the Woolworths way of doing things, which didn’t work, while Shoprite is making it work using a different model,” said Whitehouse. Schüssler agrees that more and more South African companies will be heading there at an even faster rate. “As Shoprite opens more stores, others will follow. We’re also seeing an increasing number of queries from roadfreight operators on how to approach the market – do they partner with someone or go it alone.” For South African exporters Schüssler sees enormous potential in the food manufacturing sector, which he believes holds more promise that the automotive industry. “We could become the food factory of Africa and it’s an area in which the dti should be placing bigger focus.” Logistics operators are also making significant moves. In February this year Imperial Logistics announced the acquisition of a 53% interest in Eco Health, a pharmaceutical distributor in Nigeria, for a cash consideration of USD74 million. Eco Health partners with pharmaceutical companies to distribute, sell and market their products, and has longstanding contracts with leading multinational principals. According to Imperial CEO Hubert Brody, in 2012 pharmaceutical expenditure in Nigeria amounted to US$951 million. Logistics major DSV has been involved in the Nigerian market for many years, opening its own office in 2000. “Because of the volume of business we do, our own offices made sense because a good agent is extremely difficult to find,” said chief executive officer Warren Erfmann. “Growth was dramatic in the beginning but over the past few years it’s been more steady than dramatic.” And nothing will change as a result of their newfound status, says Erfmann. “It’s been the change to the formula used to calculate their GDP coupled with South Africa’s slow economic growth rate since 2008 that have allowed them to catch up and surpass us as the largest economy on the continent.” Erfmann believes poor infrastructure and corruption are the biggest trade inhibitors. But market conditions are no more challenging that they are in the likes of Angola, says Whitehouse. “Unfortunately Nigeria’s reputation precedes it and doing business there is not easy. Identifying a partner is difficult and the black market presents its own set of challenges,” she says. “But once you have found the right partner, there are big opportunities.” From a shipping point of view rates are high because there’s limited cargo on the southbound route. But that’s the challenge for South Africa. “Instead of looking at what we can export we should be looking at what we can buy from Nigeria because until there is regular two-way trade shipping rates will continue to be a problem,” says Whitehouse. Redressing the container imbalance will however not be easy, says Erfmann. “There’s a lot of oil and gas moving out of Nigeria – and that doesn’t come in containers. Unfortunately there’s not a lot of general cargo coming down to South Africa so there will always be a container imbalance.” INSERT & CAPTION It doesn’t do anything to our economy but it makes the African economy look more successful in general and that should help everybody. – Mike Schüssler