South Africa and Nigeria are the largest economies in Africa. Together they represent 60% of the continent’s GDP – out of 54 countries. Failure, as such, is not an option. That’s why the World Economic Forum’s Update on South Africa and Nigeria was concentrated around identifying existing economic challenges, steps to overcoming them, and growth prospects for the future.
Verod Capital Management is a leading private equity firm focused on Nigeria. “How did we get here?” asked the company’s Co-founder and CEO, Danladi Verheijen, in his opening remarks on the panel. He was referring to the country’s economic crisis in the wake of a commodity crash and militant activities negatively impacting on oil outputs – the primary source of government revenue in Nigeria.
“We had cold water thrown on us,” stated Verheijen, expressing the shock of the nation at how quickly Nigeria’s lack of economic diversity became a serious problem, prompting a much-needed wake-up call. Since then, the country’s GDP has seen slight but positive growth. There has been an increase in activity outside of the oil and gas sectors, with some investment dollars chasing projects in the manufacturing and agriculture sector, and even gradual liberation in the formerly restrictive FX market.
The government has proposed an ambitious growth and recovery plan to further accelerate the rebound of the economy, and while implementation could be a challenge, it’s still a step in the right direction. The South African economy, on the other hand, is facing new economic challenges every day, given its recent downgrades. Nonetheless, the WEF panellists remained largely optimistic, discussing several potential short-term and long-term solutions, to help both countries brave the storms of recessionary climates and come out the other side stronger than before. They are summarised here:
Expanding local and regional trade
Attracting and boosting investor confidence is paramount to charting a new way forward for African economies. One obstacle to this is Africa’s dependence on imports, specifically in countries like Nigeria. The continent will need to make a coordinated and collaborative effort to strengthen its domestic market and service capabilities if this is ever to change.
Most investors prefer individual large transactions of between 50 to 100 million dollars, and these can mostly be achieved in larger economies, such as Nigeria and South Africa. But where does that leave neighboring countries and the continent as a whole? Establishing a regional economic environment, rather than one that attracts investors country by country, would strengthen the domestic market via a ripple effect. That is to say, South Africa and Nigeria could help benefit other surrounding regions by enabling investment to reach more projects in these regions.
Blurring the border between African territories not only inspires international interest, but domestic investment too – truly a win-win strategy. However, unlike its counterparts in Europe, Asia and the Americas, Africa is highly fragmented, with only 10% of the balance being attributed to intra-continental trade. This is unlikely to change until we can overcome existing hurdles. These include the poor state of transportation infrastructure to support intra-continental trade by road and air, government policies that deter cross-regional exchange, and the added complications presented by Visas for travel between nations, which could be mitigated if their necessity was removed.
Stimulating greater co-ordination between public and private sectors
Governments in Africa are coming up with good growth and recovery plans, but without implementation strategies to match, that’s all they’ll ever be. Merging public and private sector interests is one way to encourage successful implementation. A good example of this is the way Nigeria is enabling members of the private sector to become stakeholders, personally invested in reviving their economies and driving sustainable long-term economic growth.
To achieve this, the Nigerian recovery plan to diversify the economy has been combined with several initiatives to help the SME sector improve infrastructure, education and access to credit. If building businesses in the country is made easier, more people are likely to take up the torch and help drive the economy towards greater diversity.
Marketing our successes more than our failures
The constant negative press concerning Africa is a major issue. Bad news sells, and it has become the African continent’s most costly export. Complaining about negative issues in Africa is free, but we pay later when these issues become headlines, deterring investment both from foreign shores and at home.
In Nigeria for instance, Boko Haram has been getting a lot of media attention in the north-east part of the country. This has stirred up security concerns over the past 18 months. The Nigerian military and government has taken active steps to push back the rebels and reclaim stolen territories and has had some important successes – this news is barely mentioned or celebrated in the media. Another example is corruption. Corruption and corrupt practices in both the public and private sectors alike have also been making headlines. The government again has responded by taking a staunch stance against corruption. However, the focus has been on sensationalized headlines like “Nigeria’s anti-corruption unit finds $43 million cash in Lagos apartment” The co-ordinated efforts behind these corruption crackdowns receive minimal accolade from international and national press. These should be celebrated as well, or even more so.
The anti-globalization and protectionist stances that have risen to prominence in key economies such as the USA, UK and France should serve as an opportunity for Africa to focus inwards, to take advantage of its key strengths to build self-sustaining economies with true stamina and staying power.