South Africa: Learning to live as No 2

Cynical sleight of hand?

Some South African cynics maintain that Nigeria was guilty of a numerical sleight of hand in reworking its GDP to show that the West African oil producer was the continental Number One economy and could at last shed the ‘second biggest’ appellation. “It’s a matter of lies, damn lies and statistics,” they mutter.

Over the past decade or so, some economists have alluded to Nigeria’s growth as ‘at a gallop’ and South Africa’s ‘slowing to a canter or even a leisurely trot’.

The disparity was never more noticeable than in the first quarter of this year when South Africa’s economy slowed (it actually contracted at -0.6% in the first quarter of 2014) and Nigeria’s ballooned (helped along by unprecedented oil prices). In fact, it was a matter of time before the economic one-two was reversed.

The IMF’s latest World Economic Outlook report for 2014 put the boot in. It showed that, while South Africa’s economy would manage just 2% or so for the next couple of years, Nigeria showed every sign of continuing its economic dominance on the continent, with average growth cruising along at around 7%+.

It should not have been surprising, therefore, to see Nigeria overtake South Africa when its GDP was debased. The fact that Nigeria occupied runner-up status much longer than it needed to was no one’s fault but its own.

Nigeria has a reputation for playing fast and loose in matters financial so sceptics immediately worried that the reported sudden doubling of the economy was a result of fiddling the numbers. “In fact,” notes The Economist, “it is the old numbers that are dodgy. An economy’s real growth rate is typically measured by reference to prices in a base year.

In Nigeria, the reference year for the old estimate of GDP was 1990. The IMF recommends that base years be updated at least every five years. Nigeria left it far too long; as a result, its old GDP figures were hopelessly inaccurate.”

Demonstrating there were no sour grapes or hard feelings, South Africa’s Finance Ministry congratulated Nigeria on its new-found status. It did remind the West African state, however, that some of the credit was due to South African companies’ investments in
Nigeria’s retail and telecommunications sectors.

“This is a positive story of African countries contributing to reshaping each other’s economies through increased investment. South Africa will continue to nurture mutually beneficial trade and investment ties with Nigeria”, a statement by the ministry said.

But that could be sensitive ground because some West Africans are becoming more sensitive about South African dominance in regional commercial affairs.

Michael Lalor of Ernst & Young points out that economic size is not always the best measurement of value. In terms of infrastructure, financial systems, manufacturing capabilities, quality of services, retail markets and income levels, South Africa leads the way, he believes.

“On any kind of objective risk-versus-reward opportunity analysis of African markets, South Africa will be among the best-positioned markets for the foreseeable future,” he says, but he does not downplay the resizing outcome, noting: “Ultimately, the rebasing of Nigeria’s economy simply confirms its status as a dynamic growth market. It reinforces the broader African growth story and positions Nigeria and South Africa as complementary regional economic and investment hubs for West Africa and Southern Africa respectively. This is reason for celebration, rather than angst.”