SA v Nigeria: Africa’s Economic Power Struggle

After years of riding the continental crest of a wave in a battle to become sub-Sahara’s leading economy, more challenging times now require an era of collaboration

With the African continent at a significant fork in the road, caught between the prospect of economic prosperity and decline, the need for its two driving forces to find common ground and work together has never been greater.

Since the 1990s, when South Africa was the undisputed pioneer of African business, relations between themselves and Nigeria have been strained to say the least, with the adjacent political powers-that-be at loggerheads for much of the end of the 20th century.

New regimes may be in place and the power dynamic has certainly shifted west since then, but very little has been done to repair the damage caused during that period.

Traditionally, South Africa, Nigeria, Kenya and Egypt have formed the axis from which Africa’s rapid growth has been achieved across numerous sectors, but the former two’s relationship comprises an underlying, unspoken tug-of-war between the traditional economic gateway and the thriving new powerhouse of African business.

During the continent’s clichéd positioning as an ‘emerging market’ this cold business war wasn’t necessarily a bad thing as they both invested in and developed their infrastructures and core industries to try and claim that number one spot; subsequently matching world-class standards across the board in most cases, creating significant amounts of employment opportunities in the process, and ultimately promoting themselves as perfect foreign direct investment (FDI) hubs.

Now more appropriately perceived as ‘emerged’ markets, however, and up isn’t the only way that these two giants can go, and with the aforementioned key sectors now beginning to flail - quite dramatically in some cases - most analysts believe that the time for competing needs to come to an end, to usher in a new era of collaboration.

 Nigeria: No quick fix

Accepting the mantle as Africa’s largest economy since the turn of the decade, Nigeria has long been touted as the future hub of the continent, having been the true representation of a globally-significant emerging nation in the years prior.

Much of this wealth and prosperity was driven by a commodity all too familiar with the concept of national prosperity, in the form of oil.

The country’s prominence in the sector not only generated vital investment and trade opportunities from the western world, but it had a sustainable knock-on effect on the rest of the industrial domain; incorporating manufacturing, mining, transport, the supply chain and construction to name a few.

It also had a positive influence on what was fast becoming a lucrative region in general, with the likes of Ghana also benefiting from the influx of international investors and enterprises entering the area.

In short, where South Africa had once thrived in dominating exploration and mineral commodity markets, Nigeria had taken over thanks to their own natural commodity source.

The danger when relying so heavily on one economic driver, however - 90 percent of the country’s foreign exchange earnings emanating from oil, to be exact - is that there is very little contingency if this driver crashes.

And as the price per barrel halves, and the market interest wanes dramatically, that is exactly the challenge that Nigeria now faces.

The result of the slump has not been slight either, with the naira dropping to record lows against the dollar, previously stoic contracts being lost and fuel shortages now becoming common, nationwide.

Even more concerning is the prospect that there doesn’t appear to be any quick fix on the horizon to stop the rot either.

"There needs to be communication about the economic policy of the government...a case of, this is how we are going to drive the economy forward, how we want to open the economy," Dolapo Oni, an energy expert based in Lagos said in a recent interview with KXLF. "But that communication does not exist right now."

Newly elected President, Muhammadu Buhari has taken immediate action in trying to tackle the cash crunch, but most analysts have predicted his juggling act to be a quick-fix at best, with no sustainable alternatives in place to ensure that a more diverse channel of wealth is coming into the country even if the oil situation stabilises.

It is with this in mind, that a bit of continental support and sharing of resources wouldn’t go amiss. Unfortunately though, the country historically in the best position to offer such help has its own resource disaster to deal with at present.

South Africa: Praying for power

Adding insult to injury for Nigeria is the recent indictment documented by the World Economic Forum who ranked the country 141st out of 144 in its 2014-2015 Global Competitiveness Report; a small crumb of comfort for South Africa, who snuck in to the top 100 at 99 despite its own plethora of challenges.

While the west performs its oil dance, much of Southern Africa is praying for power as its aging infrastructure continues to weaken the former stronghold of the continent.

Previously capitalising on its location, size and FDI attractiveness to lead the way in most markets, its recent concerns have primarily been dominated by an inability to sustain its own internal requirements; understandably having a detrimental effect on the levels of external interest as a consequence.

It has been reported that all of sub-Saharan Africa’s power generating capacity amounts to less than that of South Korea’s. Nigeria has long been run using private generators; yet another area of crisis affected by its oil troubles.

In South Africa, Eskom has been under fire in recent years as the number of blackouts continues to rise and public unrest grows just as quickly.

While Nigeria struggles, and the surrounding region at the bottom of the continent looks to South Africa for aid, the lack of response has been the most alarming element. With the only nuclear power plant on the continent and around half of the region’s generating capacity to hand, everyone is looking down for aid, but South Africa is struggling to keep its own home lit, let alone its neighbours’.

Much like Nigeria, the affect that this has had on integral sectors in South Africa has the potential to leave lasting damage; mining and construction especially taking the brunt of the impact, while SMEs are also struggling to achieve the necessary development in order to salvage some sort of sustainability within the country’s economy.

Balancing act

Of course, the onus is on the two nations to formulate individual plans to overcome these specific challenges, but there has been evidence in recent years of a more collaborative outlook on the continent which could only benefit from having South Africa and Nigeria as driving forces behind it.

The Indaba concept is one such initiative already bridging this gap, with both Manufacturing and Mining events attracting a more widespread demographic of attendees and potential investors each year. Held in South Africa, Nigerian companies’ growing presence at the expos has been a refreshing trend in 2014 and 2015 as examples of the latter’s recent efforts to diversify into new sectors.

Mining especially could become a serious domain worth exploring for the country as it tries to counteract its oil deficiencies, and there certainly aren’t many countries around the world with more expertise to leverage and more potential business partners to liaise with than South Africa.

In an attempt to overcome the crippling power problems in Nigeria, there has also been an increase in the procurement of resources from South Africa to kick-start its drive to find alternative generation opportunities; namely coal in the immediate term.

These baby steps are hardly signs of a budding friendship between the two nations, but given Nigeria’s historical prowess in sustaining their previously state-owned energy supply, and South Africa’s traditionally diverse success across the board in being an FDI nirvana, the knowledge and lessons learnt between the two may well be the balancing act that is required to steady the South-West axis; an axis that has spent much of the past two years gazing enviously across to the east as Kenya becomes the latest ‘emerging’ giant keen not to fall on its own sword.