After recalculating its GDP earlier this year, as anticipated, Nigeria surpassed South Africa as the largest economy in Africa. Although still heavily dependent on crude oil exports and the petroleum sector for foreign exchange earnings, Nigeria is diversifying into non-oil sectors such as agriculture, services and others. For instance, non-oil sector is expected to grow by 7.4% this year compared to 6.8 % in 2013, according to the IMF.
Since the implementation of the National Economic Empowerment and Development Strategy (NEEDS) in 2003, foreign direct investment has become a priority for Abuja. It received a modest $1.87 billion of new FDI in 2002 compared to almost $9 billion in 2011, for example. Although the bulk of this FDI inflow was directed into the extractive sector, manufacturing and telecommunication sectors have also gained. To maintain this economic growth, it is imperative for Nigeria to improve governance, privatize large public companies, and address infrastructure bottlenecks.
South Africa, on the other hand, will miss its 2.7 % growth target this year after suffering the longest strike in its history and a growing twin deficit. Since the first multiracial elections in 1994, the Rainbow Nation has averaged a 3.3 % annual growth rate, but racial income inequality remains high with a Gini co-efficient at 0.69. With a relatively stable government, abundant natural resources, strong manufacturing sector, and a world-renowned stock exchange, South Africa still remains an economic powerhouse in the continent.
Given its low gross saving rate, Pretoria relies on foreign investments (hot money) to fill this void. Unlike Nigeria’s stock exchange, South Africa’s Johannesburg Stock Exchange (JSE) is well integrated into the world economy and has a market capitalization of 159 % of its GDP. To mitigate for currency market volatility and a rigid labor market, equities and debt liabilities have become South Africa’s main source of capital since the removal of stringent capital controls in the early 1990s.
Recent labor sector strifes in South Africa continue to threaten the country’s investment-friendly image, however. Thus, it is important that the African National Congress (ANC), which is in a tripartite alliance with trade unions (COSATU) and the Communist Party, to avoid blemishing the country’s position. Moreover, it remains vulnerable to the Fed’s eventual tapering of its accommodative monetary policy, especially given recent strong employment gains in the United States.