South Africa has long felt secure in its position as Africa’s dominant economy. While its GDP grew at a modest 2.5% per year between 1990 and 2010, many other economies in the region expanded much faster. Nigeria, the West African behemoth, grew at 4.7% per year during the same period and may soon overtake South Africa. Simon Allison looks at the relationship between the two countries.
Sometime in the second half of 2012—maybe by August—Nigeria will recalculate its gross domestic product (GDP), a move that could turn out to be the West African government’s most important decision this year, with the potential to turn the continent’s power balance on its head.
Nigeria is doing this because its GDP has been out of sync with reality for many years. To understand requires a brief lesson in the two types of GDP: nominal and real. Nominal GDP is the simple addition of the value of all local goods and services. Inflation and fluctuating prices, however, make it difficult to compare the nominal GDP of one year with that of another. Take Zimbabwe: runaway inflation means that Zimbabwe’s nominal GDP, as measured in Zimbabwean dollars, increased explosively over the last decade. In real terms, however, the Zimbabwean economy declined markedly during that time.
Real GDP, instead of just adding values together, converts the amount to what it would have been if prices had remained constant. It uses a base year to determine what those constant prices should be. In other words, when calculating the value of grain sold domestically, statisticians would use the grain price of the base year rather than the current market price. This allows GDP figures to be compared against each other because they are all calculated against the same base. Real GDP provides a more accurate picture of the relative size and growth of an economy.
It is, however, vital to regularly update this base year and the base prices used. This is to make sure that the GDP is not completely out of touch with current prices and market structures.
If you are still lost, do not worry; just think of your favourite finance minister as a disc jockey, spinning his tables in the club that is the national economy; at some point, to stay fresh, he will have to play a remix: same song, new and improved beat.
Nigeria’s trouble is that it has not rebased its economy since 1993. Its real GDP is based on 1990 prices. The world’s economy has changed considerably in the last 22 years. Nigeria has finally woken up to the problem under the guidance of President Goodluck Jonathan’s crack economic team: finance minister Ngozi Okonjo-Iweala, central bank governor Lamido Sanussi, and Africa’s richest man, concrete king Aliko Dangote. They plan to update the base year to 2008.
The impact of this on real GDP figures will be enormous. Ghana rebased its GDP in 2010, after being similarly negligent; its GDP shot up by an astonishing 60%. Nigeria’s jump will not be quite that high, but still impressive—some analysts are estimating an increase of about 40%.
This could see Nigeria’s economy grow from the current International Monetary Fund estimate of US$273 billion to $382.2 billion, putting it just behind Africa’s largest economy, South Africa ($419.9 billlion), which is watching this with discernible unease. With the huge disparity in Nigeria and South Africa’s predicted growth rates (7% compared to 3%), Nigeria is catching up quickly, with some reports suggesting that it could overtake South Africa by 2015.
It is tempting to dismiss these statistics. No matter how much bigger Nigeria’s economy is on paper, corruption and the lack of infrastructure still plague its economy. “It’s not only a question of size,” said Professor Danny Bradlow, an expert in African development economics with the University of Pretoria, in an interview with Good Governance Africa (GGA). “The fact they’ve rebased doesn’t necessarily make them a better place to invest.”
It is not about the money, Bradlow explains. The rebasing is unlikely to have much impact on trade and development. There is not much trade between the two countries—neither makes it into the other’s top ten list of trading partners.
Diplomatic relations, however, may change enormously. “South Africa is represented in the G20 [a group of governments from the world’s biggest economies] and the BRICS [Brazil, Russia, India, China and South Africa] partly because it is the largest African economy,” Bradlow says. “If the Nigerian economy becomes bigger than South Africa’s then it raises the question about who should really be represented on those bodies.”
There is an even bigger prize on the horizon. All talk of United Nations reform includes a permanent spot on the Security Council for an African country. Nigeria and South Africa are the obvious candidates: Nigeria has the largest population; South Africa has the largest economy. If that changes, Nigeria’s position becomes much stronger.
The tension between the two countries over diplomatic dominance manifested itself in the bitterly fought campaign for the chairperson of the African Union Commission, where the incumbent and Nigerian-backed Jean Ping from Gabon was up against South Africa’s Nkosazana Dlamini-Zuma. Neither country was willing to even countenance compromise in the first inconclusive election or its aftermath, both sides recognising the importance of asserting their continental leadership.
Timing is everything. There is a palpable sense that Africa’s leadership is up for grabs: the West’s economic power is in decline; the African Union’s influence is growing; and Libya’s Muammar Gaddafi has departed from the African stage. Coupled with the vague possibility of United Nations reform, now is a good time for countries with designs on leading the continent to make their move.
It is within this context that Nigeria has chosen to rebase its GDP. Not only does it show the world that Nigeria is finally getting its act together, but it sends a warning message to South Africa: be careful! We are not far behind and we are moving faster than you are.
Not that South Africa should be too concerned. As The Economist outlined recently: “South Africa’s decline is only relative. Despite having the continent’s fifth- biggest population, it still has its biggest economy, with GDP per head of over $11,000 at purchasing power parity, bigger than China’s or India’s and more than four times the African average. Its infrastructure is by far the best in Africa. It has 80% of the continent’s rail network and is home to the region’s biggest stock exchange. It also has the biggest middle class, proportional to its population, of any African country.”
Unless its two strongest countries can find a way to work together, Africa should brace itself for a mammoth power struggle. It may have already begun. After a nasty recent diplomatic incident over yellow fever certificates which spiralled into tit-for-tat deportations, the two countries revived the Bi-National Commission, a bilateral forum designed to smooth over differences. And it worked, according to Dianna Games, head of the South Africa–Nigeria Chamber of Commerce. “The yellow fever incident was the catalyst for the resolution of a number of other issues,” she said. “The relationship is at an all time high at this stage.”
This seems an optimistic take on events which produced little substance except a South African commitment to import oil from Nigera after it faced United States sanctions for importing oil from Iran. The relationship between the two countries is not really the issue here. What is at stake is much grander: the chance to be Africa’s first major superpower, and the ability to shape the continent’s future. Once Nigeria’s GDP has been rebased, those stakes become substantially higher—about 40% higher, if those estimates prove correct.
[author] [author_image timthumb=’on’][/author_image] [author_info]Simon Allison is the Africa correspondent for the Daily Maverick, based in Johannesburg. He has previously reported from Palestine, Somalia and revolutionary Egypt. His interests include reading, writing and—fortunately given his chosen profession— African politics. He studied at Rhodes University and the School of Oriental and African Studies. [/author_info] [/author]
