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Nigeria ahead of SA in race to become Africa’s first addition to BRIC grouping?

Reuters this week reported that South Africa, the largest economy in Africa, is eager for elevation to the coveted ‘BRIC’ status of emerging markets, with investors, however, saying Nigeria is a more reputable African contender, even if promotion for either is some way off.

Russian President Dmitry Medvedev, at last month’s G20 meeting in South Korea, said South Africa has applied to join the four-member BRIC grouping of fast-growing emerging economies – Brazil, Russia, India and China.

Turkey, Mexico and Indonesia are typically the countries investors eye as an addition to the BRICs, which have grabbed an outsize slice of emerging market investment in recent years due to their scale, growth and impact on the global economy.

But resource-rich Africa, boasting some of the fastest-growing countries in the world, has become a focus for investors looking for high returns over a longer timeframe, reported Reuters.

Investment flows into Nigeria are tiny compared with South Africa. Nigeria saw equity fund flows of just US$216 million for the first 10 months of this year, compared with $3.4 billion for South Africa, according to fund tracker EPFR.

Yet while South Africa is the larger economy, Nigeria is expected to catch up in the next few years.

Standard Chartered, and indeed most analysts, believe Nigeria’s growth will be driven by demographics, noting that while in Nigeria, you still have 70% of the population living on a dollar a day, in the next five years, Nigeria will add another 23 million people and South Africa will add another 2.8 million.

Nigeria’s economy may overtake South Africa’s by 2023, Standard Chartered says, assuming South Africa grows by 4% and Nigeria by 7% on a purchasing power parity basis.

Goldman Sachs Asset Management Chairman Jim O’Neill, who coined the term BRIC nine years ago, told last week’s Reuters 2011 Investment Outlook Summit he was constantly getting e-mails suggesting he added or subtracted countries from the acronym.

South Africa, at a population of under 50 million people, is just too small to join the BRIC ranks, O’Neill says. “How can South Africa be regarded as a big economy? And, by the way, they happen to be struggling as well.”

Meanwhile, recent policy changes in Nigeria, including the appointment as finance minister of former Goldman Sachs banker Olusegun Aganga, could present new possibilities. “Nigeria has shown some vague signs. If they could impose the level of leadership, a whole new way of governance in which corruption is dramatically reduced, Nigeria is I think very interesting,” O’Neill said. “It’s 20% of Africa’s population, which means it could be pretty powerful.”

We certainly share the same view regarding Nigeria’s inevitable progression to being Africa’s largest economy, but with the usual caveats around corruption and political instability. As reporter Drew Hinshaw so succinctly put it in an article he wrote for GlobalPost, Nigeria “could be the world’s next emerging giant – or its next giant emergency.”

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.

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