Nigeria’s rebasing of its GDP, expected to happen this weekend, may negatively affect perceptions about South Africa’s position on the continent, but it will reflect Africa’s reality far better.
Nigeria is about three times the size of South Africa in terms of population, but its economy is the second-largest on the continent, after South Africa. However, when Africa’s most populous country changes the base year for calculating its GDP – something they haven’t done since 1990 – it is widely expected to take the number one spot on the continent in terms of economic size.
If Nigeria does not overtake South Africa’s GDP immediately, it will probably only take another year or two for this to happen, given South Africa’s muted growth rate compared to Nigeria’s rate of approximately 7%.
While at this stage we can only speculate how big the impact of the rebasing will be, the actual size of the adjustment is probably of less significance than the psychological effect this will have on perceptions about Africa. It would be interesting to see how international relations will be affected when South Africa is no longer the largest African economy – South Africa is, for example, the only African country represented in the G20.
South Africa was historically the ‘go-to’ country for investment into Africa. However, the reality is that other regions are increasingly asserting their economic voice and this has resulted in several multinational corporations opting to have their Africa base in countries such as Kenya or Nigeria, instead of South Africa.
For Nigeria, the rebasing will probably not mean a significant change, but it will improve the country’s balance sheet. This should lead to lower borrowing costs for the government, which is ultimately beneficial for the country’s citizens.
The country still faces an immense challenge in terms of infrastructure deficits – slow ports, bad roads and a lack of electricity are some of the major factors hampering business activity. However, it is commendable that they have shown commitment in addressing these backlogs, but it will likely take some years before these have been resolved.
Given the relatively more developed state of our infrastructure and financial systems, South Africa will remain one of the important economies of the continent, though this rebasing will be a significant step in establishing Nigeria as a true African powerhouse.
Roelof Horne is a portfolio manager at Investec Asset Management.