SA not certain of number 2 spot in Africa

2014-07-10 17:51

South Africa has been demoted to the second biggest economy in sub-Saharan Africa.

And should it continue on the downward spiral of negative growth, strikes and strict labour regulations, it seems more than likely that it will lose its number two spot in the next 10 to 20 years.

Unlike the rest of sub-Saharan Africa, which grew by 5% in 2013 and is projected to grow at 5.8% this year, South Africa’s GDP was 1.9% in 2013 and it declined by 0.6% in the first quarter of 2014.

This was attributed to the five-month-long platinum mine strike and power outages that disrupted output in the mining and manufacturing sectors.

Finance Minister Nhlanhla Nene said South Africa’s economy would not even reach the 2.7% growth target the Treasury had forecast in February.

In addition, he said the fiscal outlook is under “increasing pressure”, especially after about 220 000 members of the National Union of Metalworkers of SA in the steel and engineering sectors started an indefinite wage strike on July 1.

This forced the Treasury and the Reserve Bank to revise South Africa’s growth outlook to below 2% – way below Nigeria’s 7.4% and Kenya’s 6% growth outlook.

Comparisons with Nigeria and Kenya are becoming inevitable, especially as these two countries are seen as gateways to Africa in their respective regions.

Afrifocus Securities economist Tinashe Kambadza said: “Nigeria and Kenya are pushing for infrastructure development and both countries are focusing on the construction, financial and services sectors. South African companies have also seen the growth potential in Nigeria and that’s why the likes of MTN and Shoprite have taken advantage of the big consumer market.”

Standard Chartered regional head of Africa Research Razia Khan said South Africa would do well to inherit some Kenyan qualities. “Kenya’s manufacturing base is in the East African region and has done a lot better than South Africa in protecting it. Forty-seven percent of Kenya exports go to its regional neighbours, whereas South Africa’s biggest trading partners are the UK and Europe.”

Khan said Kenya managed to beat South Africa in terms of financial and economic inclusion: “In terms of access to finance, only 25% of Kenyans are excluded from access to finance. South Africa has had a much more sophisticated industry much longer than Kenya, but 26% of South Africa’s are financially excluded.

“Kenya has managed to close the gap and has seen real success in private sector growth becoming a world leader in mobile money. It continues to reach the 25% of financially excluded people through these innovations.”

The African Economic Outlook 2014 report said growth in Kenya “is expected to accelerate to a little under 6% in 2014/15, driven mainly by exports, private investment, finance, IT and construction” and is the transportation hub in East Africa.

“South Africa is no longer a growth economy and needs to decide if it wants to go for growth. The South African government has taken its position in Africa for granted and it might lose it. So what if the rand weakens, it will make the economy more competitive. The problem is that there is no growth,” said Khan.

Nigeria has maintained an impressive growth over the past decade with a record estimated 7.4% growth – up from 6.7% – in 2012.

According to Henri-Bernard Solignac-Lecomte, unit head for Europe, Middle East and Africa at the OECD Development Centre, Nigeria’s population size is three to four times bigger than South Africa’s.

“These consumers need to be fed, clothed and transported so the Nigerian economy is driven by aggregate demand and not production.”

He said the key question to ask is whether consumption-driven growth is better in terms of sustainable job creation.

“Nigeria has lots of jobs, but they are very bad informal sector jobs. South Africa has less jobs but more professional jobs. If you look at the figures, South Africa is more robust, more sophisticated and has a much higher capacity than Nigeria,” he said.

Nigeria recently rebased its GDP from 1990 to 2010, making its GDP $510 billion – well above South Africa’s of GDP $352 billion.

Both Nigeria and South Africa are resource countries.

“Nigeria produces oil, but South Africa is more diversified and has much more sophisticated technology in mining. Nigeria, driven by the oil sector, still relies heavily on refined oil imports and as a result, the oil sector has come with a lot of problems,” said Solignac-Lecomte.

Nigeria’s growth in the oil sector fell but non-oil sectors such as information and communications technology, finance, trade and services are the main reasons behind Nigeria’s accelerated sustainable growth.

Kenya is also not far behind. The country is seen as the technological hub of the East African region and serves as the gateway for foreign investment in the region.

“A very good example is the M-Pesa. This is what made Kenya a hub for innovation,” said Solignac-Lecomte.

Kambadza said although South Africa was the most sophisticated market, it now needed to focus on structural issues and better manage its power supply to regain its number one spot.

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