South Africa ensured its economy recovered after the Q1 contraction, Nigeria did nothing and is now in a recession.
In May, Thea Fourie, senior economist at IHS Global Insight noted that South Africa’s weak GDP growth numbers assumed for the first quarter could push the country into recessionary conditions.
“It now appears as if the sharp fall in international commodity prices since end-2014 and the impact of dry El Niño weather conditions, combined with there being very little policy space to support economic growth, is paving the way for a significant recession,” Fourie stated.
During the same period, Nigeria’s President Muhammadu Buhari was preparing to celebrate his first year in office, with little or no achievements than various foreign trips said to be aimed at improving Nigeria’s image abroad and also source for debt to fund the country’s budget.
A month later, both South Africa and Nigeria had taken a major step towards recession as both economies contracted in the first quarter, per data from their statistics bureaus. Unfortunately for both African powerhouses, they had leaders that are more about the political side of things than the economy. In Nigeria, President Muhammadu Buhari was always busy, either fighting corruption (which is very good) or blaming his predecessor. However, Jacob Zuma’s fight in South Africa was not against corruption, it was against the man who saved him when the president’s indiscretion at sacking Nhlanhla Nene led to the #ZumaOut campaign. Pravin Gordhan has faced all forms of ‘persecution’ since he replaced the unknown man who was briefly finance minister after Nene but everybody was convinced about one thing; he is the right man for the job. Same cannot be said about Nigeria; everything has been wrong from the beginning. Many say Gordhan’s counterpart Kemi Adeosun was a political choice and had no cognate experience to help a country that suffered 16 years of looting, as the ruling party often state. Today, Nigeria is in a recession while South Africa’s economy is growing.
However, beyond the competence of Gordhan and Adeosun, are other factors that brought about the current situation.
“Nigeria and South Africa are very different economies,” says Mark Bohlund, Bloomberg’s Africa Economist.
According to him, although South Africa’s mining sector did well in Q2, there were also other engines of growth that the economy could draw upon with both the manufacturing and finance sectors doing well.
“This isn’t the case in Nigeria where the injection of oil revenue into the economy has been the dominant driver of economic growth over the past decade.”
Bohlund explains that the discrepancy in GDP growth was partly due to the stronger fundamentals of the South African economy over Nigeria. “However, what South Africa did differently was that they did not intervene to prevent the rand depreciating by 25% in 2015, which supported the return to profitability of parts of the mining sector and supported manufacturing exports when domestic demand was weak.”
“The devaluation of the naira was a bitter pill to swallow but it was necessary, given the lack of diversity of the Nigerian economy and its reliance on imports. It will likely deepen the economic recession this year but will put Nigeria in better stead to grow in 2017.”
How Nigeria’s economy will be in 2017 will be dependent on how committed the government is to the change it promised. But for now, President Buhari’s message to Nigerians is that #ChangeBeginsWithMe. When he is done with the campaign, recession would have disappeared, he probably hopes.