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Tuesday 04th August 2020,
Hope for Nigeria

South Africa/ Nigeria Trade and Investment in the past decade: One way track or dual carriage way?

Prior to embarking on the salient task of unpacking the business dynamics between Africa’s two biggest economies, South Africa ($407billion) and Nigeria ($282billion) it is critical to look at a brief history of the two nations

South Africa became a democratic state in 1994 with the election of Nelson Rolihlahla Mandela which ushered in black majority rule after 46 years of brutal and repressive apartheid rule by a small white minority.

Nigeria gained independence from the British on 1st October 1960 but by January 15, 1966 it had witnessed the killing of its Prime Minister and in July the Head of State and a year later a long civil war which left a million people dead. Following the cessation of hostilities in Jan 1970 Nigeria went through a series of military dictatorships punctuated by a civilian government in 1979-1983. Democracy only returned to Nigeria in 1999 with the election of former military head of state Chief Olusegun Obasanjo.

Nigeria broke diplomatic relations with South Africa in May 1960 and renewed diplomatic relations in 1994. For 34 years there was no trade between Africa’s two biggest economies. The reality is that there was no single trade between the two countries from the time of Tafawa Balewa until the regime of late Gen. Sanni Abacha who was president when Mandela came to office in 1994. What must also be noted is that Gen Abacha’s regime was the most brutal in Nigeria’s history and the regime had very little friends and certainly South Africa was not one of them so the period of his rule would not have done much for trade between the two countries.

Nelson Mandela spent only one term in office from 1994-1999 which is unprecedented in African political history. Thabo Mbeki, Mandela’s deputy came to office in 1999 the same year Chief Obasanjo took office. Thabo Mbeki was ANC’s foreign representative in Nigeria between 1976 and 1979 so fate brought these two men together again but this time as civilian presidents of Africa’s two largest economies. Obasanjo himself after leaving office had been a member of the Eminent Persons Group to South Africa during apartheid and it was Obasanjo and Mbeki that played major roles in the establishment of the New Partnership for African development (NEPAD) along with Abdoulaye Wade (Senegal) and Habib Bouteflika (Algeria)

There is no doubt that the close relationship between Obasanjo and Mbeki fuelled the massive investment by South Africa into Nigeria. In 2003, trade (exports) between South Africa and Nigeria was less than $ 10 million dollars. Though, MTN paid $285 million for a GSM licence fee in August 2001 it was only from 2003 onwards that South African companies began to take Nigeria seriously as an investment destination especially when MTN began to reap huge profits.

Currently, there are at least 100 South African companies across all sectors from banking(Stanbic, Rand Merchant Bank) to Manufacturing(Nampak) to retail(Game, Shoprite, Spar) and hotels(Protea, Sun International, Southern Sun, Legacy(Whitbaker). Other companies that are doing good business are Tiger Brands, Old Mutual, Broll, AECI, Sanlam, Sasol and SAB Miller. By 2012, SA investments reached 23.9 billion rands ($2.3 billion) up from 3.2 billion rands in 2001.

Nigeria’s economy has grown at an average of 6% in the last decade. It is obvious that the advent of democracy has increased foreign investment and also the sound macro-economic policies such as diversification, the stable exchange rate, consolidation of banks in 2005 and the growth of telecoms and ICT and higher oil prices has contributed immensely to the development of the economy. Nigeria’s inflation is currently at 9% which is the lowest in decades and GDP growth is 6.75% compared to South Africa’s 2.2% and the population is three times that of South Africa.

There is no doubt that Nigeria presents great opportunities for more investment from South Africa and vice-versa especially given the current trade figures. Trade between Nigeria and South Africa is $4.1 billion for 2012(same as MTN Nigeria’s income).

Nigeria enjoys 83% of the trade while South Africa’s exports at R6billion are 17% of the total. Nigeria exports mainly oil and nothing else to SA. This year President Jonathan signed a slew of trade agreements on his state visit ranging from manufacturing of vehicles, ICT, women development and defence. The evidence suggests that there is room for growth. It is important note that Nigeria still attracted far more foreign direct investments between 2009-2011 than South Africa. FDI of $23.9b went to Nigeria and $12.4bn to South Africa

This year alone, Tiger Brands announced its acquisition of a huge stake in Dangote Flour Mills. Famous Brands has also bought 157 restaurants from UAC Foods. The Public Investment Commisioners (PIC) also bought 1.5% of Dangote Group. SAB Miller intends to make beer out of cassava as they do in Mozambique. There are great opportunities in the area of Agriculture, Mining and Housing development given the shortfall of 14 million homes and also the shortfall of 3000 shopping malls. There is also opportunities in infrastructure especially road and rail and this may be urgent given the spate of air crashes and huge numbers of deaths on our roads.

According to Mkwanazi of BHP Billiton’ your investments in a country or a continent should be more than just about returns and once-off projects. It is important to sign up as a partner in long term investment to help grow and develop the country or the continent’s economy’.

Having examined in some detail SA investments into Nigeria it is worthwhile to discuss the converse. Nigerian investments into SA have not had a great storyline. It seems that Nigerian businessmen have preoccupied themselves with taking skills and technology back home and where possible secure manufacturer’s representative agreements.

The first major Nigerian investment in South Africa was THISDAY newspapers owned by Nduka Obiabgena. THISDAY took the market by storm and even displaced the STAR newspaper which is the main daily in Gauteng. Nduka Obiagbena managed to get a photo with Thabo Mbeki holding a copy of THISDAY. For many Nigerians in SA, the THISDAY investment and grand launching was most welcome given the negative stereotypes about Nigerians in the media. Sadly, THISDAY did not last on the shelves as the management ran into issues and had to shutdown. Financial Standard was also launched but failed and so did Bellview and Virgin Nigeria.

Recently though there has been good news. Africa’s richest man Aliko Dangote has invested R1.17 billion in Sephaku Cement which represents 63% of Sephaku’s value. It is interesting to note that a recent study as published by Ventures Africa 20 out of Africa’s 55 dollar billionaires are Nigerian so perhaps some of these billionaires should follow Aliko into SA.

A few years ago OANDO listed on the Johannesburg Stock Exchange although the listing was done by Deutsche Bank. Arik Air has been running in SA now for almost 5 years with daily flights between Lagos and Johannesburg although their flights are sometimes plagued with huge delays. First Bank, Union Bank and FCMB have representative offices in SA and GT Bank has posters splashed all over OR Tambo airport despite not having a presence or a representative office in SA. The GT Bank adverts which must have cost millions so let’s hope they come into SA.

The evidence suggests that apart from Dangote’s investment in cement and Nigeria’s $ 3billion annual oil exports there is no real footprint BY Nigerian businesses. Some of the reasons put forward are that SA is a difficult market to penetrate. Dangote described BEE as a “forced marriage’. Dangote’s investment in SA is the largest single investment by an African company. Other factors which may have impeded Nigerian businesses are strict corporate governance rules, exchange control regulations, Black Economic Empowerment, difficulty of securing business permits and business visas and the general hostility towards Nigerians as a collective. Another area of concern which Nigerians want to see addressed is the fact that almost all South African businesses in Nigeria are headed by South Africans and they are mostly white South Africans.

South African companies such as Sasol are playing major roles in Escravos with Chevron. Entech and Broll are managing prime estates and properties including the development of Bar Beach (Eko Atlantic) and management of over 6000 fuel stations across Nigeria.  There is a sense on the part of Nigerians that this unequal trade can’t be healthy and they blame the bilateral agreements in place since 1999 which allows this to happen without hindrance to operations of SA companies. There exists an agreement for the reciprocal promotion and protection of investment  which was signed on 27th of July, 2005. In practice however there is no adherence by South Africa to the spirit of this agreement.

SA companies’ investments in Nigeria are heavily protected from interference at any level by the Nigerian government.  Some say, the Nigerian government has given SA companies a licence to grow as they please. Companies like MTN have made $5 billion dollars in a decade and taken it to SA tax free.

The logic going forward may be that Nigerian companies with Pan-African aspirations should be able to leverage South Africa as a base for a deeper engagement with the Southern African market which is perhaps more homogenous and has 247 million people. Also, there are at least 250,000 Nigerians in SA and this represents a sizeable market which is more than the population of Gaborone, the capital of Botswana. There are 230,000 people in Gaborone out of the country’s 2 million people. The value of Nigerians in SA cannot be over-emphasized.  For example 4 million black South Africans spend $36 billion dollars a year and it is possible that the spending power of Nigerians in SA may represent 10 % of this amount and all the expenditure currently goes to SA companies.

It is important to stress that there has been progress made for example a recent initiative in January 2013 led to an MOU between South African accountants and Nigerian accountants. The MOU enables both bodies and their members to work together and members of one can be members of another thus giving Nigeria’s professional accountants the opportunity to practice in SA and vice-versa.

Nigeria needs to leverage its strong fiscus currently by deploying successful businessmen to South Africa to emulate Dangote who apparently is now in more than ten African countries. It is time for Nigerian companies to move beyond West Africa and claim its true status as an African economic giant by deploying its vast foreign reserves currently standing at $48 billion including the excess crude account.

The Nigerian government must leverage higher oil prices not only for local development but also for strategic investments on the continent and as a means of shaping the imbalances that currently exist with regards to trade between Nigeria and South Africa. It is also important that Nigerians themselves pay more attention to the trade agreements signed by between Nigeria and South Africa. The more knowledge Nigerians have about South Africa’s economy the better the ability to access this very important BRICS and G20 market.

Nigerians must also work together to ensure that Nigerian investments into SA must embrace talents from home or diaspora. It is not enough to just invest in South Africa as Dangote or Arik Air has done but also to ensure that Nigerians are employed within top echelons of these businesses.  No single Nigerian employee exists in Dangote’s Sephaku cement and the entire board and management is South African whereas almost all South African companies including small hotels in Nigeria are headed by South Africans. It is time that Nigerians begin to craft their own destiny and move into uncharted waters and negotiate better deals especially in Africa’s biggest economy. Nigerians must follow the Indian and Chinese example in Africa. There is ample evidence of Chinese and Indian investments in SA even pre-BRICS. It is time for MADE IN NIGERIA to be exported all over Africa. NIGERA WE HAIL THEE! ARISE O COMPATRIOTS!

God Bless Nigeria, Nkosi Sikelele Afrika!

 

 

Adetunji Omotola is a Wine Consultant based in Sandton, Johannesburg. He is the Founder of African Wine Circle and The Guild of Nigerian Professionals- South Africa.  Adetunji blog is www.winelawandpolitics.wordpress.com  Follow @veinewines

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