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Nigeria-South Africa; Trade Not Xenophobia, A Handshake Across the Sub-Sahara

Global Market	3596 VIEWS
Global Market
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Wednesday, September 04, 2019 / 06.30PM /By Teslim Shitta-Bey, Managing Editor

African Politicians have a slyness that is not inherited but acquired; they speak from places of crude political expedience rather than clear economic integrity. The recent xenophobic attacks that have swept through South Africa (SA) and Nigeria over the last week are a product of political complicity serving as a basis for economic duplicity. A number of politicians in South Africa have stirred the racial gauntlet by interpreting the rising jobless rate in the country as the evil work of foreign migrants (2.6m people) taking work from native South Africans. The story is compelling to an agitated populace of young, jobless black men and women, but is not borne out by the facts.

SA Still A White Man's Fiefdom

The bulk of the South African economy is still firmly in the hands of its white population. Recent data suggest that 85% of the Southern African nation's economy is held by 8.7% of its population, the majority being white. The disproportionate distribution of wealth in favour of its white population is just as much a problem as the fact that this white population has increasingly moved investible funds from the country and placed the cash in other economies such as Britain and the United States of America. Furthermore, 6,000 European families own 85% of the countries agricultural land.

To compound this problem black politicians have done a hack job of managing the South African economy and have conveniently placed the blame at the feet of foreign migrants, but have refused (or simply avoided) to explain how foreign migrants have caused a decline in the country's manufacturing Purchase Managers Index (PMI) and GDP (South Africa's GDP grew by 3.1% at the end of Q2 2019, faster than Nigeria's 1.94%). Demonizing foreign labour for fundamental problems with the economy is as good as putting band aid on a brain tumour.

The South African economy has been on a slow but persistent decline over the last half decade as the real sector has had to cope with rising inflation, declining export and deteriorating competitiveness. The fall in fortunes has not been the consequence of migrant labour but a shrinking global economy, a fall in the quality of domestic infrastructure (typified by the Eskom power palaver), and a slide in domestic efficiency and productivity and a fall in world commodity prices (making mining less profitable).

Both South African and Nigerian economies have demonstrated major weaknesses with national output (GDP) in both economies slowing to an unsteady beat, as unemployment rises (South African youth unemployment in Q2 2019 was 56%) and inflation takes a larger bite out of stagnant per capita earnings.

White South Africans have been pretty cheery over the new wave of xenophobia amongst their black compatriots as it has deflected attention from their disproportionate hold over the economy.

Black South African politicians have also been blase about the black-on-black violence as it has bought them added time to figure out how to find proper and lasting solutions to the structural challenges that face the South African economy.

Foreign investors are losing patience with their South African investment assets as they dump their assets at the fastest pace recorded in recent years as they try to head off any further fall in government capital market instrument rating below the last wrung of investment grade.

Foreigners have sold a net $4.8bn of South African equities and bonds in 2019, the highest sell-off on a year-to-date since 1998, according to Bloomberg data. Sell-offs, especially in the fixed-income market, have sped faster since June 2019 as ratings companies and deposit money institutions turn bearish over the country's fiscal outlook.

More Trade Not Xenophobia

Both Nigeria and South Africa could do without the negative optics of xenophobia and would do a lot better if they both stopped the carnage and searched for ways of deepening trade between both economies. With both countries having the largest economies on the continent, the sensible resolution of the disagreements over labour movement between the two economies is to grow trade and investments.

Available data suggests that South African accounts for less than 10% of Nigeria's trade export and over 90% of this trade is in Oil and Gas exports with less than 10% being non-oil exports (see Proshare Ecographics below). In terms of imports from South Africa, Nigeria imports next to nothing, and the only major import seems to be coal.

In Q1 2019 Nigeria exported N495bn worth of goods to South Africa (representing 9.7% of total exports) and imported only 1.9% of total imported goods by value during the quarter.

Most of South Africa's economic interaction with Nigeria is in respect of large investments by companies such as MTN in the telecommunications sector, Shoprite in the fast moving consumer goods (FMCGs) sector and DSTV in the digital entertainment/services sector. South African firms are also heavily present in Nigeria's building/construction sector and are involved in a large number of upscale properties in Lagos and other parts of the country.

Nigerian businesses in South Africa are mainly small and medium-sized and involve less capital layouts that the typical South African investment in Nigeria, however, South African investments in Nigeria have proved quite success and have resulted in large repatriation of dividends and other cash flows to South Africa, an escalation of the current attacks on Nigerian citizens in South Africa could only end in both nations being worse off.

Proshare Nigeria Pvt. Ltd.

Dodgy political/economic perspectives

A number of analysts in South Africa have argued that a deepening of the conflict between South Africa and Nigeria over citizenship harassment would leave Nigeria worse off; this perspective is wrong. Although it is true that Nigeria perhaps has somewhere in the region of 800, 000 citizens in South Africa (although the South African government insists that there are only 30,ooo Nigerians in the country), and very few South Africans are resident in Nigeria, the economic reality is that the size of individual corporate investments in Nigeria by South African companies is several times larger than the size of investments by small and medium-sized Nigerian companies in South Africa.

A recent example of the significance of the Nigerian market to the South African economy was the recent incident of a $5bn fine on MTN which required high level diplomacy to reduce the fine to $1.5bn and the promise of a listing of the company on the local Nigerian bourse. The impact of the fine saw an immediate caving of the price of MTN on the Jo' bourg Stock Exchange (JSE). A diplomatic/economic skirmish between the two countries would lead to a scorched earth outcome, critically hurting both South Africa and Nigeria.

Rather than a war-war, both countries need to jaw-jaw, with both governments making firm, verifiable and sustainable commitments to keeping each other's citizens safe.

Sustaining the Brotherhood

If South Africa and Nigeria are to lead the charge of a resurgent Africa continent, they must push past the debilitating barrier of narrow and false interpretation of national economic interest and build the bridge of collaborative competitiveness that will lead the continent to faster growth rates, deeper technological advancement and higher national incomes accompanied by lower unemployment.

Both Nigeria and South Africa need to trade themselves out of their economic binds. Engaging in a US-China type trade/economic face off would serve no meaningful purpose and would likely make both nations poorer by worsening their unemployment levels and shrinking their GDPs, aside from the additional negative impact of perverse and adversarial political relations.

More reflective and somber minds in South Africa and Nigeria may need to step up to the plate and turn the narrative from one of near disaster to that of a defining comeback between two great African nations, as Political Economist, Edmond Burke, once noted, "for evil to triumph it takes good men to do nothing".