Furthermore, Shoprite, another South African firm, is making huge forays into the Nigerian retail sector, with retail presence in key Nigerian cities of Lagos, Ibadan, Enugu, Ilorin and a host of others. The fast expansion of the Shoprite franchise is driven by a retail boom in Nigeria. The retail sector in Nigeria has continued to expand, with value sales increasing strongly in 2013 and 2014, faster than GDP growth. This development is propelled by an expansion in Nigeria’s urban and middle-class population and an increase in disposable income.
Away from retail, South Africa has also entered Nigeria’s lucrative beer market with SABMiller. SABMiller recently built a state-of-the-art brewery in Onitsha, South-East Nigeria, and is gradually growing its distributive capacity pan-Nigeria.
Aside from all of the businesses mentioned above, there other new entrants into the Nigerian economy from South Africa, which include Nedbank, FirstRand, Old Mutual, Sanlam and MMI Holdings.
Initial policy obstacles and South Africa’s entry in the era of liberalisation
The curious though unspoken question on the lips of international venture capitalists and investors is: how come the South Africans seem to be succeeding where others are failing? This question comes against the background of the noted challenges in the Nigerian environment which are compounded by the absence of a stable policy environment.
The history of international investments in Nigeria before the return of democracy was not particularly savoury, what with the Indigenization Decree of the 1970s under the military governments of Murtala Mohammed and Olusegun Obasanjo, which saw a lot of foreign business interests in Nigeria ceding their stakes to Nigerian shareholders in a push for the localization of multinational businesses in the country. This move saw the exit of Shell Petroleum and British Petroleum from the downstream sector of Nigeria’s lucrative oil and gas market.
As if the setbacks of the 1970s were not enough, the structural imbalance of the 1980s also saw the plummeting of industrial capacity in Nigeria. This situation arose largely from the rationing of foreign exchange under a corrupt and highly politicized import licence order. Given this scenario, there were frantic calls for structural reforms. These reforms were soon ripe and ready following the huge debts which Nigeria incurred from the London and Paris Club of Creditors.
Initial reforms were thus undertaken in the late 80s to early 90s, tailored towards budgetary tightening and fiscal discipline with a view to raising industrial capacity in order to reduce dependence on imported finished goods. Prodded further by the Bretton Woods institutions to undertake more reforms given its huge sovereign debt, the Nigerian military government under Ibrahim Babangida announced more fiscal reforms starting with the Second-tier Foreign Exchange Market, which saw the devaluation of the naira, and the Structural Adjustment Programme which engendered a high level of fiscal tightening in a bid to refocus the economy.
As all these reforms were going on, the Nigerian economy was still largely perceived as unattractive to foreign investors in Europe and America who only saw opportunities in the commodities and extractive industries and were uninterested in deepening their involvement in the Nigerian manufacturing and retail sectors having been scarred by the Indigenization Decree promulgated by the Murtala/Obasanjo military regime. The conventional wisdom at the time was therefore to stay aloof to the reforms and the liberalisation of critical sectors of the Nigerian economy that followed thereafter. Therefore, while the Nigerian government devalued its currency and made it attractive for smart foreign investors to take advantage of its economic liberalisation policy, investors watched from afar wary of the policy somersault.
It was this confused and highly volatile environment that South Africa was soon to profit from, following the return of democracy in 1999 and a renewed push for foreign direct investment by the new democratically-elected government.
Boosting intra-Africa trade: The Nigeria/South Africa example
Aside from the existence of South African companies in Nigeria, Nigerian businesses are also gradually making inroads into South Africa, thereby helping to boost the intra-Africa trade that was very low before the advent of NEPAD. Nigerian energy firm, Oando, for example, is listed on the Johannesburg Stock Exchange, while Dangote Group has also invested over $378 million in South Africa’s cement industry. In addition to these two companies, there are also a couple of other Nigerian businesses in South Africa such as Arik Air, First Bank and Union Bank which have representative offices in South Africa.
Between 2007 and 2008, trade volumes between both countries stood at approximately $2.1 billion. By 2012 this figure had increased to $3.6 billion. It must be noted that 83 percent of this trade figure came from South Africa’s purchase of crude oil from Nigeria. Between 2002 and 2012, South African imports from Nigeria increased by about 750 percent, with crude oil sales accounting for a greater chunk of this figure. This scenario points to the fact that, outside of trade in crude oil and commodities, trade volumes between both countries are still relatively low.
The downside of South Africa’s involvement in the Nigerian economy
The South Africans may have cashed in on the opportunities presented by the liberal regime brought on by the new democratic order in Nigeria and are making a kill where the West did not initially see any prospects, but there are a couple of things South Africa is also not getting right.
One of these is the tendency of South African firms to only trade among themselves rather than patronize local options in Nigeria. It is usually alleged that MTN Nigeria, in giving out its banking and collection mandate, will prioritize Stanbic IBTC Bank, a bank with South African interest, above local Nigerian banks. The same is said of the other South African businesses. This situation has tended to increase the mistrust between Nigerian local businesses and their South African counterparts. Given this situation, the prevailing feeling within the Nigerian business community is that the South Africans are not returning the friendly gesture of Nigerian businesses and consumers towards South African interests and are therefore not displaying ‘brotherly’ love towards Nigerian businesses.
Aside from this, there is also the issue of the monopolistic tendency of South African firms which creates industrial tensions, especially in the telecoms and pay-TV segments of the Nigerian economy where South African behemoths like MTN and MultiChoice are dominant.
Bolaji Okusaga
