Nigeria’s recovery might be a better bet than South Africa’s

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Nigeria and South Africa think of themselves as the giants of Africa. As the two largest economies south of the Sahara with nearly 300mn people between them, relative giants they are. But both have spent at least a decade flat on their back. The question is which of them is likely to stand up first?

Their recent travails are well rehearsed. South Africa, whose transition from apartheid after 1994 went passably well initially, careered off the rails under Jacob Zuma. From 2009 to 2018, he ran the country into a moral and economic ditch.

State competence collapsed. Everything from tax collection to energy production crumbled. Economic growth, previously fast enough to be life changing for millions in the black majority, dwindled to near-nothing. Millions were left with no pathway out of poverty.

Nigeria’s decade of woe came under President Muhammadu Buhari, whose two terms thankfully ground to a constitutional halt in May. (One thing both democracies have going for them is that their leaders, however bad, have only two terms to swing the wrecking ball.)

Under Buhari, growth per head also plunged to zero. An economic agenda drawn from the dusty pages of a 1970s protectionist handbook failed to do the trick. Despite Buhari’s promise to tame terrorism and criminality, violence flourished. Despite his reputation for probity, corruption swirled.

Until recently, most investors would have bet on South Africa to bounce back first. In 2018, Cyril Ramaphosa, a man with a sharp mind and suave political skills, became president. Surely, people thought, he could reverse the rot of Zuma’s years. Nigeria, by contrast, looked more like a failing state. Elections won with suitcases of cash seemed unlikely to produce a leader of Ramaphosa’s calibre.

That bet now looks wrong. For all its wrenching problems, Nigeria has more quick fixes. However deep the ethnic and religious gulfs bequeathed by colonialism, they are easier to heal than the racial faultlines cemented by apartheid.

For years, oil has warped Nigerian incentives. The country’s best minds and worst clingers-on have prospered more from rent extraction than production. That resource curse will gradually lift as reserves fall and the world’s thirst for oil is slaked. Before then, some simple policy changes can help unleash Nigeria’s formidable entrepreneurial talents.

Surprisingly, Bola Tinubu, the new president and a man with a less than savoury reputation, appears to understand this. With one utterance he removed the ruinously expensive petrol subsidy, with another the distortionary foreign exchange regime. Both had allowed middlemen and crooks to make money while depriving productive parts of the economy of cash.

These policies are not magic. But they can help restore investor confidence. Nigeria now needs a competent cabinet, a coherent security policy, better tax collection and more spending on doctors and schools.

For all its status as a “giant of Africa”, Nigeria is wretchedly poor, with an income per head of $2,200 and a life expectancy of 53. But there is low-hanging fruit here. With half-decent policies, it can turn a corner.

That task looks harder in South Africa, as Ramaphosa has found. After nearly 30 years in power, the ruling African National Congress has lost both ideas and moral authority.

South Africa starts off with a more sophisticated economy, better universities and deeper pension funds. Despite Zuma’s efforts, it also has stronger institutions, some of which held the line during the era of state capture. With an average income of $6,800 its economy produces only marginally less output than Nigeria with a quarter of its people.

But averages are misleading. South Africa’s income distribution is the most unequal in the world. It has a Gini coefficient of 0.63, in which 0 means a perfect distribution of wealth and 1 means one person owns everything. Nigeria, hardly a socialist paradise, has a Gini coefficient of 0.35.

The whole point of apartheid was to make black people poor and white people rich. That inequality should have remained stuck at 1994 levels stems from both the weight of history and the ANC’s failed policies. As Dele Olojede, a Nigerian author living in South Africa, says: “South Africa’s wealth is in white hands and political power is in black hands. It is inherently unstable because of that.”

The ANC no longer has a monopoly on power. Most likely, it will be unable to rule alone after general elections next year. A messy era of coalition politics beckons. The country is in for a rocky ride.

For South Africa, things are likely to get worse before they get better. In Nigeria, there is the smidgen of hope that things can start to get better first.

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