Tuesday, December 14, 2010

SA and Nigeria battle for Bric status

South Africa is eager for elevation to the coveted Bric (Brazil, Russia, India and China) status of key emerging markets, but investors say Nigeria is a more probable African contender, even if promotion for either country is some way off.

Russian President Dmitry Medvedev said at last month’s Group of 20 (G20) meeting in South Korea that South Africa had “applied” to join the four-member Bric grouping of fast-growing emerging economies.

Turkey, Mexico and Indonesia are the countries investors eye as an addition to the Brics, which have grabbed an outsize slice of emerging market investment in recent years due to their scale, growth and impact on the global economy.

But resource-rich Africa, boasting some of the fastest-growing countries in the world, has become a focus for investors looking for high returns over a longer time frame.

Investment flows into Nigeria are tiny compared with South Africa. Nigeria saw equity fund flows of just $216 million (R1.48 billion) for the first 10 months of this year, compared with $3.4bn for South Africa, according to fund tracker EPFR.

Yet, while South Africa is the larger economy, Nigeria is expected to catch up in the next few years.

“In Nigeria, you still have 70 percent of the population living on a dollar a day, but there is a demographic impact. In the next five years, the country will add another 23 million people and South Africa will add another 2.8 million,” said Razia Khan, the head of Africa research at Standard Chartered.

Nigeria’s economy may overtake South Africa’s by 2023, Standard Chartered says, assuming South Africa grows by 4 percent a year and Nigeria by 7 percent a year on a purchasing power parity basis.

The asset management chairman at Goldman Sachs, Jim O’Neill, who coined the term Bric nine years ago, told last week’s Reuters 2011 Investment Outlook Summit he constantly received e-mails suggesting he should add or subtract countries from the acronym.

South Africa, at a population of less than 50 million people, was just too small to join the Bric ranks, O’Neill said.

“How can South Africa be regarded as a big economy? And, by the way, they happen to be struggling as well.”

Recent policy changes in Nigeria, including the appointment as finance minister of former Goldman Sachs banker Olusegun Aganga, could present new possibilities.

“Nigeria has shown some vague signs. If they could impose the level of leadership, a whole new way of governance in which corruption is dramatically reduced, Nigeria, I think, is very interesting,” O’Neill said.

by Reuters