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Lessons From Africa’s Biggest Economies

The numbers show that both Nigeria and South Africa are heading for a recession. Both have the correct policies in place but the question of leadership has hampered growth.

South Africa’s economy might be heading for a recession after data from the first quarter of the 2016 was released last week. Africa’s most industrialized nation suffered a 1.2% contraction in its economy as a result of, in part, the global fall in the price of commodity prices, and a drought that has ravaged its agricultural sector. South Africa and Nigeria, two of Africa’s biggest and commodity-based exports economy have been hit by the global fall in prices of commodities; oil in Nigeria and precious metals in South Africa. This has led to inflation and a negative Gross Domestic Product (GDP) growth in both countries.

Both countries seem to be paying the price for years of over-dependence on export of commodities. However, good policies from Mahlamba Nlopfu and Aso Villa, coupled with some efficient leadership meant these problems should have been a little suppressed. The reverse has been the case. Not that the policies were debilitating in themselves, but the underlying motives show these leaders really don’t care. Both Jacob Zuma and Muhammadu Buhari, 74 and 73 respectively, two leaders far behind the times are seemingly doing it on purpose.

In Nigeria, the new administration’s economic team, with its stringent policies, seem to have destroyed in a year, what it took decades for Nigerian Finance Ministers, despite the hot corrupt climate, to build. Nigeria’s GDP took a nosedive in the first quarter of this year 2016, entering negative figures after more than 12 years. Stringent policies put in place by Buhari’s Government on Foreign exchange and importation have contributed much to this recession. Millions of Nigerians no more have jobs as unemployment has increased and petrol sales have recently dropped 40 percent since price adjustment to N145 per litre.

Since Most of Nigeria’s revenue (70 percent of it) is from oil, in Dollars, the global fall in prices meant there would be a massive reduction in revenue. In response Nigeria tried to control inflation by setting an official rate for forex, then banned importation because of depleted foreign reserves. Even the layman knows there should have been a devaluation. Oil producers like Nigeria had long since devalued their currencies.This scarce resources called for the market forces to determine their selves.

Stringent policies means Nigeria is a command economy. The problem is Nigeria has been run by private companies for so long that its people have forgotten the Government’s function. The government suddenly coming up and issuing decrees and orders lately is  both funny and cringing. Perhaps the president forgets that this is not 1986 where the Government had control over most sectors in Nigeria.

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The Central Bank of Nigeria’s announcement of “flexible rates” last month was to remedy this, but it might be too little too late. Foreign businesses are leaving, unemployment has grown; it’s a madhouse right now. They need the forex for their raw materials. The investments Buhari allegedly secured on his numerous travels, would probably never happen now; foreign investors would come when the local ones feel comfortable enough to invest in their own country. Analysts said, as at the time when this quarters GDP figures were released, that “they (the figures) have set the tone for the Nation to enter into a recession.” Further negative GDP growth in the second quarter of 2016 would make Nigeria’s recession official, a likely possibility now considering the actions of Nigeria’s own “Superheroes” ; the Niger Delta avengers down south, coupled with the failed kick-off of a genuine diversification. Investing in Nigeria might not be the best option now as Buhari’s seemingly cements his stand that he never budges easily; as a retired soldier this should be obeyed.

In South Africa’s case, the apple does not far from the tree.

South Africa’s economy is about to be on the sub-investment level; one level above non-investment; this simply means its credit rating is about to enter junk or non-investment status. A credit rating shows the risk level of investing in a particular country, taking into consideration political risks and junk status for South Africa means there’s a high risk to investment there, thanks to Zulu warrior, Jacob Zuma.

His decision to sack finance minister Nhlala Nene in 2015, over aviation contracts was shocking to investors who trusted the young minister. Zuma then replaced him with a relatively unknown guy from his party the ANC– another shocker. But after what seemed like a backlash from the whole country, he eventually replaced the new guy with an older one, his finance minister in his first term Pravin Gordhan. Zuma replaced two finance ministers in four days, turning the country into his chessboard, leading to a devaluation of the rand, and shaky investor confidence. Investor confidence has reached a new low in South Africa coupled with the rising rate of unemployment in the rainbow nation, bad power supply and severe drought, things could get worse.

Pravin Gordhan has not had it easy since he became finance minister. Pressure from both corrupt officials and Zuma’s friendship with the allegedly corrupt Guptas made him declare early this year that South Africa “was at risk of becoming a Kleptocracy.” (If it was not already so).

As writers Acemoglu and Robinson postulated in the book “Why Nations fail”, “…the main obstacles to the adoption of policies that would reduce market failures and encourage economic growth is not the ignorance of politicians but the incentives and constraints they face from the political and economic institutions in their societies.” Muhammadu Buhari and Jacob Zuma seem to be the architects of recession in their countries.

Source: ventures

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Written by PH

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