Business in South Africa vs. Nigeria: Economic Comparison

Business in South Africa vs. Nigeria

To support business managers in assessing the uncertain environment and adapting organizational strategies to the variable opportunities and risk across the continent, we developed a tool (kpakpakpa Market Potential Index- KMPI) that provides a balanced set of both short and long-term metrics.

 

To perform a country analysis, we measured key metrics in critical areas of each country’s social-political landscape, economy, technology & infrastructure developments, and the efficiency of doing business in each region.

 

kpakpakpa’s MPI measures the market attractiveness of 48 African countries, across seven factors that act as key determinants for choosing a location to concentrate your market expansion efforts on the continent.


 

Factors

Description

Weighting

Market Size & Appeal

This evaluates the size and appeal of the domestic market.

20%

Macroeconomic Resilience

Measures the stability of the macroeconomic environment.

20%

Political Landscape & Governance

Measures the quality of governance.

10%

Social & Human Development

Measures social development of the country.

10%

Investment in Technology, Infrastructure & Logistics

Measures the efficiency of technology, logistics, and infrastructure as a supporting base for the business environment.

15%

Economic Diversification

Measures the degree of dependence of the economy on the sectors and resources in the country.

10%

Business Ease

Measures the ease of doing business in the country.

15%

Market Potential Index

The weighted average of the seven factors above to determine the market potential of each economy.

100%

 

Within each factor, a set of key indicators have been included with specific weightings to arrive at the overall factor rank and score. The first two factors – market size & appeal and macroeconomic resilience – are short-term factors, and account for 40% of the total weighting. The other five factors are short-term factors and account for 60% of the total weighting.

 

There are definitely no absolutes in the search for the best market potential. The reality is that there will be different answers for different organizations and industries with varying priorities. These priorities can change over time and the applied weightings will also change too. The kpakpakpa MPI can, however, provide a useful point to begin your analysis and facilitate conversation within your organization on markets to prioritize in Africa.

 


Business in South Africa vs. Nigeria

In this article, we do a country-by-country comparison to understand the potential of business in South Africa vs. Nigeria – two of the continent’s biggest economies. The market potential across the seven factors for both countries are:

 


Nigeria

South Africa

Market Size & Appeal

88

66

Macroeconomic Resilience

29

55

Political Landscape & Governance

58

87

Social & Human Development

52

79

Investment in Technology, Infrastructure & Logistics

36

75

Economic Diversification

6

56

Business Ease

55

85

Kpakpakpa Market Potential Index (KPMI)

48.53

70.25

 

Business in South Africa edges out the Nigerian business landscape in all six factors except for market size & appeal.


Country Information

Here is some basic information about both countries.


Nigeria

South Africa

Full Name

Federal Republic of Nigeria

Republic of South Africa (RSA)

Flag

$460 Billion

$400 Billion

Currency

Nigerian Naira

South African Rand

Time Zone

(UTC + 1)

(UTC+2)

Capital city

Abuja FCT

Pretoria (Executive); Bloemfontein (Judicial); Cape Town (Legislative).

Climate

Temperate

Temperate

Area

West Africa

Southern Africa

Telephone code

(+234)

(+27)


Market Size, Appeal & Resilience

The factors that gave Nigeria the edge in market size & appeal is the size of its national GDP and projected growth in the next two years. Although Nigeria has a larger-sized economy, South Africa’s economy is more appealing based on the Gross National Income (GNI) per capita – which is a measure of how wealth is spread across the population.

 

South Africa has a more resilient macroeconomic landscape than Nigeria does. This is mostly caused by Nigeria’s dependence on a few export products, namely crude oil, contributes to its high vulnerability to global economic changes out of its domestic control.

 

Nigeria also depends on the importation of strategic inputs (foods and refined fuel) a lot more than South Africa does.

 


Nigeria

South Africa

GDP ppp (nominal)

$1,325.81 Billion

$806.943 Billion

GDP (nominal)

$376.28 Billion

$326.541 Billion

GDP growth

+2.1%

-2.2%

GDP per capita

$2,758

$6,207

Exports

$33.3 Billion

$88.5 Billion

Imports

$35.53 Billion

$87.15 Billion

Balance of current payments

$7.32 Billion

–  $8.08 Billion

External debt (% of GDP)

23.4%

52.7%

Foreign exchange reserves

$ 47.25 Billion

$50.51 Billion

Interest rate

14 %

6.5 %

Inflation

11.14 %

5.5 %

Unemployment

18.8%

27.2%

Market Size & Appeal

88

66

Macroeconomic Resilience

29

55


Political Landscape & Governance

Good governance takes factors such as national security, safety, rule of law, political participation, and human rights. The Mo Ibrahim Index of African Governance (IIAG) was used to determine the score and rank for this factor.

 


Nigeria

South Africa

Political Regime

1999 Constitution of Nigeria

Constitution of the Republic of South Africa, 1996

President

Muhammadu Buhari

Cyril Ramaphosa

Next Election

February 2019

2019

Good Governance Score (out of 100)

58 (35th out of 54)

87 (6th out of 54)


Social & Human Development

An economy is only as productive as its people, so the level of social and human development is indicative of progress and future productivity. This factor looks at the general welfare of the society – access to education, basic amenities, and healthcare.

 

To get the score, we used a normalized score derived from the IIAG score for Human development and cross-referenced that with the Human Development Index (HDI) by the United Nations Development Programme.

 

South Africa once again does better than Nigeria in this factor.

 


Nigeria

South Africa

Total population

194 Million

57.73 Million

Growth

+ 2.6 %

+ 1.55%

Population density

210 per sq. km

45.78 per sq. km

Median age

17.9 years

27.1 years

Index of human development (0 – 1)

0.527

0.666

Literacy rate

51.08 %

94.37 %

Life expectancy at birth

53

63

Child mortality rate

104 per 1,000 births

43 per 1,000 births

Urbanization rate

50.3%

66.4%

Main cities

Lagos, Abuja, Port Harcourt, Kaduna

Johannesburg, Capetown, Durban

Religion

Christian, Muslim, Indigenous

Christian, Muslim

Languages

English, >520 languages spoken – Main languages Yoruba, Igbo, Hausa.

English, Zulu, Xhosa, Afrikaans, English, Northern Sotho, Tswana, Southern Sotho, Tsonga, Swazi, Venda, Southern Ndebele

Social & Human Development Score (0 – 100)

52

79


Investment in Technology, Infrastructure & Logistics

The measure of growth is how an economy is leveraging new technology to allocate its resources more efficiently. The level of investment, development, and adoption of new technology is indicative of how productive an economy is.

 

Also, the infrastructure that enables businesses to produce their goods and the ease of moving these goods around through efficient logistics channels is a major determinant of success for businesses in any economy.

 

A weighted average of the IIAG’s Infrastructure score and World Bank’s Logistics Performace Index gives South Africa a clear advantage over the level of infrastructural development in Nigeria.

 


Nigeria

South Africa

Logistics Performance Index (World Rank)

2.53 (110 of 160)

3.38 (33 of 160))

Infrastructure Score (Mo Ibrahim Index)

33.2/100

63.4/100

Economic Complexity Index (ECI)

-1.54

-0.03

Access to electricity (% population)

59.3%

84.2%

Investment in Technology, Infrastructure & Logistics Score

36

75


Resources & Economic Diversification

Economic diversification is generally taken as the process in which a growing range of economic outputs is produced.

 

South Africa’s economy is more diverse than Nigeria’s economy – with a higher share of its economy focused on industry & services, and the production of a wider range of products. This is compared to Nigeria’s high dependence on crude oil exports to sustain its economy in a global market.

 


Nigeria

South Africa

Share of industry (% of GDP)

22%

26%

Share of services (% of GDP)

55.8%

61.5%

Share of agriculture (% of GDP)

21%

2%

Main Resources

Oil (% of world reserve), Cocoa, Cashews, Ginger

Various Minerals – Gold, Diamonds, Platinum; edible fruit and nuts; beverages; preserved food; tobacco; cereals; wool (not carded or combed).

Export Concentration Index (0 – 1)

0.7344281297

0.1209770794

Economic Diversification Score ( 0 – 100)

6

56


Business Ease

The business ease factor is a measure of how easy it is to partake in business activities in a certain country. Using a weighted average of the World Bank’s ease of doing business score and IIAG’s business environment score as a determinant of this factor, South Africa has a better environment for business than Nigeria does.

 


Nigeria

South Africa

Ease of doing business (World rank)

145 out of 194

82 out of 194

Points of Entry

Lagos Port Complex and Tin Can Island Port in Lagos; Calabar Port, Delta Port, Rivers Port in Port Harcourt, and Onne Port.

Port of Cape Town, Port of Durban, Port of Port Elizabeth, Port of Richards Bay.

Rule of Law

$460 Billion

$400 Billion

Financial markets

Nigerian Stock Exchange (NSE)

Johannesburg Stock Exchange Limites (JSE)

Business Ease Score (out of 100)

55

85


 

Using the kpakpakpa MPI tool as a starting point for your analysis, South Africa shows more market potential than Nigeria because of its macroeconomic resilience, diversification, human development and ease of doing business. Use this framework and customize it to your business priorities to choose between which of the two countries to prioritize.

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About The Author

Nifemi Aluko

Connecting global organizations with quality information and insights to help them succeed in the Nigerian market… Passionate about business, technology, and music.

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