Africa's Biggest Rivals Forge Closer Ties Amid Global Slump

Misery loves company. Africa's two biggest economic rivals — South Africa and Nigeria — are turning to each other as they fall on tough times.

South Africa's economy is threatened with recession as demand from China, its main trading partner, weakens and commodity prices plunge, while Nigeria has been hit by a collapse in oil revenue. To weather the global storm, the two countries are seeking closer trade and investment ties when South African President Jacob Zuma Leads a high-level delegation of ministers and business executives to Nigeria on Tuesday. In the process, he may rebuild a relationship that's come under diplomatic strain in the past.

Nigeria may be Africa's largest economy — having overtaken South Africa in 2014 after the data was overhauled — but South Africa still dominates because of better power and transport infrastructure, a sophisticated financial services industry and a more diversified economy. Both economies are now under pressure, with growth slowing to 1.3 percent in South Africa last year and reaching a 16-year low of 3.3 percent in Nigeria, according to the World Bank.

South Africa is the biggest buyer of Nigerian oil in Africa, shipments of which have more than doubled between 2008 and 2014, according to data from the International Monetary Fund. However, Nigeria doesn't even feature in the top 20 of South Africa's export markets.

"There is scope for the two countries to expand trade ties, particularly in non-commodity products," said William Jackson, a senior emerging markets economist at Capital Economics Ltd. in London. There could "be greater benefits over the medium term, as rising trade in non-commodity goods tends to come alongside faster productivity growth and more rapid rises in incomes," he said.

The one thing standing in the way of stronger trade ties is the Nigerian currency. The central bank has effectively pegged the naira at 197 to 199 per dollar for a year by banning imports of everything from glass to wheelbarrows and restricting foreign-currency supply. The currency controls are deterring investors, like Johannesburg-based Truworths International Ltd., which shut its two remaining stores in Nigeria in January.

In his first state visit since Muhammadu Buhari was elected Nigeria's president last year, Zuma may also seek to resolve a dispute that threatens the Nigerian operations of one of South Africa's biggest companies, MTN Group Ltd. Nigeria's telecommunication regulator imposed a record $3.9 billion fine on MTN last year for failing to meet a deadline to disconnect unregistered mobile-phone subscribers.

Even before that, diplomatic relations between the two countries were strained by xenophobic violence in South Africa last April, in which Nigerian businesses were attacked. Nigeria temporarily withdrew its two most senior diplomats from South Africa at the time.

"These two countries need this competitive kind of relationship, where they cooperate even though they are competing," said Azwimpheleli Langalanga, a visiting research fellow in the economic diplomacy department at the Johannesburg-based South African Institute of International Affairs. Nigeria wants "to be taken seriously because they are a serious player on the African continent," he said.

To contact the author of this story: Rene Vollgraaff in Johannesburg at rvollgraaff@bloomberg.net.

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michelle Jamrisko at mjamrisko@bloomberg.net.

By: Rene Vollgraaff

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