Nigeria and Kenya are well known for being the best investment destinations in Africa, with Nigeria being right at the top. However, investors are starting to see East Africa as a joint investment region with the potential to challenge the West African giant.
It is no surprise that investors are using Kenya as a substantial stepping stone to the wider East African region, considering that there is a lot more optimism around East Africa as compared to Nigeria, given the events that have taken place in Nigeria in the past year which have spooked investors. There is also a lot more positivity around non-commodity led growth in East African markets versus more commodity-led growth in the west.
Nigeria vs Kenya
Having rebased its GDP for the first time in 2014, Nigeria’s GDP is now at US$521 billion, an increase of 89% over pre-basing estimations. Since the year 1990, Nigeria had not changed the base year for calculating the value of its gross domestic product. This implies that changes in the prices of its goods and services during that period and the development of new economic sectors was not being factored in compiling its annual output. Moreover, the rebasing also revealed a more varied economy than what it was previously, combined with substantial increases in the contribution of the services sector, manufacturing, construction as well as water and electricity.
According to the Kenya National Bureau of Statistics, Kenya is now a middle-income status country after a statistical reassessment of the nation’s economy. Its economy is also running along at a faster pace than previous estimates. Though Kenya’s GDP is estimated at a much smaller US$44 billion, the East African Communities’ (EAC) GDP is estimated at a strong US$123 billion. The gallop by Kenya’s economy into this middle-income status was made possible largely by agriculture, manufacturing and real-estate sectors. The Information and Communication Technology (ICT) sectors are now treated as separate sectors, taking into consideration its lively telecoms industry which initiated mobile payments technology and exported the innovation across Africa and globally.
Nigeria’s real GDP grew by 7.4% in 2013, above the 6.5% from the previous year and on top of strong growth for the past decade. The major contributors to the nation’s GDP came from the non-oil sector with real GDP growth of 8.3% and 7.8% in 2012 and 2013, respectively. The main drivers of the non-oil sector growth include agriculture, specifically crop production, trade and services. On the contrary, the oil sector growth performance wasn’t as impressive with -2.3% and -5.3% estimated growth rates in 2012 and 2013 respectively. Poor growth in the year 2013 was a result of supply disruptions due to oil theft and pipeline vandalism and by weak investment in upstream activities.
The GDP estimates are proof that Kenya’s economy is worth more than what was previously thought. Although still faced with conflict and security issues, the nation is slowly but surely moving towards integration. It’s no secret that Nigeria is slowly losing its appeal to investors, even though it’s Africa’s largest economy, due to political instability in the country. This is one of the reasons that investors are now drawing their attention more towards East Africa.
On the other hand, Nigeria is also leading member of the Economic Community of West African States (ECOWAS) which agreed on a Common External Tariff (CET), effective beginning of 2015 which will result in the most-favoured nation import tariff (MFN) being reduced from 12.0% to 11.5%. This is broadly seen as a significant milestone considering the earlier disagreements among ECOWAS member states since negotiations started in 2004.
Reducing the MFN import tariff should assist improved trade and deepen economic co-operation and integration in the country. Moreover, the ECOWAS is currently pushing for the restoration of peace and stability in many of its member states facing political instability, including Nigeria.
This brings me to leadership in Nigeria- Although support is required, it is primarily up to the government of Nigeria to ensure and to make it a priority that the challenges currently facing the country are resolved. Yes the region has long been dealing with instability, corruption and abuse of power but these do not have to part of their future as well. The ball now lies in their court, leadership should prioritise on fixing these issues. This might just be what Nigeria needs to re-assure investors that it’s still Africa’s top investment destination.
By: Heleen Goussard