Nigeria’s Decline

After its independence in 1960, Nigeria’s economy was predominantly agrarian, with agriculture accounting for 60 per cent of its GDP. However, oil was discovered in the Niger Delta in the late 1950s and shifted Nigeria’s economic focus towards petroleum. By the 1970s, oil had become the dominant sector, providing a significant source of revenue. To foster economic growth and diversification, Nigeria implemented several national development plans. However, the inextricable link of the health of Nigeria’s economy to the oil sector created a series of highs and lows.

The First National Development Plan (1962-1968) prioritized agricultural growth, with a focus on cash crops for export. Despite achieving an average GDP growth rate of 5.3 per cent per annum, the period was marred by political instability, including a military coup in 1966 and the Nigerian Civil War (1967–1970). The Second National Development Plan (1970–1974), launched after the civil war, was aimed at reconstruction and the restoration of productive capacity, resulting in a higher GDP growth rate of 13.2 per cent annually. However, the surge in oil revenue led to an overdependence on the oil sector, neglecting agriculture and manufacturing, and fostering widespread corruption and inefficient resource allocation.

The Third National Development Plan (1975–1980) targeted increased per capita income and economic diversification, but it ultimately failed due to inadequate executive capacity and political strength. Oil production declined and rising public spending created structural imbalances and fiscal challenges, reducing the GDP growth rate to 4.6 per cent. The Fourth National Development Plan (1981–1985) assumed that Nigeria’s oil production would remain at over two million barrels a day at a price of at least $40 per barrel. Unfortunately, by February 1983, Nigeria was producing less than one million barrels a day at an average price of $30 per barrel. This reduction in the country’s export capacity and the global value of oil led to a waterfall of adverse consequences for the Nigerian economy. The resulting decline in available funds caused delays in the implementation of mechanized agriculture and, therefore, prompted increased demand for imported foods. Moreover, a reduced ability to import construction materials and related capital goods resulted in reduced growth in the construction, transport, communications, utilities and housing sectors. The recorded GDP growth rate per annum fell to a meagre 1.25 per cent, and external reserves declined.

The 1980s and 1990s saw intermittent policy changes and economic instability, driven by fluctuating oil prices. By the 2000s, under President Olusegun Obasanjo’s administration, Nigeria’s economy experienced notable growth, averaging six to seven per cent annually, due to high oil prices and reforms under the National Economic Empowerment and Development Strategy (NEEDS). NEEDS was a development plan tailored at achieving macroeconomic stability, economic liberalization, and human capital development. Significant improvements were seen in macroeconomic stability, reduced inflation, and increased foreign investment. Notably, Nigeria secured a debt relief deal with the Paris Club in 2005, which wrote off $18 billion of external debt allowing for resource reallocation towards development projects. The consolidation of the banking sector and the liberalization of the telecommunications sector also contributed to economic growth.

Despite these positive developments, Nigeria’s growth was still primarily driven by oil, making it vulnerable to external shocks. From 2014 onwards, Nigeria’s economic growth rates declined significantly, leading to periods of recession and stagnation. The sharp decline in global oil prices from mid-2014 to early 2016, with prices dropping from $112 per barrel in December 2013 to below $37 per barrel in December 2015, had a devastating impact on Nigeria’s oil-dependent economy. It caused a drop in government revenues, increased budget deficits, and foreign exchange scarcity, all leading to the naira’s depreciation and increased inflationary pressures. The government’s costly fuel subsidy programme further strained public finances, limiting funds for development projects and social services.

The Central Bank of Nigeria (CBN) responded to economic pressure with various measures to stabilize the economy and defend the naira. These included foreign exchange controls and maintaining an artificially high exchange rate, which resulted in market distortions and the growth of a parallel market. Forex controls and multiple exchange rates led to resource misallocation, reduced productivity, and competitiveness. Thus, reducing investor confidence and causing capital flight. Moreover, uncertainty in the forex market created a major challenge for businesses, impacting importers and manufacturers with increased costs and supply chain disruptions.

Nigeria also continues to face key security challenges affecting its economy. Insurgent groups in the North-East, herders-farmers conflicts in the Middle Belt, and other incidences of violence and criminality have disrupted economic activities, displaced millions, and strained government resources. These security issues have led to reduced investment, increased public spending on security, and national food insecurity, with declining agricultural production affecting export value and causing food inflation.

South Africa’s Stability

South Africa’s economic history is deeply rooted in its rich natural resources, which have been the cornerstone of its economic development. The discovery of diamonds in the late 1800s marked the beginning of South Africa’s transformation into a major player in the global mining industry. The exploitation of Black and indentured Asian labour played a crucial role in this mining boom. These workers, often subjected to harsh conditions and low wages, provided a cheap and steady labour supply essential for maximising profits. This led to significant foreign investment, rapid urbanization, and the development of infrastructure like railways and ports. Johannesburg was founded during the gold rush, becoming a major city. The mining industry, primarily gold and diamonds, dominated the economy and spurred the establishment of financial institutions and companies like Standard Bank and De Beers, which would shape South Africa’s economic landscape for decades.

Both World Wars also had significant impacts on the South African economy. During these periods, the country saw increased demand for its minerals, spurring further economic growth. The wars also fostered industrial diversification as the country produced goods to support the war efforts. From 1948 to 1994, the apartheid regime imposed racial segregation and economic policies that favoured the white minority. The economy continued to grow, driven by mining and industrialization, but the benefits were unequally distributed among the people. The apartheid regime implemented job reservation policies that ensured higher paying jobs were reserved for white people, while black workers were confined to low-wage, unskilled labour. Economic sanctions and isolation against South Africa during the latter part of apartheid also began to hurt its economic growth.

With the end of apartheid in 1994, addressing socio-economic disparities was a main priority of the African National Congress-led government. Thus, it implemented the Reconstruction and Development Programme focused on housing, education, and healthcare. But this programme faced challenges. It was then replaced in 1996 with the Growth, Employment, and Redistribution (GEAR) strategy, which emphasized macroeconomic stability and foreign investment. While GEAR stabilized the economy by meeting fiscal deficit, inflation and government consumption targets, it was criticized for not sufficiently addressing unemployment and inequality. The country moved on to the Accelerated and Shared Growth Initiative for South Africa between 2005 and 2010. Its objective was to halve poverty and unemployment by 2014 through infrastructure development, skills development, and industrial diversification. Although there were some infrastructure improvements, the plan had limited success in reducing poverty and unemployment. The National Development Plan 2030 was then developed to provide a long-term vision for South Africa’s development, with the objective of eliminating poverty and reducing inequality by 2030 through inclusive economic growth, improved education and healthcare, and strengthened institutions.

Although the natural resource extraction industry remains one of the largest in the country with a contribution of $11.8 billion to the country’s 2023 GDP, South Africa’s economy has diversified since the end of apartheid, particularly towards manufacturing, finance and services. The South African financial markets are the most developed and liquid in Africa by global standards, reflecting strong institutions and policies. As at December 2023, the financial industry (classified as finance, real estate and business services) made up 23 per cent of the country’s GDP; and the total market capitalization of the Johannesburg Stock Exchange stood at $1.23 trillion as of June 2023.

While South Africa still deals with challenges including lingering inequalities, unemployment, and energy shortages, the country has been able to present itself as a predictable investment destination on the continent. South Africa’s macroeconomic policies have generally been sound, focusing on fiscal discipline, inflation targeting, and debt management. Although South Africa’s economic outlook is characterized as weakly positive, sporting GDP growth projections of 1.3 per cent in 2024 and 1.6 per cent in 2025; the South African Reserve Bank (SARB) implements monetary policy aimed at controlling inflation and maintaining currency stability. Despite challenges, these policies have contributed to a relatively stable macroeconomic environment compared to many African peers that struggle with high inflation and fiscal mismanagement.