Africa's Economic Giants Are Fighting. And the Continent May Bleed

OZY Finance 1 month ago

The demand sounded like an extremist rant from a fringe political force. Nigeria, for example, should nationalize South African businesses and deny South African Airways, said Adams Oshiomhole, chairman of Nigeria’s ruling All Progressives Congress party. But this was just one of many worrying signs of a rapidly escalating economic war between Africa’s two largest economies following attacks on migrants in South African cities earlier this month.

Five people were killed in the xenophobic attacks, the latest in South Africa’s history of targeted crimes against foreign-owned businesses. The attacks sparked protests in Lagos and Abuja, Nigeria, against South African businesses such as telecom giant MTN — which counts Nigeria as its biggest foreign market — and Shoprite. Since then, the tensions have exploded further.

Air Peace flight attendants hold placards denouncing xenophobia as they arrive in Lagos as Nigerians are repatriated from South Africa following xenophobic violence.

Fearing violence, South Africa temporarily closed its diplomatic missions in the two Nigerian cities, and MTN and Shoprite shut offices and stores there. Nigeria evacuated 400 nationals from South Africa in an unprecedented move. The country’s Vice President Yemi Osinbajo boycotted the World Economic Forum summit in Cape Town on Sept. 9.

Most worryingly for the rest of Africa, the tensions are threatening to drag down the landmark African Continental Free Trade Area (AfCFTA), says Mariama Sarr, head of Gambia-based Royalion Ventures, which works to position smaller African economies as major exporters of finished products. The free trade agreement, ratified by African nations in May, promises to create the largest single economic zone after the European Union, involving 1.3 billion people. But at the Cape Town summit, Nigerian participants argued that the pact couldn’t be implemented in an atmosphere of distrust, following the attacks in South Africa.

When big economies fight, the smaller economies in those regions suffer.

The bilateral economic crisis between Nigeria and South Africa itself could also hurt the rest of the continent, given the size of their markets, say experts, much like the trade war between the United States and China is affecting the world. The combined gross domestic product of Nigeria and South Africa — estimated by the International Monetary Fund to cross $800 billion in 2019 — is almost equal to the economies of the rest of Africa together.

“When big economies fight, the smaller economies in those regions suffer,” says South African economist Dawie Roodt.

The attacks in South Africa are hardly the first. Since 1994, at least 150,000 people have been killed, injured or displaced in xenophobic incidents across the country, according to Xenowatch, hosted by the University of Witwatersrand’s African Centre for Migration & Society. It tracks threats and violence against foreigners in South Africa. Since 2008, Nigeria alone has lost more than 115 citizens to attacks in South Africa.

The response reflects that pent-up anger. “It’s good that a ‘strong message’ was sent to the South African government, denouncing the barbaric activities of its citizens,” says Don Okereke, a Lagos-based public affairs and security analyst. “What we are seeing today is a mixture of anger and frustration … accumulated over the years.” In South Africa too, growing frustration among youth over failed promises, a slow economy and rampant corruption are reasons for the violence, say experts. “South Africa’s president, Cyril Ramaphosa, is in a difficult position domestically,” says Zaheera Jinnah, a researcher at the African Centre for Migration & Society.

Ironically, their recent economic struggles are what could stop Nigeria and South Africa from heading into a full-fledged trade war, says Sarr, unlike the U.S. and China, economies that despite setbacks are demonstrating robust growth. “Nigeria and South Africa are emerging from recession,” says Sarr. “And the shocks of a trade war can plunge them right back to an even worse recession.”

So far, though, the tensions show no signs of abating. South Africa formally apologized for the attacks last week, but Nigeria evacuated more of its nationals after that, suggesting a lack of trust. And the implications for Africa are many.

A mob armed with spears, batons and axes in Johannesburg’s Katlehong township during a new wave of anti-foreigner violence.

A setback to the AfCFTA would derail attempts at better integrating the region’s economy. The share of intra-African exports as a percentage of total African exports stood at just 17 percent in 2017, far lower than other regions such as Europe (69 percent), Asia (59 percent) and North America (31 percent) according to the Brookings Institution.

The tensions also send a troubling message to would-be investors, says Sarr. “Nigeria and South Africa are gold standards when it comes to doing business in Africa. So, if South Africa and Nigeria cannot get it together, investors will doubt their chances in other Africa nations,” she explains.

Roodt is concerned that South Africa’s credibility as a safe investment destination has taken a hit. “The rest of the world is going to look at South Africa and frown,” he says. And Jinnah says the episode — combined with the slowing economies of Nigeria and South Africa — threatens to increase the negotiating power of foreign nations looking to enter Africa on terms unfavorable to African nations. They could find market space that didn’t exist earlier — more than 100 South African companies operate in Nigeria, for instance.

If there’s one silver lining, says Roodt, it’s that the crisis is forcing African nations to acknowledge it takes more than signatures on a piece of paper to achieve economic integration. “We should see this as an opportunity to now break the borders and barriers between African countries and really integrate,” says Roodt. “Unfortunately, I have no hope we have leaders in Africa who can use this opportunity.”

“In a year or two,” he continues, “everything would be forgotten.”


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