Tag Archives: South Africa

Nigeria’s Economic Magic Trick

On April 6th, something fascinating happened. As if by a work of magic, Nigeria grew its GDP by 89% and suddenly became the largest economy in Africa. With this clever sleight of hand, Nigeria’s economy increased its worth from $263 to  $510 billion. South Africa, with a GDP of $370 billion has lost the top economic standing in Africa. How did Nigeria pull this off? Did they really construct over $200 billion of goods over night? Or did they rely on the types of magic tricks as displayed below? The actual reason for the phenomenon lies somewhere between reality and illusion. Let me go further into detail and explain what happened.

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Nigeria’s Finance Minister right now

With a large population of 170 million people, Nigeria has been growing at a rapid pace of almost 7% over the past decade. Previously, the nation’s abundance in oil and other natural resources had been the main drivers of Nigerian growth. However, in recent years, Nigeria has drawn significant foreign investments and has witnessed thee emergence of new consumer-oriented sectors such as telecommunications, entertainment and banking. 20 years ago, Nigeria had only one phone operator and 300,000 telephone lines. Today, Nigeria has an entire telecommunication industry with over 120 million subscribers. Similarly, Nollywood, the Nigerian film industry, now produces the most movies in the world and makes up 1.4% of the country’s GDP. Finally, Nigeria’s services sector has grown by over 240% since 1990.

nigeria gdp chart

The reason for Nigeria’s overnight economic expansion is due to the way the Nigerian GDP was previously measured. For the past 24 years, Nigeria’s GDP calculation did not give much weight to these newly developed sectors. The new system of GDP calculation now incorporates the revenues from Nigeria’s new business sectors which had been overlooked before. This process of revising GDP calculation is referred to as rebasing. The IMF advises countries to go through this process every five years. However, many African countries such as Nigeria do not rebase on a consistent basis. International aid donors urge African nations to rebase regularly so that they can make more precise decisions regarding foreign aid.

nigeria GDP
Source: The Economist

The stastical illusion has not changed anything in reality . The important problems in the Nigerian economy still remain. Even though Nigeria’s economy is large, its people are still poor. Nigeria ranks 153rd out of 187 countries in the United Nation’s Human Development Index, unemployment is over 20% and GDP per capita is only $2700.Given that GDP per capita figure, South Africans are still twice as rich as Nigerians. Additionally, despite the emergence of new industries, the country still draws a majority of its revenues from oil and gas exports. Once again in contrast to South Africa, Nigeria has an underdeveloped infrastructure and has outbreaks of violence in certain parts of the country.

Goodluck Jonathan is the President of Nigeria. Despite having one of the funniest names I have ever heard, still has a lot of work to do. Yes, Nigeria has greatly grown over the past decade and has been the posterchild of rapidly growing African nations.  But in order to lift Nigeria to the upper echelons of nations, President Jonathan should seek to reduce corruption, incrase the efficiency of tax collection and reduce the bureacratic barriers to doing business in the country. As the cradle of mankind, Africa needs more nations such as Nigeria to rise above and help their people live in prosperity and security, something that they have been desperately seeking for many years.

“The work of Nigeria is not complete for as long as there is any one Nigerian who goes to bed on an empty stomach”
– Ibrahim Babangida

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Video of the Week – Taper Continues

This video does a great job to explain what I wanted to talk about from the previous week. However, I know you’d be devastated if you didn’t get a taste of my elegant writing. Have no fear.

As he passed the torch to Janet Yellen, Ben Bernanke announced in his last FOMC meeting that the FED would continue tapering QE by decreasing the bond buying program by another $10 billion. This brings the total of the program down to $65 billion of treasury bonds and mortgage-backed securities. FED officials decided that the American economy is strong enough for a second round of tapering, despite recent mediocre data including a weak jobs report.

Once again, this second step of tapering will end up lowering US stock markets, raising interest rates in the United States and appreciating the US Dollar in value against other currencies. This is having a profound on effect on Emerging Markets such as Turkey and South Africa where a devaluing currency and a rise in American interest rates is causing investors to flee those markets. In response, Emerging Markets have resorted to raising interest rates but so far they have not been able to regain the losses to the value of their currencies. In response to the effects that tapering is having on foreign countries, FED officials have stated that their priority is to maintain the strength of the American economy and tthat if they succeed, then Emerging Markets would fare better off as well.

“Most projects start out slowly – and then sort of taper off.”
-Norman Ralph Augustine

Hero/Villain of the Month – December

I might be a few days late but it took me a while to decide who to pick as hero and villain of the month. But with some deep thinking, I’ve made my choices.

Hero of the Month: Nelson Mandela

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Even though December technically was the month that Mandela passed away, his legacy and his life’s work deserves to be respected and honored once more. Initially born into a life of poverty, Mandela made it his life’s mission to end the racist apartheid social structure in South Africa and bring equality and freedom to all. In 1964, the South African government banned the African National Congress (ANC) and sent Mandela to prison for over 20 years. After continuous international pressures to end racial segregation, the South African government released Mandela and lifted the ban on the African National Congress. The ANC won the following elections and Mandela became the nation’s first black president of South Africa in 1994. The most honorable act of Mandela’s life in my opinion was to embrace his former oppressors instead of lashing out against them as apartheid came to an end. “If you want to make peace with your enemy you have to work with your enemy. Then he becomes your partner,” he wrote in his autobiography, Long Walk to Freedom, published four years after his release from prison in 1990. Following his presidency, Mandela dedicated his life for philanthropic work as he sough to increase the education of African children and aided the fight against AIDS and poverty. Even though we all might face different challenges in our daily lives, we can all learn a lesson of humility, courage and determination from Nelson Mandela.

Villain of the Month: Viktor Yanukovych

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Earlier last month, Ukraine was on the cusp of signing a free trade agreement with the European Union. But in the last minute, Ukraine elected to stay in the Russian sphere of influence by scrapping the deal with the EU and instead signing a deal with Russia for cheaper natural gas imports and cheap money that is desperately needed to finance Ukraine’s deficit. This sudden decision prompted a wave of protests across the nation as Ukrainians desired to become more integrated with the rest of Europe. The protesters called for the cancellation of the deal with Russia and for the resignation of Yanukovych. However, the Ukrainian president responded violently as police cracked down on the protesters with force. The opposition party in government called for a vote to force Yanukovych but could not get enough votes to accomplish their goal. For his lack of transparency, his violent response and his desire for choosing short term funding from Russia instead of the greater freedom closer ties with the EU would bring, Viktor Yanukoyvch is December’s villain of the month.

“Education is the most powerful weapon with which you can change the world”
-Nelson Mandela

Upcoming Emerging Market Elections

The geopolitical stage is typically divided into two camps: the Developed Markets (such as USA, the EU, Japan, England) and the Emerging Markets (such as China, Russia, Brazil, India, Turkey). Developed Markets are countries that have stable financial markets and political systems. Their economies are powerful but have developed to the point where they can now only grow at a slow and steady pace. On the other hand, Emerging Markets are the new players on the global stage. Their economies have grown rapidly over the past several years and they appear to have promising futures. However, their financial systems still need improvement and their political systems are still unstable. If the two groups could be visualized as Hollywood actors, the Developed Markets would be Liam Neeson.

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No matter what movie it is, you know for a fact that if Liam Neeson is in it, he is going to dominate that role and he is going to be a total badass as he trains Batman, saves his daughter, releases the Kraken, etc. Much like Liam Neeson, Developed Markets shape the context of the globe and have established themselves as the leaders of the world. On the other hand, Emerging Markets are James Franco.

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You can tell James has a lot of potential. He’s had some great movies such as 127 Hours, the Spiderman series and Pineapple Express. But let’s be honest, he’s been in some lousy movies too. Have you seen Your Highness? No you haven’t; and neither has anyone else. So you know Franco is a great actor but you can’t tell if his next movie is going to break box office records or totally fall flat and bomb. Similar to Franco, Emerging Markets have potential and may even become one of the world’s leading nations in the future. However, they are unstable and have their internal problems, much like Franco’s problem to keep his eyes fully open.

After the financial crisis of 2008, Developed Markets suffered greatly. Their economies were in shambles. These nations responded by lowering interest rates to stimulate demand. Thus, investors moved their money to Emerging Markets to seek higher returns on higher interest rates. After 2009, Emerging Market economies skyrocketed. From 2010 to the end of 2011, most Emerging Market economies grew somewhere between 6-11%. For example, in 2011, the Chinese economy grew by 9.2% and the Turkish economy grew by 8.5%. Following these developments, everyone believed that the time of Emerging Markets had come and that they would lead the world out from pits of the financial crisis.

However, in 2013, as central banks around the world such as the FED started talking of taking their foot of the pedal and slowing their support of their economies, interest rates rose in the developed world. 2013 was also the year when political upheaval broke out in certain Emerging Market countries, the US economy continued to recover at a steady pace and the EU saw the worst of its crisis pass. All of these factors caused investors to put their money back into the Developed Markets. As the cheap money was pulled away from Emerging Markets, their economies slowed down and their currencies lost value against Developed Market currencies.

In case you don’t believe me, here is a finance professor from George Washington University discussing how Emerging Markets fared in 2013.

Now in 2014, many Emerging Markets will go to the polls and determine their leaders in elections. These elections will shape the political sphere in those nations for the next several years and will definitely effect not only their national economies but ultimately the global economy. So, along with a graphic from the Wall Street Journal, here is a breakdown of upcoming Emerging Market elections in 2014.

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Brazil

Brazil’s economy is highly dependent on commodity exports. Thus, a fall in commodity prices, excessive government spending and a social upheaval against the government in the summer all proved troublesome for the Brazilian economy. The general election in October will decide if President Dilma retains her position or replaced by the opposition.

South Africa

In South Africa, the African National Congress party has won every election after the apartheid era. But they are now being challenged by the Democratic Alliance which won 16% of the votes in the 2009 elections and has grown in popularity ever since. Come election time in April, the ANC’s hegemony over South African politics may come to an end.

Turkey

Recep Tayyip Erdogan and his AK Party have dominated every local and national election since they first came to office in 2002. During their term in power, they have further liberalized and grown the Turkish economy and have also increased Turkey’s influence on the global stage. However, resentment against Erdogan’s authoritarian tendencies and his party’s encroachment on personal freedoms exploded this year during the nationwide Gezi Park protests. Furthermore, a recent corruption scandal charged against several AK ministers have led to their resignation and has made the AK Party lose even more of its influence. The AK Party is still highly popular throughout Turkey, but it will be interesting to see the effect of recent events on the local elections in March.

India

The Indian economy currently faces stagflation as it is stuck in a state of high inflation and below average growth. Incumbent president Manmohan Singh has stated that even if his United Progressive Alliance party wins, he will not be president for a third term. Investors are hoping for a victory by pro-reformist Bharatiya Janata Party. Only time will tell the outcome of the general elections in May.

Indonesia

In July, whoever wins the Indonesian general election to replace outgoing two-term president Susilo Bambang Yudhoyono will have a full plate. Growth has slowed, politically popular fuel subsidies are draining the treasury and corruption remains rife.

All of these countries require the implementation of unpopular but important reforms to aid their economies and remedy social issues. However, because of upcoming elections, ruling parties are unfortunately likely to delay these reforms till after the elections are over.

“Emerging markets are hugely important.”
-James Dyson