The CEOs of two of South Africa’s biggest listed companies, MTN and MultiChoice, both recently praised the reforms in Nigeria under President Bola Tinubu, a political centrist who assumed office in May, replacing the unimpressive Muhammadu Buhari.
Given the reforms are causing their companies financial harm, it’s interesting to hear MTN’s Ralph Mupita and MultiChoice’s Calvo Mawela speak positively of Tinubu and the changes he’s making in Africa’s most populous country. Both believe the pain is short term and that the reforms are paving the way for significant economic growth.
It’s a view shared by Morgan Stanley executive director Steven Quattry, a specialist in emerging markets, who said in a note last week that Nigeria under Tinubu “could be poised for the emergence of a mass consumer market in one of the fastest-growing populations in the world”.
New policies, “including the removal of fuel subsidies and the unification of the naira’s exchange rate, could fuel economic growth”, he wrote. “With a young population and a new reform-minded president, Nigeria could be poised for a substantial uptick in economic growth if the administration can deliver on their proposed economic reforms.”
The short-term pain caused by the reforms are, however, palpable for ordinary Nigerians. The scrapping of fuel subsidies, though widely welcomed by business, has sent already high inflation climbing further — to 27.3%. And foreign companies operating in Nigeria, including MultiChoice and MTN, have taken a hit as the nation moves to normalise its currency, which had been kept artificially high under Buhari’s leadership. Since June, the naira has floated freely, its value determined by market forces.
This is short-term pain for long-term gain. The government is doing the right things
— Calvo Mawela
“The interventions [by the Nigerian government] are ones we have all been calling for,” Mawela tells the FM. The group reported a substantial interim headline loss per share of R2.89, down from a loss of 58c a year ago, driven in large part by forex losses in Nigeria.
“The parallel and official exchange rates don’t work for anyone,” Mawela says. “This is short-term pain for long-term gain. The government is doing the right things, including the removal of the fuel subsidy. Once these things have settled, as Ralph [Mupita] has said, within the next two years, things will stabilise.”
The Nigerian market is simply too big to ignore, says Mawela. “It has more than 200-million people; it’s a market we need to play in.”
The attraction of a country that is forecast by the UN to have more people than the US by 2050 is clear: the demographic dividend awaiting Nigeria is enormous, provided it follows through with promises to unleash the power of the free market.
This is not to underplay the very real challenges Nigeria faces: violent Islamic extremism (especially in the north), banditry and kidnappings, and endemic corruption.
Despite this, the World Bank said in a recent note that the reforms, coupled with favourable oil prices, are “expected to begin to reduce fiscal pressures, and unwind the critical macroeconomic distortions that held back growth in the past”.
Morgan Stanley’s Quattry is bullish. Tinubu’s reforms, he wrote, “could lead to a strong rise in incomes, which, combined with a young and fast-growing population, could usher in a new consumer class and a number of investment opportunities”.
Telecommunications will be one of the key growth sectors. This will benefit MTN, which is by far the nation’s largest telecom service provider. “By one estimate, Nigerian internet usage is one-tenth of South Africa’s,” Quattry said. “Additionally, last year’s regulatory changes that allowed operators to receive banking licences have enabled a growing mobile money market ... Though more than 85% of the adult population has a mobile phone, about 55% have no bank account, and only 10% have a mobile money account.”
Already, some of Africa’s most promising tech start-ups are from Nigeria, especially in fintech.
“In the next two to three years, once the current administration has succeeded in reversing the harmful policies and economic malaise of the past eight years [under Buhari], Nigeria could witness a sharp upturn in economic growth,” wrote Quattry.
If Tinubu’s government succeeds with its reform agenda, Nigeria — whose economy today is roughly the same size as South Africa’s, though less industrialised — could pull far ahead in the coming years. That’s especially likely if the ANC, with its toxic mix of socialism, corruption and cadre deployment/incompetence, wins the 2024 election.
But imagine a post-2024 South Africa cleared of the ideological deadwood that is holding it back from realising its full potential. Imagine a truly reform-minded government in the Union Buildings from next year.
Now imagine the two biggest economies in Africa growing at 6% or more for the next decade or two. This would forever change both countries for the better — and set the wider continent on a path to greater prosperity. Countries in Southeast Asia did it; there’s no reason it can’t happen in Africa, too.
McLeod is editor of TechCentral
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