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What Africa’s biggest economies must learn

Business
If the rest of Africa expects Nigeria and South Africa to chart a path and provide some sort of economic leadership, they will have to look elsewhere for the time being. Africa’s two biggest economies, with a combined GDP of nearly $800 billion, are in recession at the same time for the first time in the modern history of the continent.

The time of arrival at this recessive destination might be different for Nigeria and South Africa but the navigation patterns bear a striking resemblance.

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TAKE NOTE: South African banknotes (l). The country should have foreseen the recession, the writer says.OIL IS NOT WELL: The Nigerian naira (r). The writer says the country has little to show for its oil wealth. Pictures: AFP

The combined forces of corruption, public finance profligacy and, in the case of South Africa, political instability, have stripped both countries of the veneer of economic growth over the last decade.

For the average Nigerian and South African bearing the brunt of reckless economic decisions and financial mismanagement, endless debates and analysis offer little or no reprieve.

Nigeria slipped into recession in the second quarter of last year, a year after the historic election that produced Muhammadu Buhari, a staunch anti-corruption advocate, as president. His predecessor presided over what observers say is one of the most corrupt regimes in the history of the country.

Corruption has proved to be a recalcitrant encumbrance to the development of Nigeria.

A recent report by Chatham House, an independent policy institute based in London, puts the amount stolen by corrupt public officials from Nigeria’s treasury between 1960 and 2014 at $400bn.

South Africa is not without its own corruption challenges, even if the amounts involved are not as staggering. Diversion of public funds by politicians and public officials away from service delivery into private pockets is rife.

President Jacob Zuma, for example, is alleged to have diverted R246 million of public funds to upgrade his private home.

Since 2009, South Africa has dropped 17 places on Transparency International’s Global Corruption Perception Index, 34 places since 2001. Between R25bn and R30bn is lost to loopholes and imbalances in government procurement processes each budget year, according to a 2011 report by Willie Hofmeyr, former head of the Special Investigating Unit.

Economic analysts did not foresee Africa’s most industrialised economy going into a recession this year - but they should have. South Africa’s GDP contracted 0.3% in the last quarter of last year and its government needed to initiate short-term reforms to stem the tide.

Instead, Zuma fired the finance minister, compounding the political turmoil, with economic uncertainty already prevalent.

The ill-guided and mistimed ousting of Pravin Gordhan, who was in London meeting investors and South Africa’s economic partners, sent the rand tumbling against the US dollar.

The erstwhile finance minister was credited with stabilising South Africa’s economy since his appointment in December 2015 after Zuma had sacked two finance ministers within a month.

Gordhan is a vocal critic of corruption in state-owned companies and is thought to have clashed with Zuma over the operation of enterprises owned by the South African government.

Most of South African SOEs have been operating at a loss over the years and the bailouts required to keep them solvent have been a massive strain on the economy.

In 2015 alone the South African government spent nearly 10% of its total annual budget on servicing debts and helping these companies.

State-owned national carrier South African Airways reported a R1.5bn loss for the 2015/2016 financial year, after losing R5.6bn the previous year. The airline is being kept in the skies courtesy of some R2.3bn from the government - money that should have been put to good use elsewhere.

It is a similar story with state-owned regional airline SA Express and low-cost carrier Mango. Both reported huge losses in the 2015/2016 financial year and the previous year.

Indeed, over the past 10 years these three airlines have run at a combined R35bn in operational losses and state bailouts.

The unhealthy obsession of the government with SOEs transcends airlines. Broadbrand Infraco needed R500m from the government to sustain its operations in 2015 and has consistently made losses since 2010. The Passenger Rail Agency of South Africa ran into a R600m loss in 2015 and R1.2bn in the year before. South African Post Office posted a loss of R1.4bn in 2015.

PetroSA, however, takes the cake for the biggest ever loss incurred by a state company in the history of South Africa with R14.5bn.

As Africa’s largest oil producer, Nigeria has little infrastructure to show for the hundreds of billions earned from crude sales over the years. Huge sums have been lost to questionable subsidy regimes, incompetence and corruption.

The petroleum minister recently revealed $65bn was spent on petrol and paraffin subsidies between 2011 and 2015. That amount is higher than the GDP of Kenya and much of it ended up lining private pockets while the masses bought fuel at higher prices.

To get out of recession and return to the path of economic growth, both Nigeria and South Africa will have to implement key reforms and depart from archaic and unprofitable ways of running their governments.

Nigeria’s Vice-President Yemi Osinbajo had to reject the offer of a new official residence at the cost of 7 billion naira. While that is commendable, the offer should never have been on the table to start with.

Malusi Gigaba, South Africa’s fourth finance minister in less than 18 months, and his Nigerian counterpart Kemi Adeosun, are faced with the task of convincing their governments recession provides an opportunity to turn a new leaf in public expenditure.

Nigeria has made some progress in improving the ease of doing business and creating an enabling environment for investors and business owners but more needs to be done.

The 2017 budget, expected to be financed largely through loans, contains too many frivolous items gulping funds that should be ploughed into development.

The appetite of the South African government for controlling enterprises that are best operated by private ventures will have to be curbed. The cost of running government remains high to the detriment of the economy.

Investors’ confidence, eroded in no small measure by the abrupt removal of the former finance minister, has to be regained.

The highest unemployment rate in the history of South Africa, and nearly 10 million out-of-school children in Nigeria are writing on the wall.

South Africa must watch out for the effects of the political wrangling bound to get worse around the leadership tussle in the ruling ANC and the lead up to the 2019 general elections.

While the feelers indicate Nigeria might be getting out of the recession soon, the country must understand it cannot build a thriving economy based on the rules of the past.

Africa’s largest countries, and by far its most important economic hubs, must do better to help move the continent in the direction of economic freedom and prosperity.

• JJ Omojuwa, @Omojuwa on Twitter, is editor of AfricanLiberty.org and chief strategist at Alpha Reach. This article was syndicated by AfricanLiberty.org

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