GDP rebasing won’t favour Nigerian firms over S/Africa’s
Lagos: The largest listed Nigerian companies are dwarfed by their South African (SA) counterparts, even as the size of both countries economies are expected to be neck and neck by September. For some analysts, this highlights the limits and symbolic nature of the rebasing of Nigeria’s Gross Domestic Product (GDP), which is expected to increase the size of its economy by 40 percent.
Nigeria plans to rebase its GDP calculations by September 6, 2012 according to information from the National Bureau of Statistics (NBS)website.
Most governments overhaul GDP calculations every few years, to reflect changes in output and consumption, such as mobile phones and internet usage. Nigeria has not done so since 1990 suggesting that the previous GDP framework underestimated economic activity.
The rebasing is expected to take the size of its economy to $375 billion (almost the size of South Africa’s), from its current International Monetary Fund (IMF) estimates of $270 billion, helping to boost financial markets, as portfolio investors show greater interest.
A cursory look at the largest listed companies in both countries however tells a different story.
“The rebasing of Nigeria’s GDP and subsequent increase in size should elevate its status in the frontier market space and may necessitate closer attention by global fund managers,” Kayode Tinuoye, senior analyst at Skye Financial Services, said in an email reply. “However, a lot still needs to be done to improve the depth of the financial market.”
The Johannesburg Stock Exchange (JSE), with a market capitalisation of over $800 billion is 358 percent larger than the Nigerian Stock Exchange (NSE) at $63 billion.
As a percentage of GDP, the market capitalisation of listed companies in South Africa approaches 250 percent while in Nigeria it is less than 30 percent.
“In Nigeria many large companies are unlisted - from local champions like Glo, South Atlantic Petroleum, and NNPC, to multinationals with local subsidiaries like MTN, Airtel, Mobil, and Chevron. Until we have more of these companies listed, the NSE will not fulfill its potential,” said Kayode Akindele, Partner at 46 Parallels, an investment firm.
Even when Nigerian companies are listed, they tend to be much smaller than their South African counterparts, highlighting the development deficit in Nigeria.
Nigeria’s largest banking group First Bank of Nigeria (FBN) has a market capitalisation (cap.) of $2.2 billion, compared to South Africa’s Standard Bank group at $16 billion (meaning Standard bank is almost 8 times larger).
Nigerian Breweries has a market cap. of $4.7 billion, compared to SABmiller at $35 billion.
South Africa’s Sasol, with a market cap. of $32 billion, dwarfs any listed Nigerian oil company.
While Tiger brands at $5.1 billion is valued twice as high as Nestle Nigeria at $2.1 billion.
The only seeming exception is Nigeria’s Dangote cement, but even at $11 billion it still lags behind the largest listed South African company.
Akindele notes that in terms of financial institutions, South Africa has a much more developed market than Nigeria. Consumer lending through mortgages and consumer finance (virtually non-existent in Nigeria currently) are more advanced in South Africa, so the banks there have a bigger revenue pool and therefore tend to be larger.
“This key segment of the market needs to develop in Nigeria before the likes of First Bank can generate the revenues to justify a market capitalisation close to a Standard Bank’s,” he said.
Nigeria remains significantly underdeveloped in terms of basic infrastructure (electricity, roads, etc) and faces very high income inequality, according to Samir Gadio, an emerging-markets strategist at Standard Bank Group Ltd. in London.
“This negative perception and development challenge will not dissipate just because of the revision in aggregate GDP, especially as domestic output per capita will continue to trail that of South Africa over the next decades,” he said.
Nigeria’s GDP per capita is currently at $1,615, while South Africa’s is at $8,088 according to data from Renaissance Capital.
Other analysts question the expected rebasing’s findings, in terms of what it suggests about the size of the Nigerian economy relative to South Africa’s.
“It isn’t only in terms of market capitalisation that the numbers seem at odds with other metrics - the most basic of all indicators would be relative consumption or retail sales,” Razia Khan, African regional head of research, Standard Chartered Bank said, in a response to questions.
“In this respect, the size of the South African market is still thought by many participants to be much larger than the Nigerian economy is currently.”