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You are here:Home>>Strategic Research & Analysis>>Nigeria and South Africa: Spillovers to the Rest of Sub-Saharan Africa
Thursday, 18 October 2012 18:46

Nigeria and South Africa: Spillovers to the Rest of Sub-Saharan Africa

Written by IMF
L-R Presidents Jacob Zuma(SA), Goodluck Jonathan(Nigeria)  credit: L-R Presidents Jacob Zuma(SA), Goodluck Jonathan(Nigeria) credit:

The economic linkages between sub-Saharan Africa’s two largest economies, Nigeria and South Africa, and the rest of the region, and  how developments in these countries can affect other countries in the region.


Developments in one economy can spillover to other countries through several channels, depending on the depth of the underlying economic linkages. Key channels include: (i) trade in goods and services, both formal and informal; (ii) financial sector interconnections; (iii) flows of capital, whether in the form of foreign direct investment, portfolio flows, or loans; and (iv) labor movements and (in the reverse direction) remittance flows.


Institutional factors can also play an important role: examples include the revenue-sharing arrangements in the Southern African Customs Union (SACU); the regional bond market that has been established in the West African Economic and Monetary Union (WAEMU); and the exchange rate arrangements of the Common Monetary Area in southern Africa, where the three smaller member countries have long-standing exchange rate pegs to the rand. Quantifying the significance of these channels in sub-Saharan Africa is challenging given data limitations: trade statistics fail to capture what are often large volumes of unrecorded informal trade; data on capital flows and stocks are often of very poor quality; and information on labor flows and remittances typically understate the scale of activity involved by sizable margins. That said, some facts can be noted:


credit: Wikepedia Nigeria green, SA brown


• South Africa plays a significant role in the structure of intra-sub-Saharan African trade. Recorded exports to South Africa exceed  ++1 percent of domestic GDP for at least a dozen countries, with links most noticeable for countries in the SADC sub-region .


•Some clustering of trade flows can also be seen between Nigeria and its closest neighbors and within eastern Africa. The large amount of informal (unmeasured) cross-border trade in these sub-regions, particularly in agricultural goods, suggests closer ties and linkages than indicated by official trade statistics.


•Although trade within the region remains modest as a share of countries’ total trade, the ratio of intra-regional trade to national GDP has generally risen significantly in the past decade (Figure 2.1). Going forward, improved regional infrastructure and vigorous implementation of existing free trade agreements—including the use of less restrictive rules of origin and eductions in non-tariff barriers—would likely produce a further sharp increase in the scale and importance of such trade.


•The expansion of investment within the region by South African companies and institutions— both financial and nonfinancial—has brought with it a deepening of trade and other linkages within sub-Saharan Africa, while also helping to diversify the market orientation of South African exports.


•Banking groups headquartered in South Africa and Nigeria have rapidly expanded their operations across the region in recent years— although the business models used (focusing on local funding and lending) may act to contain the scope for financial contagion within the region.


Although available data on remittances suggest quite modest financial contributions from migrant workers to their home countries, estimates of migration across African borders point to large, mostly informal flows. Adverse shocks to host countries, such as South Africa and Nigeria, would likely lead to a fall-off in transfers in cash and in kind to the migrants’ home countries and at least some return of migrants.


•Domestic policies such as highly distortive tax and subsidy regimes, and institutional arrangements such as  customs revenue-sharing arrangements, can play important roles in transmitting shocks between countries.





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