April 14, 2024

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South Africa’s Economy to Surpass that of Nigeria

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  • Electricity generation shoots
  • FG pays ₦135.23bn for electricity subsidy

CEM REPORT, ECONOMY | Nigeria may no longer be called the giant of Africa as the report reveals that South Africa’s economic growth will surpass Nigeria in 2024. The economy of South Africa is also expected to thrive over Egypt’s in the same year.

An IMF’s World Economic Outlook anticipates South Africa’s gross domestic product (GDP) to reach $401 billion by 2024 at current prices. This would exceed Nigeria’s GDP of $395 billion and Egypt’s GDP of $358 billion. The IMF projects that South Africa’s economy will grow by 0.9 per cent this year and 1.8 per cent in 2024.

The report further goes on to say that, there is the potential for even faster growth, ranging from 2.5 per cent to 3 per cent, on the assumption that South Africa addresses its power supply issues, resolves logistical bottlenecks, and implements other necessary reforms.

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The assumption of the IMF may hit its mark as South Africa is in talks with the World Bank about a potential $1 billion loan to implement much needed reform in its energy sector.

However, Nigeria may still be able to rub shoulders with South Africa as the report details that the Nigeria economy is expected to grow by 3.1 per cent in 2024, which will push the nation’s economy ahead of South Africa. The report continued that South Africa, the most industrialised nation in Africa, is expected to claim the top position for just one year before falling behind Nigeria once more and subsequently slipping to third place behind Egypt by 2026, as outlined in the report.

The Nigerian economy is expected to slow as a result of high inflation, which currently stands at 26.72 per cent according to a recent NBS report.

Nigeria and South Africa face similar economic issues of electricity, while in South Africa, it is a perennial problem which it is putting mechanism to resolve, in Nigeria electricity challenges have grown and defied almost all solutions.

However, a recent report reveals that the government may just be on the path to getting the electricity issue right as it claims to have grown the power capacity of the national grid from 13,000 megawatts recorded a few years ago to about 14,000 megawatts.

According to the Executive Secretary, Association of Power Generation Companies, Joy Ogaji the increase was brought about due to the addition of a $1.3bn Niger state-based 700MW Zungeru hydroelectric plant which came on stream in the second quarter of the year.

“The national grid now has an installed power generation capacity of about 14, 000 megawatts, and this was made possible due to the Zungeru plant that came on stream this year,” she said, adding that it was an opportunity for interested investors to partner with the Gencos.

Meanwhile, data from the Nigerian Electricity Regulatory Commission (NERC), reveals that the Nigerian Federal Government paid a total of ₦135.23bn for electricity subsidy in the second quarter of 2023 (Q2’23), a 275 per cent quarter-on-quarter increase from ₦36.02 billion paid in Q1’23.

The Commission stated that the subsidy was due to the absence of cost-reflective tariffs across all Distribution Companies. It attributed the increase to the unification of the exchange windows that led to the over 50 per devaluation of the naira.

The commission stated that eleven electricity distribution companies (DisCos) had applied for rate review on the premise of incorporating changes in macroeconomic parameters and other factors affecting the quality of service, operations and sustainability of the companies.

The DisCos noted that the proposed tariff increase is in response to the devaluation of the Naira which has effectively changed costs.

It is worth noting that there is no evident correlation between the cost of producing and supplying electricity and the tariff charged to the customer. To compound the matter, billing and cash collection have been grossly inefficient due to poor metering.

If the review is to go through it implies that the Multi-Year Tariff Order (MYTO) which was set at an exchange rate of N441/1 dollar may now be revised to approximately N750/1 dollar.
The Multi-Year Tariff Order (MYTO) was intended to set electricity tariffs for consumers over 15 years, from 2008 to 2023.

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