JOHANNESBURG— While South Africa remains the most appealing investment destination on the African continent, the economy of the continent's most populous nation, Nigeria, is growing quickly. A new survey from a major South African bank predicts that, within the next couple of years, Nigeria will be the most attractive country to investors.
For three straight years, South Africa has topped the "Where to Invest in Africa" survey done by Rand Merchant Bank, but this year the survey predicted the West African nation of Nigeria may overtake South Africa within the next two to four years.
Nigeria is currently the leading African oil producer.
The survey takes several metrics and surveys from other economic organizations into consideration.
South Africa retained first place this year, while Nigeria moved from third to second place, ahead of Egypt. The survey is meant to give investors a long view of investment in the country. Countries like Libya and Egypt, though currently facing unrest, are also included in the top 10 among African countries.
Nema Ramkhelawan-Bhana, an Africa analyst with the South Africa-based Rand Merchant Bank, said, "the scoring gap between South Africa and Nigeria is narrowing quite rapidly."
"Now one would argue that Egypt has fallen down a couple of places because of its political unrest, but that's not necessarily the case based on our ranking. It is in fact because of Nigeria's expeditious growth rates and also its growth in market size with the potential to actually overtake South Africa in the next couple of years," continued Ramkhelawan-Bhana.
Nigeria has also made huge gains in the world rankings, climbing 35 places in the last decade to come in at 38th place. South Africa came in at 33rd place this year.
Ramkhelawan-Bhana says Nigeria already has a gigantic market thanks to its 164 million residents, and with growth in sectors like technology and agriculture, Nigeria is diversifying away from its historic dependence on oil.
That growth is likely to be bolstered further when Nigeria rebases its Gross Domestic Product, or GDP, by the end of the year.
Rebasing helps governments to adjust GDP calculations for changes in the economy, including new sectors and industries. Ghana recently rebased its GDP figures and the country's market size increased by 60%. Nigeria hasn't rebased in 17 years. The possible growth of such a rebasing has analysts excited.
"Now Nigeria's economy is about two-thirds the size of South Africa. Imagine an increase of around 60%. It will far exceed the levels that we are seeing in South Africa at the moment," said Ramkhelawan-Bhana.
So where does this leave South Africa? The country is expected to grow at a tepid 3.2% over the next five years as Nigeria grows at around 6%.
"I think it is something that South Africa should be desperately aware of. We are in a phase where we need to consolidate our gains, look at how we can spur different industries, how we can generate growth on a more sustainable basis," said Ramkhelawan-Bhana.
South Africa's economy still makes up 17% of the continent's purchasing power. However, the consumer-driven economy has suffered because of slowdowns in mining and manufacturing, labor unrest and decreased productivity.
Nevertheless, South Africa does have several large advantages over other African economies - a very strong and complex banking system and strong infrastructure, which is something Nigeria lacks.
Paul Alagidede, a professor at the University of Witwatersand's Business School, in Johannesburg, says Nigeria's growth and economic prosperity in other African nations aren't necessarily bad for South Africa.
"In terms of regional clout here, on the continent, South Africa is very well positioned to take advantage of the growth potential of other countries within the continent… Talk about Shop Rite in Ghana, in Nigeria, talk about MTN, we have Standard Bank spreading all over, so these are companies that are doing a lot of work in other countries… So the growth in other parts of Africa should be good news for South Africa, even if we are not seeing the fiscal evidence of that in South Africa itself."
That kind of continental investment is expected to increase in the future. Just last week, Famous Brands, a South African franchise group, bought a 49% stake in the Nigerian chain Mr. Bigg's.