South Africa’s foreign investments into Nigeria have plummeted by 80% says south African enterprises

Over the past four years, foreign investment inflow from South Africa into Nigeria has experienced a significant decline, plummeting by more than 80%.

In the years following the return to democracy, South Africa, Africa’s most advanced economy, has considered Nigeria, Africa’s largest economy, as a strategic investment destination. Nigeria’s status as the continent’s largest market in terms of population and age had made it an attractive destination for South African businesses seeking growth opportunities beyond their borders.

Nonetheless, the recent departure of some major South African enterprises from Nigeria suggests a slowdown in the capital outflow into Nigeria. An examination of four years of data reveals that capital importation from South Africa has dropped from approximately $2.3 billion in 2019 to $428 million in 2022, marking an 81% decrease over the past four years.

In 2023, capital importation from South Africa amounted to just $228 million, which, when annualized, equates to around $456 million.

So, why are South African businesses leaving Nigeria? Several factors have contributed to this trend:

1. Regulatory uncertainty and disputes: Several South African businesses have encountered regulatory challenges and fines in Nigeria, such as MTN, which had to pay a $1.7 billion penalty for failing to disconnect unregistered SIM cards in 2015. Sun International, a hotel and gaming group, left Nigeria in 2016 after facing legal issues with its local partner and the Economic and Financial Crimes Commission. Shoprite, Africa’s largest retailer, announced its intention to sell its Nigerian operations in 2020, following store closures due to protests and court orders.

2. Economic downturn and currency volatility: Nigeria’s economy has been adversely affected by falling oil prices, the COVID-19 pandemic, and the devaluation of the naira. This has impacted consumer spending, demand, profitability, and the repatriation of earnings for foreign businesses. For example, Southern Sun, a major hotel chain from South Africa, sold off its Nigerian business due to challenges in the hospitality industry, FX devaluation, and lower margins. Clover Industries, a dairy producer, also scaled back investments in Nigeria in 2019 due to currency fluctuations and inflation.

3. Competition and market dynamics: Nigeria’s retail sector is dominated by informal traders and small-scale businesses, offering lower prices and greater convenience than large-scale supermarkets. South African retailers have struggled to compete with these local players, as well as with other foreign entrants. Some South African businesses have faced challenges in adapting to the preferences and tastes of Nigerian consumers.

Despite these challenges, Nigeria continues to hold significant potential for South African businesses that can navigate the barriers and risks. Sectors such as banking, media, energy, telecommunications, and infrastructure still offer opportunities. Some South African businesses, including Standard Bank, DStv, Protea Hotels, and Sasol, have continued to operate successfully in Nigeria.

Moreover, President Bola Tinubu recently held bilateral talks with South African President Cyril Ramaphosa in New York City, aiming to strengthen economic ties ahead of the United Nations General Assembly.