Nigeria, with approximately 15 percent of Africa’s population, holds the key to unlocking Africa’s growth potential, according to Jim O’Neill, chairman, Goldman Sachs Asset Management.

If Africa could behave more together economically, then by 2050, BRICs (Brazil, Russia, India and China) would become BRICA (Brazil, Russia, India, China and Africa) from an economic perspective, O’Neill said.

Nigeria lies at the centre of this bull case, according to O’Neill, who coined the BRIC acronym more than a decade ago.

Nigeria’s 170 million people, mean one in seven people on the continent is a Nigerian, while its fast growing population could match that of the USA by 2050.

However, to harness the boom, African leaders must improve technology, education and the rule of law, including reducing corruption, he said. The bear case however would be that delivering on this potential is quite hard.

According to him, whether it happens or not will actually depend more on Nigeria.

To O’Neill, Nigeria’s share of global Gross Domestic Product would move from less than 1 percent in 2020, to over 3 percent by 2050, while South Africa’s share of global GDP would remain in the 1 percent range by 2050.

Africa is projected to grow at 6 percent per annum between 2011 and 2020, according to International Monetary Fund (IMF) data. This compares with average global growth rate of 4.1 percent for the same period.

While it would take several years or up to a decade before Nigeria is invited to sit at the same table with the BRICS (Brazil, Russia, India and China and South Africa) nations, there is a select group of fast growing countries to which Nigeria currently belongs, which offers an alternative to the BRICS, according to O’Neill.

This is the Next 11 or N-11 group of nations

O’Neill identifies Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam as the “next 11” (N-11) countries.

To Goldman Sachs, the N-11 represents the next 11 countries with the largest populations, after the BRICS that could have a meaningful impact on the global economy. Goldman Sachs believes that the N-11’s 19 percent share of the global populations is significant and will contribute meaningfully to its growth, which will ultimately be reflected in its equity market capitalisations.

To put that in perspective, Nigeria’s equity market capitalisation is worth a little over $100 billion, compared with South Africa’s (the smallest BRIC economy), which is worth an estimated $801 billion.

“Our conviction in the N-11 as a compelling equity opportunity is underpinned by our anticipation of a convergence between the N-11’s share of the global population (19%), of global GDP (8%) and global equity market capitalisation (3%).

We believe that N-11 economic growth will lead to more publicly listed ways to tap into these growth themes, ultimately reflected in greater market capitalisations,” said O’Neill in a research note released last year.

Strong or improving growth conditions, combined with favourable demographics, form the foundation of the N-11 growth story.

The accommodating economic and political conditions is also expected to promote economic growth, leading to a measurable increase in the N-11’s share of global GDP, from roughly 12 percent in the current decade to 17 percent in 2040-2049.

In addition, the N-11 countries have large populations and a majority has a median age of fewer than 30, creating the potential to become a massive consumer base, as well as providing scale to other growth trends.

Euro monitor International (a research firm) estimates that by 2016, the size of the Nigerian consumer market would be worth $223 billion, more than double the 2010 levels.

Beyond that a Strong and/or improving macro-economic conditions among the N-11 should lead to GDP growth.

Goldman Sachs Economics, Commodities and Strategy Research compile and monitor a Growth Environment Score (GES) each year for over 180 countries.

The GES monitors productivity and sustainability of growth based on 13 distinct criteria that fall into five main categories: Macro-economic stability, macro-economic conditions, technological

capabilities, human capital and political conditions, and the most recent report illustrate positive momentum in the N-11 countries.

Economic growth and rising income levels in the N-11 should lift more people into both the middle and upper classes, creating significant consumer demand.

Importantly this migration into the middle and upper classes should support a vast array of consumption opportunities, from basic goods and services to discretionary items and eventually to luxury purchases.

As an example, Goldman says growth in demand for autos typically accelerates at an income level of about $9,000 per capita (in 2007 purchasing price parity (PPP) terms).

This implies that there would be a significant increase in demand for autos and other consumer durables, such as televisions, refrigerators and washing machines.

Furthermore, this acceleration in demand is likely to occur at various points in time across the N-11 group, given the diversity of the income per capita levels and growth rates.

Nigeria currently has one of the lower per capita incomes among the N-11 group, even though the country’s GDP per capita has doubled between 2004 and 2010, moving from $644 to $1,222, according to World Bank data.

The impact of countries with over $30,000 per capita income, in 2007 PPP terms in the N-11 could be quite dramatic, argues O’ Neill, largely driven by South Korea, Mexico and Turkey.

By 2025, more than 60 million people from the N-11 may cross that income threshold, which is more than from the US.

2013-08-11