LONDON South Africa, the largest economy in Africa, is eager for elevation to the coveted BRIC status of emerging markets, but investors say Nigeria is a more probable African contender, even if promotion for either is some way off. Russian President Dmitry Medvedev, at last month's G20 meeting in South Korea, said South Africa had "applied" to join the four-member BRIC grouping of fast-growing emerging economies -- Brazil, Russia, India and China.
Turkey, Mexico and Indonesia are typically the countries investors eye as an addition to the BRICs, which have grabbed an outsize slice of emerging market investment in recent years due to their scale, growth and impact on the global economy.
But resource-rich Africa, boasting some of the fastest-growing countries in the world, has become a focus for investors looking for high returns over a longer timeframe.
Investment flows into Nigeria are tiny compared with South Africa. Nigeria saw equity fund flows of just $216 million for the first 10 months of this year, compared with $3.4 billion for South Africa, according to fund tracker EPFR.
Yet while South Africa is the larger economy, Nigeria is expected to catch up in the next few years.
"In Nigeria, you still have 70 percent of the population living on a dollar a day, but there is a demographic impact. In the next five years, Nigeria will add another 23 million people and South Africa will add another 2.8 million," said Razia Khan, head of Africa research at Standard Chartered.
Nigeria's economy may overtake South Africa's by 2023, Standard Chartered says, assuming South Africa grows by 4 percent and Nigeria by 7 percent on a purchasing power parity basis.
Goldman Sachs Asset Management Chairman Jim O'Neill, who coined the term BRIC nine years ago, told last week's Reuters 2011 Investment Outlook Summit he was constantly getting e-mails suggesting he added or subtracted countries from the acronym.
South Africa, at a population of under 50 million people, is just too small to join the BRIC ranks, O'Neill says.
"How can South Africa be regarded as a big economy? And, by the way, they happen to be struggling as well."
Meanwhile, recent policy changes in Nigeria, including the appointment as finance minister of former Goldman Sachs banker Olusegun Aganga, could present new possibilities.
"Nigeria has shown some vague signs. If they could impose the level of leadership, a whole new way of governance in which corruption is dramatically reduced, Nigeria is I think very interesting," O'Neill said.
"It's 20 percent of Africa's population, which means it could be pretty powerful."
Nigeria's population already totals more than 150 million, larger than Russia's, and on some estimates could double in the next 20 years.
Investors are already targeting the African consumer and growing middle class, and a rising population would increase consumer demand.
Acha Leke, a Lagos-based director at consultancy McKinsey, is cautiously optimistic on the power of population.
"Demographics is a double-edged sword -- you have a massive, massive market, but you have a bunch of people to educate and create jobs for. This could be a great opportunity, it has to be carefully managed."
Nigeria may have an edge over South Africa, but it still has a long way to go.
Corruption is a deterrent, with the country coming 134th out of 178 countries in Transparency International's 2010 Corruption Perceptions Index, compared with 54th for South Africa.
Some of Nigeria's biggest challenges include its inadequate power grid and other infrastructure shortages.
In the short term, political uncertainty is also an issue for Nigerian investors ahead of April elections, with southerner President Goodluck Jonathan facing a tough battle securing the ruling party nomination because of a pact in the party that power rotates every two terms between the mostly Moslem north and largely Christian south.
And in capital markets, South Africa is far and away the winner, as the biggest financial market in Africa.
South Africa is a regular borrower in international debt markets, while Nigeria last week delayed a debut sovereign bond.
South Africa is also a constituent of the benchmark MSCI global emerging equities index .MSCIEF, while Nigeria is only in the less liquid frontier markets index .dMI7400000PUS.
Andrew Brudenell, a frontier markets fund manager at HSBC Asset Management, says Nigeria's elevation to major emerging market status is not likely to be any time soon.
"There is potential for Nigeria in macro-economic terms, the stock market is a little bit further behind. The question is whether it becomes an emerging market as there are all these checks and balances -- liquidity and other financial criteria have to be met."
(Graphic by Scott Barber; editing by Stephen Nisbet))