JOHANNESBURG, Jan 23 (Reuters) - South Africa could soon lose its status as Africa's biggest economy to Nigeria, but in the race to be the continental powerhouse being biggest may not be everything.
Nigeria, Africa's No. 1 oil producer, will complete a rebasing of its gross domestic product (GDP) by next month, its statistics office says, which economists estimate could expand the size of its economy by between 20 and 60 percent.
This exercise, which has missed a string of previous deadlines, looks set to transform Nigeria into the continent's most important economy measured in terms of GDP size.
With a current economic output of around $290 billion, the West African country - whose population is more than three times the size of South Africa's 51 million - already boasts faster growth.
While it has expanded by an average of 7 percent annually over the past decade, South Africa has averaged 3 percent growth, held back by rigid employment laws and recurring labour unrest.
But even if it slips from the top spot, South Africa can still claim the crown of being the more diversified and sophisticated economy. Its financial markets are among the world's most advanced and while its $350 billion economy is smaller than Mexico and Indonesia, its stock market is larger.
For Nigeria, the aim of the rebasing exercise is to change the base year for calculating output to 2008 from 1990 to reflect sectors of the economy that have since grown in importance, such as telecoms and IT.
However, it is still heavily reliant on oil exports, accounting for some 80 percent of government revenue, and an enlarged GDP will do little to immediately improve life for nearly 100 million of its citizens who live on less than $1 a day.
While agriculture and power sector reforms would improve Nigeria's fortunes, turbulent politics and a resilient and bloody Boko Haram insurgency in its north take some of the shine off its positive growth story.
Whenever it happens, Nigeria overtaking South Africa as Africa's economic top dog is "kind of everything and nothing," said David Cowan, Citigroup's Africa economist.
"It is everything because you are then the largest economy in Africa so there's a lot of kudos attached to that. But the reality remains that, on the ground, for every Nigerian there's no difference ... South Africa can still call itself the most sophisticated economy in Africa."
South Africa's expected retreat in the GDP ranking will nevertheless be a big psychological adjustment for a country that has often taken its lead position for granted.
It may also have geopolitical implications, raising questions about whether South Africa should be the sole African representative in the G20 and the BRICS group of the most powerful emerging economies, which includes Brazil, Russia, India and China.
Nigeria has been included in the freshly coined MINT group of emerging economic giants, along with Mexico, Indonesia and Turkey.
Michael Power, investment strategist at Investec Asset Management, likens South Africa's situation to that of the United States, whose economic power is expected to be superseded by faster-growing and more populous China eventually.
"Just as the United States is contemplating the prospect of what it's going to be like to be No. 2 in the world, South Africa (will) have to contemplate what it's going to be like to be No. 2 in Africa," he said.
The rise of Nigeria has taken many South Africans by surprise, said Kevin Lings, chief economist at Stanlib, as the country, burdened with an image of corruption and violence, is often portrayed negatively in the media.
"Every time I've raised this discussion in the last year, that it looks inevitable that Nigeria will become Africa's biggest (economy), most audiences are shocked," he said.
"People have had a certain mindset about the role of South Africa. They haven't updated that in terms of more recent developments."
The GDP rebasing is likely to enhance Nigeria's appeal to investors looking for high growth and alternative markets, while South Africa, with its anaemic economy and faltering currency may appear less compelling, analysts say.
"South Africa's good infrastructure and sophisticated services industries provide a much easier business environment for investors than Nigeria, but relatively low growth rates, market size and saturation are areas of concern that may turn investment to Nigeria," said Dianna Games, chief executive of business advisory Africa @ Work.
Still, Simon Freemantle, a senior analyst at Standard Bank, believes multinationals looking for a base from which to expand into the continent will continue to choose South Africa given its effective financial and legal systems.
For investors who may need to seek redress when things go wrong, its enduring, more independent and transparent institutions are a plus.
Decades from now, the gap in size between the two economies will be even wider. By 2050, Nigeria's GDP will be just under $6 trillion in today's money as its population heads towards 400 million, predicts Charles Robertson of Renaissance Capital.
South Africa, by contrast, would have 57 million people and a $1.5 trillion economy.
Yet that would give Nigeria a per capita GDP of about $15,000, to South Africa's $27,000, underscoring the huge development challenges faced by the former.
"Even with the very good trajectory that we see for Nigeria it's going to take a long time for 170 million people to benefit from this," said Robertson. "It's the same in China. You've still got hundreds of millions earning virtually nothing and that's after an extraordinary 30 years."