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South Africa’s economy regained the position of Africa’s largest in
dollar terms more than two years after losing it to Nigeria as the value
of the nations’ currencies moved in opposite directions.
Based on
gross domestic product at the end of 2015 published by the
International Monetary Fund, the size of South Africa’s economy is
$301bn at the rand’s current exchange rate, while Nigeria’s GDP is
$296bn. That’s after the rand gained more than 16% against the dollar
since the start of 2016, and Nigeria’s naira lost more than a third of
its value after the central bank bank removed a currency peg in June.
Both
nations face the risk of a recession after contracting in the first
quarter of the year. The Nigerian economy shrank by 0.4% in the three
months through March from a year earlier amid low oil prices and output
and shortage of foreign currency. That curbed imports, including fuel.
In South Africa, GDP contracted by 0.2% from a year earlier as farming
and mining output declined.
“More than the growth outlook, in the
short term the ranking of these economies is likely to be determined by
exchange rate movements,” Alan Cameron, an economist at Exotix
Partners, said in emailed responses to questions on August 2. Although
Nigeria is unlikely to be unseated as Africa’s largest economy in the
long run, “the momentum that took it there in the first place is now
long gone”.
No growth
The South African
rand rallied as investors turned to emerging markets with liquid capital
markets to seek returns after Britain voted to leave the European Union
on June 23, even as the central bank forecast the economy won’t expand
this year and the nation risks losing its investment-grade credit
rating.
The ruling African National Congress’s lowest support
since 1994 in the August 3 local government vote led to further gains on
speculation that it will pressure the party to introduce economic
reforms that will boost growth and cut unemployment.
In Nigeria,
investors didn’t flock to buy naira-based assets after authorities
removed the peg of 197-199 naira per dollar. The Central Bank of Nigeria
raised its benchmark interest rate to a record in July to lure foreign
money, even as the IMF forecast the economy will contract 1.8% this
year.
Nigeria was assessed as the continent’s largest economy in
April 2014 when authorities in the West African nation overhauled their
GDP data for the first time in two decades.
The recalculation saw the Nigerian economy in 2013 expand by three-quarters to an estimated 80 trillion naira.
The rand gained 1% to R13.2805/$ at 16:03 in Johannesburg on Wednesday. The naira weakened 2.7% to 320 per dollar
Source: fin24.com
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