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South African economy has regained the position of Africa’s largest in dollar terms, as the value of the nations’ currencies moved in opposite directions, this is coming barely two years after losing it to Nigeria.
According to Bloomberg report, based on GDP at the end of 2015 published by the International Monetary Fund (IMF), the size of South African’s economy is $301 billion at the rand’s current exchange rate, while Nigeria’s GDP is $296 billion.
That is because the rand has gained more than 16 per cent against the dollar since the start of 2016, and Nigeria’s naira has lost more than a third of its value after the central 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 0.4 per cent in the three months to end-March from a year earlier, amid low oil prices and output, and a shortage of foreign currency. That curbed imports, including fuel.
In South Africa’s GDP contracted 0.2 per cent 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 e-mailed 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”.
The rand rallied as investors turned to emerging markets with liquid capital markets to seek returns after Britain voted to leave the EU on June 23, even as the South African Reserve Bank forecast that the economy would not expand in 2016 and the nation risked losing its investment-grade credit rating.
The ANC’s lowest support since 1994 in the August 3 local government vote led to further gains, on speculation that it would pressure the party to introduce economic reform that would boost growth and cut unemployment.
In Nigeria, investors did not 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 would contract 1.8 per cent 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 resulted in the Nigerian economy in 2013 expanding by three-quarters to an estimated 80-trillion naira.
The rand gained 1per cent to 13.2805 per dollar at 4.03pmin Johannesburg on Wednesday. The naira weakened 2.7 per cent to 320 per dollar, Bloomberg reports.
