SA regains ‘biggest economy’ crown on currency swings

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 GDP at the end of 2015 published by the IMF, the size of South Africa’s economy is $301-billion (R4-trillion) at the rand’s current exchange rate, while Nigeria’s GDP is $296-billion.

That is 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 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,” said Alan Cameron, an economist at Exotix Partners LLP.

Although Nigeria was 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”, Cameron said.

The rand rallied as investors turned to emerging markets with liquid capital markets to seek returns after Britain voted to leave the EU in June, even as the Reserve Bank forecast the economy would not expand this year and South Africa risked losing its investment-grade credit rating.

The ANC’s lowest support since 1994 in the local government elections last week led to further gains on speculation that it would pressure the party to introduce economic reforms to boost growth and cut unemployment.

Nigeria was assessed as the largest economy in April 2014

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, 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. —