Rand helps SA to boot Nige­ria out as Africa’s largest econ­omy

Chronicle (Zimbabwe) - - Business -

JO­HAN­NES­BURG — 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 per­cent 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 per­cent 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 0.2per­cent 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”.

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 nairabased 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 per­cent to R13.2805/$ at 16:03 in Jo­han­nes­burg yes­ter­day. The naira weak­ened 2.7 per­cent to 320 per dol­lar. — Fin24.

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