South
Africa’s economy has 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 $301 billion at the rand’s current exchange rate, while
Nigeria’s GDP is $296 billion.2 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 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 0.2 percent 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 LLP, said. 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 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 will contract 1.8 percent
this year. Nigeria was assessed as the continent’s largest economy in April
2014 when authorities overhauled its GDP data for the first time in two
decades. The recalculation saw the Nigerian economy in 2013 expand by
three-quarters to an estimated N80 trillion. The rand gained 1 percent to
13.2805 per dollar at 4:03 p.m. in Johannesburg on Wednesday. The naira
weakened 2.7 percent to N320 per dollar
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