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Friday, August 12, 2016

SOUTH AFRICA OVERTAKES NIGERIA AS LARGEST ECONOMY IN AFRICA

After over two years on the spot, South Africa has reclaimed the position of the biggest economy on the African continent from Nigeria in terms of the exchange rate of the countries local currencies to the United States dollar.


This was attributed to the appreciation of the rand, South Africa’s currency, and the devaluation of the Nigerian naira following the introduction of a flexible foreign exchange rate regime by the West African country’s apex bank.

Based on the Gross Domestic Product, GDP, at the end of 2015 published by the International Monetary Fund, Bloomberg reported that the size of South Africa’s economy is $301 billion at the rand’s current exchange rate, while Nigeria’s GDP is $296 billion.

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 contracted 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 shrank by 0.2 percent from a year earlier as farming and mining output declined.

In afternoon trade on Wednesday, the rand firmed by more than a per cent against the dollar, to R13.29.

Despite the switch however, Nigeria and South Africa both face the risk of recession, having contracted in the first quarter of the year, according to Bloomberg.

Nigeria’s economy shrank by 0.4 per cent, while South Africa’s GDP contracted by 0.2 per cent.

Nigeria has suffered amid low oil prices, while South Africa is sensitive to shifts in the commodity cycle.

“More than the growth outlook, in the short term the ranking of these economies is likely to be determined by exchange rate movements,” an economist at Exotix Partners LLP, Alan Cameron said.

He added that 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”.

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