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

Source: Fin24, 10/08/2016

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% 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,"
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".


No growth
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 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% 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% to R13.2805/$ at 16:03 in Johannesburg on
Wednesday. The naira weakened 2.7% to 320 per dollar.