By Omodele Adigun with Agency report
More than two years after emerging the biggest economy in Africa, Nigeria has finally been dethroned by South Africa after its economy regained the position in dollar terms with the value of their currencies moving in opposite directions.
Using the Gross Domestic Product (GDP) at the end of 2015, published by the International Monetary Fund (IMF), the size of South Africa’s economy is $301 billion at the Rand’s current exchange rate, while Nigeria’s GDP is $296 billion. There after the rand gained more than 16 per cent 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 faced the risk of a recession after contracting in the first quarter of the year. The Nigerian economy shrank by 0.4 per cent 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 per cent 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 in e-mailed 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 (EU) 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.
In Nigeria, investors didn’t flock to buy naira-based assets after the Central Bank of Nigeria (CBN) removed the peg of N197-N199 per dollar. The apex bank 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 per cent this year.
Nigeria was assessed as the continent’s largest economy in April 2014 when administration officials 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 per cent to 13.2805 per dollar in Johannesburg yesterday, while the naira weakened 2.7 per cent to N320 per dollar.
Commenting on the new ranking, the Management Director of Cowry Assets Management Ltd., Mr. Johnson Chukwu, asked Nigerians not to lose sleep over the issue since the loss of the number rank does not take away the fact that Nigeria’s economy is a large economy.
“The construction capacity is huge. Yes, we may face a temporary setback in form of inflation, but the focus of the government at this stage should be coming up with economic policies that would rejuvenate and strengthen the economy. How do we restore growth? How do we diversify the economy so that ultimately, the naira will recover or appreciate and then achieve a better standing than what we have today?” he stated.
Chukwu was of the view that “it is only when the economy recovers that the currency will be strengthened.”
Also speaking, the Director General of Lagos Chamber of Commerce and Industry (LCCI), Muda Lawal, opined that the figure is debatable, noting that the contraction in the economy early this year was under .3.6 per cent.
“The contraction was not up to 1 per cent. There is no way the size of our economy would have crashed by that size.
Granted that we have challenges in our economy, that does not mean, we would have crashed to that level.
“However, looking at the fact that naira has depreciated more than 50 per cent, one can say the report could be right. But in real sense of our economy, it couldn’t have been this bad.”
The Director General of Nigeria Employers Consultative Association (NECA), Segun Oshinowo, however, stated that the devaluation of the naira must have been responsible for the slide.
“The devaluation must have wreaked the havoc for us, since the valuation is done in dollar. Our currency has lost significantly and for the past two years, our economy has not grown,” he said.
He noted that for Nigeria to regain its position, it would need to diversify the economy, look at the basic fundamentals as well as give serious thought to developing the social and physical structure in the country.
He wondered what the rebasing has added to the country, saying, “what is really the main significance to us other than ego as the biggest on the continent. We need to look at World Bank variables. The issue of biggest shouldn’t be but what has happened to our unemployment level and our standard of living. Countries like Norway, Netherland and Switzerland are not the biggest in Europe but their standard of living rank among the biggest in the world. That is what we should be looking at.”