Having regained strength after a successful local government election, the South African economy now stands as Africa’s biggest economy.
The economy regained its position once again as 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.
The change in position came following the appreciation of the rand, South Africa’s currency, and the devaluation of the Nigerian naira following the introduction of a flexible foreign exchange regime.
The South African economy also regained its position based on gross domestic product at the end of 2015 published by the International Monetary Fund, the size of South Africa’s economy is now $301 billion at the rand’s current exchange rate, while Nigeria’s GDP is $296 billion.
As at Wednesday, August 10, the rand hit a fresh 10-month high against the dollar in early trade as emerging markets continued to gain against the US currency. The rand firmed by more than a percent against the dollar, to R13.29.
The rand has so far gained more than 16 percent against the dollar since the start of 2016 while Nigeria’s naira lost more than a third of its value after the central bank removed a currency peg in June.
Nigeria has among other economic challenges, suffered the effect of a low price of one of its major commodity- the oil. The country’s economy shrank by 0.4 percent.
On the other hand, South Africa is sensitive to shifts in the commodity cycle having its GDP contracted by 0.2 per cent.
Speaking on this, Alan Cameron, an economist at Exotix Partners LLP said more than the growth outlook, in the short term the ranking of these economies is likely to be determined by exchange rate movements.
Cameron, also said that 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.”
Both nations face the risk of a recession after contracting in the first quarter of the year. However, despite economic challenges faced by the South African citizens, the regained strength of the rand brings a smile to the face of private sectors.
In July, South Africa stepped past Egypt as the continents’ second largest economy in dollar terms, having dropped behind the North African country earlier in the year. The South African economy at that time, stepped past Egypt with a GDP of around $275 billion, versus the north African nation’s $270 billion.