In dollar terms, South Africa is once again the biggest economy on the African continent, a position it reclaimed from Nigeria.
This development is 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 regime.
In April 2014, South Africa was relegated to second place by Nigeria after the West African country rebased its gross domestic product (GDP) data.
According to Bloomberg, “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.”
Bloomberg noted that the rand has gained more than 16 per cent against the US currency since the start of 2016, while in contrast, Nigeria’s naira has lost more than a third of its value.
The change comes as the rand gained over 16 per cent against the dollar since the start of the year, while Nigeria’s naira lost over a third of its value following the Central Bank of Nigeria’s removal of the country’s currency peg in June, says the media company.
In afternoon trade Wednesday, the rand firmed by more than a per cent against the dollar, to R13.29.
Despite the switch, 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 said 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”.