Evidence of Buhari’s change; Nigeria loses to South Africa as Africa’s largest economy

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.