Nigeria has lost its position as Africa’s largest economy to South African in dollar terms.
This came as the rand recorded gains to close at 13.2805 per dollar, with the naira weakening at 2.7 per cent, to N320 to $1, at the close of business yesterday.
From a Gross Domestic Product (GDP) value of $510 billion to the present assessed $296 billion due to weakened naira, Nigerian economy is believed to have contracted by about 42 per cent compared to the South African economy that contracted from the assessed $370 billion to $310 billion.
Indeed, South Africa regained the position more than two years after losing it to Nigeria as the value of the nations’ currencies moved in opposite directions. Based on the countries’ 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.
Specifically, the rand gained more than 16 percent against the dollar since the start of 2016, while the naira lost more than a third of its value after the Central Bank of Nigeria (CBN) removed a currency peg in June.
Although, both nations face the risk of a recession after contracting in the first quarter of the year, the Nigerian economy shrank by 0.4 percent in the three months through March from a year earlier amid low oil prices and output, and shortage of foreign currency to sustain imports.
In South Africa, GDP contracted by 0.2 percent from a year earlier as farming and mining output declined.
Reacting to the development, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf stated that the assessment criteria needed to be further interrogated as the nation’s economy could not have contracted so much within a year.
According to him, using the dollar value to measure an economy may not be correct as other measures like the purchasing power parity need to be measured.
“The contraction of the economy from $510 billion is alarming and I think the figures should be interrogated. Though the Nigerian economy contracted within the last few months, it is not as bad as it is being described. The current exchange rate cannot be used to assess the economy’s GDP,” he added.
Also, the Deputy Managing Director, Afrivest Limited, Mr. Victor Ndukauba, told The Guardian that the Federal Government’s concern, for now, shouldn’t be GDP grading, rather, instituting more robust economic policies that will jump start the economy, particularly the real sector.
He said: “Instead of comparing ourselves with South Africa, government should make the economy significantly more robust in order to earn more components to our GDP, that is – export more, import less, increase government spending etc.” He argued that it is no surprise that a GDP reevaluation will draw Nigeria back considering the free fall of the naira in the last one year.
However, the bottom line, for him, is infrastructure development, advising that significant amount of government’s investment should be in infrastructure.
“My take in the heated debate as to whether Nigeria should borrow or not is that, we need to borrow to develop infrastructure, the dearth of which is choking our economy and making our goods and services uncompetitive. We do not have good road network to move products from one region to another; there is no power, so businesses devote a larger part of their expenditure powering generators, which add to production costs. We also need to guarantee productivity to create more employment opportunities. We need to take away subsidies of any kind, improve our ports facilities, and once we do these, economic activities will definitely pick up.”
The CBN had raised its benchmark interest rate to a record in July to lure foreign investors, even as the IMF forecast the economy would contract 1.8 percent 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 percent to 13.2805 per dollar at 4:03 p.m. in Johannesburg yestersday. The naira weakened 2.7 percent to 320 per dollar.
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