This is according to analysis by Christie Viljoen, an economist at auditing and advisory firm KPMG SA, on the International Monetary Funds’s latest figures.
South Africa lost its status as the continent’s largest economy in 2014 when it finished an exercise to rebase its economic data. This boosted its gross domestic product 80 percent higher for 2013, to $510 billion. At the time, SA’s nominal economy was $356 billion.
Now, KPMG notes, the IMF suggests that Egypt has overtaken South Africa as the second largest economy in Africa.
Viljoen says the IMF World Economic Outlook (WEO), released in mid-April, shows that not only will the local economy grow at just 0.8 percent this year, but also that the country is now only the third-largest economy on the continent behind Nigeria and new silver medalist Egypt.
Nigeria’s rebasing exercise some two years ago revealed that the oil-dependent economy was almost twice as big as previously thought. The country’s National Bureau of Statistics (NBS) ensured greater measurement of the informal sector, the inclusion of 46 industries from a previous 33, as well as methodological changes to measuring service sector activity with the rebasing, explains Viljoen.
She adds backward adjustments to GDP indicated that Nigerian GDP in US dollar terms surpassed its South African equivalent in 2011. By the end of 2015, Nigeria’s GDP was measured at $490 billion compared to South Africa’s estimate of $313 billion.
South Africa recorded a decline in the US dollar value of its economy during 2012-15 because of slowing real growth (in local currency terms) as well as a depreciation in the value of the rand, adds Viljoen.
“The South African currency weakened from an average of R8.20/$ during 2012 to an average of R12.74/$ in 2015 – that is a depreciation of more than 50 percent. As a result, the nominal US dollar value of South Africa’s GDP declined by an average of almost 7 percent per annum over the past four years.”
In the meantime, Egypt’s nominal US dollar GDP expanded by an average of 7.5 percent a year during 2012-15, says Viljoen.
“The Egyptian pound’s depreciation during 2012-15 was at a notably slower pace compared to that of the rand. Since early in 2011, the Central Bank of Egypt (CBE) has tightly managed the pound, resulting in a milder depreciation compared to the free-floating South African currency. This contributed to Egyptian GDP eclipsing its South African counterpart during 2015. Were it not for the rand’s slump, South Africa would not have surrendered its second place during 2015.”
While the IMF WEO makes no predictions, Business Monitor International (BMI) has made some exchange rate assumptions and its data points to South Africa being unable to retake the continent’s second-place position anytime soon, notes Viljoen.
“Admittedly, South Africa remains the continent’s most developed economy, and has a more diversified economic base than the Egyptian economy.
“However, its fall from first and now second place amongst the continent’s giants is of great concern, especially as this development is largely attributed to weakness in the rand that, in turn, has largely been as a result of domestic issues.”