12 August 2016, Sweetcrude, Abuja – South Africa’s economy regained the position of 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.
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, according to a Bloomberg report.
That’s after the rand gained more than 16 percent 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.
Similarly, Saudi Arabia’s oil production rose to a record level in July as it moved to meet domestic demand and maintain pressure on regional rivals like Iran.
Saudi Arabia is relentless in seizing on the failures of fellow OPEC member Nigeria where a resurgence in militancy, lack of investment and persistent policy inadequacies have led to a massive cut on production levels.
South Africa and Nigeria 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. That curbed imports, including fuel. In South Africa, GDP contracted by 0.2 percent 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.
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 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.
The ruling African National Congress’s lowest support since 1994 in the Aug. 3 local government vote led to further gains on speculation that it will pressure the party to introduce economic reforms that will boost growth and cut unemployment.
In Nigeria, investors didn’t flock to buy naira-based assets after authorities removed the peg of 197-199 naira per dollar. The Central Bank of Nigeria 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 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 N80 trillion.
The rand gained 1 percent to 13.2805 per dollar at 4:03 p.m. in Johannesburg on Wednesday.
The naira weakened 2.7 percent to 320 per dollar.
On the oil front, data submitted by the Saudi Arabia to OPEC showed output jumped to 10.67m barrels a day last month, up 123,000 b/d on June and surpassing the previous record of 10.56m b/d from June last year.
For years now, the mainly western joint venture partners in Nigeria have been divesting and moving their capital elsewhere in reaction to hostile policies or downright ineptitude on the part of the government.
The result of this is the situation today whereby spending in Nigeria’s oil industry is at best less than half of what is was ten years ago at a time when capital investment in countries like Saudi Arabia and Iran have risen astronomically.
According to analysts, Saudi Arabia’s oil production will now come under intense scrutiny after it promised its OPEC peers in June that it would not flood the market with its oil. Rival OPEC countries will be watching closely to see if it pulls back production once temperatures cool as it did last year, lowering output to about 10.2m b/d between September and May.
Saudi Arabia’s state oil company last week cut export prices for Asian customers by the most in a year, signalling a more aggressive push for customers as it competes with big producers like Russia and Iraq and its regional rival Iran, where exports are rising after the end of years of sanctions.