Thursday, August 11,
2016
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
(Lagos Chamber of Commerce and Industry (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. SOURCE: THE GUARDIAN