Africa’ Biggest Economy: New Ranking Fraudulent, Spurious – Analysts

There is no doubt that the Nigerian economy has slowed as a result of the fall in crude oil prices. But Nigeria is not alone, South Africa is not left out of the global economic crisis that has hit many countries across the world.
So, the fact that both economies have shrunk is not new, but that South Africa has overtaken Nigeria as the biggest economy in Africa is where a new controversy is brewing.
Analysts say, they are not surprised that countries battle to show that their economy is large. This, they said is because investors usually jostle for such economies to invest in.
“So we are not surprised that South Africa has come with some calculation to portray itself as number one economy in Africa”, said Akin Ologe, an analyst based in Lagos.
Gross domestic product (GDP), the economic performance indicator that is the subject matter is defined as the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well.
James Okoli, a retired banker said those that came out with that ranking are mischievous. He argued that, how can any person use the exchange rate of 2016 to match with economic activities of 2015. “Off course, that is fraudulent”, he said.
That the monetary value of economic activities of South Africa has surged ahead is sharply contested by top financial analysts. While some argued that there is little economic activity in Nigeria, others believe that the same has happened to South Africa. What they however seem to agree on is that, while the Naira has depreciated by over 40 per cent in Nigeria, Rand has not done so badly.
For KPMG, currency depreciation is not an issue, because the matching of the present currency depreciation with a GDP of the past is an error. KPMGin a report it presented during the debate doubts that South Africa has overtaken Nigeria again.
KPMG disagrees sharply with reports that South Africa has overtaken Nigeria as Africa’s largest economy in dollar terms, saying the calculations behind this assertion are methodologically incorrect.
This is because the reported dollar estimates are based on Gross Domestic Product (GDP) data from the end of 2015 while the exchange rate readings are from August 2016, KPMG senior economist Christie Viljoen said.
“The time difference between the two data points makes these calculations spurious at best and not really a reliable indicator of recent developments,” he said.
The assumption that South Africa had overtaken Nigeria as Africa’s biggest economy in dollar terms emerged following the recent rand rally and the devaluation of the naira in June 2016.
In order to reflect the impact of the naira devaluation and the rand’s recovery on comparable GDP estimates, a calculation would need to be made based on GDP data for the second quarter of 2016, which are yet to be released.
The 2016 second-quarter GDP reports from SA and Nigeria would reflect stagnant economies and revisions to historical data, Viljoen said.
“From an exchange rate perspective, the naira ended the period (second quarter) notably weaker while the rand was quite stronger.”
Viljoen said he would be able to calculate the top three largest economies in Africa once second-quarter GDP data were made available by countries over the next few weeks.
Countries have always battled for the top spot particularly as this implies they are more attractive to foreign investors.
Investors mostly prioritise investing in countries with a higher economic growth potential, Investment Solutions chief economist Lesiba Mothata says. On this measure, Nigeria fares better than South Africa as it has the ability to grow faster than South Africa, he says.

Views From South Africa

In an interview The Conversation, a South African paper had with Jannie Rossouw, Head of School of Economic and Business Sciences of Witwatersrand, he agreed that GDP is measured in the domestic currency of the country, which is the rand in the case of South Africa, the naira in Nigeria and the Egyptian pound in Egypt’s case.
But for the purposes of international comparison, he said the GDP values are converted at the prevailing exchange rate to a common international currency such as the dollar. Owing to the increase in the exchange rate value of the rand, the dollar value of the South African GDP increased. Given the change in the value of the country’s currency, its GDP exceeded the value of Nigeria’s GDP. The same applies to Egypt: owing to the increase in the exchange rate of the rand, South Africa’s GDP is now larger than the GDP of Egypt when converted to US dollars.
It’s important to remember that South Africa’s actual GDP in rand value stayed the same.
However, calculating on the basis of the current exchange rate, the difference between South Africa and Nigeria is not large. At the time the calculation was made, the US dollar value of the South African GDP was some $301 billion, while Nigeria’s was $296 billion. At current exchange rates the Egyptian GDP is about US$270 billion.
But, the new super-power in the African block might have change with the volatile exchange rate.
Witwatersrand said, these rankings do not mean much and are not really useful to the people making economic policy and investment decisions. What really matters to economic actors, broader stakeholders and observers are the economic prospects of these countries.
“What people want to know is: will there be economic growth in years to come, and will the GDP per capita increase?”
He however agreed that GDP growth is important because it provides returns for investors in an economy. It also provides an increase in job opportunities for unemployed people and new entrants to the labour market. In the long run GDP growth contributes to increased GDP per capita and increased standards of living in a country.
Currently the economic prospects of South Africa, Nigeria and Egypt are poor. South Africa has not fully recovered from the aftershocks of the financial crisis of 2008. No economic growth is expected for 2016, while economic growth at a rate lower than the population growth rate is expected for 2017 and 2018. On a per capita basis South Africa will get poorer over the next two years.
The economic prospects for the Nigerian economy will remain poor as long as the oil price remains under pressure, owing to Nigiria’s over-dependence on oil. The Egyptian economy is hampered by a large government budget deficit.
Despite the widely reported story yesterday that South Africa had overtaken Nigeria as Africa’s biggest economy, the continent’s richest man; Aliko Dangote has averred that Nigeria remains the number one economy in Africa.
The president of the Dangote Group spoke at the Lagos Chamber of Commerce and Industry 2016 presidential policy dialogue session, arguing that the problem with the economy did not start with the present administration.

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