South Africa Is No Longer Africa’s Second-Largest Economy
South Africa was once the largest economy in Africa. In 2014, Nigeria pushed the nation to second place. Now a report written by KPMG found that based on this year’s IMF GDP growth predictions, South Africa is no longer the second largest economy in Africa. Egypt has overtaken the country’s spot and South Africa is now ranked third. Nigeria remains the largest economy in the continent.
Over the last three years, South Africa’s economy has declined by about 7% annually in terms of US dollar value. South Africa’s currency – the rand – depreciated significantly during this time. In 2012, it was valued at an average of R8.20/$. By 2015, its value fell by more than 50% to R12.74/$. This was a critical hit for the country. According to the KPMG report:
“Were it not for the rand’s slump‚ South Africa would not have surrendered its second place during 2015.”
At the same time, the Egyptian economy’s US dollar value was increasing. While the Egyptian Pound also experienced depreciation over the last three years, it was at a much slower rate than the rand.
Christie Viljoen, the KPMG senior economist who wrote the report, noted that South Africa is still the most developed economy in Africa and has a more diversified economic base than Egypt.
“…its fall from first and now second place among 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,” Viljoen said.
Domestic issues could refer to problems in President Zuma’s leadership. The president unexpectedly fired finance minister Nhlanhla Nene in December 2015. This move cost the country’s Public Investment Corporation more than R100 billion ($6.6 billion) and the country’s stock exchange approximately R171 billion ($66.5 billion). David Maynier, the DA shadow minister of finance, said:
“[This] serves as proof that President Jacob Zuma was dead wrong when he claimed the effect of his disastrous decisions was ‘exaggerated’ in South Africa.”
A psychological blow
KPMG claims that the trajectory of the Egyptian Pound is uncertain, therefore, it is difficult to predict how Egypt’s GDP in US dollar terms is going to perform in the future. However, Business Monitor International’s exchange rate assumptions suggest that South Africa will be “unable to retake the continent’s second-place position anytime soon.” KPMG’s chief economist Lullu Krugel believes that closing the gap between Nigeria and South Africa would be “really tough” and would require global economy and domestic policies to lean in South Africa’s favor.
“Psychologically, I do think this is a blow,” she said. “We’ve always thought of ourselves as the powerhouse of Africa, and then we’re number two and now we’re pushed to number three.”