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SA’s economy drops into third place in Africa

| Economic factors

SA’s struggling economy is now not even the second-largest in Africa anymore‚ says KPMG‚ citing data from the International Monetary Fund (IMF) that suggests Egypt has overtaken SA — mainly due to the rand’s slump.

SA has been known as the continent’s second-largest economy since Nigeria rebased its gross domestic product (GDP) data in early 2014.

However‚ KMPG said the IMF World Economic Outlook (WEO), released in mid-April, provided more sobering GDP statistics for SA.

"Not only did the multilateral organisation suggest that the South African economy would grow by a mere 0.6% this year‚ but also that the country is now only the third-largest economy on the continent behind Nigeria and new silver medallist Egypt."

Nigeria’s rebasing exercise about 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 activity in the service sector.

Backward adjustments to GDP indicated that Nigerian GDP in dollar terms surpassed SA’s in 2011. By the end of 2015‚ Nigeria’s GDP was measured at $490bn compared with SA’s estimated $313bn.

SA recorded a decline in the 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.

The South African currency weakened from an average of R8.20/$ during 2012 to an average of R12.74/$ in 2015 — a depreciation of more than 50%. As a result‚ the nominal dollar value of SA’s GDP declined by an average of almost 7% a year over the past four years.

In the meantime‚ Egypt’s nominal dollar GDP expanded by an average of 7.5% a year during 2012-15. The Egyptian pound’s depreciation during 2012-15 was at a notably slower pace than the rand’s.

Since early in 2011‚ the Central Bank of Egypt (CBE) has tightly managed the pound‚ resulting in a milder depreciation compared with the free-floating rand. This contributed to Egyptian GDP eclipsing its South African counterpart during 2015.

"Were it not for the rand’s slump‚ SA would not have surrendered its second place during 2015‚" the KMPG report said.

Looking ahead‚ the IMF WEO has not ventured any guesses as to the trajectory of Egypt’s GDP in dollar terms from 2016 onwards.

While the country’s local currency GDP is forecast by the multilateral organisation‚ there is significant uncertainty as to the short- and medium-term trajectory for the Egyptian pound. As a result‚ converting local currency GDP projections for Egypt to dollar equivalents is rather challenging.

Business Monitor International (BMI) has‚ however‚ made some exchange rate assumptions and its data point to SA being unable to retake the continent’s second-place position anytime soon.

"Admittedly‚ SA 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 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."

On Wednesday morning the rand was at R15.16 to the dollar‚ R17.26 against the euro and at R21.91 against the pound.

TMG Digital

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