Nigeria has retaken its position as Africa’s biggest economy after South Africa enters its second recession in two years. Nigeria exited recession by the second quarter of 2017, after recording a positive growth rate of 0.5% year on year due to improved revenue in the oil sector.
Since then, Nigeria has failed to retake its position as the biggest economy in Africa until now. South Africa’s economy was on the verge of collapsing into recession in the second quarter of 2019, but a rebound led by recovery in the mining industry and growth in the financial sector saved the day.
Since the Q2 of 2019, South Africa’s economy has been wobbling on the corridors of recession, and with its power problems that has affected almost every sector of its economy, low business confidence and weak industrial activities, the economy slipped into the grip of recession. Data from Statistics South Africa showed that the country’s GDP fell by 1.4% in the fourth quarter of 2019.
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Nigeria and South Africa command half of sub-Saharan Gross Domestic Product (GDP) and have been battling to keep their places owing to revenue shortfalls.
Nigeria’s economy beat expectation to grow at 2.5% at the end of Q4 2019, surpassing International Monetary Fund (IMF) projection of 2.1%. The African giant generated more revenue due to increased output in oil, the country’s major commodity export. And it shot its GDP up to $476 billion (if you are using $306 official exchange rate) or $402 billion (if you are using $362 weaker market exchange rate), according to Bloomberg report. However, compared with South Africa’s $352 billion, Nigeria has the higher GDP, and that makes her the biggest economy in Africa.
Bloomberg report said: “Nigeria’s economic growth beat forecasts in the fourth quarter, helping its economy to expand the most in four years in 2019 as oil output increased and the central bank took steps to boost credit growth. The GDP in the West African country stood at $476 billion or $402 billion, depending on the rate used.
“South Africa’s economy went the opposite direction. It slumped into a second recession in consecutive years, contracting more than projected in the fourth quarter as power cuts weighed on output and business confidence.
“For the full year, expansion was 0.2 percent, the least since the global financial crisis, and even less than the central bank and government estimated. Based on an average rand-dollar exchange rate of 14.43 for the year, the GDP was $352 billion.”
The report added that the slow growth of South Africa’s economy adds pressure on the central bank to lower the benchmark interest rate at its Monetary Policy Committee meeting March 19. The pressure is heightened by U.S. Federal Reserve’s emergency rate cut as a measure of preparation for a possible spread of coronavirus.
South Africa’s chances to bounce back are slim as projections show that Nigeria’s economy will continue to grow faster, though IMF has cut its forecast for Nigeria’s 2020 growth to 2% from 2.5% last month, considering dwindling oil prices, recently instigated by coronavirus.
South Africa’s GDP is projected to grow by 0.8% only, setting a huge gap that will keep Nigeria ahead unless a miracle happens.
However, Nigeria’s GDP remains low when compared with the country’s population and social economic needs. The 2% growth forecast falls short of the growing population because the oil-based revenue generation is slow.
Experts recommend a yearly GDP growth of 6% and above for Nigeria to curtail its economic lapses.
The World Bank said growth has constrained by a weak macroeconomic framework with high persistent inflation, multiple exchange rate windows and forex restrictions, distortionary activities by the central bank, and a lack of revenue-driven fiscal consolidation results.
Rising public debt, and increasingly complex policy interventions by the central bank constrain private sector credit growth. External balances are fragile to hot money movements, and fiscal buffers are exhausted, making Nigeria’s economy vulnerable to external risks. The border closure has also constituted basis for inflation as it limits intra-African trade that would boost local production of goods and services.
The fourth quarter 2019 report showed improvement in the non-oil sector, but it’s not enough to bridge the wide gap of dependence on oil. The World Bank urged Nigeria to implement bold reforms that could have a significant impact on the economy’s trajectory.
Such reforms are: removal of subsidies, elimination of forex and trade restrictions, greater transparency and predictability of monetary policy and increased domestic revenue mobilization.
Image: comparison of Nigeria and South Africa’s 2019 budgets
Nigeria is leading but this shouldn’t be a cause for celebration. Nigerians are grossly underemployed and sub-optimally productive. What we have is over a trillion USD economy trapped within less than half of it GDP value. We need to do more to unlock the potential of the able working population through creation of opportunities from all fronts. At least, let Nigeria attempt to double this figure! It is achievable!