The International Monetary Fund’s (IMF) World Economic Outlook (WEO) released in April 2016 its updated gross domestic product (GDP) estimates for more than 200 of the world’s economies. For Africa, the update reflected another shift in the leader board for the continent’s largest economies. After losing its top spot to Nigeria in 2014 following the West African country rebasing its GDP, South Africa moved down to third place at the end of 2015 largely due to its weakened currency. Egypt had moved into the second position, based on US dollar calculations of each country’s GDP.
Since the Nigerian naira was devalued on June 20 this year, there have been sporadic media reports suggesting that Nigeria would soon surrender its crown as Africa’s largest economy due to the impact of a weak naira on the US dollar value of economic activity. A significant recovery in the South African rand in July and August so far has added to this speculation. The latest round of reports (during the second week of August) indicated that South Africa had again overtaken Nigeria in terms of the US dollar value of their respective GDP readings. No mention was made of Egypt in these reports.
The past few months have also seen many indications that Africa’s largest three economies are in trouble. The IMF indicated that it expects the Nigerian economy to shrink this year while the South African Reserve Bank (SARB) projected 0% growth for its economy. In turn, Egypt is still expected to record positive GDP growth this year. Nonetheless, the IMF said in a statement on August 11 that it had decided to provide Egypt with a three-year Extended Fund Facility (EFF) valued at $12 billion in order to support economic growth.
Taking into account these currency and macroeconomic developments, it is not surprising to see suggestions of a reshuffle at the top of Africa’s GDP leader board. However, the calculations behind this assertion are methodologically incorrect. The US dollar estimates reported during the second week of August are based on GDP data from the end of 2015 while the exchange rate readings are from August 2016. The time difference between the two data points makes these calculations spurious at best and not really a reliable indicator of recent developments.
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. At the time of writing, none of the continent’s largest economies had published these statistics. Nigeria’s National Bureau of Statistics has postponed its Q2 GDP report until August 1 while Statistics South Africa will only release its latest economic activity data early in September.
Wearing the gold, silver or bronze medal on the African GDP podium does not directly affect ordinary citizens of these countries. Rather, the prestige of heading a ranking based on the size of economic activity is a marketing tool for governments and a signal to investors that the country offers large markets for their goods and services. A reshuffle at the top of the ranking will not directly change the fortunes of individual countries but could encourage governments to do more in aiming for a higher position on the list.