Nigeria has lost its position as Africa’s largest economy if the country’s Gross Domestic Product (GDP) is measured based on the more market determined average exchange of N367 to the US$, which operates in the Importers and Exports window (I&E window), according to an analysis by investment banking firm, Renaissance Capital.
But at N304 to the US$ official rate currently used by the International Monetary Fund (IMF) in its latest global economy ranking, Nigeria still maintains its position as Africa’s largest economy in 2017.
Charlie Robertson, Global Chief Economist, Renaissance Capital, said GDP per capita has probably bottomed now in Egypt, Nigeria and a few other countries.
“The next move should be up again, as we enter 2018. Nigeria may have lost out to South Africa in terms of being the largest economy in Africa in 2017 (let’s see what happens to the ZAR by year-end) but this South Africa resurgence won’t last for too long. We continue to see Morocco, Egypt, Tunisia, Ghana and Kenya, as among those best placed to industrialise in the coming years”, Robertson said in an emailed note to BusinessDay.
The IMF said last week, that economic growth in Nigeria is expected to recover slightly to 0.8 percent this year, after the country slipped into its first recession in more than two decades last year.
Based on the dodgy exchange rates being used in Egypt until November 2016 and in Nigeria, Ethiopia, Angola among others, all year – Nigeria was the largest economy in Africa in 2016, followed by Egypt and then South Africa. All of Africa had a similar GDP to India, but was not as big as California, according to Renaissance Capital.
Africa’s total GDP is put at $2.2 trillion. By comparison, India is $2.3trillion, California is $2.6 trillion, while Texas is $1.65 trillion.
The I and E forex window rate has averaged 368 to the US$ from 25 April to 11 October. “What about January to April? Do we use the parallel market rate that hit as weak as N520 to the US$ in early 2017, or the naira rate quoted on Bloomberg, which was 313 to the US$? If you believe the IMF, Nigeria was number one. If you think 367 to the US$ is more realistic, it was number two and South Africa swept past both Egypt and Nigeria, to take number one slot again”, Robertson said.
Razia Khan, managing director, Chief Economist, Africa Global Research, Standard Chartered Bank, London, said Nigeria should never depend on Foreign Exchange rates alone.
“This is why it is better to rely on purchasing power parity measures of GDP, although they can be subject to judgment. Ultimately, it hardly matters which economy is the largest in Africa. What matters is that the Nigeria economy starts to grow faster”, Khan said in an emailed response to BusinessDay.
Taiwo Oyedele, head of tax and regulatory services, PWC, said exchange rate in this context is merely an estimate. Eventually the exchange rate at the end of the year may be very different from the IMF or the I&E window average rate.
Oyedele noted that a significant portion of the Nigerian economy is actually foreign currency denominated, especially the petroleum sector.
“Ultimately, the most important thing is not whether Nigeria’s economy is bigger than South Africa but whether our people have quality of life and economic prosperity”, he told BusinessDay.
In an emailed response to BusinessDay, Bolade Agbola, executive director, Cashcraft Asset Management Limited, said, “The size of the GDP is not as important as the per capital income and when we drill down the figures, the misery index is even more important, as it reflects how the citizens are doing economically.
“With the fall in crude oil price, the devaluation of the naira and the recession that followed, our output was bound to shrink. We were not expected to maintain the number one position, in view of our predicament, so it will not be surprising if South Africa overtakes us.
“The implication of Nigeria dropping to number two is very clear. We need to work harder as a people, to grow the economy again.That means create more jobs and the environment for people to do business and grow their income .We need to work on our population to reduce its growth rate and invest in human capital that is required to grow our per capital income”, Agbola said.
Tope Fasua, CEO, global Analytics consulting limited, said the implication is that it is immaterial to the Nigerian economy because investors are far more nuanced in their decision making. They have more information beyond economic size. Size matters but in this instance, the figures are but questionable.
“I believe the South African economy is far more complex than ours, and therefore more scalable. What South Africa generates from Tourism alone compares with our annual budget. Also, they have more industries and are far more self-sufficient than we are. I believe the figure needs to be recalibrated”, Fasua said in an emailed response.
In the second quarter of 2017, Nigeria’s GDP grew by 0.55 percent (year-on-year) in real terms, indicating the emergence of the economy from recession after five consecutive quarters of contraction since first of 2016. This growth is 2.04 percent higher than the rate recorded in the corresponding quarter of 2016 ( –1.49%) and higher by 1.46 percent points from rate recorded in the preceding quarter, (revised to –0.91% from –0.52%). Quarter on quarter, real GDP growth was 3.23 percent.
During the quarter, aggregate GDP stood at N26,986,005.20million in nominal terms, compared to N23,547,466.91 million in Q2 2016, resulting in a Nominal GDP growth of 14.60 percent.
HOPE MOSES-ASHIKE
