According to recent forecasts from the International Monetary Fund (IMF), South Africa is on the cusp of momentarily surpassing Nigeria and Egypt as Africa’s largest economy in 2024.
The IMF’s World Economic Outlook predicts that South Africa’s gross domestic product (GDP) will reach $401 billion, based on current prices, surpassing Nigeria’s $395 billion and Egypt’s $358 billion. However, South Africa’s reign at the top is expected to be short-lived, as it is set to slip behind Nigeria again and ultimately fall to the third position, trailing Egypt, by 2026, as detailed in the report released last week.
Nigeria’s Recent Challenges
Nigeria has historically held the position of Africa’s largest economy since 2018. However, in recent years, the nation has faced a series of challenges that have impacted its economic standing. These challenges include declining oil production, runaway inflation, and a substantial depreciation of the Naira.
In response to these challenges, President Bola Tinubu has embarked on a series of significant policy reforms since taking office in May. These reforms encompass a comprehensive overhaul of the foreign-exchange system, the removal of costly gasoline subsidies, and addressing issues surrounding dollar shortages while boosting tax revenue. Although these measures might entail initial challenges for Nigeria, they are expected to yield positive results in the future. The IMF projects a GDP growth rate of 3.1% for Nigeria in 2024, an improvement from the 2.9% in 2023.
IMF’s Perspective
According to Daniel Leigh, division chief in the IMF’s research department, these reforms are anticipated to lead to “stronger and more inclusive growth.” In essence, the IMF’s projections reflect where meaningful reforms are expected to take effect.
South Africa’s Transient Ascendancy
South Africa’s temporary emergence as Africa’s largest economy in 2024 is mainly attributed to the shrinking GDP of Nigeria and Egypt in dollar terms due to sharp currency devaluations, according to Yvonne Mhango, Bloomberg’s Africa economist. However, the long-term trajectory indicates that Nigeria and Egypt will regain their top positions, with Nigeria taking a significant lead. To achieve the IMF’s projected GDP expansion, Mhango suggests that Nigeria must restore oil output to its potential, address insecurity concerns, and resolve bottlenecks in the power sector.
Challenges in Egypt
Egypt, which has devalued its currency three times since early 2022, is also grappling with a foreign-exchange crunch, leading to a nearly 50% depreciation of the Egyptian pound against the dollar. The government secured a $3 billion IMF package last year, contingent on adopting a more flexible exchange rate. This move is likely to take place after the December elections, in which President Abdel-Fattah El-Sisi is seeking an extension of his rule until 2030.
Although the election delay has hindered IMF reviews initially scheduled for March and September, successful appraisals could unlock around $700 million in postponed loan tranches, provide Egypt access to a $1.3 billion resilience fund, and potentially attract substantial Gulf investments. Egypt is currently in discussions with the IMF to increase its rescue package to over $5 billion, showcasing confidence in overcoming obstacles preventing support access.
South Africa’s Currency and Economic Outlook
In contrast to Nigeria’s naira and Egypt’s pound, the South African rand is a free-floating currency, having depreciated by approximately 10% against the dollar this year. Currency weakness has been exacerbated by concerns that the National Treasury may fail to meet its budget deficit and debt-to-GDP targets due to increased state demands and revenue shortfalls, coupled with issues such as a deteriorating transport network and record power outages.
The IMF anticipates that South Africa’s economy will expand by 0.9% in the current year and by 1.8% in 2024. There is potential for faster growth, between 2.5% and 3%, if the country can address its power challenges, resolve logistic bottlenecks, and implement other key reforms.