Protracted fuel strike hurts SA

Gold .............. $1 346.20 JSE Alsi .......... 52 218.00 Dow Jones .... 18 474.43 $1 ............ R13.31 €1 ............ R14.87 £1 ............ R17.28

SOUTH Africa’s economy regained the position of Africa’s largest in dollar terms more than two years after losing it to Nigeria as the value of the nations’ currencies moved in opposite directions.

Based on gross domestic product (GDP) at the end of last year published by the International Monetary Fund (IMF), the size of South Africa’s economy is $301 billion (R4 trillion) at the rand’s current exchange rate, while Nigeria’s GDP is $296bn.

That’s after the rand gained more than 16 percent against the dollar since the start of the year, and Nigeria’s naira lost more than a third of its value after the central bank removed a currency peg in June.

Both nations face the risk of a recession after contracting in the first quarter of the year. The Nigerian economy shrank by 0.4 percent in the three months through March from a year earlier amid low oil prices and output and shortage of foreign currency. That curbed imports, including fuel. In South Africa, GDP contracted by 0.2 percent from a year earlier as farming and mining output declined.

“More than the growth outlook, in the short term the ranking of these economies is likely to be determined by exchange rate movements,” Alan Cameron, an economist at Exotix Partners, said on August 2.

Momentum

Although Nigeria was unlikely to be unseated as Africa’s largest economy in the long run, “the momentum that took it there in the first place is now long gone”.

The rand rallied as investors turned to emerging markets with liquid capital markets to seek returns after Britain voted to leave the EU on June 23, even as the central bank forecast the economy would not expand this year and the nation risked losing its investment grade credit rating.

The ANC’s lowest support since 1994 in the August 3 local government vote led to further gains on speculation that it would pressure the party to introduce economic reforms that would boost growth and cut unemployment.

In Nigeria, investors didn’t flock to buy naira-based assets after authorities removed the peg of 197 to 199 naira per dollar. The Central Bank of Nigeria raised its benchmark interest rate to a record last month to lure foreign money, even as the IMF forecast the economy would contract 1.8 percent.

Nigeria was assessed as the continent’s largest economy in April 2014 when authorities overhauled their GDP data for the first time in two decades. The recalculation saw the Nigerian economy in 2013 expand by three quarters to an estimated 80 trillion naira.

The rand was at R13.2974 at 5pm per dollar yesterday. The naira weakened 2.7 percent to 320 per dollar. – Bloomberg