Cape Town – The latest World Economic Outlook (WEO) by the International Monetary Fund (IMF) suggests that South Africa is now only the third-largest economy on the African continent – behind Nigeria in first place, followed by Egypt.

Were it not for the rand’s slump, South Africa would not have surrendered its second place during 2015, said Cristie Viljoen, manager in Financial Risk Manager at KPMG in South Africa.


Viljoen regards the latest WEO as reflecting “sobering” gross domestic product (GDP) statistics for SA. South Africa has been known as the continent’s second-largest economy since Nigeria rebased its GDP data in early 2014.

The WEO data further suggests that the SA economy will grow by a mere 0.6% this year.

Viljoen emphasised that SA remains Africa’s most developed economy and has a more diversified economic base than the Egyptian economy.

“However, SA’s fall from first and now second place among the continent’s giants is of great concern, especially as this development is largely attributed to weakness in the rand that, in turn, has largely been as a result of domestic issues,” said Viljoen.

SA recorded a decline in the US dollar value of its economy during 2012 to 2015, because of slowing real growth (in rand terms) as well as a depreciation in the value of the rand, explained Viljoen.
The rand weakened from an average of R8.20/$ during 2012 to an average of R12.74/$ in 2015 – a depreciation of more than 50%. As a result, the nominal dollar value of SA’s GDP declined by an average of almost 7% per year over the past four years.

In the meantime, Egypt’s nominal dollar GDP expanded by an average of 7.5% per year during 2012 to 2015.

“The Egyptian pound’s depreciation during this period was at a notably slower pace compared to that of the rand. Since early in 2011, the Central Bank of Egypt (CBE) has tightly managed the pound, resulting in a milder depreciation compared to the free-floating South African currency,” said Viljoen. “This contributed to Egyptian GDP eclipsing its South African counterpart during 2015.”

Viljoen pointed out that the IMF WEO has not made any predictions about the trajectory of Egypt’s GDP in dollar terms from 2016 onwards.

“There is significant uncertainty as to the short- and medium-term trajectory for the Egyptian pound. As a result, converting local currency GDP projections for Egypt to dollar equivalents is rather challenging,” said Viljoen.

“Business Monitor International (BMI) has, however, made some exchange rate assumptions and its data points to South Africa being unable to retake the continent’s second-place position anytime soon.”

By late afternoon on Wednesday the rand was trading at R15.29 tothe dollar.

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