Which African country is next in line to overtake South Africa?

The IMF’s latest update on the economic outlook of Africa shows that, while South Africa has lost its economic crown to Nigeria – and now second place to Egypt – the country should be a safe third on the continent for some time to come.

However, if South Africa were to lose one more spot in the continental GDP ranking, it would lose third to Algeria.

The latest economic update from the International Monetary Fund shows that South Africa has become the third biggest economy on the African continent, after Egypt has snatched silver in terms of GDP output.

The IMF’s projections show that Egypt had a total GDP of $330.8 billion in 2015, versus South Africa’s $313 billion – a measure which will only extend in 2016 when a massive slowdown in economic growth hits the continent’s southern-most country.

The key factor in South Africa’s drop to third is the weak rand, which worked against the country in the conversion to dollars in the IMF report.

South Africa recorded a decline in the US dollar value of its economy during 2012-15 because of slowing real growth (in local currency terms) as well as a depreciation in the value of the rand.

The South African currency weakened from an average of R8.20/$ during 2012 to an average of R12.74/$ in 2015 – that is a depreciation of more than 50%. As a result, the nominal US dollar value of South Africa’s GDP declined by an average of almost 7% p.a. over the past four years.

Looking to the future

For 2016, South Africa’s growth prospects were cut in half to only 0.6%, the IMF said, with a projected GDP output of only $266 billion, in nominal terms. This, versus Egypt’s GDP expected to grow to $341 billion, widening the gap.

Looking at the economic projections for the rest of Africa, however, South Africa’s third position looks to be safe, as the next largest economy is Algeria – and with GDP output of $172 billion in 2015 (and a projected $166 billion in 2016), South Africa has a ‘comfortable’ $100 billion lead.

Worryingly, South Africa’s anticipated GDP growth rate is among the lowest on the continent.

The table below outlines the IMF’s projected GDP data between 2015 and 2012 (at current rates, in US$). The data was converted from local currency to dollars, thus South Africa’s extreme currency weakness is reflected in the forward data.

*Based on IMF’s GDP growth rate projections

Source: IMF

Can South Africa ever reclaim the crown?

Looking forward to 2021 (as far as the IMF’s projections go) South Africa should retain its third place, though the gap between Nigeria, Egypt and South Africa is expected to only widen.

According to Manager in Financial Risk Management at KPMG in South Africa, Christie Viljoen, the IMF has not ventured any guesses as to the trajectory of Egypt’s GDP in US dollar terms from 2016 onwards.

“While the country’s local currency GDP is forecast by the multilateral organisation, 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 US dollar equivalents is rather challenging,” Viljoen said.

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.

“Admittedly, South Africa remains the continent’s most developed economy, and has a more diversified economic base than the Egyptian economy,” Viljoen said.

“However, its fall from first and now second place amongst 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.”

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