South Africa’s economy could sink to number three in Africa

 ·14 Oct 2015

Economic analysis from investment bank Renaissance Capital (RenCap) says that South Africa may come alarmingly close to losing its place as the second biggest economy in Africa.

According to RenCap chief economist, Charles Robertson, the group’s projections would see South Africa’s GDP output for 2015 slipping to $317 billion.

Nigeria officially became Africa’s biggest economy in April last year, leap-frogging South Africa, after the government announced a long-overdue rebasing of the country’s gross domestic product.

Meanwhile, Egypt – the continent’s current number 3 – is projected to reach $315 billion, just a couple of billion dollars shy of overtaking South Africa.

World Bank data from 2014 put South Africa’s GDP output at $349.8 billion, with Egypt sitting at $286.5 billion.

The figures from RenCap are revised figures, taking real GDP growth, inflation and movements in exchange rates into account – the latter-most of which had the biggest impact.

South Africa’s economy has been battered by major fluctuations in the exchange rate in 2015, with the country’s currency hitting new all-time lows against the US dollar in recent months.

The Egyptian pound has declined 8.7% against the dollar this year, while the South African rand has lost 16.8% of its value, the group said.

Projected GDP 2015

Projected GDP 2015

However, the investment group did note that the Egyptian pound was one of the continent’s most over-valued currencies, while the rand was the most under-valued.

“One thing that strikes me is how negative on their own country South Africans are. [They have] deficits, a lack of reform and no growth, and the rand is one of the proxies to short if you are negative on EM,” Robertson said, via the Financial Times.

Meanwhile, chief economist at Mike Schüssler has told Fin24 that the economic outlook for South Africa is not good, with its decline gaining momentum.

He was commenting on the latest BankservAfrica Economic Transaction Index (Beti) released on Wednesday.

The Beti shows just how rapid the decline in the South African economy is.

“The Beti is a good co-incident indicator, which is confirming the overall decline in the domestic economy. Five of the last nine months have indicated monthly declines, coupled with four quarter-on-quarter declines,” said Schüssler.

Forecasts from official sources such as the International Monetary Fund and the South African Reserve Bank (Sarb) indicate much slower growth for 2015 and 2016.

South Africa was the leading economy in Africa up until April 2014, when a rebasing of Nigeria’s economic indicators pushed the country to number 2.

While most African countries are expected to see GDP growth of 4% and over, South Africa is expected to scrape by with around 1.5% growth at best.

President Jacob Zuma has placed the blame for the slow economy at the feet of apartheid, calling it “colonialism of a special type” which competing countries never had to deal with.

More on South Africa

Weak economy is apartheid’s fault: Zuma

Why President Zuma is wrong on the economy

How much money South Africa contributes to the global economy

Govt interference hits SA economy, employment

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