- South Africa is set to topple Nigeria and Egypt as Africa’s biggest economy in 2024.
- Nigeria has struggled with oil production decline, runaway inflation and stark naira depreciation.
- Egypt’s economy is reeling from its most profound crisis in decades.
South Africa is set to topple Nigeria and Egypt as Africa’s biggest economy in 2024. This is according to forecasts from the International Monetary Fund. According to IMF’s World Economic Outlook, South Africa’s gross domestic product will reach $401 billion per current price in 2024. On the other hand, Nigeria’s GDP will reach $395 billion, with Egypt’s GDP reaching $358 billion.
South Africa, the continent’s most industrialised nation, is expected to maintain the top spot as Africa’s biggest economy for only one year. In 2025, the country will again lag behind Nigeria and fall to third place behind Egypt a year later. This is according to the IMF’s World Economic Outlook, a report released last week.
Dimmed fortunes for Nigeria’s economy
IMF’s data shows Nigeria’s economy has eclipsed South Africa’s since 2018. However, fortunes have dimmed for Nigeria’s economy. The West African nation has struggled with oil production decline, runaway inflation and stark naira depreciation.
Since becoming president, Bola Tinubu has sought to implement significant policy changes to get Nigeria’s finances back on track. Bola Tinubu has revamped Nigeria’s foreign exchange system and scrapped the costly oil and gas subsidies while taking steps to address dollar shortages and boost Nigeria’s tax revenue.
A spending plan to boost Nigeria’s economy
Moreover, the president plans to ramp up spending by almost a fifth in his first budget to boost economic growth. Tinubu, whose economic policies have won investors’ approval, banks on the $34 billion spending plan to raise Nigeria’s economic growth to 3.76 per cent in 2024.
While the proposed 2024 spending plan is almost fivefold in naira denomination than the one the lawmakers approved for 2023, it is smaller in dollar terms. The naira has shed 40 per cent of its value since Nigeria’s central bank resolved in mid-June to allow it to trade more freely against the dollar.
The budget assumes an average exchange rate of 700 naira against the dollar. The government remains optimistic that its interaction with investors will cause more significant foreign exchange inflows and a strengthened naira. Abubakar Atiku Bagudu, Nigeria’s minister of budget and economic planning, notes that the inflows “will help us clear the backlog, and the exchange rate will begin to reflect a stronger value that the current weakness.”
Other 2024 budget spending plan assumptions include an average daily oil production of 1.78 million barrels, an oil price of $73.96 per barrel, and an average inflation rate of 21 per cent.
Bola Tinubu’s significant policy shift has caused initial pain for Africa’s most populous nation. However, many expect the implemented measures to bear fruits in the future. The IMF forecasts Nigeria’s GDP to expand by 3.1 per cent in 2024, compared to 2.9 per cent in 2023.
The reforms in Nigeria’s economy should lead to “stronger and more inclusive growth,” Daniel Leigh, division chief in IMF’s research department, told reporters at the funds’s annual meetings in Marrakech, Morocco, last week.
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Mixed fortunes for Egypt’s economy
Egypt’s economy is reeling from its most profound crisis in decades. The country is already the IMF’s second-largest borrower after Argentina. According to the central bank, Egypt owes $22 billion to the IMF. Moreover, the country faces a financing deficit of up to $24 billion in the fiscal year through June 2024. This includes billions in repayment to the IMF.
Egypt has devalued its currency threefold since early 2022 as it struggles with a foreign exchange crunch. The Egyptian pound has lost almost half its cause against the dollar. The country has failed to deliver its promise of a “durably flexible” exchange rate regime. Following previous depreciations, long stability stretches followed bouts of devaluation.
IMF’s bailout for Egypt’s economy
The Egyptian government secured a $3 billion IMF package in 2022. The package requires a more flexible exchange rate. However, the government will only likely implement this move after the December 2023 elections, where President Abdel-Fattah El-Sisi will seek to extend his term until 2030.
This delay has stalled IMF’s reviews initially slated for March and September. However, a mission from the Washington-based financial institution may tour Egypt to initiate the two reviews around the end of October. According to confidential sources, the visit will discuss several options, including a path for reaching a staff-level agreement on the review.
Successful appraisals could unlock up to $700 in delayed loan tranches, offer Egypt access to a $1.3 billion resilience fund, and potentially prompt significant Gulf investments.
The Egyptian government is negotiating with the IMF to boost its bailout package to more than $5 billion. People privy to these negotiations have expressed optimism. They believe that the North African nation can overcome the hurdles standing in the way of this support, including addressing concerns over the currency policy. According to the IMF, the Egyptian government should implement a reform agenda. This could underpin an economic growth rate of 5 per cent more in 2026.
Optimism over South Africa’s economy
According to the IMF, South Africa could drastically boost economic growth if the government implements the necessary reforms. The country has rich endowments in natural resources and strong institutions. As such, South Africa’s economy “is poised for a take-off if reforms that courageously and resolutely tackle structural obstacles are implemented.” This is according to Gita Gopinath, the IMF’s first deputy managing director. Gita Gopinath spoke at the South African Reserve Bank’s Biennial Conference in Cape from 31 August to 1 September.
Addressing education, crime, logistic constraints, and power outages “are clear areas where if there are improvements, you could see a substantial effect on growth,” Gita said. Such improvements represent how South Africa became Africa’s biggest economy in 2024.
Unlike Nigeria’s naira and the Egyptian pound, South Africa’s rand is free-floating. The rand has lost around 10 per cent of its value against the dollar in 2023.
Many have raised concerns over the National Treasury possibly missing its budget deficit and debt-to-GDP targets for the fiscal year through March. The government has also faced increased demands for revenue shortfalls and support. This is even as fraying transport networks and record power cuts curtail economic growth, stocking currency weakness concerns.
The IMF forecasts growth of 0.9 per cent for South Africa’s economy in 2023 and 1.8 per cent in 2024. Nevertheless, should the South African government institute other economic reforms, address the power challenges, and tackle logistic bottlenecks, the economy could experience a faster of 2.5 per cent to 3 per cent.
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