South Africa is poised to reclaim its position as the continent’s biggest economy next year, according to the latest forecasts by the International Monetary Fund (IMF). The IMF’s World Economic Outlook, released last week, projects that South Africa’s gross domestic product (GDP) will reach $401 billion in 2024, surpassing Nigeria’s $395 billion and Egypt’s $358 billion.
However, the IMF expects South Africa’s lead to be short-lived, as Nigeria and Egypt will likely bounce back and overtake it again in 2025 and 2026, respectively. The IMF bases its projections on current prices and exchange rates subject to fluctuations and uncertainties.
Nigeria, Africa’s most populous nation and top oil producer has struggled with various economic challenges, including high inflation, currency devaluation, fuel subsidy removal, and security issues. The country’s GDP contracted 1.8% in 2023, the worst performance since 2016.
President Bola Tinubu, who took office in May 2023 after winning a historic election, has introduced a series of reforms to revive the economy and attract foreign investment. These include overhauling the foreign exchange system, boosting tax revenue, and addressing power shortages. The IMF has praised Tinubu’s efforts and expects Nigeria’s economy to grow by 3.1% in 2024 and 4.2% in 2025.
Egypt, the third-largest economy in Africa and the most populous Arab nation has also faced a foreign exchange crisis that has forced it to devalue its currency three times since early 2022. The Egyptian pound has lost almost half its value against the US dollar, making imports more expensive and hurting consumer spending.
The country secured a $3 billion IMF loan last year that requires it to adopt a more flexible exchange rate regime, but it has delayed the implementation until after the December elections, in which President Abdel-Fattah El-Sisi is seeking to extend his rule until 2030. The postponement has stalled the IMF reviews that could unlock more funds and encourage Gulf investments.
Meanwhile, the government is in talks with the IMF on increasing its loan package to more than $5 billion, confident that it can overcome the hurdles and address the concerns over its currency policy. The IMF projects that Egypt’s economy will grow by 4.5% in 2024 and 5.2% in 2025 if it implements the reform agenda.
South Africa, on the other hand, has benefited from a relatively stable currency and a rebound in commodity prices, especially gold and platinum. The country’s GDP grew by 2.9% in 2023 after shrinking by 7% in 2020 due to the impact of the Covid-19 pandemic.
However, South Africa still faces many structural challenges that hamper its growth potential, such as power outages, transport bottlenecks, corruption, and unemployment. The country also has a high fiscal deficit and debt-to-GDP ratio that limits fiscal space and increases borrowing costs.
The IMF urges South Africa to implement reforms to boost its electricity supply, improve its logistics network, and enhance its business environment. The fund estimates that such reforms could lift South Africa’s growth rate by 2.5% to 3% faster than the current projections of 0.9% in 2024 and 1.8% in 2025.
The three African giants have shown resilience and determination to overcome their economic difficulties and pursue their development goals. With continued reforms and cooperation, they can achieve greater prosperity and stability for their people and the continent.
Source: BNN Bloomberg
