Nigeria is on the verge of losing its position as Africa’s largest economy to South Africa, according to forecasts by the International Monetary Fund (IMF). The IMF’s World Economic Outlook predicts that South Africa will briefly surpass Nigeria and Egypt as the continent’s biggest economy in the upcoming year.
In 2024, South Africa’s gross domestic product (GDP) is expected to reach $401 billion at current prices, whereas Nigeria’s stands at $395 billion, and Egypt’s at $358 billion. However, this shift is anticipated to be temporary, with South Africa projected to hold the top spot for just a year before trailing behind Nigeria once more, eventually falling to third place behind Egypt by 2026, as indicated in the recently released report.
Although IMF data has shown Nigeria’s economy surpassing South Africa’s since 2018, Nigeria’s economic outlook has dimmed due to reduced oil production, high inflation rates, and a significant devaluation of the naira.
Bloomberg economists suggest that the IMF’s projections reflect where they anticipate meaningful reforms will occur. South Africa’s momentary emergence as Africa’s largest economy in 2024 is primarily attributed to the reduction in the GDP of Nigeria and Egypt when measured in dollars, resulting from significant currency devaluations. Nevertheless, the long-term trajectory suggests that Nigeria and Egypt will regain their top positions, with Nigeria expected to take a substantial lead. To achieve the GDP expansion projected by the IMF, Nigeria would need to restore its oil production to its full potential, address security concerns, and resolve challenges in the power sector.
Since taking office as the President of the West African nation at the end of May, Bola Tinubu has introduced significant policy changes aimed at restoring the state’s financial stability. These changes include overhauling the foreign-exchange system, eliminating expensive gasoline subsidies, and implementing measures to address dollar shortages and enhance tax revenue.
While these measures are causing initial challenges in Africa’s most populous nation, they are expected to yield increasingly positive results in the future. The International Monetary Fund (IMF) anticipates a 3.1% expansion in GDP for the coming year, compared to 2.9% in 2023.
According to Daniel Leigh, division chief in the IMF’s research department, these reforms should ultimately lead to “stronger and more inclusive growth.” Leigh shared these insights with reporters during the IMF’s annual meetings held in Marrakech, Morocco, last week.
Egypt, facing a foreign-exchange crisis, has devalued its currency three times since early 2022. The Egyptian pound has lost nearly half of its value against the US dollar. The government secured a $3 billion IMF package last year, contingent on adopting a more flexible exchange rate, a move likely to occur after December elections, during which President Abdel-Fattah El-Sisi aims to extend his rule until 2030.
This delay has halted IMF evaluations that were initially scheduled for March and September. Successful assessments could unlock approximately $700 million in delayed loan disbursements, grant Egypt access to a $1.3 billion resilience fund, and potentially stimulate significant Gulf investments.
The government is meanwhile in talks with the IMF on boosting its rescue package to more than $5 billion, according to people familiar with the discussions, confident it can overcome the hurdles preventing it from accessing support, including addressing concerns over its currency policy. The implementation of a reform agenda could underpin an economic growth rate of 5% or more from 2026, according to the IMF.
Unlike Nigeria’s naira and Egypt’s pound, South Africa’s rand is free floating, and has lost about 10% of its value against the dollar this year.
Currency weakness has been stoked by concerns that the National Treasury will miss its budget deficit and debt-to-GDP targets for the fiscal year through March due to increased demands on the state for support and revenue shortfalls, as a fraying transport network and record power cuts curtail economic growth.
The IMF sees South Africa’s economy expanding 0.9% this year and 1.8% in 2024, with the potential to expand 2.5% to 3% faster should it improve the power situation, tackle logistic bottlenecks and institute other reforms.