South Africa, the most industrialized nation in Africa, is expected to surpass Nigeria and Egypt as the continent’s largest economy in 2024, according to the latest projections by the International Monetary Fund (IMF). However, the IMF also predicts that South Africa will only hold the top spot for a year before falling behind Nigeria again and eventually sliding to the third place behind Egypt by 2026.
IMF’s World Economic Outlook for October
The IMF released its World Economic Outlook for October last week, which provides forecasts for global and regional economic growth and development. The report shows that South Africa’s gross domestic product (GDP) will reach $401 billion based on current prices in 2024, compared to Nigeria’s $395 billion and Egypt’s $358 billion. This means that South Africa will briefly overtake Nigeria, which has been the largest economy in Africa since 2018, and Egypt, which has been the second-largest economy since 2022.
The report also reveals that sub-Saharan Africa’s growth is projected to decline to 3.3 percent in 2023 before picking up to 4.0 percent in 2024, with downward revisions for both years due to worsening weather shocks, the global slowdown, and domestic supply issues, especially in the electricity sector.
Nigeria’s economic challenges and reforms
Nigeria, the most populous nation in Africa and one of the top oil producers in the world, has been facing economic challenges due to a decline in oil production, high inflation, currency devaluation, and security issues. The IMF expects Nigeria’s GDP growth to decline from 3.3 percent in 2022 to 2.9 percent in 2023 and 3.1 percent in 2024, with the negative effects of high inflation on consumption taking hold.
However, the IMF also acknowledges that Nigeria’s President Bola Tinubu has announced significant policy changes aimed at getting the state’s finances back on track since he took office at the end of May. These include revamping the foreign-exchange system, scrapping costly gasoline subsidies, addressing dollar shortages, and boosting tax revenue. These measures are causing initial pain in Nigeria, but are expected to increasingly pay dividends going forward.
The IMF’s division chief in the research department, Daniel Leigh, told reporters at the fund’s annual meetings in Marrakech, Morocco last week that the reforms should lead to “stronger and more inclusive growth” in Nigeria.
Egypt’s currency devaluation and IMF package
Egypt, the third-largest economy in Africa and a key regional ally of the United States, has devalued its currency three times since early 2022 as it confronts a foreign-exchange crunch. The Egyptian pound has lost almost half its value against the dollar since then, making imports more expensive and hurting consumer spending.
The Egyptian government secured a $3 billion IMF package last year that requires a more flexible exchange rate, a move it is only likely to undertake after December elections in which President Abdel-Fattah El-Sisi is seeking to extend his rule until 2030. The delay has stalled IMF reviews that were initially scheduled for March and September.
The IMF expects Egypt’s GDP growth to slow down from 5.5 percent in 2022 to 4.8 percent in 2023 and 4.6 percent in 2024, but also notes that Egypt has embarked on growth-enhancing reforms such as fiscal consolidation, energy subsidy reform, and structural reforms to improve competitiveness and governance.
South Africa’s power shortages and recovery prospects
South Africa, the most diversified economy in Africa and a major exporter of minerals and metals, has been struggling with power shortages that have hampered industrial activity and investment. The state-owned power utility Eskom has been implementing rolling blackouts to cope with electricity demand exceeding supply.
The IMF projects South Africa’s GDP growth to decline from 1.9 percent in 2022 to 0.9 percent in 2023, with the decline reflecting power shortages. However, the IMF also revised its forecast upward by 0.6 percentage points thanks to the intensity of power shortages in the second quarter of 2023 being lower than expected.
The IMF also says that South Africa has some potential upside risks to its growth outlook if structural reforms are implemented to address electricity constraints, improve public finances, strengthen governance, and enhance competitiveness.