THE International Monetary Fund (IMF) has projected that Nigeria will slip to the fourth largest economy in Africa in 2024, behind South Africa, Egypt, and Algeria, due to the effects of currency devaluation.
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The IMF in its forecasts for April 2024 noted that Nigeria which has held the title of “Africa’s largest economy” since the GDP rebasing in 2013 is projected to have a total GDP of $253 billion in 2024, primarily due to the devaluation of the Naira.
According to IMF forecasts, South Africa will be Africa’s largest economy with a GDP of $373 billion, followed by Egypt with $348 billion, and Algeria with $267 billion.
Recall that in 2023, it was projected that South Africa will overtake Nigeria as the largest economy in Africa.
Based on IMF’s estimates, Nigeria’s GDP in US Dollars declined from $477 billion in 2022, to $375 billion in 2023, it is estimated to drop to $253 billion in 2024. However, in the Naira, the GDP improved from N202.4 trillion in 2022 to N234.4 trillion in 2023. For 2024, the GDP is projected to hit N296.4 trillion.
According to IMF data, Nigeria was the largest economy in Africa in 2022, however, a devaluation of the Naira caused Nigeria to drop to third place in 2023, behind Egypt with a GDP of $394 billion and South Africa with a GDP of $378 billion.
In 2024, the devaluation of the Nigerian Naira and the Egyptian Pounds will see Nigeria and Egypt’s fortunes decline, with South Africa taking the reins as Africa’s largest economy.
Since President Bola Tinubu took over as in 2023, the official exchange rate of the Nigerian Naira has plunged by over 55 percent, leaving a significant dent in the GDP computation of the country.
Meanwhile, in Egypt, economic reforms since March 2024 have caused the Egyptian Pounds to decline by almost 40% in just over a month. In South Africa, the Rand has devalued by a slim 4% in 2024.
IMF estimates that Nigeria’s GDP will grow by 3.34% in 2024, up from the 2.86% growth rate posted in 2023. South Africa’s GDP is estimated to grow by 0.9% in 2024, from 2023’s 0.6% GDP growth rate.
Egypt’s GDP is projected to grow at 3.0percent in 2024, a decline from its 2023’s GDP growth rate of 3.76 percent.
It shows why adjusting for differences in Purchasing Power Parity, rather than solely relying on nominal GDP figures, yields a more accurate representation of economic size and performance. If currency valuation were the primary factor driving GDP rankings, countries might be tempted to artificially appreciate their currencies through central bank interventions to boost their economies. However, this approach is not sustainable and does not accurately reflect real economic growth in goods and services.
For instance, despite the significant devaluation of the Naira, Nigeria’s GDP in local currency terms shows growth, indicating real economic expansion of between 3-4% annually. This example illustrates the misleading nature of unadjusted nominal GDP metrics, particularly when impacted by currency fluctuations, and highlights the importance of considering PPP in international economic comparisons.
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