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It’s not cheery news that Nigeria is Africa’s biggest economy. Here is why

NIGERIA has surpassed South Africa as Africa’s largest economy in terms of Gross Domestic Product, GDP after South Africa slipped into its second recession in two years.

Data obtained from South Africa’s statistics office show that South Africa’s place as Africa’s biggest economy dropped as its GDP shrank by 1.4 per cent in the fourth quarter of 2019, following a revised 0.8 per cent contraction in the third quarter of last year.

Nigeria’s GDP grew by 2.55 per cent in the fourth quarter of 2019, its highest quarterly growth since the recession of 2016 which reflected that Nigeria’s economic growth rate in 2019 rose by 2.27 per cent compared to 1.91 per cent growth rate in 2018.

The GDP is a measure of total economic activity in a country in a specific period usually for one year and it is measured in the domestic currency of the country.

According to a Bloomberg report, Nigeria’s economic growth rate is attributed to its increasing oil output despite falling crude oil prices and steps taken by the Central Bank of Nigeria, CBN, to boost credit growth.

The report puts Nigeria’s GDP at $476 billion when compared to the official exchange rate of ₦306 and $402 billion against the market rate of ₦360 while South Africa’s GDP stands at $352 billion.

Despite boasting of a robust GDP, the country’s economy is not yet out of the woods. The country’s current Debt – GDP ratio currently stands at 31.35 per cent which increased from 29.78 per cent in 2019. Nigeria’s domestic debts account for $55 billion and its foreign debts are pegged at $25.6 billion which puts the total debt at over $80 billion, according to figures from the Debt Management Office, DMO.

Debt-GDP ratio compares the size of a country’s debt to its economy to determine the sustainability of the debt profile as well as the vulnerability of the economy to creditors and repayment obligations.

However, Nigeria spends about two-thirds of its revenue on debt servicing costs an estimated N8.2 trillion is to be spent on servicing debts based on projections from the approved 2020 Federal Government budget.

In 2018, Foreign Direct Investment into Nigeria was $2 billion generated mostly from the energy and telecom sector, compared to $5.6 billion in 2013 the decline was attributed to an unfavourable economic and tax system, according to data obtained from The Economist Intelligence Unit, EIU.

This is an indication that the Nigerian economy is not a destination for foreign investors despite the size of its consumer market and growing capital markets. Also, equity investment had fallen from $2.9 billion in 2013 to $139 million in 2018 at a time when there is high investor interest in Nigeria’s growth potential and expanding middle class.

Nigeria bests  South Africa in terms of nominal GDP compared to its GDP per capita which is measured as the income per person in a country indicating the standard of living shows that South Africa per capita GDP is twice that of Nigeria at $5,302 while Nigeria’s per capita GDP is $2,208.

This means that Nigeria still trails South Africa in basic infrastructure, power and roads required to lift its people out of poverty.

South Africa currently represents Africa at the G20, as well as in the “BRICS” group of the most powerful emerging economies, which also includes Brazil, Russia, India and China.

The International Monetary Fund, IMF, cut its forecast for Nigeria’s 2020 growth to two per cent from 2.5 per cent last month due to lower oil prices but with its major source of revenue obtained from proceeds of oil sale, the economy still stands on shaky ground due to the declining global oil prices since the coronavirus outbreak.

 

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