South Africa was also temporarily relegated to third position earlier in the year when Egypt climbed to claim the second spot.
The ranking is based on the size of the Gross Domestic Product (GDP) of the three countries aforementioned which comprises of total economic activity in a country in a specific period. GDP is measured in the domestic currency of the country, which is the rand in the case of South Africa, the naira in Nigeria and the Egyptian pound in Egypt’s instance.
For purposes of international comparison, the GDP values are converted at the prevailing exchange rate to a common international currency such as the US dollar. Owing to the increase in the exchange rate value of the rand, the US dollar value of the South African GDP increased. Given the change in the value of the country’s currency, its GDP exceeded the value of Nigeria’s GDP which also applies to Egypt.
It is imperative to mention that South Africa’s actual GDP in rand value remains the same. However, the difference between South Africa and Nigeria is not large. At the time the calculation was made, the US dollar value of the South African GDP was some USD301 billion, while Nigeria’s was USD296 billion; while the Egyptian GDP also at current exchange rates is about USD270 billion.
According to Tope Fasua, a Nigerian economist with international repute and renowned social commentator, “these rankings are not sacrosanct and mean little to the people making economic policies and investment decisions. What counts to economic players and observers is the economic viability of these countries. What people are concerned about is will there be economic growth in years to come and if the GDP per capita would increase.”
GDP growth is important because it provides returns for investors in an economy. It also provides an increase in job opportunities for unemployed people and new entrants to the labour market. In the long run GDP growth contributes to increased GDP per capita and increased standards of living in a country.
GDP per capita is measured as the income per person averagely in a country and provides an indication of standard of living. On this basis a country with a small GDP, but equally small population, can have a better standard of living than a large country. Botswana in Africa readily comes as an example.
GDP growth is important because it provides returns for investors in an economy. It also provides an increase in job opportunities for unemployed people and new entrants to the labour market. In the long run GDP growth contributes to increased GDP per capita and increased standards of living in a country.
International investors pay less attention to relative size and economies than they do growth prospects. These are much more important when making investment decisions.
Kenya’s Finance Minister Resists Parliament’s Capping of Borrowing Rates
Kenya’s treasury has recently challenged a decision by parliament to cap commercial lending rates, citing reasons that other proactive measures can be deployed to stave borrowing costs over a period.
The Kenyan parliament made these changes to banking laws in August, with the view to cap commercial interest rates at 400 basis points above the central bank’s policy rate (currently 10.5%). These changes are waiting for presidential approval.
Confirming to Reuters, the Minister of Finance Henry Rotich said that his department wants to improve the transmission of monetary policy signals to commercial rates. Furthermore, the Ministry prefers the creation of a central registry for collateral to cut rates, rather than capping them.
“Our approach in this issue is to deal with the root cause of why interest rates are where they are in Kenya,” the Minister added.
According to the central bank, the average lending rate was 18.2 percent in July, compared with 15.8 percent in July last year. The central bank cut its policy rate to 10.5 percent in May, having left it at 11.5 percent since July 2015.
The Ministry is working to better Kenya Banks Reference Rate (KBRR) to ensure banks price loans correctly. The KBRR (introduced by the government in 2014) has been criticized for failing to help cut interest rates.
“There is more room for refining the KBRR and banks are working on ensuring that the margins are working on ensuring that the margins reflect the best pricing of loans,” the minister said.
Rotich also stressed that the government’s budget deficit for the fiscal year that started in July would be lower than the 9.3% that the parliament approved. The government will also raise money in capital markets abroad to avoid pressurizing local rates by over-borrowing in the home market.
“Our strategy is to diversify our sources of funding so that we don’t borrow heavily domestically,” the Minister concluded.
