According to the African Development Bank’s new economic report, the Southern Africa region has seen a slowdown in economic growth over the past year as its largest economy, South Africa, confronts multiple challenges.
The report indicated that civil unrest, electricity crisis and natural disasters have contributed to dampen prospects for the region, which is lagging behind the others in Africa.
The 2023 Southern Africa Economic Outlook analysed the recent economic trends and developments in Southern Africa. In line with this year’s theme for the annual outlook: mobilizing private sector financing for climate and green growth in Africa, the report also explored the potential role of the private sector in financing the region’s climate action and green growth ambitions.
In 2022, the Southern Africa region’s GDP growth barely reached 2.7 percent, a level much lower than global and African averages of 3.4% and 3.8 %.
The slowdown in South Africa has been mirrored in other countries within the region such as Zimbabwe, Zambia, Malawi, Madagascar, and São Tomé and Príncipe, which have also experienced intense adverse weather events, the report said.
Growth in the region is expected to slow down further in 2023 to 1.6%, followed by a slight improvement – 2.7% – in 2024. Weighing down the environment further is the external debt burden which is forecast to remain high across the Southern Africa region. In 2022 it stood at 48%.
“Per capita income growth for most countries in the Southern Africa region is short of the growth rate needed to reverse the increase in poverty induced by the (Covid-19) pandemic and to put the region on track to meet the SDG1. High poverty and inequality rates remain endemic across the Southern Africa region,” the report noted.
External debt which stood at 48% in 2022, is forecast to remain high across the Southern Africa region. Overall, debt exposure is mixed within southern African countries. However, the fiscal deficit improved slightly in 2022 at 3.5% of GDP in 2022, compared to 3.7% of GDP in 2021.
The report linked the slow regional performance to “lingering political and structural issues in South Africa, which drags down regional growth, and Russia’ invasion of Ukraine, which continues to put pressure on energy and food prices”.
The report also noted that falling per capita income growth for most countries in the Southern Africa region threatens the growth rate needed to reduce poverty, while sluggish growth is weighing on youth employment. Unemployment is described as “one of the region’s biggest challenges.”
Southern Africa’s $90 Billion Annual Climate Action Requirements Offer Investment Potential
Speaking during the launch, Kevin Urama, African Development Bank Vice President and Chief Economist, commended African governments for their “remarkable resilience,” in the face of recent challenges.
Quoting from the report, he said financial needs for climate action in southern Africa stood at $1 trillion, with an annual requirement of $90.3 billion for 2020-2030. Average annual climate finance flows to Southern Africa stand at $6.2 billion, a mere 6.9% of what is required. Southern Africa, in addition, received the least financial flows relative to its financial needs, compared to other African regions.
Most southern African countries receive financing for mitigation projects rather than investment in adaptation, the main need. This underlines the urgency of finding new ways to mobilize financing to address Africa’s development challenges, Urama said.
“We estimate that the continent will need about $235-$250 billion annually between now and 2030 to meet investments needed under the Nationally Determined Contributions. So this leaves Africa, the African private sector and the global private sector with an investment opportunity of up to $213.4 billion annually to address climate change alone.”Kevin Urama
The African Development Bank is spearheading regional initiatives that intersect with climate adaptation, energy transition and sustainability across the entire continent, African Development Bank Director General for the southern Africa region Leila Mokaddem said. These include financial instruments, green bonds, technical expertise, climate insurance schemes, policy interventions and much more. “The urgency of regional climate adaptation and climate mediation action is critical for our future. The continent’s needs make it imperative for Africa to focus on identifying and assessing disaster, risk, and strengthening collaboration and coordinating appropriate responses,” she said.
In a presentation of the key findings of the report, lead economist for the region Auma George Kararach, noted that limited annual financing for climate change and adaptation, meant that several southern African countries risked failing to meet their Nationally Determined Contributions. Prioritizing development with climate portfolios, using private sector climate finance, still relatively undeveloped in the region, would be essential, he said. “We need to think of a wide range of financing channels and instruments to do that,” Kararach said.
Acting Director of the Country Economics Department, Ferdinand Bakoup said South Africa’s 20% share of Africa’s estimated more than $6 trillion natural capital reserves, offered tremendous potential for investors. “This region can benefit from better management of its natural capital,” Bakoup said.