The African Economic Outlook (AEO) 2014 Regional Editions are now available. An extract from the Southern Africa report is reproduced below. Click here to download.

Overview

In Southern Africa, growth performance in 2013 was uneven across the countries. Angola, Botswana, Malawi, Mozambique and Zambia recorded the highest growth of between 5% and 7% (see table below). Growth in these countries was boosted by investment in infrastructure and in extractive industries. While Botswana is projected to maintain the momentum, the performance of the other countries is expected to accelerate to between 6% and 9% in 2014. On the other end of the scale, growth in Lesotho, Madagascar, Mauritius, Namibia, Swaziland and Zimbabwe remained low, ranging between 2.6% and 4.2%. By contrast, South Africa recorded depressed growth, mainly due to the persistent labour unrest and the weak global environment. With the recovery of the global economy and exports, further boosted by the weaker exchange rate, growth in South Africa is expected to accelerate to 2.7% in 2014 from 1.9% in 2013, thereby paving the way for improved prospects for the region, with gross domestic product (GDP) expected to grow by around 4% in 2014, up from 3% in 2013.

Inflationary pressures eased in 2013 mainly due to lower food prices, broadly constant energy prices, prudent macroeconomic policies but also country-specific circumstances. In South Africa, where the rand depreciated significantly, inflation edged up to the upper limit of the target range of 3%-6%. However, it remained within the target as higher import prices were not fully passed through to consumers but were partially borne by importers and traders. In Zambia, the central bank responded to the weaker currency, the lax fiscal policy and also the overrun of the inflation target by raising the policy interest rate. At the same time it capped interest rates on loans from commercial banks in order to limit borrowing costs for the private sector. In response to lower inflation, central banks in Botswana and Mauritius reduced policy interest rates. In Angola, interest rates were also reduced despite increasing inflation, which remained, however, within the target range of 7%-9%. Malawi was the only country in the region that was confronted with double-digit inflation. The monetary authorities responded to the higher inflation and currency depreciation by raising interest rates.

On the fiscal front, many countries have improved their positions since the deterioration emanating from the 2009 global recession by limiting growth of spending while at the same time increasing revenues. Botswana has achieved the most remarkable fiscal consolidation in recent years by converting its government budget from a deficit of over 11% of GDP in 2009 to close to balance in 2013. Both increases in revenues and cuts in expenditure have contributed to this improvement. In 2013 many other countries also followed prudent fiscal policies. But in a number of countries such as Angola, Mozambique and Zambia, the fiscal policy stance was expansionary and the fiscal position deteriorated.

The buoyant demand for oil, minerals and other natural resources over recent years has driven investment flows to Southern Africa. Not surprisingly, large resource-rich countries have been the biggest beneficiaries, with South Africa and Mozambique recording the highest foreign direct investment (FDI) inflows at USD 6.4 billion and USD 4.7 billion respectively. At the same time, Angola recorded a USD 1.7 billion disinvestment. The total FDI inflows are, however, gradually decreasing, reflecting the emergence of other investment drivers and the fact that some planned investment in the extractive sector has been put on hold. The slowdown of the global economy at the onset of the 2009 economic crisis has led to lower demand for Africa’s commodity exports, which delayed planned FDI in extractives. For their part, non-resource-rich countries have seen a strong increase in the share of FDI inflows in their GDP since the early 2000s.

Economic prospects for Southern African countries and for African countries as a whole can be expected to face major challenges, mainly related to preserving political and social stability. It is recognised that sustaining high growth, making growth more inclusive and reducing poverty will ultimately help to reduce political and social tensions. Nonetheless, these require pursuing appropriate macroeconomic policies and at the same time increasing access to key public services, notably education, health and security, and further improving institutions and regulations for private sector activity. Such actions would help improve human development, better attain the Millennium Development Goals and diversify the economy.