South Africa dominates the Southern Africa region; however, we can’t forget its counterparts of Botswana and Mauritius who are building successful economies, providing valuable lessons for their neighbours.
Which Southern Africa economies are booming?
South Africa’s economy is the most developed in Southern Africa. GDP has sat above $300bn between 2017-2020 highlighting its dominance across the region. In 2020 South Africa’s GDP accounted for 12.8% of Africa’s total GDP, more than four times that of Angola. GDP in South Africa first surpassed $300bn levels in 2010 and this trend continued until 2016 when GDP fell to $296bn. The decline was due to a drop in mining production and manufacturing in the country. Nedbank expects the economy to grow 4.4% in 2021 with a budget deficit smaller than the 14% initially predicted for 2020/2021.
The end of Apartheid in 1994, alleviated some instability and put the country on a growth path. The ANC has been the dominant political party in the country since 1994, however it has lost voters due to corruption scandals linked to the now ousted former president, Jacob Zuma. In 2019 President Cyril Ramaphosa cited plans to ignite economic growth in the country including priorities for job creation, visa regulations to attract tourists and investors, creation of industrial parks and financial support.
In 2000, following issues managing exchange rates, South Africa implemented its inflation targeting framework. The country targets inflation of 3-6% to control general rises in the price level. Since 2017 the Monetary Policy Committee has put a focus on achieving a rate close to 4.5% to support growth and stability.
Mauritius, one of Southern African’s more successful transitioning economies, has diversified from a country dependant on agriculture to industries including manufacturing, financial services, renewable energies, and ICT, alongside a blossoming tourism sector. The country’s GDP has been growing steadily, hitting the $14bn mark in 2018. Its Industrial Policy and Strategic Plan 2020 - 2025 works towards accomplishing its 2030 vision of an achievement of high-income status, supported by a highly productive manufacturing sector contributing a quarter of the country’s GDP.
Botswana is one of fastest growing economies in Africa. The landlocked country has benefited from political stability and solid economic policies. In the 2021 Index of Economic Freedom Ranking, Botswana ranks third in sub-saharan Africa. While diamond mining and agriculture are the economy’s two largest industries, the country is also looking to diversify into commodities such as gold and metals and develop its tourism sector. Infrastructure improvements also play a key part of its Vision 2036 plan. The country is set to continue making strides with an expected economic growth of 9.7% in 2021.
In November 2017, a military coup removed Robert Mugabe as the president of Zimbabwe, however the change the country hoped for is yet to transpire. Succeeding president Emmerson Mnangagwa declared the country “open for business” however policies failed to materialise. Economic growth and job prospects remain bleak. Inflation has been rising and in 2019 the government banned local trading in foreign currencies due to high imports and shortage of cash and re-introduced the Zimbabwean dollar. Goods however are still valued in US dollars and many are forced to use black market currency exchanges.
Zambia’s inflation rate is the highest in Southern Africa (15.7% in 2020). Rising food and transport prices, alongside depreciation of the local currency kwacha are the main contributors. The country’s economic and debt crisis are a key priority for new president Hakainde Hichilema, who was sworn in in September 2021. He faces tough challenge following the events of 2020 that saw the country defaulting on repayments to lenders, the first African country to do so. Reforms in leadership, tax reviews and changes to military and police officials are however already under way, with many hoping the former businessman can change the course of the economy.
South Africa dominates in attracting FDI
South Africa takes the lions share of FDI in Southern Africa. The number of FDI projects peaked in 2011 at 198. Numbers have fluctuated over the last 10 years, with many blaming former president Jacob Zuma. Following his appointment in 2018, President Cyril Ramaphosa, announced plans to attract $100bn in new investments into South Africa by 2023. In 2019 the number of FDI projects increased to 130 however the value of FDI projects was estimated to be less than a third ($4.1bn) of that in 2011 ($12.8bn).
Angola, one of the world’s top oil producers has been rebuilding its economy following the end of the civil war in 2002. The country is keen to diversify to promote growth and in June 2021 Angola and the EU launched negotiations for the first sustainable investment facilitation agreement in an effort to attract and retain investment by improving the investment climate for both foreign and local investors.
In recent years FDI in Mozambique has failed to reach peak levels of 2015 (51 projects). In 2019 FDI figures fell to a 13-year low of $832.5m, with Covid-19 leading to further declines in 2020. Political uncertainty and falling commodity prices acting as a deterrent for potential investors. In 2019 the Agency for Promotion of Investment and Exports of Mozambique launched a new website set to boost foreign investments and exports from Mozambican SMEs. The country has placed a focus on Chinese investors, one of the biggest sources of FDI into Mozambique.
However, to attract investors and capitalise on its abundance of liquefied natural gas (LNG), the country will need to address security issues. In April 2021 France-based Total SE suspended its $20bn LNG project in Mozambique indefinitely due to an escalation of violence.
Digital infrastructure improvements key in Southern Africa
A total of 85% of South Africa’s population had access to electricity in 2019. Despite this, there are issues with reliability due to electricity deficits in the country, which could last another five years. Recently the National Energy Regulator of South Africa approved state-owned utility Eskom’s 15.6% price increase for 2021 which could prove costly for business owners.
South Africa has the highest proportion of individuals using the internet in the region, reaching 56.1% in 2017. The country’s draft National Infrastructure Plan 2050 highlights plans to have high-speed internet in every community by 2023-2024 as well as considering free basic data for low income users.
Despite socio-economic improvements in South Africa, former President Jacob Zuma's legacy of corruption has hampered development. Current president Cyril Ramaphosa has started implementing the National Anti-Corruption Strategy to address the issues and move the country forward.
In 2022 South Africa will decrease its corporate tax rate from 28% and 27% in a bid to align its rate closer to that of other countries which have dropped their rates and remain competitive. South Africa has also joined 130 other countries to introduce a global tax as it looks towards become more appealing for investment.
Comros, one of the worlds poorest countries, ranks as the most corrupt in Southern Africa. Despite 84% of the population having access to electricity in 2019, the percentage of individuals using the internet in 2019 was only 8.5%. The government has a tight rein on the media and those reporting negatively about the government face penalties.
Internet usage rates are increasing in Zimbabwe however the high cost of international internet connectivity remains a challenge. Zimbabwe is a landlocked country, accessing bandwidth from undersea cables via Mozambique and South Africa.
Electricity in Malawi is scarce, with only 11.2% of the population having access electricity in 2019. Fixed broadband subscriptions (per 100 people) are the lowest in the region also at only 0.06% in 2019, alongside low internet usage (13.8% of the population in 2017). Lack of digital infrastructure is stalling growth. Malawi Telecommunications Regulatory Authority and telecommunications operators have recently been engaging to reduce data prices however investment in critical infrastructure is required, especially in rural areas where the majority of Malawians live.
Angola, has prioritised increased access to electricity for the country. Its targeting 9.9 GW of installed generation capacity and a 60% electrification rate by 2025. The country is a major oil exporter but is committed to using renewable resources to drive development.
Where offers the best human capital in Southern Africa?
Signs are positive for quality of life Malawi, in 2020 The Economist named Malawi the Country of the Year. It stated 'democracy and respect for human rights regressed in 80 countries between the start of the pandemic and September, reckons Freedom House, a think-tank. The only place where they improved was Malawi.'
Namibia had the highest literacy rate in the region, with 91.5% of the population literate in 2018. The National Literacy Programme in Namibia was launched in 1992 to promote basic literacy and numeracy for the improvement of the livelihood of adults. Tertiary education enrolment of 22.9% also sits above the Southern Africa average of 11.7%.
Despite its upper middle-income country status, a large portion of South Africa’s population live below the national poverty line. South Africa boasts the highest unemployment rate in Southern Africa, reaching 28% in 2019 and 2020, more than double the regional average of 12%.
The country’s national development plan Vision 2030 lays out plans to “eliminate poverty and to sharply reduce inequality by 2030”. In 2017 92.7% of the population were using at least basic drinking water services, following year on year increases. The Department of Water and Sanitation is focusing on water security by 2030 as water access is still lacking, especially in rural areas.
Levels of education in South Africa, as with most African countries is still very much dependant on whether you are ‘rich’ or ‘poor’ highlighted by the 23.8% tertiary education enrolment.
Madagascar has the lowest unemployment rate (1.92% in 2020) in Southern Africa. The country is reliant on agriculture with employment in the sector reported at 63.83 % in 2020 according to the International Labour Organisation. Despite this poverty is rife and a drought in 2021 is likely to lead to food shortages due to poor harvests. With only around half the population using basic drinking water services in 2017, and the 5.4% tertiary education enrolment in 2018, the country fall shorts of Southern Africa averages.
Renewable energy a must for Southern African economies
A shift towards renewable energy will allow many African countries to stabilise electricity demands and ensure demand doesn’t outstrip supply.
In 2021 Botswana, Namibia and the United States have signed a memorandum of intent to create a mega solar project in the two southern African countries. This would transform the countries to exporters of renewable energy.
As South Africa’s economy shift towards service sectors the country plans to limit its annual greenhouse gas emissions to 398-440 million tonnes of CO2 equivalent by 2030. A cut of 28% compared to its 2015 plan. Building on renewable reserves, ACWA Power’s $784m Redstone concentrated solar power plant, the largest in South Africa will deliver clean and reliable electricity to nearly 200,000 households.
Despite its potential for renewable power, Zimbabwe has placed a reliance on fossil fuels, with multiple Chinese companies having planned to build new coal plants in the country. In September 2021 however Chinese leader Xi Jinping stated China will not build new coal-fired power projects abroad, a major setback for Zimbabwe and its energy deficit. The country’s reliance on imports will continue until it places emphasis on renewables.
While South Africa’s economy is expected to continue to grow, the country was one of the hardest hit by the Covid-19 pandemic. As with all Southern Africa economies, policies to aid recovery of Covid-19 will be key and allow those on the upward trajectory to continue development and growth. Struggling economies should look its more prospering neighbours but many challenges exist as they look to combat poverty and corruption.