SOUTHERN AFRICA ECONOMIC OUTLOOK Growth and Transformation Economic Governance and Knowledge management (ECVP) Abidjan, April 9, 2018
Outline Africa s economic performance is improving Southern Africa s growth performance is below average Despite a positive outlook, the Region is facing serious economic challenges Opportunities for diversification and infrastructure financing Suggested policy priorities for growth and employment 2
1. Africa s economic performance is improving: Growth in real output recovered in 2017 After tepid annual growth of 2.2 percent in 2016, average real GDP rebounded, reaching 3.6 percent in 2017. It is projected to grow 4.1 percent a year in 2018 and 2019. 18 African countries grew above 5 percent in 2017 37 countries grew above 3 percent Growth was driven by: - improved global economic conditions; - better macroeconomic management; - recovery in commodity prices (mainly oil and metals); - sustained domestic demand, partly met by import substitution, and - improvements in agriculture production. 3
2. Southern Africa s growth performance is below average Growth projections for 2018 and 2019 are 2.0% and 2.4% respectively, still insufficient for poverty reduction. North Africa 2018: 5.1% 2019: 4.5% 8 7 Africa West Africa 2018: 3.6% 2019: 3.8% Central Africa 2018: 2.4% 2019: 3.0% East Africa 2018: 5.9% 2019: 6.1% 6 5 4 3 2 1 0 0.0 4.0 4.0 3.5 3.7 Southern Africa 2.8 1.9 0.9 Africa 1.8 2018: 3.6% 2019: 3.8% Southern Africa -1 2009 2010 2011 2012 2013 2014 2015 2016 2017(e) 2018: 2.0% 2019: 2.4% 4
Southern Africa s growth is led by: Botswana, Madagascar, Mozambique and Zambia South Africa, the Region s economic powerhouse, performed below potential. 4 countries led growth in 2016-17: Botswana (4.3%), Madagascar (4.1%), Mozambique (4.3%), and Zambia (3.8%). Their outlook is positive. 7.0 6.0 5.0 Southern Africa - Real GDP Growth, 2016-19 Main sectoral drivers: Services (3.9% during 2014-16) and Industry (3.2%). Agriculture contracted by -1.0% due to the drought, affecting several countries. Main demand side drivers: household consumption (70%) and public investment (24%) 4.0 3.0 2.0 1.0 0.0 Southern Africa Angola Botswana Lesotho Madagascar Malawi Mauritius Mozambique Namibia South Africa Swaziland Zambia Zimbabwe 2016 2017(e) 2018(p) 2019(p) 5
3. Despite the positive outlook Southern Africa is facing serious economic challenges Southern Africa: Age Pyramid in 2016, Thousands 80 + 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 The Industry sector declined from 30.8% of GDP in 2000-06 to 24.9% in 2014-16. 30-34 25-29 South Africa s manufacturing s share in GDP declined from 21.2% in 1995 to 18.5% in 2005, and further to 5.7% in 2016. 20-24 15-19 Like all of Africa, the region is facing severe job deficits and challenging demographics 10-14 5-9 Income inequality: South Africa, the Region s most advanced economy, has the highest Gini coefficient in the word: 0.65 (2016). Other countries of the Region also have high inequality and poverty levels. 15000 10000 5000 0-4 D3?:E3$ F:E3$ 5000 10000 15000 6
Exports have declined dramatically since 2012 and many of the top export products are unprocessed with little value addition Southern Africa Total Exports to Top 5 Destinations (Millions of US$) 2012 2013 2014 2015 2016* EXPORTS, FOB Total Exports 205,059 201,893 188,596 134,166 132,395 The Five Largest Destinations of Southern Africa Exports China 47,728 48,218 40,647 22,806 21,765 United States 15,678 13,267 10,540 7,835 8,282 India 11,322 10,712 10,166 7,368 7,223 South Africa 9,053 8,205 7,233 6,259 5,793 Germany 4,510 4,288 4,801 4,677 5,738 Main Products Exported from Southern Africa Petroleum oils, oils from bitumin. materials, crude 68,869 65,641 56,510 31,522 26,236 Pearls, precious & semi-precious stones 8,462 9,839 11,447 8,444 10,034 Silver, platinum, other metals of the platinum group 7,992 8,524 6,557 6,518 6,054 Motor vehicles for the transport of persons 4,133 3,782 4,459 4,783 5,321 Copper 6,789 7,188 7,255 5,710 4,782 Source: UNCTAD STAT *: estimates 7
It s a generic African problem: There is urgent need for structural transformation to accelerate economic diversification. Single most important export product, 1985 Single most important export product, 2015 Oil Food / Drinks Metals / Minerals Precious Metals Minerals Wood products Textile / Apparel Other Oil Food / Drinks Metals / Minerals Precious Metals Minerals Wood products Textile / Apparel Other 8
Dependence on commodities is reflected in low tax rates, which limit the government capacity 2000 2016 9
Debt trends must be monitored carefully The Bank is helping with new analytical work Total and External Debt Trends in Africa, 2000-2016 Public Debt in a Sample of Southern African Countries (2016) 90 80 70 60 50 40 30 20 10 External Debt (% of GDP) Total Debt (% of GDP) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Mozambique 128 80/20 Zimbabwe 72 44/56 Mauritius 67 22/78 Malawi 54 61/39 Angola South Africa Lesotho % of GDP 54 52 35 External/Domestic (% of total) 75/25 10/90 91/9 10
4. Opportunities for diversification and infrastructure financing At the global level: Upturn in commodity prices & positive FDI outlook New markets opening up for African exports Sustained growth and productivity improvements in large MICs open up new competitive niches and industrialization opportunities for LICs At the regional level: Rich endowment in mineral resources Well developed human capital base Increasing domestic demand from a growing middle class New momentum for regional integration, mainly via SADC & COMESA Large potential in agricultural industrialization, manufacturing, modern services including tourism 11
There are new potential sources of financing for Africa s infrastructure Assets managed by African institutional investors to rise from $670b. to $1.85 trillion Taxes $500 b. ODA $27 b. Remittances $63 b., $33 to SSA FDI $59 b. African Institutional Investors $670 b. Southern Africa Declining FDI, from 34 bn in 2013 to 22 bn in 2016 Declining ODA, from 8.5 bn to 7 bn during the same period Type of investor 2012 ($ billion) 2020 ($ billion) Pension funds 300 1,100 Insurance companies 200 445 Sovereign wealth funds 170 300 Total 670 1,845 12
5. Suggested Policy Priorities for Growth and Employment Strengthen macro policies fiscal, monetary, exchange rate and domestic resource mobilization; Improve debt management and public investment (Advisory services) Promote specific sectors/industries with high potential for economic transformation, diversification, with a special focus on agriculture and industrialization (Blueprints for staple crop processing zones, SEZs, and industrial parks and projects and programs) Proactive strategies to attract FDI and more private funding to infrastructure projects, focusing on risk mitigation (Advice on pragmatic approaches to prioritize infrastructure strategically and identify new financing instruments, Africa Investment Forum, knowledge products, and technical assistance). 13
Post-Scriptum: Expected GCI dividends the Bank, would be able to scale up its production of customized knowledge and other nonlending services Analytical and Advisory Activities, with a uniquely African perspective Granular research and timely policy reports Capacity building for economic policymaking (local stakeholders and thinktanks involved in our work) Targeted technical assistance The Bank as a knowledge institution: Sample of analytical work undertaken in Southern Africa Botswana: Technical Assistance to Privatization. Botswana: Water Sector Study (2017). Madagascar: Public Financial Management Modernization Plan (PSMPF) 2017-2026. Zimbabwe: Policies for Jobs and Prosperity Zambia: Transport Sector Master Plan (2017). Zambia: Cost of Service Study Energy Sector (ongoing). Madagascar: Review of Governance Practices in the Electricity Subsector (ongoing). South Africa: Study on Effective Delivery of SOEs Development Mandate (2018). 14
Thank you. Merci beaucoup. Ngiyabonga. enkosi. Amesegnalehu. Yakenele. Mahadsanid. Layout and Design: Communications and External Relations Department 15