• A recovery in regional economic growth unevenly distributed among the countries of the region

 The latest IMF data released in April 2018 (World Economic Outlook, April 2018) confirms an increase in sub-Saharan Africa economic growth from 0.7% in 2016 to 1.4% last year, which is higher (by 0.1 percentage point) to last October's forecast, and expect an upward trend with + 1.9% in 2018. Nevertheless, this recovery effect is very unequally distributed among the different countries of the zone: while some experienced relatively robust growth in 2017 (+ 4% in Malawi, + 3.6% in Zambia, + 3.1% in Lesotho, + 3% in Mozambique and Zimbabwe), that of South Africa remains modest (+ 1.3% after + 0.6%) and the other countries have seen their activity stagnate (0.2% in Swaziland , +0.7% in Angola) or even decrease (-1.2% in Namibia due to the slowdown in the construction sector, a very moderate recovery in mining activity and a weak Angolan demand) despite an improving global environment and the good recovery in commodity prices. In addition, the improvement in growth rates for 2017 possibly reflects the catching-up of 2016, particularly for Angola (-0.8 %), Swaziland (zero growth), South Africa (0.6 %) and Zimbabwe (0.7%).

For South Africa, the region's leading economy, growth, although still sluggish, has been well above the expectations of IMF analysts, who were still forecasting 0.7% last October: with 1.3% annual rate in 2017, it sharply accelerated compared to 2016, driven by the good performance of the financial, agricultural and mining sectors. The implementation of the new government, led by Cyril Ramaphosa, and the first measures taken (governance of public companies in particular) reassured foreign investors and prevented a deterioration of the rating agency Moody's, which had increased access costs to international financing.

In Angola, on the other hand, the performances are well below the forecasts established at the end of 2017: the rebound of oil production was less strong than envisaged, and growth only reached +0.7% against the + 1.5% expected. On the other hand, GDP /capita has started to rise in the country after 3 consecutive years of decline, but still remains below the level of 2013.


  • Improved weather conditions and rising world prices as key drivers of the economic recovery, with also a drop in key rates allowed by maintained inflation

 In 2017, the two main drivers of economic recovery were improved weather conditions and rising global commodity prices. Indeed, most Southern African countries have a large agricultural sector (Lesotho, Malawi and to a lesser extent South Africa and Zimbabwe) and/or a mining sector providing the majority of their exports (Angola, Zambia, and Namibia especially, but also South Africa and Zimbabwe). On the one hand, the end of the drought has allowed the normalization of agricultural yields after the sharp declines observed in 2016. On the other hand, the rise in commodity prices has supported growth through increased exports, both in terms of value and volume (recovery of activity in some mines and opening of new ones). Since January 2017, the main mining and energy products have seen their price rise: + 6% for coal, + 12% for gold, + 19% for copper and up to + 30% for oil and + 40% for nickel, largely contributing to the reduction in the trade deficit of several countries.

In addition, monetary easing continues in the region : the policy rate was cut by 25 basis points in South Africa and Lesotho respectively in March and April 2018, by 50 bps in Zambia in February, by 125 bp in Mozambique in March 2018 and 200 bp in Malawi in December 2017. These successive decreases have been made possible by a favorable trend in inflation for several months in almost all countries, particularly those with very high levels of inflation : in Angola, inflation stands today at 20.9% against 36.5% at the same period last year, slowed nevertheless by the introduction of a floating exchange rate since the end of 2017 which caused a sharp devaluation of the Kwanza ; in Malawi it fell by almost 10 percentage points in 2017 while in Mozambique the rate fell from 20.6% in January 2017 to 3.1% last month. In Zimbabwe, on the other hand, inflation is on an upward trend due to electronic money creation. Thus, at the regional level, inflation is now 7.6% against 13.5% in early 2017, also as a result of the appreciation of most local currencies against major international currencies. As an indication, over the course of a year, the Rand appreciated by + 10.1% against the US dollar, the Botswana pula by + 8.5% and the Mozambican metical by + 17.8%, a sign of a slight renewed confidence of foreign investors, as well as an improvement in the economic context. The fall in key rates is good news in countries where the majority of loans are at variable rates, because it helps boost household consumption, lower the cost of credit for businesses and therefore contribute positively to growth. Central banks, however, remain cautious in the decline in interest rates (real rates are often high) particularly in view of the prospect of monetary tightening in the United States and the euro zone.

Finally, the recovery in global growth continues to have a positive effect on the economies of the region by pulling up their exports through an increase in external demand and by reducing their trade deficit. According to IMF data, overall growth is up + 3.8% in 2017, supported by a rebound in global trade, and is expected at + 3.9% for the coming year.


  • The fragility of public finances continues to weaken the economic situation of the countries, accentuated by the weakness of the diversification of activities and the anchor to South Africa’s economy

 The question of the sustainability of public finances has been the main concern for Southern African countries in recent years : with the exception of Botswana, whose public debt amounts to only 15.6% of GDP in 2017, all the others countries in the region have either high levels (102.2% in Mozambique, 78.4% in Zimbabwe and 65.2% in Angola in 2017) and/or rising levels of public debt (+12 points in South Africa, +16 points in Malawi, +22 points in Namibia and +37 points in Zambia since 2012). In 2016, the deterioration of public finances was accentuated by the decline in revenues from the Southern African Customs Union (through the gradual decline in tariffs and the slowdown in the South African economy) which had deteriorated the current balance of already structurally deficit countries.

However, in 2017, all deficit countries saw their balance improve due to the better performance of tax revenues related to exports. Overall, the fiscal deficits remain relatively large and are leading to the creation of arrears in several countries, particularly in Mozambique, which has been in debt since the disclosure of hidden debts in 2016 and whose arrears are now accumulating at USD 710 million (approximately 5% of GDP). In Zimbabwe, the deficit was -9.6% in 2017, mainly because the announced measures to freeze salaries in the civil service were not taken. In Zambia, the effort of fiscal consolidation and reduction of arrears continues[1] but meanwhile, new investment projects threaten the sustainability of the public debt, with a risk deemed high by the IMF with which the discussions for a program are blocked.

Nevertheless, governments have put in place increasingly serious and credible fiscal consolidation measures with regard to different international organizations. In Angola, public spending decreased from 40 percent of GDP in 2013-14 to 21.4 percent in the 2018 finance bill, and wages remained almost flat, despite significant inflation in the country. In Mozambique, public spending was also reduced by 3.4 percentage points of GDP in fiscal year 2018/2019. Finally, in South Africa, the new budget in mid-February presented a sustainable budget path that has reduced the pressure exerted by rating agencies since mid-2016.

In addition, the fragility of public finances highlights the problem of the low level of diversification of economic activity in some countries, particularly in Zambia where 90% of exports are dominated by copper or in Malawi where the predominance of agricultural activity (29.5% of GDP) makes the country particularly vulnerable to climatic hazards and external shocks in general. In addition, the virtual stagnation of activity in South Africa in 2016 and the moderate recovery in 2017 penalized many countries that are still very dependent on the region's leading economy. In Namibia, export earnings fell sharply, with South Africa being the country's largest trading partner, and in Zimbabwe, transfers from Zimbabweans abroad fell from US $ 1,277 million in 2015 to US $ 1,105 million anticipated in 2017 as a result of sluggish South African activity (where the Zimbabwean diaspora is concentrated).


  • New governments in place in recent months seem to be aware of the need for structural reforms to improve the business climate and restore the confidence of foreign investors.

Beyond the necessary efforts to clean up public accounts, the development of the attractiveness of the country for foreign investors involves improving the environment of the business environment and launching reforms of public companies, which can now to be driven in many countries by the change of government. In Zimbabwe, the fall of Robert Mugabe, who has been in power for more than 30 years, suggests better prospects for improving the country's governance, while in South Africa, the election of Cyril Ramaphosa as head of the ANC has been very well received by the business community. These new leaders place at the center of their political agenda a reform of the governance of state-owned enterprises, together with a more efficient and transparent management of public finances. In Botswana, Mr. Mogkweetsi E. Masisi, the president elected in April 2017, has enshrined his government in the continuity of the previous power, both socially and economically, but with an economic policy a priori more open to foreign investment to accelerate the diversification of its economy. Finally, in Angola, the end of the dos Santos era suggests better prospects for transforming the structure of the economy. These reform efforts remain essential in order to restore the attractiveness of countries and attract new flows of foreign investment, down in recent years.


The deterioration of public finances as a factor in lowering the sovereign debt ratings of the different countries of the region

 In 2017, for almost all southern African countries, sovereign ratings were lowered, placing them in the speculative category. In January 2017, Mozambique is placed in selective default by Standards & Poor's following the disclosure of hidden debt and the revaluation of the debt level, estimated at more than 100% of GDP. Then in April 2017, it is South Africa that sees its sovereign rating be degraded by one notch (from BBB- to BB +) in the speculative category by S & P, followed by a similar decision by Fitch a few days apart . The decision comes mainly in response to the large-scale cabinet reshuffle that President Zuma made on March 30 with the replacement of Pravin Gordham as Minister of Finance, and further deterioration occurred during the presentation of the multi-year budget in October 2017. Namibia was also doubly degraded by Moody's and Fitch (respectively in August and October) and ranked in the first tranche of the speculative category. Finally, during the summer, Angola's rating is lowered by both S & P (in August) and Moody's (in September) and is now one step above the "high risk" category. The poor ranking of all economies in the region (with the exception of Botswana, rated A2 by Moody's and A- by Fitch) is one of the factors behind the decline in FDI inflows in recent years and is thus depriving countries of access to international financing that would allow a revival of growth in a context of sluggish domestic demand and restriction of public investment. Prospects look more optimistic for 2018 with an increase in the outlook for Angolan and South African notes in March and April and a confirmation of the investment category for South Africa by Moody's.


Completed on May 25th 2018


[1] In Zambia, the public deficit trajectory is very different in cash accounting - which influences the dynamics of indebtedness - (5% in 2016, 7% in 2017 and 6% in 2018 where the deficit is increased by arrears reimbursement) and accrual accounting - which reflects the effort or not to reduce expenditures or increase revenues - (10% in 2016 when arrears accumulate, 5% in 2017 and 4% in 2018).