Southern Africa's GDP growth likely to grow above 2% in the next two years

The African Development Bank (AfDB) expects real gross domestic product (GDP) growth in the Southern African region to improve to 2% in 2018 and then to 2.4% in 2019.

The'Southern Africa Economic Outlook Report 2018', released by the AfDB, in Pretoria, on Monday, states that there is cautious optimism for the economic outlook for the Southern African region, but warns that there are diverging growth patterns for the region’s economies.

“South Africa, the largest economy in the region, turned in low and declining rates of growth,” AfDB Southern Africa regional development and business office lead economist Stefan Muller said while presenting the key findings of the report.

He said lower income transitioning economies, such as Madagascar and Mozambique, recorded moderate and improved growth, albeit at reduced rates.

“Southern Africa is the worst performing region on the continent with GDP growth of 1.6% in 2017, owing to South Africa’s economy, which has not been performing well in recent years,” he said.

He noted that services have been a key driver of real GDP growth in recent years, as agriculture saw a 1% contraction owing to unfavourable weather conditions.

“The drought in South Africa resulted in dismal sector performance; however, this trend is expected to reverse in 2018, with more favourable rain patterns.”

In Malawi and Zimbabwe, growth in agriculture, which contributes to one-third of those countries' GDP, should improve with higher tobacco and maize yields, he said.

Muller added that the outlook for services were also favourable, led by Madagascar and Mozambique, which are expected to record higher growth, in line with an improvement in external demand, especially for tourism.

“In the post 2008 economic crisis era, services and industry have been the main engines of growth. Traditional agricultural intensive economies have shifted and Zambia, Malawi and Zimbabwe have shifted domestic resources from agricultural to services, albeit at differing rates,” he noted.

Muller further said that services have seen the highest average growth rate in the Southern African region since 2000.

“On the other hand, an overall declining trend has been recorded in industry and agriculture over the same period,” he stated.

He added that Zimbabwe’s shift away from agriculture as the dominant sector was the most striking in the region, followed by Zambia.

He highlighted that in Zimbabwe, a redistribution of land took place in the early to mid 2000s, and the years that followed with new owners saw declining investments and productivity.

From 2007 to 2016, the contribution of agriculture to GDP declined by nearly half from 21.6% to 11%.

“In 2017, there was some recovery in agricultural output, which helped improve food security in the country, but as a share of GDP, it remains low. To revitalise agriculture and boost domestic maize production, the Zimbabwe government instituted a large-scale systematic import substitution programme. 

"Financing this ambitious policy initiative is likely to further swell the country's fiscal deficit. In contrast, at the close of 2016, the service sector contributed more than 64.4% of Zimbabwe's GDP, a 19.1 percentage point increase over the previous ten years,” he said.

The report noted that the structural transformation of Southern African economies, especially toward higher value-added services, could help stimulate growth over the medium-to-long term.

“It will be critical for individual economies to invest intensively in infrastructure to secure and sustain high-value growth. Supply-side diversification into higher value-added services and goods can also improve agricultural activity,” he said.