Mixed bag of fortunes for SADC
Gaborone – The Southern Africa region has continued on a positive economic growth path with significant differences in growth rates among countries in the region.
Mozambique, Zambia and Angola registered the fastest growth rates, exceeding the 7 percent growth rate target of the Southern African Development Community (SADC), supported by positive performance of the mining sectors and strong public expenditure, according to a recent African Development Bank (AfDB) report.
The report titled “Southern Africa Review Quarterly and Analysis” says that officials in Zimbabwe also predict a significant acceleration of growth (from 3.7 percent in 2013 to 6.1 percent in 2014) premised on the successful implementation of its Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZIM-ASSET) and the completion of on-going institutional and structural reforms encompassing the mining sector.
“However, there are significant negative pressures to growth in Zimbabwe arising from liquidity constraints, weak aggregate demand and infrastructure bottlenecks,” states the report.
In Malawi, the report says, growth is expected to accelerate to 6 percent in 2014, up from an estimated 5 percent in 2013, benefiting from a good tobacco harvest.
However, the continued suspension of budget support following the exposure of government officials’ misuse of public funds and the suspension of uranium mining activities due to low global ore prices present downward risks for Malawi.
AfDF says the Namibian economy is growing at 5.3 percent, reflecting a mild acceleration of growth relative to the fourth quarter of 2013, driven by increased mining and construction activities.
In Lesotho, the report says the 2014 first quarter growth is expected to be as high as that observed in the last quarter of 2013 (about 5 percent), given accelerated growth in the diamond mining, telecommunications and trade sectors.
Growth in Mauritius is accelerating but remains moderate (3.7 percent in 2014) in tandem with the recovery trend in its major economic partner, Europe.
Growth is decelerating in South Africa, where persistent structural constraints to growth, including the labour unrest and the interest rate hike implemented to ease exchange rate pressures, have dampened growth.
Developments in South Africa, AfDB noted, are expected to negatively affect Swaziland’s growth outlook. Inflation was moderate across the board in the first quarter of 2014, supported by easing exchange rate pressures, moderate external prices and weak domestic demand.
All countries except Malawi reported single-digit inflation, four meeting the SADC convergence target of less than 5 percent and one (Zimbabwe) registering a deflation rate of -0.91 percent in March 2014.
There were price pressures arising from rising fuel prices, increasing public wages and seasonal food shortages in a number of countries including Mauritius and Zambia.
Not all countries have reported first-quarter data on external balance, fiscal balance and debt.
The report says early indications suggest that most countries met the SADC convergence targets in the first quarter of 2014.
“However, a deterioration of the external position was observed in about half of the countries due to large imports of capital equipment and manufactured goods (Mozambique and South Africa), slow growth in the economies of major trading partners and sources of capital (Mauritius) and lower export revenues from mining (Angola, Zambia and Malawi),” says the report.
In Malawi, notes the report, the suspension of budget support also weighed in. Fiscal deficits widened in the majority of countries due to expansionary fiscal policies in Angola, Mauritius, Mozambique and Swaziland, revenue constraints arising from decelerating economic activity in Zimbabwe; and from the suspension of budget support in Malawi.
Nevertheless, the report says, the fiscal position of the Southern African Customs Union (SACU) countries is generally improving as the countries pursue fiscal consolidation (Botswana, Lesotho, and Namibia) and improve domestic resource mobilisation (Swaziland and Namibia) while also benefiting from SACU revenue inflows in the first quarter of 2014.
“Countries stayed within the SADC convergence target on debt, although debt levels are increasing in a number of countries including Angola, Mozambique and Zambia, to fund fiscal deficits.
“This performance has affected the level of international reserves, which decreased in Angola, Mozambique, and Zambia though for Angola stayed within the SADC convergence target of six months of import cover,” say the report.
The report says the region’s 2014 outlook is positive overall. Average growth is expected to rebound to 4.9 percent in 2014, up from the 4.3 percent average growth rate estimated for 2013. Average inflation should drop to about 6 percent, following significant disinflation in Malawi.
At least four countries expect to post a positive current account balance in 2014, compared to only one country at the end of 2013. Seven countries are expected to have increased their international reserves to at least four months of import cover by the end of 2014, compared to four countries in 2013, although the majority will still fall short of the SADC convergence target.
However, the AFDB report says, growth is partially driven by expansionary fiscal policy measures that will negatively affect the fiscal balance and debt levels in a number of countries.
The region’s economic landscape for 2014 will be affected by a number of factors, including on-going institutional and structural reforms, as well as national elections, in some countries. Elections are expected to worsen the fiscal positions of Mozambique and Malawi, increase inflation risk in Malawi and increase uncertainty with respect to capital and investment inflow in Malawi.
Mozambique holds its elections in October while Malawi held its polls in May.
That said, the reports observe, important institutional and structural reforms are on-going in line with the development aspirations of member countries.
In the first quarter of 2014, Angola launched its ambitious electricity sector reform programme.
Malawi registered significant progress in the implementation of the public finance management reforms embedded in the Extraordinary Performance Assessment Framework.
Zambia reformed legislation in an attempt to improve the business climate; while in Zimbabwe, new foreign currencies were added to the multicurrency basket to facilitate trade and investment.
The report says in order to strengthen and sustain the positive growth trend, SADC member countries should pay particular attention to the issues including sustainable management of revenues from extractive industries and economic diversification in resource-rich countries; building resilience to external economic shocks in globally integrated economies, through economic diversification and diversification of target markets.
They further need to enhance capital budget absorption capacities to maximise benefits from expansionary fiscal policies; and public finance management reforms to reduce imbalances in budget allocations, improve domestic resource mobilisation and enhance safeguards.