When South Africa, one of Africa’s largest economies contracts, the impact is often felt throughout the Southern African region and 2024 has seen constant headwinds with little growth in economic activity, with the gross domestic product (GDP) experiencing a decrease in the third quarter of 2024.
The Reality
Real GDP contracted by 0.3% following a revised expansion of 0.3% in the second quarter.
Economic activity declined further in the primary sector, while the output of the secondary and tertiary sectors expanded at a slower pace.
While real GDP was still 0.3% higher in the third quarter of 2024 than that of Q3 in 2023 and the average level of real output in the first three quarters of 2024 was 0.4% higher than in the same period of 2023, it still paints a bleak picture.
This marginal growth is still way below the IMF projected growth number of 1,1% for South Africa for the year, and below the projected GDP growth across Africa of 3,2% for 2024 according to the African Development bank’s latest forecast.
While the inflation rate has reduced significantly in 2024 in South Africa, mainly driven by the reduction in fuel prices and a stronger currency, this is a somewhat tentative situation where international fuel prices and a stronger Dollar can reverse these gains.
Sectors Affected by Economic Contraction
Particularly, the economic growth has been hit by reduced output in the agricultural sector in South Africa, with a 10% decline in Q3 alone according to Stats SA, although there is some question over the accuracy of these numbers.
According to the Bureau for Food and Agricultural Policy (BFAP), their analysis indicates that for the first three quarters of 2024, decline in real agricultural GDP is estimated to be between -5% & -6%, as opposed to the current official decline of -15.5%. Their projection for the full year, indicates that the agricultural sector will contract by -4.8% in real terms in 2024.
Equally concerning is the decrease in economic activity and exports in the automotive manufacturing, tourism and mining sectors in Q3 in South Africa, with a -5,1% decline in mining exports and a reduction in foreign tourists arriving in South Africa, with almost a -3% decline in November of 2024.
Geopolitical Tensions and Weather Hurting Economic Growth
Other regions in Southern Africa, such as Zimbabwe, Zambia and Mozambique, have encountered severe drought over the last year that has impacted both Agricultural output and energy supply, as these regions rely heavily on Hydro energy production that has been constricted due to low water levels.
The Average GDP growth for the SADC region is expected to hit only 1,8% growth in 2024, almost half the 3,2% growth anticipated for Africa as a whole.
Zimbabwe, in particular is facing extreme challenges, with inflation high, driven by food scarcity, high fuel and energy prices and a crumbling infrastructure. This has also been exacerbated by the loss of value in their local currency this year, making debt repayments and paying for exports doubtful. They have recently hosted a debt negotiation summit with creditors, but it is unlikely to alter their structural issues at home to see any significant improvement soon.
Structural Changes Required for Growth
Southern Africa faces significant challenges in achieving sustainable economic and social transformation. Historical GDP growth rates have been too low to offset population increases, thus leading to minimal gains in per capita GDP.
Structural transformation has also been limited, with most of the area’s economies heavily reliant on traditional, low-productivity sectors like agriculture or low-skilled services for growth and employment.
To achieve substantial structural transformation, Southern Africa needs to focus on attracting strategic investments in key sustainable development goal sectors such as energy, productivity-enhancing technology and innovation, and key transport infrastructure.
South Africa has lost its competitive advantages with its rail and ports infrastructure collapsing that has deeply affected its ability to compete in the international market.
Additionally, energy production in the region has been problematic, and there is not a stable supply to attract investments in manufacturing and down the line beneficiation of minerals that could substantially change the course of the economic output in the area.
Financing Growth Concerns Continue
The financing gap for these investments required in Africa is vast, estimated by the IMF to be about US$402 billion annually until 2030, and will require also require scaling up domestic skills resource mobilization and fostering massive private sector investment, that has been scarce over the past year.
However, given the enormity of resources required for scaling up, external financial flows as complementary sources of financing remain a crucial hurdle to overcome for the region.
Additional challenges for the SADC region are the geopolitical tensions in areas such as Mozambique that have recently created massive challenges for the region and unless resolved could cause more headwinds for the region.
The Port of Maputo, has been a major channel for both imports and exports in the region, and the unrest in the country could once again constrict access to markets and affect prices.
Forecast of Future Growth
Given all the negative factors impacting the region, what does a realistic economic forecast look like for Southern Africa?
A lot will depend on the responses of the various authorities, and their commitment to creating better environments for investments to take place.
The SADC countries must, amongst other issues, tackle their fiscal deficit, which is expected to widen over the current fiscal year fiscal 2024 to 2025.
In South Africa this is expected to widen from an initially projected 4.5% to 5% of total GDP. The national debt as a share of GDP is anticipated to hit 75.5%, that will see a large portion of government income used solely to service debt repayments.
There is very little in the way of manufacturing growth in the region and this will be a key factor if the SADC region wants to see economic prosperity.
However even the most optimistic projections for growth at this stage, are seeing GDP growth in the region remaining below 2% until 2027 with an outside possibility of 3,5% in 2027 provided that certain environmental conditions are met.
Growth Catalysts Required for Growth
These include:
- Providing adequate expenditure to improve key infrastructure and looking for private investments to boost sectors such as energy and transport
- Ensuring that there is better transparency with regards to key investment areas such as mining and mineral extraction in terms of licences and mining rights granted on reasonable terms.
- Seeking specific sectors where the regions could concentrate investments that would focus on downstream manufacturing to utilise locally mined natural resources where the region could become a global source for specific products
- Creating a better investment friendly environment that would provide much needed boost to theses manufacturing industries.
- Elimination of wasteful expenditure and corruption will provide a more stable investment environment that ensures tax monies are spent more productively
- Developing a deeper skills base to meet the labour and human resource requirements of new industries.
- Recruiting and deploying better leadership who are capable, ethical and committed to improve economic growth and development.
Future Dependent on Clear Change
Africa and Southern Africa, cannot afford another generation facing economic uncertainty, poverty and unemployment, and the region needs to find better ways of lifting itself out of the economic doldrums it currently finds itself in.
Africa needs to be more than a tourist destination or a source of critical mineral and metal resources if it is to emerge from its current economically depressed state into a global player of significance and this will entail changes to current thinking.
It needs to stop borrowing more money and to ensure what we have creates better value and is better targeted for economic growth.
There must be a decisive change, and there will need to be a fundamental shift in the policy and strategic direction of the region for this to become a reality.