The African Development Bank (AfDB) has released The Southern Africa Economic Outlook, examining the trends and developments occurring in the region as well as analysing the potential role of the private sector in financing climate action and green growth ambitions
According to AfDB, southern Africa has witnessed a slowdown in economic growth over the past year with GDP growth barely reaching 2.7% - a level lower than the global average of 3.4% and African average of 3.8%.
While much of this stagnation can be attributed to the civil unrest, electricity supply problems and natural disasters which are plaguing South Africa (the region’s largest economy), other countries are also mirroring the slowdown. Zimbabwe, Zambia, Malawi, Madagascar and São Tomé and Príncipe have all experienced adverse weather events, hindering economic progress.
Looking ahead, AfDB expects growth in the region to slow down further in 2023 to 1.6%, followed by a slight improvement of 2.7% in 2024. Across this time, external debt burden – which stood at 48% in 2022 – is expected to remain high across the region although the fiscal deficit improved slightly in 2022 at 3.5% of GDP in 2022.
This means, the report notes, that per capita income growth for most countries is short of the growth rate needed to reverse the increase in poverty caused by Covid-19 and put the region on track to meet Sustainable Development Goal 1: No Poverty. Within the region, unemployment is described as one of the biggest challenges, especially in youth.
In meeting the challenges of the region, AfDB has highlighted the importance of green growth. The report states, “As southern African countries seek to address the challenges in regard to the energy sector, green growth generates policies and programmes that simultaneously facilitate the energy transition, and achieve poverty reduction, environmental protection, resource efficiency, and economic growth in an integrated manner… Green growth aims at reconciling the quest for ongoing economic growth with the imperative of staying within environmental limits and maintaining healthy ecosystems.
“Green growth is a pre-requisite to drive climate goals as outlined in the Paris Agreement of limiting warming as well as the long-lasting quest for structural transformation… By addressing social and environmental externalities, and market failures that emerge from the pursuit of economic growth and investing in and protecting natural capital, green growth pathways reduce ecological scarcities and environmental risks.”
While several southern African countries have embarked on green growth agendas in a holistic manner, there has been sluggish progress in its green growth performance from 2010-2021, most specifically in the dimensions of green economic opportunities and social inclusion.
In redressing this shortfall, there is an urgent and increasing need for climate action at large-scale investment, with the private sector a crucial partner to achieving the green growth transition.
The report notes that the financial needs for climate action in southern Africa currently stand at around US$1 trillion, representing an annual requirement of US$90.3bn across 2020-2030. Presently, the region only receives US$6.2bn, 6.9% of what is required. Furthermore, most southern African countries receive financing for mitigation projects rather than adaption. According to Kevin Urama, African Development Bank vice president and chief economist, these problems underline the urgency of finding new ways to mobilise financing to address Africa’s development challenges.
“We estimate that the continent will need about US$235bn to US$250bn annually between now and 2030 to meet investments needed under the Nationally Determined Contributions. So this leaves Africa, the African private sector and the global private sector with an investment opportunity of up to US$213.4 billion annually to address climate change alone,” he said.
The report sets out policy options required to establish an enabling environment for the private sector including:
• Short-term policy options: Developing a country-level road map for green growth and climate action that includes mobilising of private sector finance; strengthening governance systems to ensure that proceeds from private sector finance are transparent and accountable; addressing specific access barriers to private-sector financing; advancing the use of blended finance instruments to leverage additional private sector finance; and enhancing training, capacity building to screen adaptation and mitigation investment projects and to promote bankable green projects.
• Medium-term policy options: Expanding and deepening capital markets, as well as addressing the unsustainable debt to the mobilisation of private sector finance through the support of MDBs and DFIs.
• Long-term policy option: Reforming the financial sector, increasing government effectiveness, and promoting regional coordination of the international private and public institutions.