Why is Southern Africa’s economic growth the worst of all Africa’s regions, while East Africa is number one?
With an economic growth rate exceeding its population growth, Africa should be achieving economic development advances – but that is not the case. Poverty remains widespread, and there are huge differences in performance between the continent’s five regions. This is influenced by geographic location, structures of individual economies, commodity dependence, regional political dynamics, and resilience to global shocks.
In the African Development Bank’s African Economic Outlook 2023, East and Southern Africa’s economic growth rates stand out (see graph). Over the 2021-25 period, Southern Africa is the continent’s worst regional performer, while East Africa is number one. In fact, projected growth rates indicate that East Africa will accelerate while Southern Africa will continue to underperform
How do these two regions compare? Of the 13 countries in Southern Africa, 69% are middle-income economies. In contrast, only 38% of East Africa’s 13 nations hold middle-income status, with most still classified as low-income. The general notion that low-income countries tend to grow faster than middle-income countries could favour East African economies in their growth trajectory. But that is not enough to fully explain the two regions’ varied performance.
The broad structures of the two regional economies differ. Ten East African countries are non-resource-intensive economies, versus seven in Southern Africa. Both regions have one oil-exporting country – South Sudan in East Africa and Angola in Southern Africa.
Southern Africa dominates with five economies rich in non-oil resources, while East Africa has only two. The fact that East African countries are less exposed to global commodity booms and busts in their economic structure may benefit the region. This is evidenced by the 2023 Macroeconomic Performance and Outlook report, which indicates that from 2021-24, non-resource-intensive economies tended to grow faster than the other categories.
Southern Africa contributes 22% to Africa’s gross domestic product (GDP), while East Africa’s contribution rose from 14% in 2018 to 17% in 2022. A 2023 Euromonitor article reported that East Africa’s contribution to continental GDP is projected to account for as much as 29% by 2040. This projected growth in the region’s GDP depends on a continued high-growth path in this part of Africa.
Apart from the influence of the global economy, shocks and geopolitical events, regional dynamics and neighbouring countries’ performance have strong knock-on effects. In the case of Southern Africa, South Africa and Angola together account for 75% of the region’s output. In East Africa, four economies – Ethiopia, Kenya, Tanzania and Uganda – account for around 84% of the region’s output (see map diagrams).
Even though all the economies are exposed to global geopolitical shocks and continued global uncertainties, East African countries tend to be more resilient than those in Southern Africa in terms of growth.
Underperformance in Southern Africa could predominantly be attributed to the stagnation of South Africa’s economy and its impact on the region. The numerous political, structural, and macroeconomic challenges in South Africa and other countries in the region affect physical and social infrastructure. This reduces productivity and constrains domestic demand.
Botswana and Mauritius have above average long-term growth performances, with higher growth expectations for Mozambique and Zambia. Despite this, Southern Africa’s economic growth is expected to be insufficient to carry the region forward significantly. Moreover, Southern Africa is plagued by high external debt burdens, poverty, inequality, and especially youth unemployment.
In contrast, East Africa’s robust economic performance is driven by the strong showing of seven of the region’s 13 countries. Rwanda, Ethiopia, Uganda, Tanzania, Djibouti, Kenya and Seychelles are the highest performers, with average growth rates of over 5%. Rwanda was one of the key sustainable growth success stories with a growth rate exceeding 7% on average annually. These impressive results benefit the rest of East Africa despite Somalia and Sudan’s political instability.
Several key policy decisions drive economic growth in East Africa: the Look East Policy of embracing China, investment in road and communications infrastructure, support for agriculture, and prioritising connectivity and trade within the region.
Mega infrastructure projects cover roads, ports, airports, railways, dams, bridges, hydropower projects and crude oil pipelines. Examples include Kenya’s 592km Standard Gauge Railway, a train line between Addis Ababa and Djibouti, Uganda’s Karuma Hydropower Project, Tanzania’s newly planned Bagamoyo Port, the Bugesera International Airport Expressway in Rwanda, and South Sudan’s Juba International Airport.
The region is now reaping the benefits of these infrastructure projects, even though financial arrangements with China remain complex.
A large part of East Africa’s growth is driven by the service sector. Government spending and strategic investments have supported in-country connectivity and intraregional trade. With a rising middle class, regional demand for banking, insurance and healthcare is also increasing. East Africa is known for its agricultural exports, and the modernisation of agricultural production was a crucial part of government spending. Djibouti, for example, improved its transport infrastructure to become an interregional logistics and trade hub.
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Although Southern and East Africa are exposed to the effects of climate change, skills shortages and unemployment, continued growth and development in the two will depend on internal and regional growth dynamics.
While East Africa is on a positive, sustainable growth path, Southern Africa is stagnating. Growth and development in these two regions will depend on the extent to which the economies can individually and collectively navigate their growth trajectories. Southern Africa should focus on political and policy certainty, macroeconomic stability and enhanced regional cooperation to address its lagging growth.
This article was first published in the ISS’ African Futures and Innovation blog, Africa Tomorrow.
Elsabé Loots, Professor of Economics, Faculty of Economic and Management Sciences, University of Pretoria
Source: allafrica.com
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