For instance, the 15 SADC member states include Zimbabwe – currently facing severe domestic liquidity and production crises – while other members, such as Botswana and Mauritius, are economically stable, prospering middle-income countries[1]. In addition, the regions production is heavily imbalanced by South Africa which is estimated to have contributed 40.0% of the regions total GDP in 2016 – down from an annual average of 53.5% for 2011 to 2015[2]. These differences perpetuate unequal gains from intra-regional trade, which undermines regional industrialisation and the political basis for regional integration; making it difficult to reach consensus on regional matters. Nevertheless, the differences do foster inter-regional competition amongst like-ranks, and also provide an economic basis for redistribution of surplus capital, because larger economies like South Africa provide less returns due to slower growth.
There is an emerging set of players challenging the historical dominance of the South African economy, and reversing the economic disparities in SADC. These include Tanzania, Mozambique and Zambia which are all estimated to have grown by 7.2%, 4.5% and 3.0% respectively in 2016. In the medium-term, these “SADC emerging countries” are expected to grow at an average rate of 6.8%, 6.5% and 5.1% respectively from 2017 to 2021. But these countries have relatively small and underdeveloped economies, with strong reliance on commodity exports, making them vulnerable to commodity price fluctuations and cyclic exchange rate or foreign reserves’ crises. Therefore, despite their strong contribution towards SADC GDP growth, unless these countries can diversify their economies, it is unlikely that they will displace traditional SADC output and growth leaders such as South Africa and Angola.
With the exception of South Africa, labelled as an ‘emerging market’, all other SADC member states are classified as developing nations. This intensifies the regions reliance on major economies for economic growth, investment and export markets. Such reliance means that slower growth, isolationism and geopolitical uncertainty affecting traditional trading partners like the European Union (EU) and United States, will have a negative impact on SADC economies. In addition, SADC countries can expect less trade and infrastructure investment from China due to the country’s current macroeconomic rebalancing, slower growth and geopolitical concerns involving the US and North Korea.
Before China’s recent economic slowdown, the country had enjoyed an average real GDP growth rate of about 10.0% from 1979 until 2010[3]. China was heavily reliant on export earnings, domestic savings and large government investment; which all declined after the 2008 financial crisis which originated in China’s largest export market, the US. China’s overreliance on export earnings exposed the economy to external shocks, which have led to slowed economic growth and a reduction in investment. Following the crisis, the Chinese government has focused on rebalancing the economy to be more reliant on domestic consumers rather than domestic investment and export earnings[4].
This is bad news for SADC countries like Zambia which is reliant on China as a market for copper its exports[5]. These conditions are a contributing factor to the global commodity price slump. Lower commodity prices have affected export earnings, lowered foreign exchange reserves and destabilised the Zambian Kwacha, resulting in nominal depreciation of 39.4% against the US dollar in 2015 and 21.5% in 2016[6]. Due to exchange rate volatility, Zambia’s debt-servicing costs have risen strongly, with interest payments estimated to have increased by 138.6% from ZMW 757.0 million in 2014 to ZMW 1.8 billion in 2015[7]. In 2017, interest payments on foreign debt are projected to increase by 33.6% (2016: 44.4%). This is in stark contrast to the growth rate of interest payments on domestic debt, which is projected to increase by 10.2% in 2017 (2016: 15.5%) – highlighting the impact of exchange rate depreciation.
Table 1: Summary of Economic Growth in SADC (2010-2021)
Source: IMF 2017. World Economic Outlook Database, ibid.
Infrastructure investment and development is critical to achieving regional integration in the SADC region. SADC countries, like Angola, are heavily dependent on Chinese financing for infrastructure investment. Slowed economic growth, and reduced domestic and foreign investment by China, will have a significant negative impact on SADC infrastructure development.
Currently, China is the biggest donor toward infrastructure projects in SADC[8]. Continued slow growth could threaten funding for current and future infrastructure projects. Major SADC infrastructure projects funded by China include:
- The Dar Es Salaam-Bagamoyo transport corridor[9], and
- The rehabilitation of the Bengula railway line in Angola[10].
In addition to the effects of slowing growth in China, growing geopolitical uncertainty and isolationism will have a negative impact on SADC economic growth. Brexit will likely have a negative impact on trade, investment finance and development aid in SADC; particularly for small mono-crop economies like Malawi. The EU accounts for a third of Malawi’s exports and the country depends heavily on British donor aid which constitutes about 40.0% of its annual fiscal budget[11]. Although the UK accounts for only 4.0% of Malawi’s exports, or 10.0% of its total exports to the EU, Malawian exports could be affected should Brexit foster a contagion effect through the rest of the EU[12]. Moreover, a reduction in exports, and the impending reduction in donor aid, would result in further economic crisis in the already vulnerable Malawian economy. Malawi is currently struggling to recover from the 2015 drought, with limited fiscal space to support farmers through fertiliser subsidies and grow agricultural production, which has resulted in food insecurity for a sizable portion of its population and double-digit inflation, driven by food imports[13].
South Africa’s diversified economy and dominance in the region makes it an important driver of regional development in SADC. South African economic growth has almost slowed to a halt, as the country faces falling investment, slow recovery from the 2015 drought and 2014 commodity price slump, and heightened political uncertainty[14]. A weakening South African economy is detrimental to the SADC region, as it is reliant on South Africa for access to international trade markets and manufactured imports. However, as the dominance of South African output in the region wanes, this may create the environment necessary for the rest of the region to “catch up”; thereby encouraging deeper regional integration. Furthermore, in light of prevailing global economic conditions, SADC countries are forced to rely more on intra-regional trade. The current regional imbalance amongst SADC member states is not sustainable however, and remains the primary obstacle to deeper regional integration.
By Grace Nsomba
[1] RBZ 2017. Press Statement on the Availability and Allocation of Foreign Exchange, KYC and CDD Requirements, Use of Plastic Money and Submission of Information by Producers Supported by Statutory Instrument, Reserve Bank of Zimbabwe: Harare. Available At: https://www.rbz.co.zw/ [Last Accessed: 9 June 2017]; MFED 2016. The 2017 National Budget Statement: Pushing Production Frontiers Across All Sectors of the Economy, Ministry of Finance and Economic Development: Harare. Available At: http://www.zimtreasury.gov.zw/ [Last Accessed: 9 June 2017].
[2] IMF 2017. World Economic Outlook Database, International Monetary Fund: Washington, D.C., Available At: https://www.imf.org/ [Last Accessed: 10 April 2017].
[3] Igbinoba, E 2016.China’s Economic Slowdown: Assessment and Implications for Africa, Stellenbosch University: Stellenbosch. Available At: https://scholar.sun.ac.za/ [Last Accessed: 29 April 2017].
[4] Zhang, L., 2016. Rebalancing in China: Progress and Prospects, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed 30 April 2017].
[5] Sibindana, D. 2017a. Zambian 2016 Political Economy Review, on the PESA Website, viewed on 29 April 2017, from https://politicaleconomy.org.za/.
[6] BoZ 2017. Exchange Rates, Bank of Zambia: Lusaka. Available At: http://www.boz.zm/ [Last Accessed: 10 May 2017].
[7] IMF 2015. Zambia 2015 Article IV Consultation, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 10 May 2017].
[8] Esterhuyse, H. W., Cisse, D., Anthony, R, & Burgess, M. 2014. African Regional Economic Communities’ Engagement with China, Stellenbosch University: Stellenbosch. Available At: https://scholar.sun.ac.za/ [Date Accessed: 25 March 2017].
[9] Du Plessis, R. 2016. China’s African Infrastructure Projects: A Tool in Reshaping Global Norms, South African Institute of International Affairs: Johannesburg. Available At: https://saiia.org.za/ [Last Accessed: 6 April 2017].
[10] Corkin, L. & Burke, C. 2006. China’s Interest and Activity in Arica’s Construction and Infrastructure Sectors, Infrastructure Consortium for Africa: Cote d’Ivoire. Available At: https://www.icafrica.org/ [Last Accessed: 6 April 2017].
[11] Gay, D. 2016. The Impact of Brexit on the Least Developed Countries, on the United Nations Website, viewed on 5 April 2017, from https://www.un.org/.
[12] Gay, D. 2016. The Impact of Brexit on the Least Developed Countries, ibid.
[13] Sibindana, D. 2017b. Malawian 2016 Political Economy Review, on the PESA Website, viewed on 30 April 2017, from https://politicaleconomy.org.za/.
[14] Biniza, S. 2017. Impact of Slow Global Growth on South Africa, on the PESA, viewed on 1 May 2017, from https://politicaleconomy.org.za/.
