Southern Africa Development Community

REGIONAL ECONOMIC PERFORMANCE AND THE BUSINESS ENVIRONMENT

IN 2020 AND MEDIUM-TERM PROSPECTS

 Economic growth in the region contracted by 4.8 per cent in 2020 lower than
the growth of 2.1 per cent recorded in 2019.

 SADC region annual inflation increased to an average of 49.6 per cent in

2020 from 16.4 per cent in 2019, largely due to heightened inflationary
pressures in Zimbabwe. The average inflation excluding Zimbabwe averaged
6.4 per cent in 2020.

 Fiscal deficit deteriorated from 3.0 per cent of GDP in 2019 to 7.3 per cent of
GDP in 2020. Public debt increased from 56.3 per cent of GDP in 2019 to
67.1 per cent of GDP in 2020.

 The region’s current account balance as a ratio of GDP widen from an

average deficit of 4.2 per cent in 2019 to a deficit averaging 4.7 per cent in
2020.

 SADC international reserves increased to 5.9 months of import cover in 2020

from 5.3 month of import cover in 2019 as a result of the subdued demand.

 Global growth in 2020 contracted by 3.3 per cent from a growth of 2.9 per
cent in 2019, largely driven by the decline in commodity prices, trade policy
uncertainty, escalation of trade tensions and rising debt.

Macroeconomic Policies and Convergence

Directorate of Finance, Investment and Customs
July 2021

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1. INTRODUCTION

This report presents economic performance for the SADC region in 2020. It also
presents the outlook for business environment in the region for the same period. In
addition, the report presents the economic outlook in the short to medium term for
the region; and main factors behind the outlook. Further, it highlights issues to inform
policy direction both at national and regional levels.

The report is presented in seven sections. The first section is the introduction
followed by highlights on the global economic outlook and economic developments
in the region for the year 2020. Section 3 provides the regional economic
performance for 2020. Developments with respect to major economic fundamentals
in Member States are briefly presented in four followed by the business environment
in section five. Section six provides a summary of development in the area of
financial inclusion. Finally, section seven concludes by highlighting outlook, issues
for policy consideration, risk and recommendations.

2. GLOBAL ECONOMIC BACKGROUND

2.1 Economic activity

The IMF World Economic Outlook report of April 2021 indicate that, the COVID-19
pandemic triggered the deepest global recession since World War II. In a bid to save
lives and contain the spread of the virus, economies were pushed in “Great
Lockdowns” which triggered the worst recession since the Great Depression.
Notable adverse effects of COVID-19 pandemic include: economic lockdowns, direct
disruption to global supply chains, weaker final demand for imported goods and
services, and the wider regional declines in international tourism and business travel.
Resultantly, IMF estimates the world economy contracted by 3.3 percent in 2020, an
outcome far worse than during the 2009 Global Financial Crisis. The IMF is
projecting a global economic growth of 6 percent in 2021 (0.5 percentage point
upgrade from the January 2021 projection) and 4.4 percent in 2022 (0.2 percentage
point upgrade). The revision in global prospects for growth in 2021 and 2022 is a
result of sizeable growth upgrade of the United States, from 1.3 percentage points
grow at 6.4 percent this year. Further, a rebound is expected to a majority of
advanced economies, including the euro area in 2021. China is projected to grow at
8.4 percent in 2021. While there are signs that China’s economy had already
returned to pre-pandemic GDP, many other countries may revert to their pre-COVID
path in 2023.

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Table 1: Major Macroeconomic Indicators of Selected Economies
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* 2022*
World 4.3 3.5 3.5 3.6 3.4 3.4 3.8 3.6 2.9 -3.3 6.0 4.4
Advanced 1.7 1.2 1.4 2.1 2.3 1.7 2.4 2.2 1.7
-4.7 5.1 3.6
economies
USA 1.6 2.2 1.8 2.5 2.9 1.6 2.2 2.9 2.3 -3.5 6.4 3.5
Euro Area 1.6 -0.9 -0.2 1.4 2.1 2.0 2.4 1.9 1.3 -6.6 4.4 3.8
EM & DE 6.4 5.4 5.1 4.7 4.3 4.6 4.8 4.5 3.7 -2.2 6.7 5.0
China 9.5 7.9 7.8 7.3 6.9 6.7 6.8 6.6 6.1 2.3 8.4 5.6
India 6.6 5.5 6.4 7.4 8.0 8.2 7.2 6.8 4.2 -8.0 12.5 6.9
Brazil 4.0 1.9 3.0 0.5 -3.5 -3.3 1.1 1.3 1.1 -4.1 3.7 2.6
SSA 5.3 4.7 5.2 5.1 3.2 1.4 2.9 3.2 3.1 -1.9 3.4 4.0
Note: EM & DE is Emerging Market and Developing Economies.
SSA is Sub-Sahara Africa
* April 2021 Projections
Source: IMF World Economic Outlook, April 2021.

According to the IMF's World Economic Outlook for April 2021, the US and Euro
Area are estimated to have contracted by 3.5 percent and 6.6 percent in 2020,
respectively. Growth in emerging and developing economies, which accounts for
over half of the world growth contracted by negative 6.6 per cent from a growth of
3.7 per cent in 2019. In China growth declined to 2.3 per cent in 2020 from 6.1 per
cent in 2019. Growth in India and Brazil contracted by 8 per cent and 4.4 per cent in
2020, from a growth of 4.3 per cent and 1.1 per cent in 2019, respectively.

In the Sub-Saharan Africa (SSA), growth is estimated to have realised a contraction

of 1.9 percent, with the two largest economies in the region, namely Nigeria and
South Africa, experiencing significant economic downturn.

The International Monetary Fund (IMF) envisages a brighter economic outlook

underpinned by stronger-than-anticipated economic recovery across regions. The
strong economic recovery results from additional fiscal support in a few large
economies, the anticipated vaccine-powered recovery in the second half of 2021,
and continued adaptation of economic activity to the new normal of subdued
mobility. The IMF is projecting a global economic growth of 6 percent in 2021 (0.5
percentage point upgrade from the January 2021 projection) and 4.4 percent in 2022
(0.2 percentage point upgrade), from an estimated historic contraction of -3.3
percent in 2020.

The upgrades in global growth for 2021 and 2022 mainly result from upgrades for
advanced economies, particularly to a sizeable upgrade for the United States (1.3
percentage points) that is expected to grow at 6.4 percent this year. This makes the
United States the only large economy projected to surpass the level of GDP it was
forecast to have in 2022 in the absence of this pandemic. Other advanced
economies, including the euro area, will also rebound this year but at a slower pace.
Among emerging markets and developing economies, China is projected to grow this
year at 8.4 percent. While China’s economy had already returned to pre-pandemic
GDP in 2020, many other countries are not expected to do so until 2023.

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2.2 Commodity Prices Development in 2020
The COVID-19 pandemic has delivered a significant shock to commodity markets but
the severity of impact is varied across different commodity classes. This contrasts
with the 2008 global recession, when almost all commodity prices crashed. Figure
2a shows that prices of most commodities were marginally affected by the pandemic
with energy prices the hardest hit largely due to the crude oil price crash in April
2020. Crude oil prices were affected by the supply glut and weak demand as
movement restrictions adopted globally to limit the transmission of the COVID-19
virus. In contrast, when most commodity prices were weak, precious metals prices
significantly increased. As economies slowly opened and restored some activity,
international commodity prices strengthened.

Metal prices saw a particularly strong recovery and is now above pre-pandemic
levels, a marked contrast to their behaviour during the global financial crisis when
the drop in prices was larger and more prolonged. As a result, metals and minerals
price index gained 28.6 percent, precious minerals index added 28.3 percent, food
index rose by 13.9 percent, raw materials index increased by 8.9 percent and
fertiliser index closed the year 8.5 percent higher. However, due to the oil price
crash, the energy price index ended the year 18.3 percent lower than the end of
December 2019.

Fig 2a: Selected Commodity Price Indices (Dec 2019-December 2020)

Source: The Pink Sheet, World Bank, January 2021.

Gold the driver of precious minerals price index is seen as a safe haven asset with
prices inversely related to the global economic prospects. As a result, gold price is
expected to sour when global growth prospects are weak for instance during
economic downturns/depressions or when economic uncertainties are elevated.
Some precious metal prices surged early in the pandemic as uncertainty
overshadowed the global economy. Commodity prices are projected to continue
firming in 2021, however, the second wave which will weigh down the economic
recovery prospects are likely to elevate the downside risks.

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Gold prices eased during last quarter of 2020, after reaching an all-time high of
US$2,067 per ounce on 6th August 2020. Demand for safe-haven assets has
declined following improvement in economic conditions as global economies re-open
by easing of pandemic related restrictions. The appetite for exchange-traded funds
(ETFs) fell as well in the third quarter of 2020 while central bank gold purchases
reversed. The gold-to-copper price ratio, a barometer of global risk sentiment, also
declined, after reaching a 40-year high in April 2020.

Silver prices have declined after reaching a seven-year high of US$29 per ounce on
10th August 2020, but they remain substantially higher than in January 2020.
Platinum prices, which plunged in April 2020, have held up much better in recent
months on the back of a recovery in global auto sales. Both silver and platinum
prices are supported by robust industrial demand. More than half of silver’s demand
comes from industrial applications, such as in electrical and electronics, while a
quarter of platinum’s supplies are used by the automotive industry (each catalytic
converter uses 0.10 to 0.25 troy ounces of platinum, equivalent to $100-230 per
vehicle at current prices).

Oil prices have partially recovered as large production cuts by OPEC+ helped bring
the level of global supply closer to demand. Compared to the global financial crisis,
the most recent decline in oil prices was a little steeper but also recovered faster.
Figure 2b depicts the oil price evolution since end of 2018.

Figure 2b: Oil Price Development (US$ per Berrel)

Source: United States Energy Information Administration (EIA), January 2021 .

Oil price responded positively to increased demand owing to easing of restrictions

and re-opening of economies. Western Texas Intermediate (WTI) and Brent crude oil
prices ended the 2020 lower by 7.9 percent and 7.1 percent at US$48.35 per barrel
and US$51.22 per barrel from US$61.14 per barrel and US$67.77 per barrel on 31st
December 2019, respectively. In addition, oil price has continued to strengthen in
2021 with WTI and Brent oil prices reaching US$52.15 and US$54.84 on 11 January
2021, respectively.

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2.3 Global Trade Developments

The World Bank estimated that global trade contracted by 9.5 percent in 2020 largely
due to border closures and supply disruptions which interrupted the international
provision of goods and services, before a projected recovery of 5.1 percent in 2021-
22. Goods trade fell more rapidly and recovered more swiftly than during the 2008
global financial crisis supported largely by significant trade in medical supplies and
equipment. On the other hand, services trade remained depressed reflecting the
unusual nature of the recession, which has shifted consumption patterns toward
goods and away from services requiring face-to-face interactions.

Continued impediments to international travel and tourism are contributing to

persistent weakness in services. International travel has recovered from its April
2020 through but has stabilized far below pre-pandemic levels. In the decade
following the global financial crisis, the increase in global trade activity was mostly
driven by trade in services. The same is unlikely to be the case in the current
recovery, as services will struggle to rebound until countries ease international travel
restrictions. The lifting of international travel restrictions will depend heavily on
whether countries have put the pandemic under control and as well as the coverage
of vaccinations rollout.

2.4 Global Foreign Direct Investment

According to the UNCTAD World Investment Report 2020, the COVID-19 crisis has
caused a significant decline in foreign direct investment (FDI) in 2020, and the
situation is likely to continue in 2021. Global FDI flows are forecast to decrease by
up to 40% in 2020, from their 2019 value of $1.54 trillion. This would bring FDI below
$1 trillion for the first time since 2005. FDI is projected to decrease by a further 5 to
10% in 2021. In relative terms the projected fall is expected to be worse than the one
experienced in the two years following the global financial crisis. At their lowest level
($1.2 trillion) then, in 2009, global FDI flows were some $300 billion higher than the
bottom of the 2020 forecast. The downturn caused by the pandemic follows several
years of negative or stagnant growth; as such it compounds a longer-term declining
trend. The expected level of global FDI flows in 2021 would represent a 60% decline
since 2015, from $2 trillion to less than $900 billion.

The COVID-19 pandemic effected foreign investment in Africa in 2020, mirroring the
global trend. Foreign direct investment (FDI) flows are expected to decline between
25 per cent and 40 percent. Depending on the duration and severity of the global
crisis, the longer-term outlook for FDI in Africa could draw some strength from the
implementation of the African Continental Free Trade Area Agreement in 2020,
including the conclusion of its investment protocol. In addition, investment initiatives
for Africa by major developed and emerging economies could help the recovery. In
2019, FDI flows to Africa had already declined by 10% to $45 billion. Increased FDI
flows to some of the continent’s major economies, including Egypt, were offset by
reductions in others, such as Nigeria and South Africa. The negative effects of tepid
global and regional GDP growth and dampened demand for commodities inhibited
flows to countries with both diversified and natural resource-oriented investment
profiles alike, although a few countries received higher inflows from large new
projects. Investment in Africa through mergers and acquisitions (M&As) increased

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substantially to $5.3 billion, compared with $1.6 billion in 2018. The rise was driven
to a large degree by MNEs from the United Kingdom and Switzerland, which
invested $3.1 billion and $1.1 billion, respectively. M&A investment from developing
economies declined significantly.

FDI to Southern Africa increased by 22 per cent to $4.4 billion in 2019. This was
mainly caused by the slowdown in net divestment from Angola. FDI flows to Angola
in 2019 remained negative (-$4.1 billion) due to repatriations in the oil sector. There
were some important foreign investment deals in the country, such as the $100
million investment by a unit of the Indonesian State-owned PT Pertamina (Persero)
in an offshore oil block.

FDI inflows to South Africa decreased by 15 per cent to $4.6 billion in 2019. FDI to
South Africa is mostly directed to mining, manufacturing (automobiles, consumer
goods) and services (finance and banking). Although traditionally the major investor
partners have been countries from the European Union (EU), China is slowly
expanding its investment footprint in the country. Despite the decline in 2019, the
level of FDI inflows in South Africa was encouraging after the low inflows between
2015 and 2017 (an average $2 billion a year). However, a significant part of FDI
consists of intrafirm financial transfers, there is still a dearth of new greenfield
investments.

2.5 Stock Market Performance

Performance in 2020 was mixed. Investors will remember 2020 for the impact of the
COVID-19 pandemic. The global stocks suffered one of the quickest declines on
record, but broadly recovered and hit new highs by year-end. Technology stocks
outperformed the broad US market, while energy stocks had another year of
double-digit losses. It was another strong year for most asset classes. Some of the
highlights include: Global stocks (as measured by the MSCI World Index) climbed
14 per cent, Gold (as measured by Nymex per troy ounce) soared 28 per cent,
and Bonds (as measured by the Barclays Aggregate Bond Index) gained 5 per cent.

However, not all asset prices increased in 2020, and certainly not all assets within
each asset class had a positive year. For example, oil (as measured by WTI crude)
plunged 24%, as slowing global economic activity due to the pandemic cut into
energy demand. And within stocks, a plethora of businesses have been devastated
or forced into bankruptcy as a result of the COVID-19 pandemic. The S&P 500
continued to trade at a significant premium to both its mean and median historical
price-to-earnings.

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Figure 2c: Stock Markets Performance

Source: Bloomberg (January 2021).

2.6 Global Fiscal Deficit and Public Debt Developments

The negative impact of COVID-19 has triggered a wave of defaults around the world.
The spread of COVID-19 pandemic resulted to severe economic contractions,
decline in revenues, raised government deficits and debt to unprecedented levels
across all country income groups. Global average overall deficits as a share of GDP
in 2020 reached 11.7 per cent for advanced economies, 9.8 per cent for emerging
market economies, and 5.5 per cent for low-income developing countries. Countries’
ability to scale up spending has diverged.

The rise in deficits in advanced economies and several emerging market economies
resulted from roughly equal increases in spending and declines in revenues,
whereas in many emerging market economies and most low-income developing
countries, it stemmed primarily from the collapse in revenues caused by the
economic downturn. Fiscal deficits in 2021 are projected to shrink in most countries
as pandemic-related support expires or winds down, revenues recover somewhat,
and the number of unemployment claims declines. Average public debt worldwide
reached an unprecedented 97 percent of GDP in 2020 and is projected to be around
99 per cent of GDP in 2021(IMF Fiscal Monitor, April 2021).

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 3. REGIONAL ECONOMIC
PERFORMANCE

3.1 Overview

Preliminary data provided by Member States in April 2021 and from the IMF World
Economic Outlook database of April 2021 shows that the COVID-19 pandemic
triggered an economic recession more severe in tourism and commodity exports
driven economies as well as in economies with limited policy space to respond.

Annual regional inflation increased to an average in 2019 compared to 2018, largely

due to heightened inflationary pressures in Angola and Zimbabwe. The Member
States who achieved single digit average inflation benefited from the weak
commodity prices especially oil price which is a major determinant of prices in the
region.

The regional fiscal deficit average widened in 2020, largely due to an increase in
government expenditure to curtail the spread of COVID-19. Public debt continued to
rise with some countries breaching the regional threshold of 60 per cent of GDP
despite the improvement in fiscal positions in 2019.

The region’s external position in 2019 deteriorated in line with the weak commodity
prices and slowdown in global economic activity due to shutdowns. However, the
severity varied across the SADC Member States.

3.2 Real GDP

Recent data indicates SADC regional GDP growth contracted by

4.8 per cent in 2020, from a growth of 2.1 per cent in 2019. All Member States
recorded contractions in real GDP growth in 2020 except for Malawi and the United
Republic of Tanzania who recorded growth rates not exceeding 5 per cent.

3.3 Inflation
SADC region annual inflation increased to an average of 49.6 per cent in 2020 from
16.6 per cent in 2019, largely due to heightened inflationary pressures in Zimbabwe.
The average inflation excluding Zimbabwe averaged 6.4 per cent in 2020. All
Member States except Angola, DRC, Malawi, Zambia and Zimbabwe, met the
regional inflation target of 3-7 percent range. Annual inflation rate in the SADC
region is projected to ease a bit to 15.4 per cent in 2021. Zimbabwe’s inflation is
expected to decelerate significantly to 134.8 per cent in 2021 from 654.9 per cent in
2020. Inflation is expected to remain above the regional benchmark in 2021 for
Angola, DRC, Malawi, Zambia and Zimbabwe.

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Fig 3a: Real GDP and Inflation

Percentage (%)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Real GDP Inflation

Source: Member States, April 2021 and IMF WEO April 2021.

3.4 National Savings and Investment

Annual total investments and gross national savings remained subdued in 2020, with
most Member States below the regional targets. After a decline from 26.2 per cent of
GDP in 2015 to 23.5 per cent of GDP in 2016, total investments have been on a
steady increase up to 2020. The region recorded a marginal increase in total
investments to 24.9 per cent of GDP in 2020 from 23.7 per cent of GDP in 2019.
Only five Member States (Botswana, Mozambique, Seychelles, United Republic of
Tanzania and Zambia) recorded investments above the regional target of at least 30
per cent of GDP.

On the savings side, gross national savings remained below 20 per cent of GDP at
15.0 per cent of GDP in 2020 from 16.3 per cent of GDP in 2019. Only Zambia has
recorded total gross national savings above the regional target of 35 per cent of
GDP.

10
Fig 3b: National Savings and Total Investment (% of GDP)

Source: Member States and IMF World Economic Outlook, April 2021.

On the savings side, gross national savings remained below 20 per cent of GDP at
15.0 per cent of GDP in 2020 from 16.3 per cent of GDP in 2019. Only Zambia has
recorded total gross national savings above the regional target of 35 per cent of
GDP.

3.5 Fiscal Sector

The global economic developments, weak commodity prices, adverse weather

conditions and the impact of COVID-19 weighed down the regional economy in the
second and third quarter of 2020 and these had varying negative impacts on the
fiscal positions of Member States.

Fiscal deficit deteriorated from 3.0 per cent of GDP in 2019 to 7.3 per cent of GDP in
2020. Only Angola, DRC, Lesotho, Madagascar, Tanzania and Zimbabwe achieved
the regional fiscal deficit target of 3 per cent of GDP in 2020. This is a result of
synchronised increases in government expenditure to support the recovery from the
impact of COVID-19.

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Fig 3c: SADC - Fiscal Deficit and Public Debt as a % of GDP
Fiscal Deficit as a % of GDP

Public Debt as a % of GDP

2009 2011 2013 2015 2017 2019 2021 2009 2011 2013 2015 2017 2019 2021

Source: Member States, April 2021 and IMF WEO April 2021.

Public debt continued to trend upward and it has breached the regional threshold of
60 per cent of GDP due to weakening fiscal positions in 2020. Public debt increased
from 56.3 per cent of GDP in 2019 to 67.1 per cent of GDP in 2020. The increasing
public debt levels will put additional burden to Member States’ resources as debt
service costs increase. Debt burden is expected to worsen for SADC Member States
with public debt forecasted to further increase to 69 per cent of GDP in 2021.
Member States’ expenditure continued on an upward trend as Member States
invested heavily in the public health system to mitigate human and economic impact
of the coronavirus. This will result in a mismatch of expenditures and revenues which
will further widen the fiscal deficit and worsen Member States’ debt position. The
crisis has significantly eroded the fiscal space and debt sustainability concerns are a
growing challenge for Member States. The risk of defaulting to service external debt
is now high. Only six Member States (Botswana, DRC, Eswatini, Madagascar,
Malawi and United Republic of Tanzania) achieved the regional set target of public
debt of 60 per cent of GDP in 2020.

3.6 Selected SADC Member States sovereign debt ratings

The coronavirus pandemic and subsequent impact on the commodity prices are
having a considerable effect on rating of SADC Member States. In the short to
medium term more downgrades are expected as the impact of pandemic continue to
unfold. Table 2 below provides the latest update on sovereign debt ratings in the
region.

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Table 2: SADC Region Sovereign debt ratings of some SADC countries
Rating Agencies

Country S&P Moody's Fitch

Rating Outlook Date Rating Outlook Date Rating Outlook Date

Under
Angola CCC+ Stable Mar 20 B3 Mar 20 CCC n/a Sep 20
review
Botswana BaBB+ Stable Mar 20 A2 Negative May 20
DRC B- Negative Apr 20 Caa2 Stable Oct 18 CCC n/a Mar 19
Eswatini B3 Stable Jul 20
Lesotho B Negative Aug 20
Mauritius Baa1 Negative Apr 20
Mozambique CCC+ Stable Nov 19 Caa2 Stable CCC n/a Nov 19
Namibia Ba2 Negative May 20 BB Negative Jun 20
Seychelles B+ Stable May 20
South Africa BB- Stable Apr 20 Ba1 Negative Mar 20 BB Negative Apr 20
Tanzania B2 Stable Aug 20 CC n/a Apr 20
Zambia CCC Negative Feb 20 Ca Stable Apr 20 CC n/a Apr 20
Source: SADC countries, trading economics website.
n/a: Fitch typically does not assign Outlooks or apply modifiers for sovereigns with a rating of 'CCC' or
below.

Angola: In September 2020, the rating agencies revised the credit rating for Angola
following fears of increasing debt, falling international oil prices and deteriorating
level of foreign exchange reserves

Botswana: According to Moody’s Investors Service rating, Botswana is ‘A2’ for

long-term bonds denominated in both domestic and foreign currency but revised the
outlook from stable to negative. The revision of the outlook reflects the increasing
risks of lower growth, larger budget deficits and likely resultant increase in
government borrowing.

DRC: The latest rating by Standard & Poor's credit rating for DRC stands at B- with
negative outlook, while Moody's credit rating for Congo was last set at Caa2 with
stable outlook in October 2018. The latest Fitch rating for DRC is CCC from March
2019.

Eswatini: Received a downgrade by Moody’s to B3 with a stable outlook in July

2020 underpinned by a deterioration in the government's debt burden and debt
affordability continued weakening the sovereign's fiscal strength. This is coupled with
dwindling of reserves, persistent liquidity pressures evident in the accumulation of
arrears and regular reliance on central bank financing.

Lesotho: In August 2020, Fitch Ratings revised the Outlook on Lesotho's Long-
Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and
affirmed the IDR at 'B'. The revision of the Outlook to Negative is attributed to the
impact of the COVID-19 pandemic on Lesotho's economy's and public finances.
Further, this is sgainst a background of potential falling receipts from the Southern

13
Africa Customs Union (SACU), an important source of reserves, fiscal and external
financing.

Mauritius: Moody in April 2020, Moody confirmed the country’s rating of Baa1 but
revised down the outlook to negative. This is associated with upside risks such as
economic and fiscal deterioration as a result of the COVID-19 spread coupled a
prolonged plummet in the tourism industry.

Mozambique: The latest credit rating was conducted in November 2019. The
countries were rating being upgraded to CCC+, with a stable outlook, following a
successful completion of a distressed debt exchange program and improving
economic growth prospects.

Namibia: The June 2020 Fitch Ratings is BB and the outlook was revised downward
to negative from stable. The negative outlook indicates the impact of the COVID-19
pandemic on Namibia's economy and public finances. This rating also reflects the
country’s vulnerability to external shocks such as subdued growth in South Africa,
potentially lower SACU receipts, international commodity prices and a weaker
exchange rate.

Seychelles: The latest rating by Fitch Ratings affirmed Seychelles' Long Term
Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB' with a Stable
Outlook. Seychelles' unsecured foreign-currency bond was also rated 'BB'. The
Short-Term Foreign and Local Currency IDRs were affirmed at 'B' and the Country
Ceiling at 'BBB-'. In May 2020, Fitch Ratings downgraded Seychelles' Long Term
Foreign and Local Currency Issuer Default Ratings (IDRs) by two notches to ‘B+’
from 'BB', with a Stable Outlook. Seychelles' unsecured foreign-currency bond was
also downgraded to ‘B+’ from 'BB'. The Short-Term Foreign and Local Currency
(IDRs) remained unchanged at 'B' whilst the Country Ceiling was downgraded to
‘BB’ from 'BBB-'. This rating reflects the increase in the risks associated with the
impact of COVID-19, a decline in tourism and deterioration of the fiscal balance.

South Africa: Due to the impact of COVID-19-related demands which had

significant adverse implications to the economy, Fitch in April 2020 downgraded
South Africa. The rating was prompted by the country’s lack of a clear path towards
stabilizing its debt position.

Tanzania: In August 2020, Moody downgraded the foreign and local currency issuer
ratings of the Government of Tanzania from B1 to B2 and changed the outlook from
negative to stable. The downgrade was underpinned by ongoing uncertainty over the
regulatory environment and policy stance of the government, particularly as it relates
to the mining sector. The rating was also influenced by notable income constraints,
weak institutions and a vulnerable exchange rate.

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Zambia: In April 2020, both Fitch and Moody’s further downgraded the Zambia to
CC and Ca, respectively. These ratings reflect impact of the COVID-19 pandemic to
the already constrained external liquidity.

3.6 External Sector

The region’s external sector performance in 2020 deteriorated due to the COVID-19
pandemic which resulted in weak commodity prices and a global economic downturn
as well as escalated global trade tensions had minimal impact on the region’s
external sector largely due to strong export performance augmented by a contraction
in imports. However, the pandemic severity varied across Member States with some
achieving current account surpluses of over 10 per cent of GDP whilst on the other
hand, others realizing deficits in excess of 10 per cent of GDP. The region’s average
current account deficit as a ratio of GDP marginally widen from 4.2 per cent in 2019
to 4.7 per cent in 2020. Nine Member States (Angola, DRC, Eswatini, Lesotho,
Namibia, South Africa, Tanzania, Zambia and Zimbabwe) met the regional current
account balance target in 2020. Member States that are experiencing significant
current account deficits are Malawi, Mauritius, Mozambique and Seychelles.

Figure 3d: Imports and Exports Growth

Percentage (%)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Imports Volume Growth Exports Volume Growth

Source: Member States, April 2021 and IMF WEO April 2021.

SADC international reserves increased to 5.9 months of import cover in 2020 from
5.3 month of import cover in 2019 as a result of the subdued demand, therefore a
majority of Member States were not able to meet the criterion of 6 months of import
cover as the gains made from their exports significantly decreased, with some of
them falling short of the IMF benchmark of 3 months of import cover. Only six
Member States (Angola, Botswana, Madagascar, Mauritius, Mozambique and South
Africa) recorded external reserves above the regional target of 6 months import
cover in 2020.

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Figure 3e: Current Account Balance and External Reserves

6
4
Percentage of GDP

2
0
-2
-4
-6
-8
-10
-12
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
CAB Reserves

Source: Member States, April 2021 and IMF WEO April 2021.

In terms of the exchange rate, the impact of COVID-19 resulted in exchange rates
depreciating at varying magnitudes in the first and second quarters of 2020. The
currencies depreciated due to downward revisions of economic growth projections,
power supply interruptions and the COVID-19 outbreak which resulted in a massive
sell-off of risky assets and capital flows to safe-haven assets such as the US dollar.
Throughout 2020, the Angolan kwanza, the Zambian kwacha and the South African
rand were the most volatile currencies. The least volatile currencies were the
Tanzanian shilling and the Malawian kwacha.

3.7 Overall Performance Macroeconomic Convergence Programme

SADC Member States faced multiple challenges in attaining macroeconomic
convergence in 2020. As highlighted in Section I above, a majority of Member States
underperformed in achieving the agreed macroeconomic convergence indicators.
Only Tanzania met the set targets of the primary Macroeconomic Economic
Convergence indicators (Inflation, Fiscal Deficit and Public Debt) in 2020. Four
Member States (DRC, Seychelles, Madagascar and Tanzania) met the set targets of
the primary indicators in 2019.

Whilst good progress had been made over the years towards meeting the MEC
targets, the exceptional impact of COVID-19 has caused an impediment in the
convergence process, and resulted in notable divergence from the MEC targets for
the region. In view of the diverse economies of SADC region, it was observed that
they faced differing challenges in regards to the pandemic, in terms of the extent to
which their economies have been impacted. Whilst some Member States seem to
have stumbled in terms of performance, others have severely diverged away from
the targets. This unprecedented shock derailed the MEC programme, and
uncertainty remains high with regards to the recovery path and the outlook as the
pandemic is still unfolding. Notwithstanding the significant headwinds, as the effects
of the pandemic are expected to linger on for several years to come, there is
commitment by Member States to implement recovery plans to get the MEC
programme back on track in the shortest possible time.

16
4. BRIEF OVERVIEW OF NATIONAL ECONOMIC PERFORMANCE

4.1 Angola

Angola is expected to remain in recession in 2020 due to the recent plunge in oil
prices and the global slowdown resulting from the impact of COVID-19. The Angolan
economy is projected to further contract by 3.3 percent from 0.6 percent and 2
percent contractions in 2019 and 2018, respectively. The forecasted economic
contraction in 2020 reflects a negative trajectory of the oil and natural gas sector.
Travel restrictions instituted globally in response to the COVID-19 pandemic
weakened global demand resulting in low oil prices reflecting an oil supply glut. The
price war between Saudi Arabia and Russia, further weakened oil prices adversely
affecting oil depended economies. Additionally, non-oil sectors that include Diamond
Extraction, Metallic Minerals and Other Minerals sector have underperformed as
international commodity prices crushed on the back of weak global demand largely
due to the pandemic the disrupted the global value chains. Spill over effects from
lower oil prices, reduced imported capital goods, tighter financing conditions,
currency depreciation, and restrictions in the movements of goods and people will
also contribute to economic contraction.

The Angolan economy has experience disinflation between 2016 and 2019 largely
due to prudent and coordinated management of monetary and exchange rate
policies. The accumulated inflation rate, which in 2016 was around 41.9 per cent,
went to 17.06 per cent in 2019. However, in 2020, this trajectory of deceleration of
the inflation rate was interrupted, as a result of the adoption of a moderately
accommodative monetary policy as well as the pass-through effect of the exchange
rate. Resultantly, inflation in project to increase in 2020 to an average of 22.3
percent.

After a prolonged period of accumulation of fiscal deficits between 2014 and 2017,
fiscal consolidation measures put in place to promote sustainability of public finances
resulted in a change in the trajectory of the fiscal balance, with a surplus balance in
2018 and 2019 of about 2.0 percent and 0.6 percent of GDP, respectively. However,
this path of surplus balances is estimated to be interrupted in 2020, with a fiscal
deficit of around 1.5 percent of GDP predicted, largely due to COVID-19 related
expenditures coupled with a sharp drop in oil and non-oil revenues, in nominal terms,
by about 47 per cent and 36 per cent, respectively.

The Angolan Authorities developed the Medium-Term Debt Strategy as an

instrument for managing public finances and debt to improve the cost and risk profile
of the debt and that support its sustainability. Public debt is expected to remain on an
upward trajectory largely underpinned by the worsening fiscal position a result of the
contraction of GDP and a greater need for budget financing, influenced by the shock
in the price of oil and, consequently, a fall in tax revenues, and the depreciation of
the kwanza in the foreign exchange market. Public debt is expected to reach 123

17
percent of GDP in 2020, up from 113 percent of GDP in 2019 and 91 percent of GDP
in 2018.

Considering the new floating exchange rate regime, and taking into account the level
of overvaluation in which the national currency was found, combined with the
imbalances of the external account, there has been a trend of depreciation of the
national currency. The average depreciation of the nominal exchange rate, between
June 2019 and June 2020, reached 65.0 percent. The Angolan foreign exchange
market is based on the foreign exchange supply and demand mechanism, allowing
the exchange rate to float freely until it finds a balance between demand and supply.
Additionally, to support the new foreign exchange regime, the limit of foreign
exchange positions of commercial was reduced from 5 percent to 2.5 percent with
effect from 2 January 2020, so that foreign currency can flow freely between
economic agents.

The oil price shock largely due to COVID-19 related weak global demand will result
in the deterioration of the current account balance to a projected deficit of 1.3
percent of GDP from surplus in 2019 and 2018 of 6.1 percent of GDP and 6.9
percent of GDP, respectively. Foreign exchange reserves are expected to improve to
8.10 months from 7.71 months in 2019 and 7.41 months in 2018.

Angola continued with economic diversification and improving the business

environment (such as institutional reforms, competitiveness, and promotion of public
private partnerships); fiscal reforms (broadening of the tax base, strengthening of
capacity of tax administration and rationalisation of public expenditure through
reforms in the civil service); and financial sector reforms (change in exchange rate
regime, establishment of necessary institutions to strengthen the financial sector and
ensure financial stability).

Angolan Authorities are implementing several instruments to achieve these goals

that include:

(a) National Development Plan (PDN) 2018-2022: It constitutes the medium term
planning that establishes the objectives for the promotion of socioeconomic
and territorial development, the macroeconomic stability of Angola. The
implementation of the 2018-2022 NDP will be based on the materialization of
various policies and their respective action programs.

(b) Macroeconomic Stabilization Program (PEM): PEM is a management tool that

aims, to restore the stability and sustainability of the country's economy

(c) Extended Fund Facility Program: This program aims to help Angola to restore
external and fiscal sustainability and to lay the foundations for sustainable
economic diversification led by the private sector. Among the basic pillars of
the program are fiscal consolidation, to bring debt to safer levels; greater
exchange flexibility, to regain competitiveness; and a monetary policy that
supports the reduction of inflation;
(d) Privatization Program (PROPRIV): The Privatization Program (PROPRIV) was
approved in August 2019 following the privatization law approval in May 2019.
Upto June 2020, around fourteen (14) public companies have been privatized.

18
 PROPRIV continues, with completion scheduled for 2022, and it established a
set of guidelines for the privatization process, including eligible companies
from the Public Business Sector, the schedule and modality of privatizations
and the communication strategy;

(e) Credit Support Program (PAC): This program applies to investment projects
that contribute directly or indirectly to the domestic production of essential
goods, by enabling access to finance for private investments in the production
and marketing chain 54 basic goods and other priority goods of national
origin. During the first half of 2020, 46 projects have been submitted to
commercial banks;

(f) Integrated Plan for Intervention in Municipalities (PIMM): PIIM focuses on the
sectors of social action, agriculture, livestock, water, education, energy,
administrative and municipal infrastructure, fisheries, basic sanitation, security
and public order and roads of communication; and

(g) Action Plan for Employability Training (PAPE): PAPE is aimed at youth,
entrepreneurs (already established and emerging ones) and women, being
one of the instruments that aims to respond to the problem of unemployment.
It is expected that the program can directly benefit more than 83 thousand
young people and indirectly more than 240 thousand young people.

4.2 Botswana

Economic growth in the Botswana is estimated to contract by 7.9 in 2020 from 3 per cent
in 2019. This reflects a significant contraction in sectors such as the Mining, Trade
Hotels & Restaurant (especially the Tourism subsector), Construction,
Manufacturing, as well as Transport sector due to restrictions in movement caused
by COVID-19 pandemic.

Inflation averaged 1.9 per cent 2020 down from 2.8 per cent in 2019. The lower
inflation reflects the subdued domestic demand resulting from the adverse effects of
the containment measures occasioned by the outbreak and subsequent spread of
COVID-19; and the modest increase in foreign prices. The low inflation has also
been influenced by the impact of changes in administered prices, where the
downward adjustment of domestic fuel prices more than offset the increase in
electricity tariffs, public transport fares and postal tariffs. Food prices have been on
an upward trajectory generally during 2020, reflecting supply constraints occasioned
by the travel restrictions.

The COVID-19 pandemic affected the revenue collections against rising

expenditures to mitigate the pandemic. Total Revenues and Grants for the period
2019/2020 amounted to P54.3 billion, compared to P53.4 billion that was recorded in

19
2018/19. Total Expenditure and Net Lending amounted to P65.4 billion against P62.4
billion over the same period in the preceding year. Of the 2019/20 total budget,
P51.8 billion was recurrent expenditure, while development expenditure was P13.6
billion. The overall result was a budget deficit of P11.1 billion, which is 5.6 per cent of
GDP.

Public debt increased to 18.3 per cent of GDP in 2020 from 17.8 per cent of GDP in
2019. Out of the 2019/20 debt amount, external debt including guarantees amounted
to 10.3 per cent of GDP while domestic debt and guarantees to GDP for the same
period amounted to 8 per cent.

The current account balance recorded a cumulative deficit of P14.2 billion

(equivalent to a deficit of 10.7 per cent of GDP) during the period ending September
2020, compared to a deficit of P8.4 billion over the same period in 2019, mainly
reflecting a deficit in the trade balance as exports fell significantly against higher
expenditure outlays on imports. The fall in exports was mainly a result of a decline in
diamond exports owing to lower global demand for rough diamonds as a result of
travel restrictions and lockdowns aimed at mitigating the spread of the COVID-19
pandemic. Exports during the period under review fell by 30.7 per cent, mainly
reflecting lower diamond trade. With the roll out of the COVID-19 vaccine unfolding
in many countries, a positive change on exports is expected as travel restrictions and
lockdown are lifted over time.

Foreign exchange reserves continued to show a downward trajectory, recording

negative growth during the period ending December 2020. The reserves declined by
18.1 per cent year-on-year compared to a decline of 8.7 per cent over the same
period in 2019. The level of reserves also decreased across all currencies, with the
value in Pula terms estimated at P53.4 billion in December 2020, down from P65.2
billion over the same period in 2019. In US dollar and SDR terms, reserves fell to
US$4.9 billion and SDR3.4 billion, from US$6.2 billion and SDR4.4 billion,
respectively, during the period under review. The reserves in Pula terms during the
month of December 2020 were equivalent to about 9.9 months of import cover of
goods and services compared to 14 months of import cover in December 2019. The
decline in foreign reserves is attributable to payments for imports, Government
external obligations and net capital flows, as well as Government’s drawing down on
its savings to meet increased fiscal spending obligations, which have been brought
about by the COVID-19 pandemic.

Bank of Botswana continued to ensure implementation of an exchange rate policy

that is in line with the objective of maintaining a stable real effective exchange rate
amid the outbreak of COVID-19 in 2020. The Bank adjusted the rate of crawl
downward to -1.57 per cent and -2.87 per cent, implemented effective January and
May 2020, respectively. Consistent with this, the nominal effective exchange rate of
the Pula depreciated by 2.4 per cent over the twelve months period to December
2020. The nominal Pula exchange rate appreciated by 2 per cent against the South
African rand and depreciated by 5.8 per cent against the SDR.

The foremost agenda for the Government of Botswana currently, is to finish

developing and execute the National Transformation Strategy. The Strategy is aimed
at transforming the economy from the middle-income status to a high-income

20
country. This transformation will be realised by revisiting objectives of existing
policies, strategies and programmes to align them to the transformation agenda. The
aim is to enable creation of sustainable jobs, improvement of education and training,
provision of quality health and attraction of local and international investment among
others. The overarching goal is to attain an inclusive economy that is characterised
by high efficiencies in Government spending and delivery of services, stimulation of
private sector participation and change in mind set.

4.3 Democratic Republic of Congo

Economic growth in the DRC has contracted to 1.7 per cent of GDP in 2020 from 4.4
per cent in 2019. This was attributed to subdued economic activities, which severely
affected the primary and tertiary sectors resulting in a contraction by 3.1 per cent and
0.1 per cent, respectively.

Average inflation increased from 4.9 per cent in 2019 to 9.0 per cent in 2020. There
was a significant buildup in inflationary pressures largely due to supply disruptions
and a drop in imports resulting from the movement restrictions put in place to curb
the spread of COVID-19.

In 2019, fiscal deficit amounted to CDF592.51 billion or 0.8 per cent of GDP. As at
October 2020, a significant deficit of CDF896.53 billion or 0.97 per cent of GDP was
recorded. The prudent fiscal policy supported by measures to reduce the external
debt has seen public debt remain lower than the SADC threshold of 60 per cent of
GDP at 12.3 per cent of GDP in 2020 from 11.0 per cent of GDP in 2019.

The current account deficit slightly narrowed to 2.2 per cent of GDP in 2020 from 3.4
per cent of GDP in 2019. The improvement is explained by the decrease in imports
and high mining export volumes. However, foreign reserves remained very low at
0.65 months of import cover in 2020 compared to 1.1 months of import cover in
2019.

DRC will continue to implement policies and reforms to ensure a peaceful social climate
in order to prevent disturbances that could negatively affect production. DRC is also
implementing policies and reforms aimed at diversifying the economy to reduce
dependence on limited number of sectors and increase the resilience of the economy
to external shocks. In the fiscal sector, reforms are aimed at strengthening
management of public finances by ensuring better governance at the level of public
institutions through strict adherence to the Treasury Plan. DRC is also accelerating
setting up of tax centres in order to improve collection of tax revenues. The
Authorities are also enhancing financial market development by financing fiscal
deficits through the issuance of debt securities. In terms of enhancement of financial

21
inclusion in DRC, authorities embarked on financial education initiatives through
awareness campaigns at the World Money Week.

4.4 Kingdom of Eswatini

Economic growth has remained far below the macroeconomic convergence targets
owing to a number of challenges domestically as well as external shocks including
the COVID-19 pandemic. The economy is estimated to have contracted by 2.4 per
cent in 2020 from 2.2 per cent in 2019. This was an upward revision from the
previous projection, on account of an improved and better than anticipated
performance in the second half of the year emanating from the easing of the
lockdown restrictions.

In 2020, inflation was within the 3-7 percent MEC target and averaged 3.9 per cent,
which was slightly higher than the 2.6 per cent recorded in 2019.This was mainly due
to an increase in the costs of food, housing and utilities as well as transport.

The fiscal deficit marginally improved from 6.5 per cent of GDP in 2019 to 6.1 per
cent of GDP in 2020. Domestic debt increased to cover the financing gap, resulting
in public debt to GDP reaching 39 per cent in 2020 from 33.1 per cent in 2019.
Eswatini, received budget support in the form of loans advanced by the Multilateral
Institutions resulting in a further increase in debt stock. Despite the unsustainable
path in acquisition of debt, the country has been able to keep debt levels within the
acceptable target and likely to meet the target in the medium term supported by the
implementation of a fiscal adjustment plan.

Eswatini realised a current account surplus which increased from 3.8 per cent of
GDP in 2019 to 10.5 per cent of GDP in 2020 despite the trade disruptions caused
by COVID-19. On the other hand, foreign reserves as months of import cover,
improved from 2.6 months in 2019 to 3.5 months in 2020 partly due to higher SACU
receipts during the 2020/21 fiscal year at E8.3 billion compared to E6.3 billion during
the 2019/20 fiscal year. The reserves were also boosted by inflows from foreign
exchange trades with local banks as well as foreign exchange proceeds from IMF
budget support to the government.

Weak economic activity in the domestic economy has resulted in the significant
decline of private investment and foreign direct investment inflow. Public investment
continued to bolster domestic investment figures. The target is thus not likely to be
achieved unless major steps are taken in building up private sector investment by
ensuring macroeconomic stability and focus on creating a more investment friendly
environment.

22
In 2019, the country launched the National Financial Inclusion Strategy for Eswatini
(NFIS) covering the period 2017 – 2022. This strategy provided the framework for an
effective partnership between policy-makers, financial regulators, and financial
institutions as well as the mobile network operators to enhance access to financial
services for micro and small and medium businesses, and the Eswatini populace at
large. For implementation, government and partners established a Centre for
Financial Inclusion (CFI), which coordinates all issues of financial inclusion. The
state of financial inclusion assessed using the FinScope Survey as per the Eswatini
State of Financial Inclusion Report 2019, indicates that the Kingdom of Eswatini is
one of the most financially included countries in SADC. Eswatini has realised
substantial increase in formal financial inclusion since 2011, reducing adults who are
exclusively dependent on informal mechanisms from 13 per cent in 2011 to 2 per
cent in 2018. The number of excluded adults has been reduced from 38 per cent in
2011 to 13 per cent in 2018.

On the fiscal side, expenditures will continue to be rationalized and moderated in

light of growing fiscal concerns and large budget deficits in the face of falling SACU
revenues and the effects of COVID-19 pandemic.

Eswatini continues to implement domestic revenue generating measures to improve

its fiscal position and reduce over-reliance on SACU revenues. These measures
include legislative reforms aimed at adjusting current fees and levies and
introduction of new ones. The Central Bank of Eswatini continued to pursue
accommodative monetary policy to support economic growth.

4.5 Kingdom of Lesotho

Economic growth contracted by 5.7 per cent in 2020 from a growth of 2.2 per cent
realised in 2019. The growth contraction is reflective of COVID-19 precautionary
mitigation measures which have hampered economic activity, coupled with low
external demand which has adversely impacted the mining and manufacturing
industries.

Inflation averaged 5 per cent in 2020 compared to an average of 5.2 per cent in
2019. The main driver of inflation was a rise in food and non-alcoholic beverages as
well as clothing and footwear inflation. The inflation trajectory is expected to follow
food price developments, since the food category commands the largest share in the
domestic consumer price index (CPI) basket.

The overall fiscal position improved from a deficit of 4.8 per cent of GDP in 2019/20
to a surplus of 0.5 per cent of GDP in 2020/1. The improvement was largely driven
by an increase in government revenue, especially a substantial increase of 36.0 per

23
cent in SACU revenue. Also, tax revenue performed above expectations amidst the
prevailing economic situation. Moreover, non-tax revenues increased by 32 per cent
relative to 2019 as some main sectors like water and mining, continued to operate
within the pandemic.

The public sector debt of Lesotho stood at 69.6 per cent of GDP in 2020 compared
to 45.2 per cent of GDP in 2019. The stock of public sector debt grew significantly by
24.4 per cent in 2020 following a slight growth observed in 2019. This follows
contraction of multilateral and bilateral debt coupled with issuance of domestic debt
instruments.

The total loans and advances granted to the private sector contracted sharply during
the second quarter of 2020. Overall credit extended to the private sector weakened
by 6.1 per cent between end of the second quarter and end of the first quarter of the
year. Hence this reversed the 4.5 per cent increase recorded between the first
quarter of 2020 and the last quarter of 2019. However, measured year-on-year,
private sector credit improved by 2.1 per cent. The contraction in loans and
advances extended during the review quarter was evident from both the business
enterprises and households. This was amid slowdown in economic activity due to the
lockdowns imposed by governments to curtail the spread of COVID-19 global
pandemic. The real growth in credit extension fell by 12.4 per cent during the review
period, after decreasing slightly by 0.2 per cent in the previous period.

In terms of foreign trade, merchandise imports plunged by 27.6 per cent, following a
1.9 per cent drop in the preceding quarter. Merchandise exports contracted by 55.6
per cent during the second quarter of 2020, following a 3.7 per cent decline in the
previous quarter. Exports across most categories were adversely affected by
lockdown measures, which slowed production, imposed to curb the Covid-19
pandemic during the quarter under review. Most categories of exports fell sharply,
with textiles and clothing as well as diamonds displaying staggering declines of 58.5
per cent and 50.7 per cent, respectively. Diamond exports, in particular plummeted
as one of the mines completely ceased its production activities during the review
quarter, while exports from other mines were negatively impacted by the
unfavourable global demand. On an annual basis, total exports contracted by 55.6
per cent, deteriorating from an 18.2 per cent increase in the prior quarter. Expressed
as a share of GDP, exports accounted for 20.1 per cent in the review period,
declining from 39.6 per cent of GDP in the quarter ending in March 2020.

Lesotho’s current account deficit narrowed from 4.1 per cent of GDP in 2019 to 2.9
per cent of GDP in 2020. The improvement in the current account balance resulted
from a surge in the secondary income account surplus. The combination of higher
capital account inflows and the significant improvement in the current account
balance enhanced the Central Bank’s ability to accumulate resources, which resulted
in higher reserve assets in 2020 compared to the previous year. As a result, gross
official reserves rose from 3.9 months of import cover in 2019 to 4.3 months of
import cover in 2020.

Government embarked on a number of measures that include: enhancement of

budget execution; strengthening of the national statistical framework; enhancing

24
stakeholder consultations; enhancement of debt management and development of a
crisis management framework for the banking sector.

4.6 Madagascar

Madagascar was on an upward trajectory before COVID-19, recording growth rates

of 3.9 per cent in 2017, 3.2 per cent in 2018 and 4.4 per cent in 2019. In 2020, the
economy contracted by 5.7 per cent with all sectors significantly affected by the
crisis, especially the extractive sector which contracted by 47.3 per cent, mainly due
to the suspension of the activities of the largest mining company in the country. In
addition, the other mining companies slowed down their production due to the global
recession. Nonetheless, the primary sector has recorded a positive growth of 3.1
percent. As a result, GDP per capita has declined by 6.7 per cent to stand at
US$499.4 in 2020.

Inflation slowed down in 2020 at an average of 4.5 per cent compared to 5.6 per cent
in 2019. The main factors behind price developments include prudent and proactive
monetary policy, contraction of aggregate demand especially during lockdown
periods, good climate conditions and weak demand for imports. The weak import
demand is related mainly to the contraction of economic activities.

The combined effect of a decrease in revenues and a significant rise in expenditures

in response to COVID-19 resulted in a fiscal deficit of 3.4 per cent of GDP in 2020
from a deficit of 1.4 per cent of GDP in 2019. As a result of the deterioration in the
fiscal position, public debt increased in 2020 to 32.4 per cent of GDP in 2020 up from
29.2 per cent of GDP in 2019.

After years of realising low current account deficit, Madagascar’s current account
deficit widened to 5.2 per cent of GDP after export revenues plummeted due to the
drop in mining exports, tourism and vanilla’s earnings. Despite a significant trade
deficit in 2020, Madagascar’s foreign reserves in months of import cover improved
from 4.2 months in 2019 to 6.0 months resulting from a drop in imports, an influx in
foreign financing and an increase in remittances.

The Government of Madagascar is currently implementing some of the

recommendations of the Peer Review Panel, such as: strengthening domestic
resource mobilization through fighting against corruption and tax evasion; and
reducing tax exemptions; increased investment expenditure on basic infrastructure in
the transport and energy sectors; promoting financial inclusion through the
implementation of the National Financial Inclusion Strategy; implementation of
reforms aimed at improving the business climate; and promoting the extension of
credit to small and medium-sized enterprises, particularly through the creation of a
consultation framework bringing together private sector players and commercial

25
banks; the dematerialization of land titles; and the creation of a register of
guarantees.

Madagascar is under a three years Extended Credit Facility (ECF) with the IMF. This
programme is expected to sustain economic recovery and help to achieve middle
term growth objectives. In line with the ECF programme, the Financial Act for 2021
provides for various economic stimulus to restore a positive growth by 2021,
including a massive public and private investment plan to implemented in several
sectors.

4.7 Malawi
The COVID-19 pandemic and its containment measures have sharply weakened
2020 domestic growth prospects. Prior to the COVID-19 shock, real GDP growth
was projected to rise to 5.5 per cent in 2020 from 5.1 per cent in 2019. As a result of
the COVID-19 outbreak, the growth for 2020 was revised to 0.9 per cent which is
significantly below the national long-term trend growth, from 5.4 per cent in 2019.

The pandemic has significantly affected most of the sectors of the economy including
the manufacturing, tourism and accommodation, transportation, mining and
quarrying, wholesale and retail trade, financial services, real estate, and construction
sectors. In terms of sectoral contribution to overall GDP, the agriculture sector
continued to be the mainstay of Malawi’s economy, accounting for about 27.8 per
cent of overall GDP, followed by wholesale and retail sector at 15.8 per cent and
manufacturing sector at 9.1 per cent in 2020.

Inflationary pressures in Malawi subsided in 2020, with an average headline inflation

of 8.6 per cent compared 9.4 per cent registered in 2019. This development was
influenced largely by food inflation, which moderated to an average of 13.1 per cent
in 2020 from 14.3 per cent in 2019 primarily reflective of improved production of
maize during the 2019/20 agricultural season, coupled with subdued industrial
demand for maize amidst COVID-19 pandemic. Non-food inflation was broadly
stable and slightly slowed down to 4.7 per cent in 2020 from 5.4 per cent in 2019,
largely reflecting a stable exchange rate as well as the relative stability in prices of
major components of non-food inflation such as electricity, water, and housing.

Malawi fiscal deficit widened from 4.6 per cent of GDP in 2019 to 6.6 per cent of
GDP in 2020 largely explained by an increase in COVID-19 related expenditure
against low tax revenue due to low economic activity in 2020. The deterioration in
fiscal position is reflected in the increase in public debt from 45 per cent of GDP in
2019 to 53.9 per cent of GDP in 2020.

Malawi’s current account balance (CAB) worsened by 5.9 per cent to US$1.8 billion
in 2020 from US$1.7 billion in 2019. Furthermore, current transfers, including
government transfers, workers’ remittances and transfers to NGOs, declined,

26
annually, by 13.6 per cent to US$454.2 million in 2020, also reflecting the impact of
global economic lockdowns. However, as a percentage of GDP, the CAB improved
slightly to a deficit of 12.0 per cent of GDP from 15.1 per cent of the GDP in 2019.

The Malawi Kwacha exchange rate depreciated by 4.7 per cent against the US dollar
and traded at K773.11 per dollar as at end December 2020. Pressures on the
exchange rate continued to mount, reflecting inadequate supply of foreign exchange,
exacerbated by the impact of COVID-19 pandemic in 2020.

Monetary policy will continue focusing on entrenching disinflation, aiming to maintain

the inflation rate in single digits while keeping real interest rates positive.
Furthermore, the Bank will continue to strengthen its monetary policy communication
strategy as a supportive instrument to enhance transparency.

Authorities will continue implementing floating exchange rate regime to cushion

shocks and support economic diversification. Furthermore, this would also deepen
the interbank forex market and moderate the Central Bank's role to dampening
excess volatility and accumulating reserves when needed.

Government will continue implementing fiscal policies that will not only support
disinflation and help maintain debt sustainability but also induce inclusive economic
growth. Government will continue implementing Public Finance Management (PFM)
reforms to improve resource mobilization and contain expenditures.

Government will ensure that borrowing is consistent with the objective of social
development and poverty reduction and with overall medium to long-term debt
sustainability. Government has developed a comprehensive medium-term debt
strategy and will keep updating it.

4.8 Mauritius

The economy of Mauritius contracted by an average of 14.9 per cent in 2020

compared to a growth of 3.0 per cent in 2019 and 3.8 per cent in 2018. COVID-19
resulted in severe disruptions in economic activity in the first half of 2020. Activity
was temporarily halted in some sectors while other sectors operated at reduced
capacity for a prolonged period.

Headline inflation averaged 2.5 per cent in 2020, in the absence of major exogenous
shocks from 0.5 per cent in 2019. External influences on prices were contained,
given the decline in global energy prices and subdued inflationary pressures across
trading partner countries.

The budget deficit for 2019/20 averaged 11.8 per cent of GDP reflecting the shortfall
in revenue and higher expenditure due to the COVID-19 pandemic. Public debt

27
increased to 75 per cent of GDP as at end June 2020 compared to 58.0 per cent as
at end June 2019. This was due to the unprecedented fiscal interventions of
Government to support businesses and individuals, to save lives and safeguard the
livelihood of the population, combined with a contraction in GDP.

Current account deficit averaged 12.7 per cent of GDP in 2020 from 5.4 per cent of
GDP in 2019. This is largely explained by the substantial decline in the services
account (tourism earnings) and a lower surplus in the income account. However, the
reserve assets of the country remained at adequate levels to provide a buffer against
headwinds and provided cover for 16.8 months of imports of goods and services as
at end-December 2020 compared to 12.3 months as at end-December 2019.

Mauritius is embarking on various strategies and reforms with the view to attract
investment, foster private sector-led and inclusive growth. These include incentives
for small and medium enterprises (SMEs) growth and job generation; and strategies
to reduce the current level of unemployment. Mauritian authorities have set important
national goals for themselves, namely: inclusive growth, improving quality of life,
innovative and knowledge-based economy and graduation to high income status by
2023.

4.9 Mozambique

Mozambique economic growth projections for 2020 were revised from an initial
growth of 2.2 per cent to a contraction of 1.3 per cent due to COVID-19 related
economic shocks.

Inflation remained relatively stable averaging 3.1 per cent in 2020 from 2.8 per cent
in 2019. COVID-19 induced low oil prices coupled with weak aggregate demand has
resulted in muted inflationary pressures.

The fiscal position of Mozambique deteriorated as a result of the COVID-19 shock to

Government expenditures and revenues. As a result, fiscal deficit widened to 3.9 per
cent of GDP in 2020 from 1.5 per cent of GDP in 2019. Public debt improved in 2020
at 62.7 per cent of GDP down from 79 per cent of GDP in 2019.

The significant importation of capital goods by Mozambique has resulted in the

current account deficit worsening. The current account deficit widened to 29.2 per
cent of GDP in 2020 from 19.8 per cent of GDP in 2019. The foreign reserves in
months of import cover, improved marginally from 7 months in 2019 and 7.2 months
in 2020.

Mozambique will continue to prioritize the following measures: expansion of the

productive base; facilitation of access to finance by SMEs; improvement of basic
infrastructure through public-private partnerships (PPPs); improvement in tax

28
administration; improvement of business environment; improvement and
transparency in management of debt and public finance; and financial sector reforms
and strengthening.

4.10 Namibia

The Namibian economy contracted by 7.3 per cent in 2020 on the back of global
restrictions and weakening prospects in the country's main trading partners, namely,
South Africa and Angola. Sectors such as mining, trade, financial services all
contracted.

Namibia has progressively met the inflation target over the past years. The decline in
commodity prices in 2020 allowed Namibia to record inflation rate of 2.2 per cent,
which outperformed the SADC criterion of 3-7 per cent inflation range.

Government expenditure increased in 2020 to reach 41 per cent of GDP in part due to
the wide range of support measures rolled out by the Namibian authorities to
mitigate the effects of COVID-19. As a result, the budget deficit widened in 2020
to stand at 9.5 per cent of GDP.

Government debt without guarantees rose in 2020 to about 55 per cent of GDP.
With guarantees factored in, the figure would stand at about 61 per cent. Debt-
Sustainability Analysis by the Namibian authorities in late 2020 shows that, barring
any correction to the growth rate, debt may be unsustainable in the medium term.

The current account had moved into positive territory in 2020, with a surplus of 2 per
cent of GDP. This improvement took place as a result of the decline in imports which
outweighed the decline in exports during the year. In parallel, the imports coverage
ratio improved to above 5 months in 2020.

Credit growth has been steady over recent years and the pace of growth somewhat
slowed down in 2020, amid the sharp deterioration in economic conditions. Measures
taken by the authorities were crucial in preventing borrowers' default, thereby
ensuring that real sector disruptions do not percolate through to the banking sector.
The banking system remains solvent and liquid, despite the headwinds associated
with the COVID-19 pandemic.

29
 4.11 Seychelles

The most recent 2020 real GDP growth estimate is -13.5 per cent1. In comparison,
growth was projected to reach 3.5 per cent in the initial 2020 Budget, and was later
revised downwards to -10.8 per cent in the ‘Amended Budget’ of March 2020.

In terms of inflation, the Consumer Price Index (CPI) reflected a year-on-year

inflation rate of 3.8 per cent for 2020. This increase was on account of the
depreciation of the exchange rate observed as of the second quarter of 2020 due to
the contraction of the tourism industry. Given that Seychelles’ imports most of its
goods, an increase in average price levels was observed from June 2020, with a
notable uptick in December 2020.

The primary balance, as of the release of the 2021 Budget was -19.2 per cent of
GDP, equivalent to SR 3.95bn, which is a significant decrease from the surplus
recorded in 2019. Revenue and Grants is estimated to have contracted by at least
1.1 per cent of GDP or SR 1.2bn. Estimated collections from almost all tax lines is
lower, with the fall in VAT from tourism being particularly steep. However, while
revenue contracted, total primary expenditure expanded to SR 11.19bn to cater for
various schemes the Government put in place to assist individuals and businesses
facing economic hardships.

The Budget deficit meant that Government had to resort to additional borrowings
both externally and domestically. At the end of 2020, the total Government and
Government guaranteed debt amounted to 96 per cent of GDP. In comparison to
2019, domestic debt has increased SR 2.0bn, or 29 per cent, and external debt
increased by SR 3.5bn, or 62 per cent. Seychelles will therefore not meet its debt
target of 50 per cent of GDP by 2021, with the date now pushed to beyond 2025.

Given the worsening situation, the Central Bank of Seychelles began using foreign
exchange from the country’s international reserves to support the domestic market.
The Bank assisted the market through the sales of reserves denominated in USD
through the Foreign Exchange Auction (FEA) facility, with sales amounting to USD
29.03m. The Bank also aided the market through direct sales of foreign exchange to
specific entities for the purchase of essential goods and fuel. By the end of 2020, the
preliminary Gross International Reserves (GIR) had contracted by 3.6 per cent
compared to 2019.

1
Budget Strategy and Outlook 2021

30
 4.12 South Africa

Real GDP growth contracted by 7.2 per cent in 2020 compared to a growth of 0.2
per cent in 2019. The effect of the restrictions on economic activity in the second
quarter of 2020 was broad-based, with output declining sharply in the primary,
secondary and tertiary sectors.

Inflationary pressures were low in South Africa despite an acceleration of headline

inflation from a 16-year low of 2.1 per cent in May 2020 to 3.2 per cent in July 2020.
However, inflationary pressures receded amid domestic recessionary conditions and
a marked decrease in fuel prices in the wake of the COVID-19. As a result, average
inflation decelerated from 4.1 per cent in 2019 to 3.3 per cent in 2020.

The South African fiscal position deteriorated mainly on account of shortfalls in tax
revenue and higher government expenditures due to the COVID-19 pandemic and
debt-service cost related spending. Revenue contracted from R 1 530.5 billion in
2019/20 to an estimated R1 362.7 billion in 2020/21. On the other hand,
expenditures increased from R 1 822.3 billion in 2019/20 to R2 052.5 billion in
2020/21. Resultantly, budget deficit widened from 5.7 per cent of GDP in 2019/20 to
14 per cent of GDP in 2020/21.

The public debt evolution reflected fiscal position developments. The government
gross loan debt (domestic and foreign) reached R3.95 trillion, or 80.3 per cent of
GDP, as at 31 March 2021 up from 63.3 per cent of GDP in 2019. Domestic debt
increased by 23.3 per cent year-on-year and accounted for the largest share of total
gross loan debt at 90.0 per cent, with foreign debt accounting for the remainder as at
31 March 2021. Debt-service costs stood at R232.9 billion in 2020/21.

The current account balance of South Africa improved from a deficit of 3 per cent of
GDP in 2019 to a surplus of 1.7 per cent of GDP in 2020. The surplus largely
emanated from trade balance surplus resulting from increase in the value of exports
as a result of both volumes and prices. Consequently, foreign reserves as months of
import cover, increased to 7.6 months in 2020 from 5.1 months 2019.

The real effective exchange rate (REER) of the Rand decreased by a notable 10.6
per cent from June 2019 to June 2020, reflecting improved competitiveness for
domestic producers in foreign markets over this period. This decrease resulted
mainly from the sharp depreciation in the exchange value of the rand amid the
implementation of lockdown restrictions at the end of March 2020 in response to the
COVID-19 pandemic.
Government continues to implement policy measures to rebuild the economy in line
with Peer Review mission recommendation and guided by Vision 2030 of the
National Development Plan; and the Economic Reconstruction and Recovery Plan
that was outlined by President Ramaphosa on 15 October 2020.

31
 4.13 United Republic of Tanzania
The Tanzanian economy grew by 4.8 per cent in 2020 down from 7.0 per cent in
2019 on account of the outbreak of COVID-19.

Headline inflation remained low at an average of 3.3 per cent in 2020 compared to
3.4 per cent recorded in 2019. Food inflation increased to 5.0 per cent from 4.3 per
cent recorded in 2019 and core inflation slowed down to an average of 2.3 per cent
from 3.0 percent recorded in 2019. The low and stable inflation is on account of
stability in exchange rate, stability of power supply, prudent implementation of fiscal
and monetary policy and slowdown in fuel prices in the world market.

Fiscal deficit widened marginally from 1.4 per cent of GDP in 2019/20 to 1.6 per cent
in 2020/21 and remains within the 3 per cent SADC target. The deficit was financed
through foreign and domestic borrowing. In the short to medium term, the deficit is
expected to widen (but within the agreed target) as Government continues with
major infrastructure financing such as SGR and power infrastructure. The healthy
fiscal position, is reflected in the relatively stable public debt which slightly grew from
38.3 per cent of GDP in 2019 to 39.2 per cent of GDP in 2020.

The Debt Sustainability Analysis (DSA) conducted in December 2020 revealed that,
the debt is sustainable in the short, medium and long. This implies that, the United
Republic of Tanzania has space to borrow for funding development projects while
meeting future financial obligations without sharp adjustment to revenue and
expenditure. The DSA further revealed that all debt burden indicators are below their
thresholds. For instance, the present value of external public debt-to-exports was
113.2 per cent against the internationally recommended threshold of 240 per cent;
PV of public debt to GDP 27.9 per cent (against 70 per cent); and external debt
service to revenue 13.7 per cent (against 23 per cent). Overall, the public debt is
39.2 per cent of GDP against the SADC recommended threshold of 60 per cent.

Domestic savings as a percentage of GDP averaged 16.8 per cent between 2016
and 2019; and maintained an upward trend from 15.8 per cent of GDP in 2017 to 18
per cent in 2019. On the other hand, domestic investment was 39.7 per cent of GDP
in 2019 up from 38.4 per cent in 2018.

Tanzania external sector registered a good performance amid the impacts of

COVID-19 worldwide. The current account deficit improved from 2.1 per cent of GDP
in 2019/20 to 0.8 per cent of GDP in 2020/21. The current account deficit narrowed
to US$ 994.8 million from a deficit of US$ 1,490.9 million recorded in 2019, on
account of increase in exports of goods and decrease in imports.

Foreign exchange reserves remained high, amounting to US$ 4,767.7 million at the
end of December 2020 compared with US$ 5,567.6 million recorded at the end of
December 2019. The reserves were sufficient to cover 5.6 months of projected

32
imports of goods and services. In April 2021 foreign exchange reserves was US$
4,969.7 million equivalents to 5.8 months of import cover. The import cover is below
the SADC benchmark of not less than 6 months but is above the country benchmark
of not less than 4 months. Reserves are projected to increase slightly towards the
end of June 2021. The projection takes into account expected inflows of foreign
exchange which are relatively higher than projected outflows.

Tanzanian Authorities continued to implement policy recommendations proposed by

the Eswatini and Mozambique Peer Review Team that include containment of public
debt; widening tax base through formalising the informal sector; investment in
agriculture infrastructure to enhance productivity; enhance business environment to
improve private sector participation; and promotion of public-private partnerships in
infrastructure development.

4.14 Zambia

Zambia’s performance against the SADC macroeconomic convergence targets

during the review period was mixed. The economy contracted by 3.0 per cent in
2020 compared to a growth of 1.4 per cent recorded in 2019. This was mainly due to
significant contractions in the wholesale and retail trade, tourism, and construction
sectors, mainly on account of disruptions in supply chains and COVID-19
containment measures.

Annual inflation increased to an average of 15.7 per cent in 2020 from 9.1 per cent in
2019. End-year inflation rose to 19.2 per cent in 2020 from 11.7 per cent in 2019.
This was mainly driven by the upward adjustment in energy prices and higher food
prices and later the pass-through effects from the depreciation of the Kwacha
against the US Dollar and other convertible currencies.

The fiscal deficit rose by 14.4 per cent of GDP against a target of 5.5 per cent in
2019. Net domestic financing was higher than external financing. This was on
account of the issuance of a COVID-19 Bond, raising of financing for FISP and fuel
arrears clearance. External financing largely came through project financing.

The stock of public debt at end-2020 amounted to US $19.8 billion representing an

increase of 2 per cent from the stock of US $19.4 billion recorded at end-2019.
External debt stock increased by 9 per cent to US $12.74 billion as at end December
2020 from US$11.65 billion as at end-December 2019. The increase was on account
of continued disbursements on existing project loans largely from multilateral
institutions and supplier creditors to finance on-going infrastructure projects. The
stock of domestic debt contracted through issuance of Government Securities, grew
by 62.3 per cent to K130.2 billion as at end-December 2020 from K80.2 billion as at
end-December 2019. This increase in domestic debt was largely attributed to the

33
contraction of government securities to finance the 2019/2020 Farmer Input Support
Programme (FISP) and liquidating fuel arrears.

During the period under review, the COVID-19 pandemic negatively impacted
international trade in terms of both trade volumes and commodity prices. The
pandemic also led to the country experiencing disruptions in cross border supply
chains given the close trading relations in the region. In view of this, total trade in
2020 declined to US $13,065.8 million from US$14,198.7 million in 2019 reflecting a
significant reduction in imports on account of sluggish economic activity, depreciation
of the Kwacha and COVID-19 related travel restrictions. Merchandise imports (c.i.f)
in 2020 declined by 26.4 per cent to US$5,318.7 million from US$7,224.1 million in
fiscal year 2019. Subdued domestic economic activity, depreciation of the Kwacha
and supply chain disruptions due to COVID-19 pandemic largely underpinned the
decline in imports. Export earnings (f.o.b) at US$7,968.0 million were 11.1 per cent
higher compared to US$7,171.0 million realized over the same period in 2019.

The current account balance expanded to US$2,170.2 million (12.2 per cent of GDP)
in 2020 from US$140.7 million (0.6 per cent of GDP) in 2019. This was mainly on
account of a significant increase in the balance on goods largely attributed to a sharp
fall in imports. COVID-19 related disruption to international trade, depreciation of the
Kwacha as well as subdued domestic economic activity explained the decline in
imports. Export earnings, mainly attributed to copper exports also rose by 17.5 per
cent and contributed to the expansion in the current account.

Gross international reserves declined to US$1.2 billion, equivalent to 2.1 months of

import cover, at end-2020 from US$1.4 billion, equivalent to 2.3 months of import
cover, at end-December 2019. The decline was largely attributed to Government
debt service payments. Nonetheless, project receipts (US$ 150.4 million) and net
foreign exchange purchases by the central bank in a tone of US$ 132.7 million
moderated the decrease in reserves.

Authorities are putting more effort and fast-tracking the implementation of the quick
wins in the agriculture and mining sectors (e.g. cashew nuts project, diversification of
the mining industry, etc.), to boost growth in the medium to long-term.

Promoting & Enforcing Public Accountability and Performance of State-Owned

Enterprises (SOEs): Government is also restraining growth in the wage bill to the
projected annual inflation rate, improving commitment controls through full
implementation of a Treasury Single Account (TSA) riding on an Integrated Financial
Management Information System (IFMIS) in all government ministries, departments
and State Owned Enterprises.

The authorities are implementing a National Statistical Framework to strengthen

capacity in the National Statistical Office within the Ministry of National Planning and
Development. This will support the effective implementation and monitoring of the
Seventh National Development Plan.

34
 4.15 Zimbabwe

In 2019 and 2020, poor weather conditions (severe droughts and the 2019 tropical
cyclone Idai); reduced commodity prices; and the COVID-19 pandemic in 2020,
resulted into a significant downturn in economic activities, leading to contractions of
6.0 per cent in 2019 and 4.1 per cent in 2020. However, in 2021, real GDP growth
rate for Zimbabwe is projected at 7.4 per cent on the back of a good agriculture
season largely due to favourable weather conditions during the 2020/2021 farming
season. Agriculture output is expected to increase by up to 11.3 per cent, propelled
by increased maize production whose output is projected to grow by more than 54
per cent. Another major source of growth in 2021 will be the mining sector which is
expected to grow by 11 per cent, buoyed by improved commodity prices on the world
market. In addition, the operationalization of NDSI and Infrastructure Investment
Programme (IIP), public investments worth up to ZWL$139.8 billion are expected to
be implemented in 2021. This will increase capital formation in the country thereby
potentially putting the economy on a more sustained growth path.

Inflation in Zimbabwe continued to be extremely high with the country registering

high inflation in 2019 and 2020. Year-on-year inflation peaked at 837.0 per cent in
July 2020 while annual average inflation for the year was 654.9 per cent. The high
inflation was due to the sharp depreciation of the newly issued ZWL dollar which was
re-introduced in February 2019. Nevertheless, floatation of the exchange rate and
the introduction of the foreign exchange auction system in June 2020 has increased
efficiency and transparency in the foreign exchange market, stabilizing the exchange
rate. This dampened inflationary pressures and put a more positive outlook for
inflation. As such, annual inflation is projected to recede to 134.0 per cent in 2021
while end period inflation is expected at lower double-digit figures.

Fiscal reforms implemented under TSP between 2018 and 2020 resulted in a
notable improvement in Zimbabwe’s fiscal position despite absence of external
support. The Zimbabwean authorities managed to reduce employment costs
including pension from around 71.1 per cent of revenues in 2018 to around 40.6 per
cent of revenues in 2020; recurrent expenditures from 22.3 per cent of GDP to 11.3
per cent of GDP in 2017 and 2020, respectively. Resultantly, budget balance
improved from a deficit of 12.9 per cent of GDP in 2017 to 0.5 per cent of GDP in
2020. The improvement in fiscal position has enabled the authorities to significantly
reduce domestic borrowing and has therefore put itself on a path towards creating
fiscal space for development expenditure. However, Zimbabwe’s public debt levels
remain high at 81.0 per cent of GDP in 2020 from 67.5 per cent of GDP in 2017, with
substantial amount in arrears.

Gross capital formation averaged 9.1 per cent of GDP between 2016 and 2020. This
was led by public sector investment which averaged 5.5 per cent of GDP over that
period while investment by the private sector averaged 3.7 per cent. The year 2018
had the highest share of investment in GDP at 10.1 per cent. This followed the fiscal

35
expansion that the Government undertook resulting in an increase in the share of
public investment in GDP to 6.9 per cent. However, domestic investment as a
percentage of GDP remains below the MEC target of 30 per cent.

The economic slowdown resulted in significant decline in disposal incomes. As a

result, Zimbabwe managed to save an average of 3.2 per cent of GDP between
2016 and 2020. Following implementation of the TSP, 2019 and 2020 registered
improved domestic savings to GDP ratios of 14.6 per cent and 15.3 per cent,
respectively. However, this had followed 3 consecutive years of dissaving which
averaged minus 4.6 per cent of GDP between 2016 and 2018. The savings rate as a
per cent of GDP, falls short of the MEC target of 35 per cent.

The loan quality has remained relatively strong, with the non-performing loans
(NPLs) to total loans ratio declining from a peak of 10.8 per cent in December 2015
to 0.4 per cent in September 2020. The efforts made by Zimbabwe Asset
Management Company (ZAMCO) of acquiring, restructuring and disposing some of
the NPLs explain this trend. Furthermore, the RBZ initiated measures such as the
creation of a credit registry which helped to enhance credit risk management by
banks.

Following years of economic downturn, Zimbabwe’s external sector position was

relatively weak until 2018. The current account balance improved from a deficit of 3.8
per cent in 2016 to current account balance surpluses of 5.0 per cent of GDP and
6.3 per cent of GDP in 2019 and 2020, respectively. The turnaround reflected sharp
contraction in imports, strong international commodity prices and notable increases
in diaspora remittances. However, international capital flows remain constrained by
the continued existence of sanctions. Furthermore, international reserves remain
critically low at less than a month of import cover.

5. BUSINESS ENVIRONMENT

According to UNCTAD World Investment 2020 report the COVID-19 pandemic will
severely curtail foreign investment in Africa in 2020, mirroring the global business
environment tendency. The downturn will be further exacerbated by the extremely
low oil prices, considering the resource-oriented investment profile of the continent.
Foreign Direct Investment (FDI) flows are expected to decline between 25 and 40
per cent. Depending on the duration and severity of the global crisis, the longer-term
outlook for FDI in Africa could draw some strength from the implementation of the
African Continental Free Trade Area Agreement in 2020, including the conclusion of
its investment protocol.

The AfDB Southern Africa Economic Outlook 2020 report shows that there has been
slow progress in industrialization mainly due to an unfavorable policy environment for
industrial development, low public and private sector investment in value chains,
supply-side constraints such as volatile power generation capacity and limited
energy source diversification into renewable energy. All these factors have
undermined the region’s competitiveness and economic growth. For instance, the
2019 Global Competitiveness Index revealed that only four Southern Africa countries
were among the top 100 competitive countries. These were Botswana, Mauritius,
Namibia and South Africa.

36
However, the World Bank Ease of Doing Business 2019-20 report indicate that the
SADC region improved slightly in terms of having a conducive business environment
and its competitiveness in general. Seven Member States showed improvements in
the ease of doing business ranking, namely: DRC, Malawi, Mauritius, Namibia,
Tanzania, Zambia and Zimbabwe, compared to the six recorded in 2018. Two
Member States (Mauritius and Zimbabwe) demonstrated exceptional improvements
by moving up more than 3 positions from 20 in 2018 to 13 in 2019 and 155 in 2018
to 140 in 2019, respectively.

Performance with regard to ease of doing business indicate that Angola, Botswana,
Eswatini, Lesotho, Mozambique, Seychelles, and South Africa slightly plummeted in
their ranking positions in 2019 compared to 2018 performance. In 2019, four SADC
Member States (Botswana, Mauritius, South Africa and Zambia) were ranked within
the first 100 bracket.

Figure 5a: Rank Ease of Doing Business

Source: World Bank Ease of Doing Business, 2019-20.

The tendency with regards to improving the business environment shows a similar
behavior if one considers the World Economic Forum Global Competitiveness Index
(GCI) 2019-20. The GCI measures the competitiveness of an economy by
considering all factors from basic factors that enable it to be competitive to factors
that make it efficient and innovative.

37
Fig 5b: Ranking – Global Competitiveness Index

Source: WEF Global Competitiveness Index, 2018-19.

In 2019, five Member States improved in the GCI ranking, namely: Angola, Malawi,
Namibia, South Africa, and Zimbabwe. Two Member States (Namibia and South
Africa) demonstrated exceptional improvements by moving up six and seven
positions from 100 to 94 and 67 to 60 respectively. The other ten Member States
(Botswana, DRC, Eswatini, Lesotho, Madagascar, Mauritius, Mozambique,
Seychelles, Tanzania and Zambia) deteriorated their score.

In 2019, Mauritius, South Africa, Botswana Seychelles remained the most

competitive and top ranked Member States in the region, similar to 2018.

6. FINANCIAL SECTOR DEEPENING IN THE CONTEXT OF FINANCIAL INCLUSION

The region continued to support activities in the area of financial inclusion and
significant developments have been made by Member States in 2020: 68% of adults
in the region are financially included against the target of 75% by 2021. In terms of
gender split, 67% of female adults are financially included while the rate is 70% for
male. As per the decision of the Ministers of Finance and Investment at their meeting
in Namibia in July 2019, the SADC Financial Inclusion Subcommittee was
operationalised.

SADC continues to implement a number of initiatives which will further reduce the
average cost of cross-border remittances in the SADC region to below the G20
target of 5%. Among others, given the success of the Shoprite remittance product to
Lesotho, a same approach was launched in Eswatini in January 2020. This new
bank-retailer product aims to serve low value remitters in the South Africa – Eswatini
corridor and costs less than 3% on a price point of US$55. New products have also
been introduced between South Africa and Malawi, Zambia, DRC and Zimbabwe. In
addition, due to travel restrictions and closure of borders caused by COVID-19
pandemic, the informal remittances providers were negatively affected and therefore
an increase of 31,4% in the usage of formal cross-border remittances was noted: the

38
total number of transactions (South Africa outbound) was estimated at 851,441 in
June 2020 against 648,110 in June 2019.

Furthermore, following further guidance from the Ministers of Finance and

Investment at their meeting in July 2019, three Members States, namely: Eswatini,
Lesotho and Malawi have been assisted with regard to the domestication of the
SADC Mobile Money Guidelines. Malawi has started paying interest on mobile
money wallets.

In the area of payments system, as of March 2021, a total of 82 participating Banks,

from the fifteen (15) SADC Member States (except Comoros), were electronically
linked to effect cross-border payments and settlements in real time. From July 2013
to March 2021, the total number of transactions settled was 2,080,724, representing
ZAR 8.15 Trillion equivalent of USD 549.12 billion.

7. PROSPECTS FOR 2021 AND THE MEDIUM-TERM, RISK AND

RECOMMENDATIONS

7.1 Prospects for 2021 and Medium-Term

The region is forecasted to grow by 4.2 per cent in 2021 and 3.2 percent in 2022.
The forecasted economic recovery in 2021 and beyond largely hinged on vaccine
rollouts which will allow for the opening up of economies. However, limited
resources, vaccine supply bottlenecks and logistical impediments are expected to
delay vaccine distribution coupled with risks that include emergence of more
contagious strains of the virus, social-distancing fatigue and vaccine hesitancy which
can slow down vaccination programmes in the region. This can undermine economic
recovery and ultimately dampen the growth prospects for the region.

Annual inflation rate in the SADC region is projected to ease to 15.4 per cent in 2021
on the back of significant disinflation in Zimbabwe to an average inflation of 134.8
per cent in 2021 from 654.9 per cent in 2020. Inflation is expected to increase above
the regional benchmark for Angola, DRC, Malawi, Zambia and Zimbabwe.

The debt burden is expected to worsen for SADC Member States with public debt
forecasted to further increase to 66.2 per cent of GDP in 2021. Member States’
expenditure continued on an upward trend as Member States invested heavily in the
public health system to mitigate human and economic impact of the coronavirus.
This will result in a mismatch of expenditures and revenues which will further widen
the fiscal deficit and worsen Member States’ debt position. Only six Member States
(Botswana, DRC, Eswatini, Madagascar, Malawi and Tanzania) are projected to
achieve the 60 percent of GDP regional set target for the public debt in 2021.

Overall, Member States are projected to underperform in achieving the agreed

macroeconomic convergence indicators in 2021. Similar to 2020, only the United
Republic of Tanzania is projected to meet the set targets of the Primary
Macroeconomic Indicators (Inflation, Fiscal Deficit and Public Debt) in 2021.

39
 7.2 Risk
After contracting steeply last year, growth in the region is forecast to resume at only
a modest pace in 2021-22, with particularly sluggish recoveries in private
consumption and investment. The pandemic is expected to leave lasting scars on
already slowing potential growth. Falling per capita incomes mean that living
standards have been set back by a decade or more in SADC economies.

Policymakers aiming to rekindle their economies now have fewer resources at their
disposal and will likely face some difficult choices. On current trends, significant
financing gaps are likely to prevail, and without significant additional financial
assistance, many countries will struggle to simply maintain macroeconomic stability
while also meeting the basic needs of their populations.

The region will likely face additional hurdles in the distribution of pandemic vaccines
which could further dampen the recovery. Persistently wide budget deficits and
growing interest burdens could raise debt sustainability concerns in some economies
Despite upward revisions to the projected pace of recovery in China, growth in major
economies and key trading partners of the region could still disappoint. A weaker-
than anticipated recovery in SADC region could be the result of lingering adverse
effects of the pandemic, or the delayed distribution of effective vaccines, especially if
combined with a marked uptick in new domestic cases. Moreover, new waves of
infections would slow growth in non-regional trading partners, which would dampen
the projected growth pickup in SADC through lower export demand, particularly, for
tourism and reduced investment.

Although there has been substantial progress in COVID-19 vaccine development,

wide scale vaccine distribution in the SADC region is likely to face many hurdles.
These include poor transport infrastructure and distribution systems, weak health
system capacity to implement largescale vaccination programs, and outdated or
insufficient cold storage systems to preserve vaccines.

The banking industry may still face an increases in nonperforming loans as

companies struggle to service their debt due to falling revenues. The risk is
substantial if the unprecedented fiscal and monetary support undertaken by several
countries is prematurely withdrawn.

The pandemic may also have worse-than-expected longer-term effects on regional

growth. These could emanate from the effects of higher debt loads on investment,
the impact of lockdowns, the impact of the second and third wave, and constrained
fiscal space.

7.3 Recommendations
The following recommendation are important for the short to medium-term in the
region:
 Sound debt management and transparency remains important in the short to
medium term to avoid overburdening the future generations. This include
keeping borrowing costs in check is important for the restoration of debt
sustainability and management of fiscal risks.
 While support from international corporation has gone a long way in keeping
SADC Member States afloat by providing some breathing room for financially
40
 strained economies during the first wave of COVID-19, some countries are
still struggling to pay their sovereign debts.
 Fiscal and monetary support for banking industry which are still grappling with
nonperforming loans increases as companies struggle to service their debt
due to falling revenues should not be is withdrawn prematurely.
 Bolstered investments in broadband infrastructure could help Member States
leverage digital technologies.
 Member States are encouraged to ensure that healthcare systems are
adequately resourced, including funding vaccine purchases and distribution
as well as continuing investment in testing, therapies, and personal protective
equipment.
 Member States are urged to continue with fiscal and monetary policy
measures till the economic recovery is firmly underway.

41
Annex1: SADC – Primary Macroeconomic Convergence Indicators and GDP (2016 – 2021)
2016 2017 (Revised) 2018 (Revised) 2019 (Revised) 2020 (Provisional) 2021 (Projections)

Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal

Public Public Public Public Public Public
Inflation Deficit Real GDP Inflation Deficit Real GDP Inflation Deficit Real GDP Inflation Deficit Real GDP Inflation Deficit Real GDP Inflation Deficit Real GDP
Debt (60% Debt (60% Debt (60% Debt (60% Debt (60% Debt (60%
(3-7%) (3% of (7%) (3-7%) (3% of (7%) (3-7%) (3% of (7%) (3-7%) (3% of (7%) (3-7%) (3% of (7%) (3-7%) (3% of (7%)
of GDP) of GDP) of GDP) of GDP) of GDP) of GDP)
GDP) GDP) GDP) GDP) GDP) GDP)
Angola 30.4 -3.8 76.6 -2.6 30.4 -2.9 66.0 -0.1 19.7 2.0 91.0 -2.0 17.1 0.6 113.0 -0.6 22.2 -1.5 129.0 -5.2 22.5 2.6 100.0 0.9
Botswana 2.8 0.6 21.1 4.3 3.3 -1.1 18.1 2.9 3.2 -4.6 17.9 4.5 2.8 -3.9 17.6 3.0 1.9 -5.6 18.3 -7.9 5.6 -8.2 21.5 8.8
DRC 3.2 -0.5 17.6 2.4 39.2 0.0 18.1 3.7 31.0 -0.4 11.0 5.8 4.9 0.0 11.0 4.4 9.0 -1.2 12.3 1.7 8.6 -0.3 13.4 3.8
Eswatini 7.8 -8.6 19.2 1.1 6.3 -6.0 21.1 2.0 4.8 -6.9 29.5 2.4 2.6 -6.2 36.0 2.2 3.9 -8.1 36.8 -2.4 4.3 -8.1 36.3 2.7
Lesotho 6.6 -8.7 35.4 3.6 5.3 -2.1 36.0 -3.2 4.1 -4.1 42.4 -1.2 5.2 -4.8 45.2 2.2 5.0 0.5 69.6 -5.6 5.2 -9.5 68.5 4.5
Madagascar 6.7 -1.7 35.2 4.0 8.6 -2.0 34.9 3.9 8.6 -2.2 30.3 3.2 5.6 -1.3 28.8 4.4 4.5 -2.9 36.2 -4.2 5.4 -6.6 39.8 3.2
Malawi 21.6 -2.8 57.8 2.7 11.5 -2.8 43.3 5.2 9.2 -4.4 45.7 4.4 9.4 -4.6 45.0 5.4 8.6 -6.6 53.8 0.9 8.4 -8.4 49.6 3.8
Mauritius 1.0 -3.5 59.3 3.8 3.7 -3.5 59.0 3.8 3.2 -2.9 57.0 3.8 0.5 -3.2 58.0 3.0 2.5 -11.8 75.0 -14.9 3.0 -5.6 85.9 5.4
Mozambique 19.9 -5.5 111.5 3.3 15.1 -3.4 82.0 3.7 3.9 -7.8 86.0 3.4 2.8 -1.5 79.0 2.2 3.1 -3.9 62.7 -1.3 5.6 -5.3 123.5 2.3
Namibia 6.7 -8.3 39.9 0.0 6.2 -7.1 42.8 -1.0 4.3 -5.1 48.3 1.1 3.7 -5.0 56.1 -0.6 2.2 -9.5 62.4 -8.0 3.2 -8.7 65.8 2.7
Seychelles -1.0 -0.3 73.0 4.6 2.9 0.0 66.0 4.4 3.1 3.0 62.0 4.1 1.7 2.6 59.0 3.5 3.8 -19.2 96.0 -13.5 2.9 -6.0 85.0 4.6
South Africa 6.3 -3.9 50.5 0.4 5.3 -4.1 53.0 1.4 4.6 -4.0 56.6 0.8 4.1 -5.7 63.3 0.2 3.3 -14.0 80.3 -7.2 3.9 -9.3 81.9 3.3
Tanzania 5.2 -2.6 40.0 6.9 5.3 -0.3 41.0 6.8 3.5 -1.7 41.3 7.0 3.4 -2.5 39.9 7.0 3.3 -2.0 39.1 4.8 3.5 2.6 39.2 5.7
Zambia 18.2 -5.8 46.7 3.8 6.6 -6.1 53.8 3.4 7.9 -7.0 58.0 3.5 11.7 -9.1 75.5 1.4 15.7 -14.4 118.3 -3.0 13.3 -9.0 119.6 1.6
Zimbabwe -1.6 -6.8 54.1 0.8 0.9 -9.4 67.5 4.7 10.6 -6.0 46.9 5.5 173.3 0.3 88.1 -6.0 654.9 -0.5 78.4 -4.1 134.8 -1.3 64.5 7.4
SADC AVERAGE 8.9 -4.1 49.2 2.6 10.0 -3.4 46.8 2.8 8.1 -3.5 48.3 3.1 16.6 -3.0 54.4 2.1 49.6 -6.7 64.5 -4.7 15.4 -5.4 66.3 4.0
NO. ACHIEVING
10 6 12 0 10 8 11 0 9 6 12 1 11 7 10 1 10 6 6 0 10 4 6 3
TARGET

Source: Member States; WEO Database April 2021; and African Economic Outlook 2021
GDP 2016-19 SADC Statistics Committee June 2020

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