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Integrated Paper on
Recent Economic Developments
in SADC
Prepared for the Committee of Central Bank Governors in SADC
by
Banco Nacional de Angola
September 2012
2
TABLE OF CONTENTS 1. Introduction ................................................................................................................. 5
2. Overview of Economic Developments in 2011 and Prospects for 2012 ..................... 5
2.1 Global Economy ...................................................................................................... 5
2.2 Advanced Economies .............................................................................................. 6
2.3 Emerging and Developing Economies .................................................................... 6
2.4 Sub-Saharan Africa ................................................................................................. 7
2.5 Global Inflation Developments ............................................................................... 8
2.6 Implication on Monetary Policy ............................................................................ 10
2.7 Threats to Global Economic Activity .................................................................... 10
2.8 Capital Flows to Africa ......................................................................................... 10
3. Economic Developments in SDAC ........................................................................... 11
3.1 Overview of Economic Growth ............................................................................. 11
3.2 Inflation Developments ......................................................................................... 12
3.3 Causes of Inflation in the SADC Region ............................................................... 13
3.4 Domestic Economy ................................................................................................ 14
3.5 Per Capita Income ................................................................................................ 16
3.6 Unemployment ...................................................................................................... 16
3.7 Private and Public Consumption .......................................................................... 17
3.8 Private and Public Investment .............................................................................. 18
3.9 Monetary Developments........................................................................................ 18
3.10 Interest rates ......................................................................................................... 19
3.11 Inflation ................................................................................................................. 21
3.12 Public Finance ...................................................................................................... 21
3.13 Foreign Trade and Payments ................................................................................ 23
3.13.1 Regional Trade ...................................................................................................... 23
3.14 Balance of Payments ............................................................................................. 25
3.15 Foreign Direct Investment (FDI) Inflows ............................................................. 26
3.16 Foreign Reserve’s Position ................................................................................... 27
3.17 Exchange Rate Developments (end-of-period nominal exchange rate) ................ 28
4. Developments in the SADC Energy Sector .............................................................. 29
5. Status of Macroeconomic Convergence in 2010 ....................................................... 33
5.1 Primary Convergence ........................................................................................... 33
5.1.1 Inflation Rate (5%) ................................................................................................ 33
5.1.2 Budget Deficit to GDP (less than 3%) .................................................................. 34
5.1.3 Public Debt to GDP (less than 60% of GDP) ....................................................... 35
5.2 Secondary Targets ................................................................................................. 35
5.2.1 International Reserves (at least 6 months of import cover) .................................. 35
5.2.2 Real GDP Growth (not less than 7 %) .................................................................. 36
5.2.3 Current Account to GDP (less than 9 %) .............................................................. 37
6. Macroeconomic Convergence Challenges and Possible Solutions ........................... 38
7. Prospects over the Medium Term and Conclusions .................................................. 40
8. References ................................................................................................................. 42
3
9. APPENDICES .......................................................................................................... 42
9.1 Appendix I: Charts for Commodity Prices ................................................................ 42
9.2 Appendix II: Exchange Rate Regimes in the SADC region ..................................... 44
9.3 Appendix III: Prospects for 2012 .............................................................................. 46
9.4 Appendix IV: SADC Macroeconomic Information .................................................. 47
9.5 Appendix V: Macroeconomic Convergence Targets Non-Compliance: Causes &
Countries’ Strategies ......................................................................................................... 48
4
EXECUTIVE SUMMARY
This paper reviews the recent economic developments in Southern African Development
Community (SADC) in 2011 and assesses the region’s progress towards the attainment of
macroeconomic convergence targets in a context of global uncertainty and financial turmoil
in the Euro Area. As a consequence, global aggregate demand was affected and world
economic activity experienced a slowdown, from 5.3% in 2010 to 3.9% in 2011 (IMF, ). For
the community, there was a major concern with fiscal sustainability and financial sector
stability.
In response to these negative performance indicators, economic activity in the region
expanded 5.07% in 2011, whereas in 2010 economic growth reached 5.94%. Given rising oil
and food prices, most member countries experienced a rise in domestic inflation rates.
SADC region has an immense growth potential associated to natural resources availability.
Investment opportunities arise in mining, agriculture, manufacturing, financial services,
ICT1, tourism and infrastructural development. Yet, the region performance continued to fall
short of its potential due to global economic slowdown. This underscores the need for sound
fiscal and monetary policies in order to sustain macroeconomic stability and robust economic
growth. Moreover, it urges the need for extensive reforms to unlock the region productive
potential, promote trade and financial sector development, as buffers to mitigate disruptive
effects associated to the increasingly uncertain global environment.
On average, main macroeconomic convergence indicators presented a small deterioration in
2011. Budget deficit to GDP and Public debt to GDP ratios experienced a slight increase,
while reserves import cover (in months) were somehow reduced. Nevertheless, budget deficit
and public debt to GDP convergence targets were met in this period.
In line with an uncertain international environment, SADC countries generally adopted soft
economic policies as a general strategy to prompt growth. In general, reference interest rates
were either maintained or reduced.
World GDP growth short-run prospects are still uncertain as sovereign debt crisis and
financial turmoil in Europe remains. Economic developments in Europe and in the U.S. will
strongly define prospects for SADC region.
In the region, economic activity is hampered by infrastructural problems, energy sector
inefficiencies, strong dependency of primary commodities, uncertainty coming from financial
stress in Euro Area and a possible rise in oil prices arising from geopolitical tensions in the
Middle East.
1 Information and Communication Technologies
5
1. Introduction
This paper is the ninth edition of the Integrated Paper on Recent Economic Developments in
the Southern African Development Community (SADC). The paper outlines the global and
regional economic developments, with special emphasis on the economic developments in
the SADC region. It assesses the progress and challenges faced by member countries as part
of SADC macroeconomic convergence programme, exploring the key drivers of economic
growth and inflationary pressures in the region. The paper also presents a brief perspective
for 2012.
The paper is organized as follows: Section 2 explores the global and regional economic
developments in 2011 and outlook for 2012. Section 3 describes the economic performance
in the SADC region in 2011, with focus on developments on key macroeconomic indicators
including Gross Domestic Product (GDP), money supply, inflation, fiscal and external sector
developments. Section 4 highlights developments in energy sector. Section 5 reviews the
status of macroeconomic convergence in SADC, while section 6 discusses the challenges
towards attainment of the macroeconomic convergence targets. Section 7 reviews economic
prospects for 2012 and proffers some final recommendations.
It is noteworthy that the data used in this paper is based on the reports on Recent Economic
Developments submitted by individual SADC Member central banks. Where data was not
readily available, other sources were used, namely, International Monetary Fund (FMI), Food
and Agriculture Organization (FAO), Index Mundi and Bloomberg.
2. Overview of Economic Developments in 2011 and Prospects for 2012
2.1 Global Economy
In 2011, world economic activity experienced a slowdown, moving from a growth rate of
5.3% in 2010, to a rate of 3.9% in 2011 (IMF, 2012). Growth rates for both advanced and
emerging and developing economies were affected by the reduction in global aggregate
demand in response to events in the global economy. In the Euro Area, sovereign debt crisis
aggravated, while in the U.S. economic growth fell short of the expected for this period. Post-
tsunami industry standstills in Japan and geopolitical tension in the Middle East also
contributed to world economic activity slowdown.
For 2012, IMF expects world economy to grow 3.5%, associated to rising uncertainty about
the outcome of the Euro crisis, high unemployment rates, global fiscal adjustment needs and
prospects of economic slowdown in the emerging and developing economies – as a
consequence of reduced global aggregate demand.
6
Figure 1: Global Economic Growth Rates
Source: IMF World Economic Outlook , April 2012
2.2 Advanced Economies
Advanced economies are projected to grow 1.4% in 2012, against a 1.6% growth in 2011
(IMF, 2012). In Europe, Greece has not yet succeeded in emerging from economic crisis
despite international financial support. Both Spain and Italy face problems with elevated
yield spreads, and particularly Spain was led to a financial assistance request for the
recapitalization of domestic financial institutions. As a consequence of severe natural events,
Japan experienced an industrial output standstill, while the U.S. faced an economic
slowdown. All these events contributed to reduced growth rates in advanced economies.
Euro area economy is expected to contract in 2012 by 0.3%, while in 2011 growth rate was
1.5%, due to uncertainty arising from the urge for improvement of financial and economic
programmes supporting debt-affected countries as to reduce the risks of contagion to other
member countries, together with further progress on fiscal union.
Economic growth rates for the U.S. are projected to reach 2% in 2012, against a 1.7%
registered in 2011, fuelled by boosted aggregated consumption, enhanced labour and credit
market performances, although unemployment rates remain high. In Japan it is projected an
economic rebound, with growth reaching 2.4% in 2012, against a -0.7% growth rate in 2011.
2.3 Emerging and Developing Economies
Emerging and developing economies are projected to grow 5.6% in 2012, compared with
6.2% registered in 2011, underpinned by continued robust growth in Asia, led by China and
India. Nevertheless, it is expected some degree of economic slowdown in most countries,
driven by world trade reduced dynamics, with diminished imports and exports, and a
reduction in advanced economies demand and domestic consumption.
Recent strong growth in Latin America and the Caribbean is projected to slowdown, with a
projection of 3.4% growth for 2012, against a 6.2% and 4.5% in 2010 and 2011, respectively.
-6
-4
-2
0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
World Advanced Economies Emerging Economies
7
Economic slowdown in these countries might be related to production levels decline, mainly
in Brazil.
High commodity prices in international markets and attractive external financing conditions
allowed for strong economic growth in South America in recent years. Yet, Latin America
economic performance might be endangered by close connection to the American and
Chinese economies that have been showing signs of economic downturn.
Economic activity in the Middle East remains robust, between 5.5% in 2012, above a 3.5%
growth registered in 2011, spurred by oil producing countries, mostly Libya, given that oil
production is expected to rebound to levels prior to the world financial crisis.
In some low income countries of Latin America, Asia and Sub-Saharan Africa, economic
activity might be affected by reduced global economic growth, due to export reduction and
capital flows volatility, despite commodity prices increase.
2.4 Sub-Saharan Africa
Despite a weak global economic performance, Sub-Saharan Africa growth was robust in
2011, reaching 5.2% in 2011, along with 5.3% in 2010. In this region, production went up by
5% in 2011, with positive perspectives for 2012.
However, economic activity remains hampered by inefficiencies in infrastructures and energy
sectors, dependency on primary commodities and financial stress risk coming from the euro
area, along with the possibility of rising oil prices as geopolitics tensions in the Middle East
intensify.
The region is thus exposed to external shocks, with rising food and oil prices pressuring
inflation and contributing to current account imbalances in most countries.
Figure 2: Economic Growth Trends (World versus Sub-Saharan Africa)
Source: IMF World Economic Outlook, April 2012
-1
0
1
2
3
4
5
6
7
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
World Sub-Sahan África
8
Figure 2a: Economic Growth Trade (world)
Source: IMF World Economic Outlook, April 2012
2.5 Global Inflation Developments
According to IMF, global headline inflation accelerated in 2011 to 4.45%, against 4.19% in
end-2010. Inflation for 2012 is projected to fall to 3.41%. Advanced economies will continue
to face modest inflationary pressures fuelled by reduced commodity prices. Inflation in these
economies is projected to be about 2% in 2012, against 2.5% in 2011, while emerging
economies inflation will evolve from 6.53% in 2011 to 6.21% prospect in 2012.
In Sub-Saharan Africa countries inflationary pressure is expected to stay quite elevated,
reflecting higher food and oil prices (along with robust demand for these commodities),
adverse climatic conditions in some countries and accommodative monetary and fiscal
policies.
Figure 3: Global Inflation Developments
Source: IMF World Economic Outlook, April 2012
Source: FAO, 2012
-2
0
2
4
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
World
World
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
16,00
18,00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
World Advanced Economies Emerging Economies Sub-Sahan África
9
Box 1: Food prices and Prospects for 2012
Food prices have been on a downward trajectory since February 2012. In July
2012, however, these commodities’ prices picked up once again. The reasons
underlying this abrupt variation are related to droughts in farming areas in the
U.S., unusual overheating period during crops’ growth stage, depletion in
Russian crops, late precipitation in Brazil, and insufficient rainfalls in some
African, Asian and Latin American countries that are global food suppliers.
The FAO (Food and Agriculture Organization) food price index is a measure of
the monthly change in international prices of a basket of food commodities and
it consists of the average of five commodity group price indices. In 2012, this
indicator increased by 6% between June and July, and had already exhibited a
strong increase in February.
The most recent peak is related to an increase in grain and sugar prices. In June,
cereal, oil/fats and sugar price indices increased by 17%, 2% and 12%,
respectively, while meat prices fell by 1.7% and dairy prices maintained.
As food price increases, the risks of a global food crisis escalate. Such an event
would endanger food security and good nutrition in several countries in Asia,
The Middle East, The Caribbean and mostly in Africa.
Given some recent recovery in climate conditions in the U.S., FAO reviewed
reference food production projections for 2012/2013 periods, as follows:
(millions tonnes) 2010/11 2011/12
(estimate)
2012/13
(forecast)
2012/2013
(% Δ)
Production 2,254.5 2,344.3 2,419.1 3.2
Developing Countries 1,315.8 1,344.1 1,371.4 2.0
Developed Countries 938.7 1,000.2 1,047.7 4.7
Trade 281.5 295.5 296.6 0.4
Developing Countries 90.9 88.5 90.1 1.7
Developed Countries 190.6 207.0 206.6 -0.2
Stocks 499.9 511.8 547.6 7.0
Developing Countries 349.6 366.6 385.0 5.0
Developed Countries 150.3 145.2 162.6 12.0
Source: FAO, 2012
10
2.6 Implication on Monetary Policy
Some countries – mostly in Asia - use accommodative monetary policy as a response to
global economic slowdown. However, as inflationary pressure eased in the first semester of
2012, renovated policy incentives are expected to take place.
2.7 Threats to Global Economic Activity
Sovereign debt crisis and budget deficit financing problems in the Euro Area constitute the
main threat to global economic activity. Aggravated debt levels in Greece resulted in a
second EU/IMF financing loan in March 2012, while another financing loan was agreed upon
to fight Spanish banking sector problems in July. Rating agencies downgraded Spain and
maintained low rating for Portugal, Greece and Italy.
Capital volatility is being pressured upwards by increased risk appetite and capital gains
possibilities in countries like Brazil, China and South Africa, as a consequence of interest rate
reduction in advanced economies.
2.8 Capital Flows to Africa
The last six months of 2011 were characterized by high risk aversion, massive asset sales in
domestic stock markets and increased financial markets volatility. Nonetheless, global capital
flows to Sub-Saharan Africa went up by 5% in 2011.
As these capital flows are directed mainly to tangible assets, capital volatility didn’t have a
significant impact in the region economy. Foreign Direct Investment (FDI) represented about
70% and 60% of capital flows to Sub-Saharan Africa (SSA) and developing countries,
respectively. According to recent IMF publications, the number of FDI projects expanded by
27% in 2011. Most of these projects comprise services, manufacturing, construction and
infrastructures sectors. Additionally, FDI across SSA countries represented 17% of new
projects in 2011 (with a 32% growth in the same year), reflecting growing capital dynamics
from countries like South Africa, Nigeria and Kenya to other countries in the region.
11
Figure 4: Sub-Saharan Africa Private Financing Flows
Source: World Bank
F-forecast
3. Economic Developments in SDAC
3.1 Overview of Economic Growth
Economic activity in SADC region was greatly affected by global economic slowdown with
origin in advanced and emerging countries. Weak global economic performance caused
aggregate demand to fall, negatively affecting the region economic activity, which was on a
recuperation path from the international financial crisis.
Inflationary pressures took place in most member countries in 2011 given rising international
food and oil prices. In fact, average inflation rate in the region evolved from 7.29% in 2010 to
7.71% in 2011.
For the same period, member countries’ international reserves average stock suffered a
reduction. Nevertheless, budget deficit and public debts remained on a good path, according
to the limits established by the macroeconomic convergence programme.
According to IMF, global economy is expected to slowdown in this period as a response to
international markets tension. Risk related to uncertainty about the outcome of Euro crisis,
high unemployment rates; capital flow volatility and high commodity prices can trigger the
surge of economic imbalances in SADC countries.
-10
0
10
20
30
40
50
60
70
2008 2009 2010 2011 2012 F 2013 F
US$
Bill
ion
Portfolio FDI Other short time Capital Flow Total
12
Figure 5: SADC Average Economic Growth Rates
Source: SADC Central Banks
3.2 Inflation Developments
Inflation in the SADC region surged in 2008 largely on account of high cost of imported food
and rising international oil prices. In 2009 and 2010, inflation exhibited a declining trajectory
as international food prices began to slow down.
However, international financial crisis side effects resulted again in increased food prices and
rising inflationary pressures in the region, for 2011. Mention worthy is the fact that food is a
major component of the consumption basket. Thus, any small increase in food prices can
build up new inflationary pressures.
In general, inflation is expected to accelerate in 2012, given financial turmoil and European
sovereign debt risks maintain.
Figure 6 below demonstrates how inflation in the SADC region is related to international
food and oil price developments and section 3.3 discusses inflation developments in
individual SADC countries.
0%
1%
2%
3%
4%
5%
6%
7%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
13
Figure 6: Inflation in SADC Countries and commodity prices developments
Source: SADC Central Banks Source: Index Mundi
3.3 Causes of Inflation in the SADC Region
Inflationary pressures in the SADC region are mainly due to high food and energy prices,
wage increases, fiscal reforms and exchange rate movements. Member countries report that,
given the relatively high weight of food and energy components in the consumer price index,
price fluctuations of these commodities contribute to general prices volatility. Any significant
shock to oil prices will put considerable pressure on domestic prices as most countries in the
region are oil importers.
Moreover, increases in food prices mainly emanate from food shortages due to frequent
droughts in the region, which over the years has been an impediment to adequate production
of food. In some SADC countries, droughts occur every 3 to 5 years and economies are urged
to put in place appropriate drought mitigating programmes, for example, the establishment of
irrigation infrastructure. A surge in world food prices, coupled with shortages of grain in
most SADC countries, also results in a significant impact on inflation.
Movements in the South African rand against the United States dollar also exert considerable
inflationary pressure on some regional economies, namely Zimbabwe, Botswana, and
Mozambique that rely heavily on imports from South Africa. An appreciation of the South
African rand against the United States dollar will automatically translate into price increases
in these countries.
To cushion the adverse inflationary and welfare effects, some countries have preserved price
control policies and subsidies. For instance, Mozambique has introduced price controls
covering several commodities such as bread, sugar, maize, and rice. At the same time, some
countries, notably, Mauritius, continue to make use of administered prices and/or introduced
food and fuel price subsidies (Mozambique).
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
18,0
2006 2007 2008 2009 2010 2011 2012
Inflation
0
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2006 2007 2008 2009 2010 2011 2012
Food Crude Oil
14
In the case of Angola, inflation causes are both monetary and structural related.
Notwithstanding, inflation is on a downward trajectory, in line with general expectations, as a
consequence of sound monetary and fiscal policies coordination. The recent overhaul of
BNA’s monetary policy improves the operational framework for central bank operations and
enhances monetary policy transmission mechanisms, contributing to inflation reduction
objectives. The new framework establishes new policy instruments, as the permanent
liquidity facility (PLF) and open market operations for liquidity absorption. It also introduces
BNA’s “reference rate” as a key monetary policy signal, as well as LUIBOR (Luanda
Interbank Offered Rate) which is used as reference short-term interest rate for credit
operations. To formalize and strengthen analysis on developments in the financial sector and
to improve communication with the market, the BNA has created a Monetary Policy
Committee (MPC), which gathers on a monthly basis. The Committee disseminates regular
information on monetary conditions – reference interest rates – and inflation outlook.
In SADC countries it is employed either inflation targeting or monetary targeting to keep
inflation under control.
3.4 Domestic Economy
Following improved economic performance in 2010, economic activity in the SADC region
decelerated somewhat in 2011, due to global economic activity slowdown as a result of
Europe economic crisis. Against this background, GDP growth in the SADC region is
estimated to have decreased to an average of 5.07 percent in 2011 from an average of 5.94
percent in 2010. All the countries in the region registered positive growth rates in 2011,
though less than experienced in 2010, excepting for Angola, South Africa and Mozambique.
Mozambique and Zimbabwe recorded GDP growth rates of at least 7% in 2011. Mozambique
presents a 7.1% growth rate driven by financial services, agriculture, mining, transportations
and communications services. Growth in Zimbabwe reached 9.4% in 2011 fueled by mining
(36.7%), agriculture (11.2%) and manufacturing (4.2%) sectors.
Botswana, Democratic Republic of Congo (DRC), Lesotho, Malawi, Mauritius, Seychelles,
Tanzania and Zambia exhibited growth rates between 4% and 6% in 2011. Botswana’s
growth was driven by a general growth in all economic sectors (except mining), especially
the construction, manufacturing, with 25% and 12.1% growth rates, respectively.
Growth in Lesotho (4.2%) in 2011 was spurred by mining sector recovery (14.5%), through
opening of preciously closed mines and new investments in the sector. The growth in Malawi
(4.3%) was underpinned by robust growth in the agriculture sector, 6.4% in 2011 against a
2% growth in 2010.
Mauritius grew by 4% in this year due to developments in the housing and services markets,
while Seychelles based its growth (5%) mainly on tourism industry. Zambia’s growth of
about 6% was driven by increased mining and agriculture output, and positive developments
in transportation, communications, and tourism and construction sectors. In addition, sound
economic policies that aim at enhance economic activity diversification and competitiveness.
15
Namibia, Angola and South Africa experienced growth rates of about 3%. Namibia’s growth
(3.8%) was fueled by secondary (4.4%) and services (5.9%) sector developments. Secondary
sector growth was mainly boosted by construction and other manufacturing, as well as retail
trade and wholesale trade activities. Tertiary sector growth related to transport and
communication developments.
Angola’s growth (3.9%) in 2011 was spurred by oil sector growth, trade-related activities,
agriculture, and construction sectors. These activities contributed to total economic output
growth by 48.9%, 19.9%, 9.3% and 7.9%, respectively. The oil sector is the top contributor to
GDP growth, though other sectors exhibit higher growth. In fact, robust growth was achieved
by fishing (17.2%), manufacturing (13%) and construction sectors (12%). South Africa
experienced a 3.1% growth sustained by tertiary growth developments.
Swaziland exhibited a much less favorable GDP growth rate (1.2%) with a small reduction
from 2010 scores. This was mainly due to tertiary sector poor performance related to
increased fiscal short-term financial needs in 2010 and 2011. Fiscal crisis arising from
SACU2’s reduced revenues in 2011, along with non-existent alternative financing
possibilities, had a major impact on economic activity. Government’s financial needs resulted
in reduced public expenditure and domestic debt accumulation, and the contagion to the rest
of the economy, specially the tertiary sector. Only agriculture production and food industry
were able to achieve a positive economic performance and hold back the country’s poor fiscal
stance.
Figure 7: SADC Real GDP Growth Rate (%)
Source: SADC Central Banks
2 Southern African Customs Union
0
2
4
6
8
10
12
An
gola
Bo
tsw
ana
DR
C
Leso
tho
Mal
awi
Mau
riti
us
Mo
zam
biq
ue
Nam
ibia
Seyc
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Sou
th A
fric
a
Swaz
ilan
d
Tan
zan
ia
Zam
bia
Zim
bab
we
2010 2011
16
3.5 Per Capita Income
Average GDP per capita in the region registered a 1.57% increase in 2011, reaching USD
3,243.8 in this period, against USD 3,061.2 in 2010. In 2011, top income SADC countries
are: Seychelles, Mauritius, South Africa, Angola and Botswana, with GDP per capita USD
11,519, USD 8,796, USD 7,891, USD 5,703.8 and USD 2,163 respectively. Except for
Swaziland and Zambia, all the remaining countries registered per capita income below USD
1,000.
Figure 8: SADC per Capita Income (USD)
Source: SADC Central Banks and IMF (Angola)
3.6 Unemployment
Data on unemployment rates is not readily available for most SDAC countries. Although data
on this indicator is made available by independent organizations, this paper considers solely
information provided by SADC countries’ central banks.
Based on this information, average unemployment rate in the region was 24.9% in 2011. Data
revealed that the highest unemployment rate is registered in DRC (51%), against the lowest
rate registered in Seychelles (1.7%). In between these two cases, some countries still present
relatively high unemployment rates, like Swaziland, Lesotho and South Africa, with 28.5%,
25.3% and 24.9%, respectively.
0,00
2.000,00
4.000,00
6.000,00
8.000,00
10.000,00
12.000,00
14.000,00
An
gola
Bo
tsw
ana
DR
C
Leso
tho
Mal
awi
Mau
riti
us
Mo
zam
biq
ue
Nam
ibia
Seyc
hel
les
Sou
th A
fric
a
Swaz
ilan
d
Tan
zan
ia
Zam
bia
Zim
bab
we
SAD
C A
vera
ge
2010 2011
17
Figure 9: Official Unemployment Rate in SADC
Source: SADC Central Banks
3.7 Private and Public Consumption
Private consumption expenditure as percentage of GDP continued to account for the bulk of
GDP expenditure in the SADC region, averaging 74.05% in 2011, a marginal increase from
64.94% in 2010 (see Table 1) Public consumption on the other hand decreased by 0.7
percentage points from 16.1% in 2010 to 15.4% in 2011. Lesotho, Mauritius, South Africa,
Zimbabwe, Swaziland and Zambia registered high public sector expenditures in 2011.
Table 1: Private and Public Consumption as Percentage of GDP, 2010 and 2011
Description
Private Public
2010 2011 Change 2010 2011 Change
Angola - - - 28.5 30.10 1.6
Botswana 41 - - 23 - -
DRC 64.95 74.8 9.85 11.87 8.7 -3.17
Lesotho 103 95.5 - 37.2 42.4 -
Malawi - - - - - -
Mauritius 73.7 73.3 -0.01 13.9 13.4 -0.5
Mozambique 83.4 - - 13.2 - -
Namibia 10.5 10.1 -0.04 2.4 2.3 -0.1
Seychelles - - - - - -
South Africa 59.2 58.6 -0.01 21.5 21.5 0
Swaziland 90 89.9 - 14.7 15.5 -
Tanzania 62.6
- 16.1 - -
Zambia 54.6 51.1 - 16.4 15.3 -
Zimbabwe 103.4 79.6 - 16.6 18.4 -
SADC Average 64.95 74.05 0.14 16.1 15.4 -0.7
Source: SADC Central Banks
0%
10%
20%
30%
40%
50%
60%
An
gola
Bo
tsw
ana
DR
C
Leso
tho
Mal
awi
Mau
riti
us
Mo
zam
biq
ue
Nam
ibia
Seyc
hel
les
Sou
th A
fric
a
Swaz
ilan
d
Tan
zan
ia
Zam
bia
Zim
bab
we
SAD
C A
vera
ge
2010 2011
18
3.8 Private and Public Investment
Private investment as a percentage of GDP in the SADC region increased by 1.85 percentage
points from an average of 15.5% in 2010, to 17.35 percent in 2011 (see Table 2). Public
sector investment (% of GDP) declined marginally by 0.5 percentage points in 2011 from an
average of 6.8% in 2010 to an average of 6.3% in 2011.
Table 2: Private and Public Investment as Percentage of GDP, 2010 and 2011
Description Private Public
2010 2011 Change 2010 2011 Change
Angola - - - 9.7 8.7 -1.0
Botswana - - - - - -
DRC 21.86 18.82 -3.04 2.35 2.02 -0.33
Lesotho 28.36 23.6 -4.76 5.16 10.05 4.89
Malawi - - - - - -
Mauritius 18.8 18.2 -0.6 6.1 5.5 -0.6
Mozambique 2.2 - - 13.9 - -
Namibia 15.5 16.5 1 6.8 - -
Seychelles - - - 8.7 9.8 1.1
South Africa 12.2 11.8 -0.4 7.4 7.1 -0.3
Swaziland 4.8 4.6 -0.2 5.3 5.1 -0.2
Tanzania 36.1 50.1 14 8.1 8.1 0
Zambia - - - - - -
Zimbabwe -26.8 -2.4 24.4 6.8 4.4 -2.4
SADC Average 15.5 17.35 1.85 6.8 -0.5 7.3
Source: SADC Central Banks
3.9 Monetary Developments
Money supply (M2) growth as percentage of GDP for the SADC region, declined by 4.2
percentage points, from an average of 19.7% in 2010 to 15.5% in 2011. The decline in money
supply was most notable in DRC (12 p.p.), Lesotho (11.1 p.p.), Seychelles (23.01 p.p.) and
Zimbabwe (35.3 p.p.). Money supply growth also declined in Botswana, Mauritius,
Swaziland, Tanzania and Zambia. Money supply growth in Swaziland has been on a
downward trend since 2009, from a 26.8% growth rate to 7% in 2010 and 3% in 2011.
Under the multicurrency regime, Zimbabwe operates under tight liquidity conditions. Since
2009, money supply in the country is determined by exports revenue and external capital
flows related to either public or private sector activities. Given that external sector
performance has been improving, money supply growth remains high (68.5% in 2010 and
33.2% in 2011). However, the country continues facing liquidity constraints and poor
aggregate demand that result in limited financial intermediation.
19
Money supply growth in Angola, Malawi, Mozambique and Namibia, however, increased in
2011, by 19.52, 12.9, 1.1 and 2.7 percentage points, respectively. In Angola money supply
growth (33.51%) in 2011 reflects an increase in time and savings deposits - in local and
foreign currency – of about 45% each, as well as an increase in net foreign assets.
In South Africa money supply primary indicator is M3, which growth rate registered a 1.4
percentage points increase in 2011. However, M3 growth has been on a downward trajectory
since 2010 reflecting steady low revenue and expense growth, domestic inflationary pressure
and short-term capital flight.
In Malawi money supply (M2) growth increased by 30.7% in 2011, not in line with nominal
GDP growth rate (14.1%) for the same period. Given the differential between these two
indicators developments, domestic inflationary pressures intensified. M2 growth was
attributed to net domestic assets growth by 43.9%, mainly through net domestic claims
growth.
Money supply growth increased in Mozambique due to a rise in local currency deposits. In
Seychelles money supply (M3) growth expansion relates to an increase in both net foreign
and domestic assets and foreign exchange depreciation. M2, however, declined by 6.8% in
2011.
Figure 10: Money Supply Growth (%)
Source: SADC Central Banks
In the case of South Africa and Mauritius the data refers to M3
3.10 Interest rates
The monetary policy stance in the SADC region was quite homogeneous since most countries
adopted accommodative monetary policies, with a reduction in reference interest rates.
Mauritius, however, tightened monetary policy in end-2011, moving from a 4.75% reference
rate in 2010 to a 5.4% rate in 2011. South Africa, Botswana, Namibia and Swaziland
maintained previous interest rates.
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In attempt to normalize repurchase agreements (repo) interest rate, Bank of Mauritius
increased repo rate by 50 basis points in March 2011 to 5.25% and by 25 basis points in June
2011. In December 2011, repo rate was decreased by 10 basis points to 5.4%.
Mozambique accommodative monetary policy aimed at reducing inflationary pressures that
come to light late-2010 and 2011. In line with this objective, Bank of Mozambique increased
domestic reference interest rate and required reserve ratios by 100 basis points in the first
semester of 2011, to 16.5% and 9%, respectively. However, favourable macroeconomic
indicators performance led to a decrease in these rates by late 2011, to 15.05% and 8.5%
respectively. Monetary loosening continued in 2012 and reference interest rate came down by
150 basis points, to 13.5%.
In Botswana monetary policy stance is accommodative since 2009 in response to the negative
effects of unfavourable global economic environment and fiscal tightening in domestic
markets. Thus, Bank of Botswana gradually reduced its interest rate in recent years, which is
now at 9.5% level (since December 2010). Medium-term headline inflation prospects in is
line with the bank’s objectives.
In Angola, reference rate was officially introduced in October 2011, though some commercial
banks used BNA-bills rate (91 days maturity) as reference rate before the new operational
framework was in place. In 2010, BNA-bills rate was 10.82%. In the context of the new
operational framework, MPC agreed upon a reference rate of 10.5%. Reference rates remains
unchanged since then given robust indicators of macroeconomic stability and inflation’s
downward trend.
In general, average interest rates in the SADC region registered a downward trend, reflecting
an accommodative monetary policy stance and member countries’ attempts to reduce
negative spill overs coming from Europe. Zimbabwe’s multicurrency regime causes
monetary policy to be ineffective.
Figure 11: SADC Interest Rates (Policy Rates %)
Source: SADC Central Banks
*In the multicurrency regime, the Zimbabwe central bank has no control over monetary policy and so does not
have any policy rate
** Seychelles and Zambia have monetary targeting regime
0
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21
3.11 Inflation
Annual headline inflation in de SADC region increased by 0.44 percentage points from an
average of 7.29% in 2010 to 7.71% in 2011. All member countries experienced higher
inflation in 2011 in comparison with 2010 levels, except for Angola, DRC and Mozambique.
The most notable increases in inflation were experienced by Mauritius (from 2.9% in 2010 to
6.5% in 2011), Seychelles (from -2.4% to 2.5%) and Tanzania (from 7.2% to 12.7%). In
Mauritius inflation increased due to higher base-products prices and imported inflation.
Tanzania witnessed unfavourable climatic conditions that endangered domestic food
production, along with higher international oil prices that caused inflation to increase. In
general, inflation increases were associated with higher food and oil prices.
Countries that experienced a decline in headline inflation were Angola (from 15.3% in 2010
to 11.38% in 2011), DRC (from 23.5% to 15.5%) and Mozambique (from 12.7% to 10.3%).
Inflation decline in Angola was mainly due to a fiscal adjustment based on non-oil primary
deficit reduction, exchange rate stability and tight liquidity conditions, along with
Government’s broad strategy of economic diversification. DRC experienced a decline in
inflation was a consequence of an economic rebound from the 2008/2009 international crisis
and tight fiscal and monetary policies. In Mozambique, inflation reduction was achieved
through increased domestic output - fruits and vegetables- and real exchange rate
appreciation against the South African rand given the two countries’ intensive trade relations.
Figure 12: SADC Inflation
Source: SADC Central banks
3.12 Public Finance
The SADC average fiscal deficit as a percentage of GDP increased from 2.45% in 2010 to
2.77% in 2011 (see Table 3 and figure 13 below). Notable increases in the fiscal deficits were
experienced in Lesotho as a result of reduced SACU revenues, heavily contributors of
historical budgetary revenues. Namibia’s fiscal deficit in 2011 is attributed to continued
-5
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An
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2010 2011
22
expansionary fiscal policy in response to high unemployment and 2008 international crisis.
Government is putting in place a 3 year Targeted Intervention Programme for Employment
and Economic Growth (TIPEEG) that pressures public expenditures. Fiscal deficit is
expected to decrease as the programme is implemented.
In DRC, the fiscal deficit as a percentage of GDP decreased from 3.5% in 2010 to -1.5% in
2011. In Malawi, however, budget deficit increased from 0.1% in 2010 to 1.2% in 2011 as
high level of expenditures were not covered by reduced revenues and international donors
monetary inflows.
Angola and Seychelles managed to maintain budget surpluses in 2011 around 10.3% and
3.2% of GDP, respectively. In Angola, the budget surpluses was attributed to an increase in
oil revenues from higher oil prices, given that 50% of these revenues are included in the
Government’s budget.
With regard to public debt to GDP ratio, the region recorded an aggravation of 0.82
percentage points from an average of 41.01% in 2010 to 41.83% in 2011 (see table 3 below).
This was due to slight increases of public debts in Botswana, Malawi, Namibia, Seychelles,
South Africa, Swaziland and Tanzania. On the other hand, public debt aggravation was
hampered by public debt declines in Angola, DRC, Lesotho, Mauritius, Mozambique,
Zambia and Zimbabwe.
Table 3: Fiscal Balance and Public Debt as Percentage of GDP, 2010 and 2011
Description
Budget Balance Public Debt
2010 2011 2010 2011 % Change
Angola 5.3 10.3 21.7 19.8 -1.9
Botswana -6.2 -3.3 17.8 18.5 0.7
DRC 3.5 -1.5 28.3 24.9 -3.4
Lesotho -6.4 -4.5 36.8 34.8 -2
Malawi -0.1 -1.2 34.7 41.2 6.5
Mauritius -3.2 -3.2 57.4 57.3 -0.1
Mozambique -3.5 -6 47.7 44.8 -2.9
Namibia -5.2 -11.2 15.9 26.8 10.9
Seychelles 2.6 3.2 84 82 -2
South Africa -5.5 -4.2 57.2 61.3 4.1
Swaziland -11 -7.5 13.9 15.7 1.8
Tanzania -6.4 -6.9 43.1 48.2 5.1
Zambia -2.2 -2.9 21.3 20 -1.3
Zimbabwe 4 0 94.3 90.3 -4
SADC Average -2.45 -2.78 41.01 41.83
Source: SADC Central Banks
23
Figure 13: SADC Budget Balances
Source: SADC central Banks
3.13 Foreign Trade and Payments
3.13.1 Regional Trade
Intra SADC trade records a positive variation in 2011 and it is on a growth path. Most SADC
countries exhibit strong commodity imports dependency as a result of their poorly diversified
domestic production. As a result, exports are limited to a small range of products and intra-
SADC trade is mainly dominated by food items. Most countries in the region rely heavily on
South Africa for imports. South Africa continues to record a positive trade balance with most
countries in the region. Against this background, there is great scope for strengthening trade
ties in the region through deepening regional integration. SADC countries need to invest in
diversification in order to increase intra-SADC trade.
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Figure 14: Intra SADC Import and Export (US$ million)
Source: SADC Central Banks
Figure 15: Intra SADC Trade Balance (US$ million)
Source: SADC Central Banks
-6000-4000-2000
02000400060008000
10000120001400016000
An
gola
Bo
tsw
ana
DR
C
Leso
tho
Mal
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Mau
riti
us
Mo
zam
biq
ue
Nam
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Seyc
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les
Sou
th A
fric
a
Swaz
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d
Tan
zan
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Zam
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Zim
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Exports 2010 Exports 2011 Imports 2010 Imports 2011
-12000
-10000
-8000
-6000
-4000
-2000
0
2000
4000
6000
8000
An
gola
Bo
tsw
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DR
C
Leso
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Mal
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Mau
riti
us
Mo
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biq
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Nam
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Seyc
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Sou
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a
Swaz
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d
Tan
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Zim
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2010 2011
25
Table 4: Intra SADC Trade Data, 2010 and 2011
Exports
Imports Trade Balance
2010 2011
% Change
2010 2011 %
Change
2010 2011
(US$ m) (US$ m) (US$ m) (US$ m) (US$ m) (US$ m)
Angola 1,521.50 1,686.50 10.80 1,178.50 1,278.10 8.50 343.00 408.40
Botswana 904.40 1,118.60 23.70 4,237.70 4,977.20 17.50 -3,333.30 -3,858.60
DRC 14.67 602.31 4,005.70 880.97 955.70 8.50 -866.30 -353.40
Lesotho 2,313.59 3,480.32 50.40 12,168.40 13,544.00 11.30 -9,854.81 -10,063.68
Malawi - - - - - - - -
Mauritius 267.00 355.00 33.00 439.00 472.00 7.50 -172.00 -117.00
Mozambique 619.50 861.50 39.10 1,867.40 1,723.30 -7.70 -1,247.90 -861.80
Namibia 1,350.72 - - -4,145.64 - - 5,496.40 -
Seychelles 14.90 7.90 -47.00 1,242.90 1,470.00 0.18 -1,228.00 -1,462.10
South Africa 8,919.00 9,943.00 11.50 3,254.00 3,386.00 0.04 5,665.00 6,557.00
Swaziland 1,142.20 - - 1,706.90 - - -564.70 -
Tanzania 710.60 1,164.30 63.80 894.90 784.70 -12.30 -184.30 379.60
Zambia 1,305.20 1,940.5 48.7 3,253.90 4,138 27.2 -1,948.70 -2,197.5
Zimbabwe 2,167.80 2,827.70 30.40 3,871.50 4,774.20 23.30 -1,703.70 -1,946.50
Source: SADC Central Banks
3.14 Balance of Payments
Most countries in the SADC region experienced balance of payments pressures in 2011 as
reflected by high current account deficits. The average current account deficit as a ratio of
GDP, however, narrowed by 2.2 percentage points, from a deficit of 8.5% in 2010 to a deficit
of 6.3% in 2011.
Countries that experienced widening current account deficits were Lesotho, Malawi,
Seychelles, Tanzania and Zimbabwe. The deterioration of the current account deficit in
Tanzania was attributed to the increase in both international oil prices and domestic demand
for thermoelectric power energy following a cut in hydroelectric power energy in this period.
Angola, Botswana, Namibia and Zambia, however, are the only countries in the region that
recorded current account surpluses in 2011 (Figure 16 below refers). The current account
surpluses were due to increased exports value of oil in Angola, diamonds in Botswana and
Namibia.
26
Figure 16: Current Account Balance as % of GDP
Source: SADC Central banks
3.15 Foreign Direct Investment (FDI) Inflows
Table 5: Foreign Direct Investment Inflows (US$ Million), 2010 and 2011
Description 2010 2011 % Change
Angola 12.156,72 14.123,61 16,18
Botswana 559,50 589,00 5,27
DRC 2.932,10 1.596,00 -45,57
Lesotho 122,27 131,17 7,28
Malawi 158,20 60,80 -61,57
Mauritius 32.654,00 37.746,00 15,59
Mozambique 989,00 2.093,50 111,68
Namibia 856,60 900,70 5,15
Seychelles 164,90 136,40 -17,28
South Africa 1.228,00 5.814,00 373,45
Swaziland 130,70 - -
Tanzania 1.022,80 1.095,40 7,10
Zambia 1.729,30 1.981,70 14,60
Zimbabwe 165,90 387,00 133,27
SADC Average 922,80 1.095,40 18,7
Sources: SADC Central Banks
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FDI inflows into the SADC region increased from US$ 54 billion in 2010 to US$ 63 billion
in 2011, representing an increase of about 15% (see Table 5 above).
In Namibia, this increase was attributed to profit reinvestment from mining and capital
inflows to other secondary activities. This capital flows are originated in holding companies
loans to domestic affiliates to finance capital formation.
3.16 Foreign Reserve’s Position
Most countries in the SADC region do not have adequate foreign reserves to cushion them
against sudden external shocks. The SADC average gross international reserve position as
measured by months of import cover deteriorated from an average of 4.62 in 2010 to 4.37 in
2011.
Botswana remains the top performer with reserves 14 months of import cover. Angola comes
in second place with reserves 7.8 months of import cover. These results are supported by
these countries’ robust diamonds and oil revenues, respectively.
Figure 17: International Reserves in Months of Import Cover
Source: SADC Central Banks
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2010 2011
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3.17 Exchange Rate Developments (end-of-period nominal exchange rate)
Most currencies in the SADC region have been depreciating against the US dollar in 2011,
except for DRC, Mauritius, and Mozambique currencies. In Lesotho, rand depreciation
against the US dollar was a result of shifts in market confidence and global risk aversion
variations. Despite a small depreciation, Angola’s Kwanza remained on a stability path as a
consequence of positive macroeconomic performance and BNA’s effective foreign market
management and tight monetary policy stance.
In the region, Malawian Kwacha exhibited uneven developments in 2011 that have their base
in domestic and external conditions. Rising in international oil prices resulting from
geopolitical instability in the Middle East and North Africa along with US dollar positive
performance evolved into balance of payments imbalances. A deteriorated external position
and an inadequate reserve’s buffer led Malawi to and exchange rate depreciation.
Figure 18: Exchange Rate Developments (Currency/US$)
Source: SADC Central Banks
Note: CMA includes Lesotho, Namibia, Swaziland and South Africa.
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CMA Botswana
29
Figure 19: Exchange Rate Developments (Currency/US$)
Source: SADC Central Banks
Figure 20: Exchange Rate Developments (Currency/US$)
Source: SADC Central Banks
4. Developments in the SADC Energy Sector
The SADC region is faced with diminished supply of power generation capacity and the
energy sector still exhibits a low contribution to economic growth.
Angola presents an immense potential for energy sector growth due to its abundant oil
reserves and big capacity for hydroelectric power generation. During war years, however, the
country was not able to make progress in this topic and residential energy consumption
represented alone the bulk of energy consumption.
4.200
4.400
4.600
4.800
5.000
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5.800
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Tanzania Zambia(RHS)
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100
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-11
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v-1
1D
ec-
11
Angola Malawi(RHS)
30
After that, major investments in energy production capacity expansion were made in Luanda
area and in regions with more economic activity. Hydroelectric power represents about 75%
of Angola’s energy supply. The National Energy Company has participated in several
international arrangements to renovate the country’s existing dams and electricity power
plants. Just after 3 years after the war ended, Angola had an annual hydroelectric potential of
at least 65,000 GW derived from the three main rivers in the country: Kwanza River in the
North, Catumbela River in the Center and Cunene River in the South. Authorities expect that
soon Angola will be able to fulfil all its domestic energy need and hopefully export excess
production to neighbour countries.
Angola’s energy strategy is not only related to construction of new dams, as previously
existent energy infrastructures will be rehabilitated. These are mostly electric power plants,
substations and transmissions and distribution grids that aim at advance in energy supply and
energy poverty reduction. Authorities developed a legal framework for public-private
projects in the energy sector, namely energy production, transportation and supply. These
projects are intended to spread energy supply to most of the population along with final
energy prices that are consistent with operational costs. The country has managed to attract
robust investment in this sector given its potential for growth.
Authorities established recently a National Energy Security Policy Strategy (NESPS) in order
to deliver sound reforms in the energy sector through reinforcement in infrastructures and
production capacity. NESPS dictates major guidelines for this sector (and particularly for oil
and gas sectors) and redefines its institutional model. The programme’s main goal is to
quadruplicate current energy supply levels through exploitation of domestic resources and
energy efficiency improvements.
Energy production is expected to increase until 2025 and energy supply can possibly expand
between 10% and 15%. These expectations can only be met if the energy sector is in place to
respond to domestic market demand. In that direction, there are a set of problems that need to
be addressed: A) high levels of infrastructural functional failure (from 40% to 50% of
equipments) arising from intense activity, relatively advanced age of equipments and their
inefficient maintenance. B) high supply costs (about US$ 220/MW) driven by technical
problems and an inefficient production structure; C) highly subsidized final prices (average
US$ 42/MW), with 80% subsidies to support total operating costs; D) reduced human capital
value; E) structural financial deficits of companies operating in the sector.
This strategic plan will be developed in two distinct stages: a) stabilization stage (2012)
corresponds to the implementation of short to medium-term initiatives; b) consolidation stage
(2013) that encompasses the beginning of sound reforms in this sector in the medium to the
long-run.
Government in South Africa is responsible for ensuring energy security in the country, by
undertaking integrated energy planning, regulating the energy industries, and promoting
investment in accordance with the integrated resource plan. Government has developed the
energy security master plan for liquid fuel, national liquefied petroleum gas strategy, cleaner
fuels programme, and accelerated access to electricity.
31
The energy sector contributes to the development of an efficient, competitive and responsive
economic infrastructure network, specifically ensuring the reliable generation, distribution
and transmission of electricity, as well as manufacturing, transportation and storage of liquid
fuels. The sector also contributes to ensuring that environmental assets and natural resources
are well protected and continually enhanced, specifically in reducing greenhouse gas
emissions.
In the case of Botswana, the Government continues to realise that the provision of adequate
energy remains a prerequisite for successful industrialization. This requires that energy
sources be secured to render the country, where possible, self-sufficient. In this regard, the
Government of Botswana has been engaged in the following projects:-
The Morupule B project commenced during the financial year 2008/09 and is expected to be
completed in the last quarter of 2012. In spite of the completion of the 600MW Morupule B
in the last quarter of 2012, it is forecast that the country will only be self-sufficient for the
next 2 years. A 180 MW gas (coal bed methane –CBM) fired power station is still expected
to be developed by Karoo Sustainable Energy This Project is expected to take advantage of
the 90 MW Emergency Power Facility at Orapa, which will be switched from diesel to CBM
once adequate reserves of CBM have been proven to power up a 270MW (90MW+180MW)
(gross) power plant.
In an effort to facilitate the development of renewable energy in Botswana, the Renewable
Energy Feed-In Tariffs (REFIT) study was completed in March 2011 and a study on the
Review of Electricity Tariffs with the aim of, among other things, establishing cost-reflective
tariffs and deriving transparent tariff determination methodologies.
Like other Southern African countries Lesotho has experienced shortfalls in its electricity
generation capacity over the past two years. Government is committed to increasing the
generation of power to satisfy its own energy needs and export electricity to the region as
well as expanding the grid and the number of household connections in urban and rural areas.
A total sum of M373 million was allocated towards this goal in the 2011/12 fiscal year. There
are also electrification programmes aimed at subsidising the majority of the needy people
who are unable to afford electricity costs on their own.
In the area of power generation, Malawi´s Government intends to undertake reforms that will
create a conductive environment for scaling up capacity. In pursuit of this goal, electricity
tariffs have been adjusted upwards by 63.52 % so that revenues in the sector are closer to
covering the costs of production. This decision has been taken with a view to move towards a
more market determined tariff structure in the electricity sector and also to have a pricing
structure that reflects the long run average cost of producing electricity in order to allow the
private sector to invest in further generation capacity.
In the first semester of 2011, Mozambique´s production of electricity and water expanded by
1.0 per cent, as a result of the construction of new transportation and distribution
infrastructures throughout the country. The production of energy during the first half of 2011
increased by merely 0.5 per cent, determined, mainly by the decline in the production of
32
energy from Cahora Bassa dam due to the on-going works of rehabilitation of the
infrastructure.
In Namibia, the first and second quarters of 2011 posted significant increases in local
electricity generation. Local electricity generation increased by 190.2 percent in the first
quarter during 2011 owing to good water inflows in the Kunene River at the Ruacana Hydro
Power Station. The same level of power generation was maintained in the second quarter,
before a decline of 38.5 percent in electricity generation in the third quarter. The quarterly
performances indicate that the sector have achieved a positive growth in electricity generation
during the first quarter of 2012. Locally generated electricity increased significantly by 130.6
percent in the first quarter. This was due to the seasonal increase in water inflow into the
Kunene River at the Ruacana Hydro Power Station. The recent commissioning of a fourth
turbine at the Ruacana Hydro Power Station has further enhanced the energy capacity in the
country.
In 2011, Seychelles increased the energy production capacity through the additions of new
fuel oil generators. Moreover, a biomass project aim at turning waste into energy was
started; in addition an agreement was signed between the Government and Masdar, a
renewable energy company in UAE, for the implementation a wind farm project.
In Swaziland, the main source by which the country meets its energy needs are electricity,
coal, petroleum products and renewable waste. The energy policy in its quest to address
poverty issues in its implementation improves access to energy services to promote micro-
enterprises, livelihood activities beyond daylight hours, and support to locally owned
businesses that will create employment. With the assistance of the European Union (EU). The
strategy will outline the concrete actions and clear programmes and methodologies required
in the implementation mainly of the Poverty Reduction Strategy and Action Programme.
In Zambia, the energy sector contributed 2.4% to the country’s GDP over the past five years.
Owing to the increased economic activities in the country and the region, there has been a
huge demand for electricity. There are vast water resources and coal reserves ideal for the
generation of hydro and thermal electric power in the country. In this regard, Government has
been promoting the construction of new hydro power stations. There are plans to develop a
600 megawatt hydroelectric generation plant on the lower Kafue Gorge and 120 megawatt
plant in Itezhi-tezhi. Further, the extension of the Kariba North Bank commenced while other
mini hydro stations around the country are being rehabilitated and constructed. In the
petroleum sub-sector, the Government put in measures to build strategic reserves and
recapitalise Indeni Oil Refinery. Further, exploration work on petroleum oil and gas were
carried out in the North Western Province. This follows the positive indication arising from
tests that were carried out some time back. Interested companies have been invited to carry
out further drilling and exploration works.
As for Zimbabwe, the country is currently producing about 1050 Mw of electricity, against
the national requirements of 1700 Mw. The deficit is being bridged mainly through the
importation of power from HCB of Mozambique, ZESCO of Zambia and Eskom of South
Africa. Some mining houses in platinum and gold sub-sectors have, however, benefited from
direct power importation arrangements.
33
5. Status of Macroeconomic Convergence in 2010
In 2011, SADC countries progress towards attainment of the macroeconomic convergence
targets fell short of the expected as a consequence of an unfavorable international
environment – financial distress in Europe and rising global uncertainty levels. Most
countries experienced an increase in inflation, sluggish GDP growth and deterioration in
months of import cover position. In fact, the SADC region average for these economic
indicators is not in line with the programmed convergence targets.
Budget deficit and Public debt targets, however, are being met in the region. These results are
underpinned by prudent fiscal and monetary policies that continue to support improvement in
general macroeconomic performance and economic stability.
5.1 Primary Convergence
5.1.1 Inflation Rate (5%)
The SADC average inflation has been on a downward trajectory in recent periods. In 2011,
however, average inflation in the region increased somewhat, from 7.29% in 2010 to 7.71%
in 2011, 2.71 percentage points above the SADC’s inflation convergence target. In fact, most
countries in the region experienced an increase in inflation in 2011 arising from adverse
global economic conditions and high food and oil prices.
Solely Angola, DRC and Mozambique managed to reduce inflation in 2011. These countries
jointly with Tanzania, however, are still grappling with inflation of double digit levels. DRC
failed to attain the single digit inflation target mostly due to domestic money supply
shortages, and external tight liquidity conditions – in line with adverse international
developments.
Angola sound macroeconomic policies proved to be inadequate to reduce inflation to single
digit levels in 2011 given the country’s heavy dependence on imported goods to meet
domestic demand. Inflation in Tanzania increased from 7.2% in 2010 to 12.7% in 2011 which
can be explained by supply bottlenecks arising from regional droughts, high international oil
prices and loss of confidence in Tanzanian shilling.
In 2011, decreasing inflation in Mozambique was determined by an increase in fruits and
vegetables domestic production and a reduction in the country imports’ value from a real
exchange rate appreciation (ZAR/MZN). Yet, domestic inflation is still in the double digit
level.
Some member states, however, have attained the 5% target of 2012, namely Lesotho,
Namibia, Seychelles, South Africa and Zimbabwe.
34
Figure 21: Average Annual Inflation Rates (%)
Source: SADC Central banks
5.1.2 Budget Deficit to GDP (less than 3%)
Fiscal performance in the SADC region is in line with programmed targets, despite a slight
aggravation in 2011. In fact, average budget deficit to GDP ratio increased somewhat from
2.45% in 2010 to 2.77% in 2011.
Lesotho, Mozambique, Namibia, South Africa, Swaziland and Tanzania failed to meet the
budget deficit target of 3% of GDP. Swaziland poor fiscal performance was fuelled by
declining SACU revenues. In Namibia, TIPEEG implementation undermined the country’s
fiscal position, while in South Africa fiscal revenues fell short of the expected and expenses
were higher than budgeted. On the other hand, Tanzanian performance was influenced by
expansionary fiscal policy as to enhance public funds’ management.
Angola is the top performer with the highest budget surplus in the region deriving from
robust oil revenues.
Figure 22: Budget Balance as % of GDP
Source: SADC Central banks
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
An
gola
Bo
tsw
ana
DR
C
Leso
tho
Mal
awi
Mau
riti
us
Mo
zam
biq
ue
Nam
ibia
Seyc
hel
les
Sou
th A
fric
a
Swaz
ilan
d
Tan
zan
ia
Zam
bia
Zim
bab
we
SAD
C A
vera
ge
Inflation Rate 2011 SADC 2012 Target
-12%
-9%
-6%
-3%
0%
3%
6%
9%
An
gola
Bo
tsw
ana
DR
C
Leso
tho
Mal
awi
Mau
riti
us
Mo
zam
biq
ue
Nam
ibia
Seyc
hel
les
Sou
th A
fric
a
Swaz
ilan
d
Tan
zan
ia
Zam
bia
Zim
bab
we
Budget Balance 2011 SADC 2012 Target
35
5.1.3 Public Debt to GDP (less than 60% of GDP)
Once again, most SADC countries managed to reduce their public debt to sustainable levels
and thus meet the public deficit target of 60% of GDP. Average public deficit to GDP ratio in
de region was 41.83% in 2011.
South Africa, Seychelles and Zimbabwe, however, didn’t meet convergence targets for this
indicator, with public deficits of 61.3%, 82% and 90.3% of GDP, respectively. In fact,
Seychelles and Zimbabwe have been failing to meet this target from 2008 onwards. In
Seychelles, public debt was strongly aggravated in years prior to 2008 IMF mission in the
country.
Figure 23: Public Debt as % of GDP
Source: SADC Central banks
5.2 Secondary Targets
5.2.1 International Reserves (at least 6 months of import cover)
Rising global uncertainty levels arising from the European financial crisis and unfavorable
internal events contributed to developments in international reserve positions in the SADC.
Most countries in the region experienced depletion in their reserve position, falling below
convergence target by 6 months of import cover. The SADC average reserve’s position
declined from 4.63 months of import cover in 2010 to 4.39 months of import cover in 2011.
International reserve levels in DRC, Malawi, Seychelles, Swaziland and Zimbabwe remain
below the reserve adequacy threshold of 3 months of import cover, underlining the need for
cushion in these economies.
Sharp reductions in some countries’ reserve’s position are reflects of increased public
expenditure and imports value.
0%10%20%30%40%50%60%70%80%90%
100%
An
gola
Bo
tsw
ana
DR
C
Leso
tho
Mal
awi
Mau
riti
us
Mo
zam
biq
ue
Nam
ibia
Seyc
hel
les
Sou
th A
fric
a
Swaz
ilan
d
Tan
zan
ia
Zam
bia
Zim
bab
we
SAD
C A
vera
ge
Public Debt 2011 SADC 2012 Target
36
Angola and Botswana continued to surpass the 2012 threshold of 6 months of import cover
due to high oil and diamonds revenues, respectively.
Figure24: Reserves in months of import cover
Source: SADC Central banks
5.2.2 Real GDP Growth (not less than 7 %)
Economic growth in the SADC region decelerated from an average of 5.94% in 2010 to
5.07% in 2011, against a background of international economic crisis and financial turmoil.
All member countries registered either declining or steady GDP growth rates, except for
Angola, Mozambique and South Africa.
Favorable GDP growth in Mozambique in 2011 (7.1%) was related to positive developments
in agriculture, mining, transportation and communications sectors. GDP expansion in South
Africa, however, did not surpass the 7% growth target. Nevertheless, growth was fueled by
trade and financial services sectors robust positive developments. In Zimbabwe, mining and
agriculture were the driving forces of this positive result.
Mozambique and Zimbabwe were the only member countries meeting the 7% GDP growth
target.
0
2
4
6
8
10
12
14
16
An
gola
Bo
tsw
ana
DR
C
Leso
tho
Mal
awi
Mau
riti
us
Mo
zam
biq
ue
Nam
ibia
Seyc
hel
les
Sou
th A
fric
a
Swaz
ilan
d
Tan
zan
ia
Zam
bia
Zim
bab
we
SAD
C A
vera
ge
Import cover 2011 SADC 2012 Target
37
Figure 25: Real GDP growth
Source: SADC Central banks
5.2.3 Current Account to GDP (less than 9 %)
The decay in terms of trade and the aggravation of the exports sector in the region resulted in
deterioration in the average current account position. The unfavorable terms of trade caused
imports’ value to increase. Lesotho, Malawi, Mozambique, Seychelles and Zimbabwe were
not able to meet the target levels of less than 9 percent of GDP in 2011.
DRC registered a current account improvement and met convergence target, from a deficit of
13.3% of GDP in 2010 to 6% of GDP in 2011. Botswana and South Africa maintained
current account deficit within the target levels.
Angola, Namibia and Zambia registered current account surpluses in 2011, largely on
account of increasing oil exports revenues (Angola) and higher copper and other exports
value (Zambia). Namibia recovered from a current account deficit in 2010 to a surplus of 1%
of GDP in 2011.
0
1
2
3
4
5
6
7
8
9
10A
ngo
la
Bo
tsw
ana
DR
C
Leso
tho
Mal
awi
Mau
riti
us
Mo
zam
biq
ue
Nam
ibia
Seyc
hel
les
Sou
th A
fric
a
Swaz
ilan
d
Tan
zan
ia
Zam
bia
Zim
bab
we
SAD
C A
vera
ge
GDP 2011 SADC 2012 Target
38
Figure 26: Current account balance (% of GDP)
Source: SADC Central banks
6. Macroeconomic Convergence Challenges and Possible Solutions
In Angola, BNA’s monetary policy in coordination with improved fiscal performance aimed
at price stability. Authorities’ strategy included price floors for agricultural products,
implementation of a national competition authority and tighter market regulations. Economic
diversification and business facilitation aim at reducing oil revenue dependence and
supporting import substitution. BNA’s new operational framework introduced new policy
instruments that assisted in inflation reduction.
Non-oil sector has been registering higher GDP growth rates than the oil sector in recent
years, though it still represents a smaller portion of total domestic production. Government’s
medium term strategy is intended to reverse this position and reduce dependency on a narrow
range of commodities, thus protecting domestic economy from international oil price
volatility.
FDI in South Africa is being undermined by external shocks as rising oil prices, general loss
of confidence in emerging markets exposed to European crisis spill overs and unsettled
public policies, like mine nationalization.
Macroeconomic environment in Botswana is unstable and demands close monitoring. In
recent years, fiscal revenues originated in SACU presented high volatility and were difficult
to predict. Therefore, fiscal accounts need constant updating and financial support might be
needed to support the implementation of corrective measures.
-20,0
-10,0
0,0
10,0
20,0
30,0
40,0A
ngo
la
Bo
tsw
ana
DR
C
Leso
tho
Mal
awi
Mau
riti
us
Mo
zam
biq
ue
Nam
ibia
Seyc
hel
les
Sou
th A
fric
a
Swaz
ilan
d
Tan
zan
ia
Zam
bia
Zim
bab
we
SAD
C A
vera
ge
Current Account 2011 SADC 2012 Target
39
DRC still struggles to meet the SADC inflation and reserve’s position convergence targets. In
2011, the country registered a 15.54% inflation rate and 1.78 months of import cover. These
results are related to an inadequate money supply level, adverse international conditions and
low per capita income (expected to reach US$ 239.54 in 2012).
The Regional Indicative Strategic Development Plan (RISDP) establishes solid economic
growth and superior economic policies as two major steps towards the attainment of
macroeconomic convergence targets. A five-year public infrastructure modernization plan is
now in place and might allow DRC to reach emerging economies income level by 2013. On
the other hand, economic governance can be reinforced by tight discipline in public finance
management.
Lesotho main challenge in meeting convergence targets is related to external shocks
vulnerability. For example, SACU’s revenues declined in response to international financial
crisis.
In Malawi, macroeconomic convergence in 2011 was hampered by several events. A rise in
international commodity prices, especially oil, forced an increase in domestic prices through
elevated production costs. International reserves inflows are greatly dependent on tobacco
exports revenues. As this commodity recorded lower price bids in international markets,
international reserves accumulation was undermined. On the other hand, an overvalued
exchange rate spurred imports resulting in balance of payments imbalances. Against this
background, monetary authorities opted for a 10% exchange rate devaluation that ended up
intensifying inflationary pressures in the economy.
In addition, reduced reserves inflows impaired basic commodity imports like fuel.
Consequent energy supply shortages led to a decrease in manufacturing, construction, mining
and services sectors output.
As a response to these events, Malawian Government created an Exports Development Fund
(EDF) that will be implemented in 2012 and aims at supporting business projects. This fund
will foster both reserves accumulation and production in all economic sectors by financing
new products’ exports and basic commodities’ imports. Government’s primary goal is to spur
economic growth and diversification, along with a reverse in external position, from net
importer to net exporter. This strategy is supported by RBM’s monetary policy. In 2012,
monetary policy stance will support maintenance of single digit inflation around the 5%
convergence target, promote investment in private sector initiatives, rebuild international
reserves to effectively support strategic imports and build a buffer against external shocks,
and secure basic commodity imports to foster economic growth.
In Mauritius, economic growth prospects are endangered by recent negative developments in
European sovereign debt crisis and somewhat generalized currency depreciation, mostly for
exporting companies. Monetary authorities and Ministry of Finance decided on an Operation
Reserves Reconstitution (ORR) programme to rebuild international reserves and reduce
vulnerability to possible external shocks. ORR’s basic goal is to achieve a reserve’s position
of 6 months of import cover. The programme is expected to alleviate exchange rate
appreciation pressures and align exchange rate performance with its economic fundamentals.
40
Authorities intend to create a special foreign currency credit line that will function through
commercial banks and aims at minimize exchange rate risks arising from foreign currency
exports and remaining public debt in rupees.
In Mozambique, a solid achievement of macroeconomic convergence targets is dependent on
policy coordination across member countries. Each country is advised to incorporate and
strongly commit to these targets through national macroeconomic strategic plans. It is also
important that countries harmonize methodologies in collecting and constructing key
economic indicators like inflation.
In Namibia, uncertainty level in the global economy and high international commodity prices
constitute strong challenges towards the attainment of convergence targets. World financial
crisis resulted in a decline in mining production, mostly copper and diamonds, and
consequent loss of jobs and revenues in the mining sector. European sovereign debt crisis and
global uncertainty levels have been affecting tourism revenues and fishing sector output.
Internally, livestock trade is expected to fall due to population resettlements and diamonds’
ground operations will follow its declining trend.
Macroeconomic convergence in Swaziland is hampered by a vulnerable external position that
leaves the country exposed to sudden shocks like a decline in SACU’s revenues. Moreover,
there’s a strong political will to enhance the country’s competitiveness and attract FDI over
other member countries.
In 2011, the Tanzanian shilling was depreciating against major foreign currencies. At the
same time, a rise in international oil prices increased inflationary pressures in the country and
elevated imports value. Inflationary pressures were aggravated in response to adverse climate
conditions in neighbour countries – droughts - that boosted food demand and, thus food
prices.
Authorities will conduct sound macroeconomic policies to enhance both economic
competitiveness and performance, and respond current challenges. Bank of Tanzania
monetary policy will be aligned to macroeconomic stability goals. The government intends to
increase effective fiscal revenue collection and reduce non-priority current expenses, which
comprehends reinforcement in public fund management capacity and transparency.
7. Prospects over the Medium Term and Conclusions
SADC countries economic performance in 2011 was largely influenced by international
economic slowdown. Both advanced and emerging countries were affected by an
unfavourable global environment that resulted in a decline in global aggregate demand.
Recent economic rebound from the international financial crisis in the SADC region was
inevitably affected against this background. These developments underscore the need for
sound macroeconomic policies that build buffers to cushion these economies against external
shocks.
Macroeconomic convergence indicators performed poorly when compared to 2010 positive
results. The SADC region is endowed with abundant valuable natural resources and
41
favourable climate conditions that present unique investment opportunities, especially in
mining and agriculture activities. Yet, the outlook for 2012 envisages average GDP growth
rate falling below the 7% targeted threshold, except for Angola, Mozambique and Zambia.
Reserve’s position is expected to improve to 4.32 months of import cover, with Angola and
Botswana as top performers. For 2012 average inflation in the region is expected to be about
9.92%. Thus, inflation targets may not be met in 2012 as inflation is expected to accelerate in
Malawi and Tanzania. Budget deficit and public debt to GDP indicators are expected to
continue within convergence target in line with recent years’ performance.
IMF expects a sharp global economic slowdown in 2012 that comprise both emerging and
developing economies. The outlook for world economy is heavily contingent on
developments on sovereign debt crisis in Europe.
Growth in the SADC region in the outlook period, therefore, remains dependent on economic
diversification that mitigates the possible effects of external shocks and global uncertainty. In
order to keep fiscal and external deficits under control and contain inflationary pressures in
the region, countries are urged to monitor international food and oil prices.
42
8. References
1. International Monetary Fund (IMF), April and July 2012, World Economic Outlook.
2. Index Mundi and Bloomberg database.
3. Recent Economic Development Contributions received from member central banks.
4. IMF Annual Report on Exchange Arrangements and Restrictions, 2011.
9. APPENDICES
9.1 Appendix I: Charts for Commodity Prices
Gold Prices (US$/ounce)
0
200
400
600
800
1000
1200
1400
1600
1800
2000
01
-Jan
-01
01
-Ju
n-0
1
01
-No
v-0
1
01
-Ap
r-0
2
01
-Sep
-02
01
-Feb
-03
01
-Ju
l-0
3
01
-Dec
-03
01
-May
-04
01
-Oct
-04
01
-Mar
-05
01
-Au
g-0
5
01
-Jan
-06
01
-Ju
n-0
6
01
-No
v-0
6
01
-Ap
r-0
7
01
-Sep
-07
01
-Feb
-08
01
-Ju
l-0
8
01
-Dec
-08
01
-May
-09
01
-Oct
-09
01
-Mar
-10
01
-Au
g-1
0
01
-Jan
-11
01
-Ju
n-1
1
01
-No
v-1
1
01
-Ap
r-1
2
Source: index mundi data
43
Platinum Prices (US$/ounce)
Nickel Prices (US$/tonne)
Copper Prices (US$/tonne)
1200
1300
1400
1500
1600
1700
1800
1900
20000
4-0
1-2
010
04
-02
-20
10
04
-03
-20
10
04
-04
-20
10
04
-05
-20
10
04
-06
-20
10
04
-07
-20
10
04
-08
-20
10
04
-09
-20
10
04
-10
-20
10
04
-11
-20
10
04
-12
-20
10
04
-01
-20
11
04
-02
-20
11
04
-03
-20
11
04
-04
-20
11
04
-05
-20
11
04
-06
-20
11
04
-07
-20
11
04
-08
-20
11
04
-09
-20
11
04
-10
-20
11
04
-11
-20
11
04
-12
-20
11
04
-01
-20
12
04
-02
-20
12
04
-03
-20
12
04
-04
-20
12
04
-05
-20
12
04
-06
-20
12
04
-07
-20
12
Source: BLOOMBERG
0
10000
20000
30000
40000
50000
60000
01
-Jan
-01
01
-Ju
n-0
1
01
-No
v-0
1
01
-Ap
r-0
2
01
-Sep
-02
01
-Feb
-03
01
-Ju
l-0
3
01
-Dec
-03
01
-May
-04
01
-Oct
-04
01
-Mar
-05
01
-Au
g-0
5
01
-Jan
-06
01
-Ju
n-0
6
01
-No
v-0
6
01
-Ap
r-0
7
01
-Sep
-07
01
-Feb
-08
01
-Ju
l-0
8
01
-Dec
-08
01
-May
-09
01
-Oct
-09
01
-Mar
-10
01
-Au
g-1
0
01
-Jan
-11
01
-Ju
n-1
1
01
-No
v-1
1
01
-Ap
r-1
2Source: Index mundi data
0
2000
4000
6000
8000
10000
12000
Jan
-01
May
-01
Sep
-01
Jan
-02
May
-02
Sep
-02
Jan
-03
May
-03
Sep
-03
Jan
-04
May
-04
Sep
-04
Jan
-05
May
-05
Sep
-05
Jan
-06
May
-06
Sep
-06
Jan
-07
May
-07
Sep
-07
Jan
-08
May
-08
Sep
-08
Jan
-09
May
-09
Sep
-09
Jan
-10
May
-10
Sep
-10
Jan
-11
May
-11
Sep
-11
Jan
-12
May
-12
Sourcee: Index mundi data
44
Brent Crude Oil Prices (US$/barrel)
9.2 Appendix II: Exchange Rate Regimes in the SADC region
Country Currency Regime Capital Controls
Angola KWANZA Managed floating Yes
Botswana PULA Pegged to basket Yes
(South African rand and SDR)
RDC CONGO FRANC De facto Crawl-like Arrangement* Yes
Lesotho LOTI Pegged to South African rand
(CMA)
Yes
Malawi KWACHA De facto Fixed** Yes
Mauritius RUPEE Managed floating Yes
Mozambique METICAL Managed floating Yes
Namibia NAMIBIA DOLLAR Pegged to South African rand
(CMA)
Yes
Seychelles RUPEE Floating Yes
South Africa RAND Independently floating; rand is
CMA anchor currency
Yes
Swaziland LILANGENI Pegged to South African rand
(CMA)
Yes
Tanzania SHILLING Independently floating Yes
Zambia KWACHA Managed floating No
Zimbabwe Dollar, Rand, United
States Pula and Pound,
Euro
Multi-currency Yes
Source: IMF, Annual Report on Exchange Arrangements and Restrictions, 2011
Notes:
The exchange rate of the Congo franc is determined by supply and demand in the foreign exchange
market. The BCC, while observing the international reserves target in its monetary program,
intervenes to channel back to the market some of the reserves accumulated from external flows. This
is done in the context of an auction, which is the only operational framework for the BCC’s
transactions with the
market. The BCC has intervened on both sides of the market. As a result, the franc has gradually
depreciated against the U.S. dollar within a 2% band since May 2010. Accordingly, the de facto
exchange rate arrangement has been reclassified to a crawl-like arrangement from floating, effective
May 5, 2010.
50
60
70
80
90
100
110
120
1300
4-0
1-2
010
04
-02
-20
10
04
-03
-20
10
04
-04
-20
10
04
-05
-20
10
04
-06
-20
10
04
-07
-20
10
04
-08
-20
10
04
-09
-20
10
04
-10
-20
10
04
-11
-20
10
04
-12
-20
10
04
-01
-20
11
04
-02
-20
11
04
-03
-20
11
04
-04
-20
11
04
-05
-20
11
04
-06
-20
11
04
-07
-20
11
04
-08
-20
11
04
-09
-20
11
04
-10
-20
11
04
-11
-20
11
04
-12
-20
11
04
-01
-20
12
04
-02
-20
12
04
-03
-20
12
04
-04
-20
12
04
-05
-20
12
04
-06
-20
12
04
-07
-20
12
04
-08
-20
12
Source: BLOOMBERG
45
* * December 2, 2009, Malawi officially announced that it had adopted a floating exchange rate, and
the kwacha gradually depreciated for a short time. The kwacha then stabilized in a 2% band vis-à-vis
the U.S. dollar. Thus, the de facto exchange rate arrangement has been reclassified retroactively to a
stabilized arrangement from other managed arrangement, effective February 1, 2010
Managed floating: The authorities influence exchange rate movements through active intervention to
counter the long-term trend of the exchange rate, without specifying a predetermined exchange rate
path, or without having a specific exchange rate target. Intervention may be direct or indirect.
Indicators for managing the rate are broadly judgmental (e.g., balance of payments position,
international reserves, parallel market developments), and adjustments may not be automatic.
Independently floating: The exchange rate is market determined; any foreign exchange intervention
aims at moderating the rate of change and preventing undue fluctuations in the exchange rate that are
not justified by economic fundamentals, rather than at establishing a level for the exchange rate. In
these regimes, monetary policy is in principle independent of exchange rate policy.
46
9.3 Appendix III: Prospects for 2012
Country GDP Growth rate
(%)
Inflation rate
(%)
Budget deficit
(% of GDP)
2011 Est. 2012 Proj 2011 Est. 2012 Proj
2011
Est.
2012
Proj
Angola 3,9 8,8 11,38 10,02*** 10,3 2,6
Botswana 5,1 4,4 8,5 8,1* -3,3 0,9
DRC 6,9 6,6 15,5 12,3 -1,5 1,2
Lesotho 4,2 4,5 4,7 6,5 -4,5 0,1
Malawi 4,3 3,9 7,6 18,4* -1,2 -7,3
Mauritius 4 3,8 6,5 5,3* -3,2 -3,8
Mozambique 7,1 7,5 10,3 5,6* -6 -5,8
Namibia 3,8 4,2 5 6* -11,2 -4,6
Seychelles 5 4 2,5 4,3* 3,2 1,5
South Africa 3,1 3,4 5 5,7* -4,2 -4,9
Swaziland 1,2 NA 6,1 9,6** -7,5 NA
Tanzania 6,4 6,8 12,7 18,2* -6,9 -3,3
Zambia 6,6 7,7 8,7 6,6* -2,9 -5,6
Zimbabwe 9,4 5,6 3,5 4,02* 0 0
(SADC)
Average 5,07 5,48 7,71 9,92 -2,78 -2,15
Notes: *May 2012; ** April 2012 e *** July.
Source: SADC Central Banks
47
9.4 Appendix IV: SADC Macroeconomic Information
Country Inflation (Period Average) Budget Balance as % of GDP Public debt as percentage of GDP Months of Import Cover Real Growth Rate
2009 2010 2011
2012
Latest
month 2009 2010 2011 2012 P 2009 2010 2011 2012
P 2009 2010 2011 2012
P 2009 2010 2011
2012 P
Angola 13,99 15,3 11,38 10,02 4 -9,6 5,3 10,3 2,6 22,6 21,7 19,8 n.a 3,8 6,6 7,8 8,7 2,4 3,5 3,9 8,8
Botswana 8,2 6,9 8,5 8,1 -10,9 -6,2 -3,3 0,9 16,1 17,8 18,5 16,7 20 15 14 14 -4,8 7 5,1 4,4
DRC 46,1 23,5 15,5 12,3 0,49 3,5 -1,5 1,2 113,5 28,3 24,9 25,9 1,8 1,8 1,7 1,8 2,8 7,1 6,9 6,6
Lesotho 7,3 3,6 4,7 6,5 3,8 -6,4 -4,5 0,1 40,1 36,8 34,8 n.a 6,1 4,5 4,7 3,3 2,9 5,6 4,2 4,5
Malawi 8,4 7,4 7,6 18,4 -4,7 -0,1 -1,2 -7,3 40,8 34,7 41,2 40,4 1,9 3,1 2,3 1 8,9 6,7 4,3 3,9
Mauritius 2,5 2,9 6,5 5,3 1 -3 -3,2 -3,2 -3,8 59,5 57,4 57,3 57,7 5,2 5,0 4,6 n.a 3,1 4,2 4 3,8
Mozambique 3,3 12,7 10,3 5,6 1 -5,4 -3,5 -6 -5,8 39,3 47,7 44,8 n.a 5,4 5,8 5,8 4,6 6,3 6,8 7,1 7,5
Namibia 8,8 4,5 5,0 6,0 1 -1,1 -5,2 -11,2 -4,6 17,8 15,9 26,8 27,6 4 3 3,2 3 -0,4 6,6 3,8 4,2
Seychelles 31,8 -2,4 2,5 4,3 6,5 2,6 3,2 1,5 117 84 82 76 1,6 2,4 2,6 2,5 0,5 6,7 5,0 4,0
South Africa 7,1 4,3 5 5,7 1 -0,7 -5,5 -4,2 -4,9 48,1 57,2 61,3 64,3* 4,7 4,5 4,4 4,4 -1,5 2,9 3,1 3,4
Swaziland 7,5 4,5 6,1 9,6 2 -7,1 -11 -7,5 n.a 12 13,9 15,7 n.a 4,1 2,9 2,3 n.a 1,2 1,9 1,2 n.a
Tanzania 12,1 7,2 12,7 18,2 1 -4,5 -6,4 -6,9 -3,3 37,1 43,1 48,2 35,33 5,7 5,2 3,8 4,51 6,0 7,0 6,4 6,8
Zambia 13,5 8,5 8,7 6,6 1 -2,6 -2,2 -2,9 -5,6 26,4 21,3 20 n.a 5,1 4 3,6 4,0 6,4 7,6 6,6 7,7
Zimbabwe 6,5 3,1 3,5 4,02 1 0,7 4 0 0 109,8 94,3 90,3 n.a 1,2 1 0,6 0,2 5,7 9,6 9,4 5,6
SADC
Average 12,65 7,29 7,71 9,92 -2,72 -2,45 -2,78 -2,15 50,01 41,01 41,83 40,72 5,04 4,63 4,39 4,32 2,82 5,94 5,07 5,48
Convergence
criteria
(2004-2008)
Single digit inflation rate by
2008
Deficit smaller than 5% of GDP
by 2008 Less than 60% of GDP by 2008
Not less than 3 months by
2008 Not less than 7%
Convergence
criteria
(2009-2012)
5% inflation rate by 2012 Deficit 3% as an anchor within a
band of 1% Less than 60% of GDP by 2012
Not less than 6 months by
2012 Not less than 7%
P Projection
1 May 2012
4 July 2012
*As at 30 September 2011
2 April 2012
# Seychelles-Primary balance excluding grants
3 June 2012
48
9.5 Appendix V: Macroeconomic Convergence Targets Non-Compliance: Causes & Countries’ Strategies
Not met targets Causes Strategies to be implemented to meet the convergence target
Angola
Inflation and Real Growth rate Increase in food prices and unfavorable international environment
Prices and Income Policy, which consist, among others: establish price guarantees for agricultural products, to approve competition law, revise and implement the law more strictly in legal proceedings in relation to trade and economic operators that go against profits trade. Economic diversification and incentives business whose main objective is to reduce dependence on the mining sector and replacing some imports. Central Bank adopted a new monetary policy framework that has among others, the objective to fight against inflation.
Botswana
Inflation and Real Growth rate High food prices and upward adjustment of some Administrative prices including fuel, reduction in diamond sales due to sovereign debt in the Europe and America
To continue limiting Government domestic and foreign borrowing guarantees at 40 per cent of GDP, reduce unproductive expenditure and implement cost saving measures, Consider other financing options such as PPP, Engaging the financial sector, Ensure a competitive exchange rate, interest rates and tax reforms, aimed at enhancing business environment and attracting both domestic and foreign direct investment; Continue making sustainability an integral part of the planning and budget process in Botswana; and Continue reviewing the principles and rules to take new issues, challenges and opportunities into account.
DRC
Inflation, Months of import cover and Real Growth rate
Unfavorable international environment that negatively affects the domestic economy through lower exports and acceleration of imported inflation
Continued efforts to rebuild current national infrastructures with a particular focus on agricultural access roads and the reinforcement of institutions should have allowed the growth of domestic production and improve governance. This increase in domestic wealth associated with greater orthodoxy in public finance management in favor of strengthening the role of institutions should enable the country to more easily meet the convergence criteria.
Lesotho
Budget Balance, Months of import cover and Real Growth rate
Increases in prices of fuel and food globally and domestically, deterioration in SACU revenue, deterioration in foreign reserves
49
Not met targets Causes Strategies to be implemented to meet the convergence target
Malawi
Inflation, Months of import cover and Real Growth rate
Rising of food and non-food costs, kwacha devaluation, high fuel prices, and problems in all the sectors following poor power supply and foreign exchange and fuel shortages especially in the manufacturing sector, mining and construction.
In order to address the foreign exchange challenges, government has established an Export Development Fund (EDF) to support export oriented entrepreneurship effective 2012. The EDF initiative is also expected to facilitate production in all economic sectors by easing importation of raw materials including petroleum products. the monetary authorities (RBM) shall continue to tailor its policies in 2012 to: Maintain annual headline inflation in single-digits; Promote increased private sector investment and Rebuild foreign exchange in order to transform Malawi from a predominantly importing to exporting nation.
Mauritius
Inflation, Months of import cover and Real Growth rate
Rise in administered prices and Uncertainty prevailing on the international front
The Bank, in consultation with the Ministry of Finance, has decided to embark on a programme to build up its foreign exchange reserves, Operation Reserves Reconstitution (ORR), to increase insurance against possible external shocks. The basic objective of ORR is to increase the level of the Bank’s foreign reserves to 6 months’ import cover eventually, In the tourism sector; marketing campaigns are being carried out to attract significantly more tourists.
Mozambique
Inflation, Budget Balance and Months of import cover
The increase in the supply of fruits and vegetables and the impact of the metical appreciation vis-à-vis the South African rand on the cost of imported goods, were not enough to achieve the convergence target
Among other features, the need to harmonize economic policies and a commitment of member countries in pursuing the target that have been established are important steps to achieve the macroeconomic convergence targets.
Namibia
Budget Balance, Months of import cover and Real Growth rate
Targeted Intervention Program for Employment and economic Growth ( TIPEEG),reduction in output of the mining sector
In order to ensure the achievement of the macroeconomic convergence targets and to be able to sustain them, the structural challenges need to be addressed. Unemployment and income inequalities are very high and these pose a serious challenge. The education system has to be improved, in order to respond to the structural challenges.
Seychelles
Public Debt, Months of import cover and Real Growth rate.
Depreciation of the Seychelles Rupee and rise in imports especially the oil imports.
Currently there are no real policies or strategies directly aimed at achieving the macroeconomic convergence targets. This is due to the fact that the on-going reform programme supported by the IMF is in line with the convergence programme. However, going forward, government will have to devise and put in place the right policies to ensure the attainment of the macroeconomic convergence targets.
50
Not met targets Causes Strategies to be implemented to meet the convergence target
South Africa
Budget Balance Public Debt, Months of import cover and Real Growth rate
Slower-than-expected revenue and stronger growth in expenditure resulted in a higher budget deficit. Import cover will continue to underperform as infrastructure spending is maintained since more imports will be needed. Real GDP growth is expected to continue being slow as the global economy slows down resulting in low production for exports.
The government remains committed to the achievement of higher and sustained economic growth, low inflation levels and a stable exchange rate. To this end the government will continue to pursue prudent macroeconomic policy in the form counter-cyclical fiscal policy, flexible inflation targeting, well regulated financial markets, diversification of trade and industry. Government would also continue to assist the Bank to accumulate foreign exchange reserves when market conditions are favorable and engage in foreign currency swaps to moderate the effect of capital flows on the exchange rate.
Swaziland
Inflation, Budget Balance, Months of import cover, Real growth rate
High food and oil prices, low SACU revenues, poor fiscal performance
The implementation of the IMF staff monitored programme can be seen as a stepping stone towards achieving the convergence indicators as it puts emphasis on fiscal discipline dismantling of monopolies and cartels as way forward in addressing the economic ills besetting the country.
Tanzania
Inflation, Budget Balance, Months of import cover, Real growth rate
Food shortage in East Africa put pressure on domestic prices, high import prices, depreciation of the shilling, Budget balance was higher than target due to shortfalls in external financing and hence the country had to borrow. Real GDP growth also declined due to power supply problems.
The government to continue with pursuing prudent macroeconomic policies in order to building strong and competitive economy as well as meeting challenges facing citizens in responding to difficulties in life. The Bank of Tanzania will continue to pursue prudent monetary policy conditions needed for macroeconomic stability. Government to increase domestic revenue collections and curb wasteful expenditures by strengthening management and accountability in the uses of public funds
Zambia
Inflation, Months of import cover and Real growth rate
Non-food inflation, high volume of imports lowered the months of import cover while the less than expected growth in the mining affected the GDP performance
Zimbabwe
Public Debt and Months of import cover
The delayed restructuring of the country´s external debt, the impact of the Euro zone crisis on commodity prices and export earnings undermined the country’s capacity to attain reserve adequacy in line with the SADC target.
The Government of Zimbabwe intends to attach great prominence to capital projects through increased budgetary allocations in order to give more inputs to economic activity and to speed up infrastructure development in the country. In addition, the multicurrency regime will be maintained in the medium term to allow the economy to fully recover. The restructuring of the country’s external debt remains critical.