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Sub-Saharan Africa / Angola

An investor’s guide to Southern Africa

Our investor's guide to Southern Africa is for those considering operating in Angola, Botswana, Comoros, Eswatini, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Zambia or Zimbabwe.

southern-africa-guide

South Africa and its major cities such as Johannesburg (pictured) dominate the Southern African FDI landscape, in spite of recent corruption scandals. (Photo by Waldo Swiegers/Bloomberg via Getty Images)

South Africa may dominate the Southern Africa region, but the likes of Botswana and Mauritius are building successful economies, providing valuable lessons for their neighbours.

Which Southern Africa economies are booming?

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South Africa's economy is the most developed in Southern Africa. GDP remained above $300bn between 2017 and 2020 highlighting its dominance across the region. In 2020 South Africa’s GDP accounted for 12.8% of Africa’s total GDP, more than four times that of Angola. GDP in South Africa first surpassed the $300bn level in 2010 and this trend continued until 2016, when its GDP fell to $296bn. The decline was due to a drop in mining production and manufacturing in the country. Nedbank expects the economy to grow by 4.4% in 2021 with a budget deficit smaller than the 14% initially predicted for 2020/21.

The end of apartheid in 1994 put the country on a growth path. The ANC has been the dominant political party in the country in this time, although it has lost voters due to corruption scandals linked to the now ousted former president Jacob Zuma. In 2019, President Cyril Ramaphosa cited plans to ignite economic growth in the country including priorities for job creation, visa regulations to attract tourists and investors, the creation of industrial parks and financial support.

In 2000, following issues managing exchange rates, South Africa implemented its inflation targeting framework. The country targets inflation of 3–6% to control general rises in the price level. Since 2017 the Monetary Policy Committee focused on achieving a rate close to 4.5% to support growth and stability.

Mauritius, one of Southern Africa’s more successful transitioning economies, has diversified from a country dependant on agriculture to industries including manufacturing, financial services, renewable energies and ICT, alongside a blossoming tourism sector. The country’s GDP has been growing steadily, hitting the $14bn mark in 2018. Its Industrial Policy and Strategic Plan 2020–2025 works towards accomplishing its 2030 vision of high-income status, supported by a highly productive manufacturing sector contributing one-quarter of the country’s GDP.

Botswana is one of fastest-growing economies in Africa. The landlocked country has benefitted from political stability and solid economic policies. In the 2021 Index of Economic Freedom Ranking, Botswana is in third position for the whole of sub-Saharan Africa. While diamond mining and agriculture are the country's two largest industries, Botswana is also looking to diversify into commodities such as gold and metals and develop its tourism sector. Infrastructure improvements are also a key part of its Vision 2036 plan. The country is set to continue making strides with expected economic growth of 9.7% in 2021.

In November 2017, a military coup removed Robert Mugabe as the president of Zimbabwe; however, the change the country hoped for is yet to transpire. Succeeding president Emmerson Mnangagwa declared the country “open for business” but any policies to facilitate this have failed to materialise. Economic growth and job prospects remain bleak in Zimbabwe. Inflation has been rising and in 2019 the government banned local trading in foreign currencies due to high imports and a shortage of cash, and reintroduced the Zimbabwean dollar. Goods are still valued in US dollars, however, and many are forced to use black market currency exchanges.

Zambia’s inflation rate is the highest in Southern Africa (standing at 15.7% in 2020). Rising food and transport prices, alongside depreciation of the local currency, are the main contributors. The country’s economic and debt crisis are a key priority for new president Hakainde Hichilema, who was sworn in in September 2021. He faces tough challenges following the events of 2020 that saw the country defaulting on repayments to lenders. Reforms in leadership, tax reviews and changes to military and police officials are already under way, with many hoping the former businessman can change the course of the economy.

South Africa dominates in attracting FDI

South Africa takes the lion's share of foreign direct investment (FDI) in Southern Africa. The number of FDI projects peaked in 2011 at 198. Numbers have fluctuated over the past ten years, with many blaming former president Zuma. Following his appointment in 2018, President Ramaphosa announced plans to attract $100bn in new investments into South Africa by 2023. In 2019 its number of FDI projects increased to 130, but the value of FDI projects was estimated to be less than one-third ($4.1bn) of that in 2011 ($12.8bn).

Angola, one of the world’s top oil producers, has been rebuilding its economy ever since the end of its civil war in 2002. The country is keen to diversify to promote growth and in June 2021, Angola and the EU launched negotiations for the first sustainable investment facilitation agreement in an effort to attract and retain investment by improving the investment climate for both foreign and local investors.

In recent years FDI into Mozambique has struggled to match the peak levels of 2015 (when it attracted 51 projects). In 2019 FDI figures fell to a 13-year low of $832.5m, with Covid-19 leading to further declines in 2020. Political uncertainty and falling commodity prices have also acted as a deterrent for potential investors. In 2019 the Agency for Promotion of Investment and Exports of Mozambique launched a new website in an attempt to boost foreign investment and exports from Mozambican SMEs. The country has placed a focus on Chinese investors, one of the biggest sources of FDI into Mozambique.

However, to attract investors and capitalise on its abundance of liquefied natural gas (LNG), the country will need to address security issues. In April 2021, France-based Total SE suspended its $20bn LNG project in Mozambique indefinitely due to an escalation of violence.

Digital infrastructure improvements key in Southern Africa

A total of 85% of South Africa’s population had access to electricity in 2019. Despite this, there are issues with reliability due to electricity deficits in the country, which could last another five years. Recently the National Energy Regulator of South Africa approved state-owned utility Eskom’s 15.6% price increase for 2021, which could prove costly for business owners.

South Africa has the highest proportion of individuals using the internet in the region, reaching 56.1% in 2017. The country’s draft National Infrastructure Plan 2050 signals an intention to have high-speed internet in every community by 2024, and it is also considering free basic data for low-income users.

Despite socio-economic improvements in South Africa, former president Zuma's legacy of corruption has hampered development. President Ramaphosa has started implementing the National Anti-Corruption Strategy to address the issues and move the country forward.

In 2022 South Africa will decrease its corporate tax rate from 28% to 27% in a bid to more closely align its rate to that of other countries that have dropped their rates and remain competitive. South Africa has also joined 130 other countries to introduce a global minimum corporation tax as it looks to become more appealing to foreign investors.

Comoros, one of the worlds poorest countries, ranks as the most corrupt in Southern Africa. Despite 84% of the population having access to electricity in 2019, the percentage of individuals using the internet in 2019 was only 8.5%. The government has a tight rein on the media and those reporting negatively about the government face penalties.

Internet usage rates are increasing in Zimbabwe, but the high cost of international internet connectivity remains a challenge in the country. Zimbabwe is landlocked, accessing bandwidth from undersea cables via Mozambique and South Africa.

Electricity in Malawi is scarce, with only 11.2% of the population having access to electricity in 2019. Fixed broadband subscriptions (per 100 people) are the lowest in the region at only 0.06% in 2019, alongside low internet usage (13.8% of the population in 2017). Malawi Telecommunications Regulatory Authority and telecommunications operators have recently been working together to reduce data prices, but investment in critical infrastructure is required, especially in rural areas where the majority of Malawians live.

Angola has prioritised increased access to electricity for the country. It is targeting 9.9GW of installed generation capacity and a 60% electrification rate by 2025. The country is a major oil exporter but is committed to using renewable resources to drive development.

Where offers the best human capital in Southern Africa?

Signs are positive for the quality of life in Malawi, and in 2020 The Economist named Malawi the country of the year. It stated: "Democracy and respect for human rights regressed in 80 countries between the start of the pandemic and September, reckons Freedom House, a think-tank. The only place where they improved was Malawi."

Namibia had the highest literacy rate in the Southern Africa region, with 91.5% of the population literate in 2018. The National Literacy Programme in Namibia was launched in 1992 to promote basic literacy and numeracy for the improvement of the livelihood of adults. Tertiary education enrolment of 22.9% also sits above the Southern Africa average of 11.7%.

Despite its upper-middle-income country status, a large portion of South Africa’s population lives below the national poverty line. South Africa has the highest unemployment rate in Southern Africa, reaching 28% in 2019 and 2020, more than double the regional average of 12%.

The country’s national development plan, Vision 2030, lays out plans to “eliminate poverty and to sharply reduce inequality by 2030”. In 2017, 92.7% of the population was using at least basic drinking water services. The Department of Water and Sanitation is focusing on water security by 2030 as water access is still lacking, especially in rural areas.

Levels of education in South Africa, as in most African countries, vary greatly between the rich and the poor, with the country having a 23.8% tertiary education enrolment.

Madagascar has the lowest unemployment rate (1.92% in 2020) in Southern Africa. The country is reliant on agriculture, with employment in the sector at 63.83% in 2020, according to the International Labour Organization. Despite this, poverty is rife in the country and a drought in 2021 is likely to lead to food shortages due to poor harvests. With only about half of the population using basic drinking water services in 2017, and tertiary education enrolment the 5.4% in 2018, the country falls short of Southern Africa averages.

Renewable energy a must for Southern African economies

A shift towards renewable energy will allow many African countries to stabilise electricity requirements and ensure demand doesn’t outstrip supply.

In 2021, Botswana, Namibia and the US signed a memorandum of intent to create a mega-solar project in the two southern African countries. This would transform the countries into exporters of renewable energy.

As South Africa’s economy shifts towards service sectors, the country plans to limit its annual greenhouse gas emissions to 398–440 million tonnes of CO2 equivalent by 2030, a cut of 28% compared with its 2015 plan. Building on renewable reserves, ACWA Power’s $784m Redstone concentrated solar power plant, the largest in South Africa, will deliver clean and reliable electricity to nearly 200,000 households.

Despite its potential for renewable power, Zimbabwe is reliant on fossil fuels, with multiple Chinese companies planning to build new coal plants in the country. In September 2021, however, Chinese leader Xi Jinping stated that China will not build new coal-fired power projects abroad, a major setback for Zimbabwe and its energy deficit. The country’s reliance on imports will continue until it prioritises renewables.

While South Africa’s economy is expected to continue to grow, the country was one of the hardest hit by the Covid-19 pandemic. As with all Southern Africa economies, policies to aid recovery following Covid-19 will be key and allow those on an upward trajectory to continue development and growth.

Investment Monitor has produced five investor guides covering the whole of Africa. They can be found here:

Christine Patton

Christine Patton

Senior economist

Christine Patton is senior economist at Investment Monitor and a global expert on cross-border investment.