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Southern Africa must urgently mobilise development financing at scale to turn a gradual and uneven economic recovery into real gains in living standards, according to the African Development Bank's (https://www.AfDB.org) 2026 Regional Economic Outlook for Southern Africa: Mobilising Southern Africa's Development Financing at Scale in a Fragmented World, released on Tuesday.

The report reviews the region's macroeconomic prospects, quantifies its development financing gap, and sets out reforms needed to strengthen financial systems and regional agency in a changing global economy.

The report projects regional growth rising from 2.1% in 2026 to 2.7% in 2027, supported by stronger household consumption and services. However, limited diversification, weak agricultural productivity, infrastructure gaps, and low domestic resource mobilization continue to constrain long-term growth and resilience, trimming gains in GDP per capita and efforts to tackle entrenched economic disparities.

A Widening Financing Gap

At the heart of the report is a stark diagnosis: Southern Africa's development challenge is not simply a shortage of resources, but rather persistent constraints in mobilizing, intermediating, and deploying available capital effectively and at scale.

"The challenge is not simply a shortage of money. It is mobilising, intermediating, and deploying the capital that already exists, effectively and at scale, in an increasingly fragmented global economy," said Kennedy Mbekeani, African Development Bank's Director General for Southern Africa.

The Bank's Chief Economist and Vice-President for Economic Governance and Knowledge Management, Kevin Urama, urged regional leaders to swiftly implement the New African Financial Architecture for Development (NAFAD), a continental initiative championed by President Dr Sidi Ould Tah and endorsed by African leaders earlier this year.

”It is only through the effective implementation of the key building blocks of the new financial architecture that the continent can weather the financial storms and increased volatilities and uncertainties that come with the ongoing fragmentation in the global financial markets," Urama said.

Gross capital formation in the region fell to around 18.6% of GDP by 2025 — below the threshold needed for middle-income economies to achieve structural transformation. With tighter global financial conditions and declining concessional aid compounding the problem, Southern Africa is projected to face an annual financing shortfall of approximately $55 billion by 2030.

"The gap between domestic savings and investment reflects both a dependence on external funding and poor utilisation of local resources," the report states, citing weak financial intermediation, poor project preparation, and a lack of long-term funding sources as key barriers to converting available capital into productive investment.

 Inflation Eases, but Risks Remain Elevated

On the macroeconomic front, the report finds inflation moderating significantly across the region — falling from 26.1% in 2024 to 12.3% in 2025, with a further decline to 8.4% projected for 2026.

Despite a cautiously positive trajectory, the report cautions that fiscal deficits, rising public debt burdens, and external imbalances continue to constrain policy space. Poverty reduction has slowed owing to income losses, inflation, and climate shocks, while persistent inequality, unemployment, and weak service delivery continue to limit welfare gains. Stringent global financial conditions could trigger capital outflows and exchange rate depreciation, adding further pressure to an already fragile recovery.

Untapped Capital

The report identifies a signifcant underutilized financing sources across the region -- from diaspora remittances and institutional investors to capital markets and natural resource wealth -- though their potential varies widely by country. Remittances play an outsized role in Lesotho and Zimbabwe, while Namibia and South Africa benefit from deeper capital markets and substantial pension assets, pointing to untapped scope for greater institutional investor participation.

To close the financing gap, the report recommends an integrated policy agenda: strengthening fiscal capacity and public financial management; curbing resource leakages and illicit financial flows; de-risking investment through targeted instruments and expanded blended finance; and mobilizing institutional capital — including pension funds, insurance companies, and sovereign funds — through public-private partnerships. It also calls for leveraging digital technologies to formalize economic activity, broaden the tax base, and reinforce the fiscal social contract.

The report argues that Southern Africa must move beyond bank-centric financial models to build deeper, more integrated capital markets capable of channelling long-term assets from pension and insurance funds.

South Africa in Focus

Alongside the regional outlook, the Bank unveiled its South Africa Country Focus Report (CFR) 2026, which applies the development financing theme at country level and shows that even Africa's most developed capital market faces a significant financing challenge.

“Fragmentation in the global economy is not simply a threat to South Africa. It is also an opening,” said Hendrik Oosthuizen, in a speech on behalf of South Africa's National Treasury. “As traditional sources of concessional finance contract and become more contested, the countries that prosper will be those that get better at mobilizing their own capital and at making themselves an attractive, well-governed destination for others' capital."

South Africa's GDP growth rose to 1.1% in 2025 from 0.5% in 2024, supported by agriculture and stronger finance, real estate, and trade activity. Growth is projected at 1.2% in 2026 and 1.6% in 2027, aided by improved energy supply and Operation Vulindlela reforms (https://apo-opa.co/3U1q1U8). Electricity and water shortages, freight and port inefficiencies, and vulnerability to global risks continue to weigh on the outlook. Unemployment remains high at 31.4%, while public debt is expected to peak at 78.9% of GDP in 2025/26.

The report notes that South Africa's October 2025 exit from the Financial Action Task Force (FATF) grey list, after successfully completing 22 anti-money laundering and counter-terrorism financing reforms, helped strengthen investor confidence and supported Moody's Ratings' May 2026 outlook upgrade from stable to positive. These developments also underscore that stronger governance, and institutional credibility can lower capital costs.

Both reports were presented by Edward Sennoga, the Bank's Lead Economist for Southern Africa, ahead of a fireside chat, “Mobilizing development financing at scale: from Regional Trends to Country Perspectives.” moderated by Hervé Lohoues, the Bank's Acting Director of the Country Economics Department, the discussion drew participants from South Africa's National Treasury, the South African Reserve Bank, Nedbank, the Southern African Development Community (SADC), officials across the region, and members of the public.

Click here (https://apo-opa.co/3TLKGvr) to download the full report.

Distributed by APO Group on behalf of African Development Bank Group (AfDB).

Media contact:
Emeka Anuforo
Communication and External Relations Department
media@afdb.org

About the African Development Bank Group:
The African Development Bank Group (AfDB) is Africa's premier development finance institution. It comprises three distinct entities: the African Development Bank (AfDB), the African Development Fund (ADF) and the Nigeria Trust Fund (NTF). On the ground in 34 African countries with an external office in Japan, the AfDB contributes to the economic development and the social progress of its fifty-four regional member states. For more information: www.AfDB.org