JOHANNESBURG (XOL Africa) — Southern Africa must significantly increase development financing to sustain economic growth and improve living standards, the African Development Bank said Tuesday, warning the region could face an annual financing gap of about $55 billion by 2030 unless governments implement sweeping financial and economic reforms.
The warning comes in the Bank’s 2026 Regional Economic Outlook for Southern Africa, which projects regional economic growth to rise from 2.1% in 2026 to 2.7% in 2027, driven largely by stronger household consumption and growth in the services sector. However, the report says structural weaknesses—including limited economic diversification, poor agricultural productivity, infrastructure deficits and weak domestic resource mobilization—continue to hamper long-term development.
“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, the African Development Bank’s Director General for Southern Africa.
According to the report, gross capital formation in Southern Africa fell to about 18.6% of gross domestic product in 2025, below the level considered necessary for middle-income economies to achieve structural transformation. The Bank said tighter global financial conditions and declining concessional financing are expected to widen the region’s development financing shortfall.
“The gap between domestic savings and investment reflects both a dependence on external funding and poor utilisation of local resources,” the report said, identifying weak financial intermediation, inadequate project preparation and a shortage of long-term financing as major obstacles to investment.
The Bank’s Chief Economist and Vice-President for Economic Governance and Knowledge Management, Kevin Urama, urged governments to accelerate implementation of the New African Financial Architecture for Development (NAFAD), a continent-wide initiative 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.
The report noted that inflation across Southern Africa has eased considerably, falling from 26.1% in 2024 to 12.3% in 2025, with a further decline to 8.4% projected for 2026.
Despite improving inflation, the Bank warned that high public debt, fiscal deficits, external imbalances, persistent unemployment, poverty and climate-related shocks continue to threaten the region’s recovery. It also cautioned that tighter global financial conditions could trigger capital outflows and currency depreciation.
To bridge the financing gap, the report recommends strengthening tax collection and public financial management, reducing illicit financial flows, expanding blended finance, improving public-private partnerships and mobilizing long-term capital from pension funds, insurance companies and sovereign wealth funds.
It also urges governments to deepen capital markets, leverage digital technologies to broaden the tax base and formalize economic activity, and reduce reliance on traditional bank financing.
Alongside the regional outlook, the Bank released its 2026 South Africa Country Focus Report, which found that Africa’s most advanced economy also faces significant financing challenges despite recent improvements.
South Africa’s economy expanded by 1.1% in 2025, up from 0.5% in 2024, supported by agriculture and stronger performance in the finance, real estate and trade sectors. Growth is forecast to reach 1.2% in 2026 and 1.6% in 2027, aided by energy supply improvements and structural reforms under Operation Vulindlela.
However, the report said electricity and water shortages, inefficient freight and port systems, and elevated unemployment continue to weigh on the country’s economic outlook. South Africa’s unemployment rate remains at 31.4%, while public debt is projected to peak at 78.9% of GDP in the 2025/26 fiscal year.
Speaking on behalf of South Africa’s National Treasury, Hendrik Oosthuizen said shifting global financial conditions also present opportunities for countries able to strengthen domestic investment frameworks.
“Fragmentation in the global economy is not simply a threat to South Africa. It is also an opening,” Oosthuizen said.
“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.”
The report also noted that South Africa’s removal from the Financial Action Task Force’s grey list in October 2025, following reforms to combat money laundering and terrorist financing, contributed to improved investor confidence and helped secure an outlook upgrade from Moody’s Ratings in May 2026.
The regional and country reports were presented during a virtual event attended by representatives from South Africa’s National Treasury, the South African Reserve Bank, the Southern African Development Community, financial institutions and development partners.
Read the full report here.
