AfDB Calls for Urgent Action to Close Southern Africa's Funding Gap

The report projects regional economic growth to increase from 2.1% in 2026 to 2.7% in 2027, supported by stronger household spending and growth in the services sector.

Southern Africa is showing signs of economic recovery, but the pace is not enough to deliver meaningful improvements in living standards without much stronger investment, according to the African Development Bank's (AfDB) 2026 Regional Economic Outlook for Southern Africa.

The report projects regional economic growth to increase from 2.1% in 2026 to 2.7% in 2027, supported by stronger household spending and growth in the services sector. Despite the positive outlook, the Bank says structural weaknesses, including limited economic diversification, low agricultural productivity, infrastructure shortages and weak domestic resource mobilisation, continue to slow progress and reduce gains in income per person.

Region faces a $55 billion annual financing shortfall

A key finding of the report is that Southern Africa's biggest obstacle is not the absence of financial resources but the difficulty in mobilising and directing available capital into productive investments.

The AfDB estimates the region will face an annual development financing gap of around $55 billion by 2030. Gross capital formation had already fallen to 18.6% of GDP by 2025, below the level generally required for middle-income economies to achieve sustained structural transformation.

AfDB Director General for Southern Africa Kennedy Mbekeani said the challenge lies in effectively mobilising, managing and deploying existing capital in an increasingly fragmented global economy. Chief Economist Kevin Urama urged governments to accelerate implementation of the New African Financial Architecture for Development (NAFAD), describing it as a key tool for improving financial resilience amid global economic uncertainty.

Inflation eases as governments seek new investment sources

The report highlights encouraging progress on inflation, which is projected to fall from 26.1% in 2024 to 12.3% in 2025, before easing further to 8.4% in 2026. Even with improving price stability, governments continue to face pressure from rising public debt, fiscal deficits and external financial risks. Poverty reduction has slowed because of inflation, climate-related shocks and income losses, while unemployment and inequality remain widespread across the region.

To bridge the funding gap, the Bank recommends strengthening public financial management, reducing illicit financial flows, expanding blended finance, encouraging public-private partnerships and attracting greater investment from pension funds, insurance companies and sovereign wealth funds. It also highlights the importance of using digital technologies to broaden the tax base and improve government revenue collection.

The report points to untapped sources of finance across the region, including diaspora remittances, domestic capital markets and natural resource wealth. Countries such as Namibia and South Africa are seen as having significant potential to channel institutional investment into long-term development projects.

South Africa sees gradual recovery

Alongside the regional outlook, the AfDB released its South Africa Country Focus Report 2026, which projects the country's GDP growth to rise from 0.5% in 2024 to 1.1% in 2025, followed by 1.2% in 2026 and 1.6% in 2027.

The report credits stronger agricultural output, improved activity in finance, real estate and trade, as well as reforms under Operation Vulindlela, for supporting the recovery. It also notes that South Africa's removal from the Financial Action Task Force (FATF) grey list in October 2025 strengthened investor confidence and contributed to Moody's upgrading the country's outlook from stable to positive in May 2026.

Despite these improvements, South Africa continues to face high unemployment of 31.4%, infrastructure constraints and public debt expected to peak at 78.9% of GDP during the 2025/26 financial year.