According to the African Development Bank, Southern Africa must urgently mobilize large-scale development financing to turn gradual and uneven economic recovery into real gains in living standards.https://www.AfDB.org) Regional Economic Outlook for Southern Africa to 2026: Mobilizing development financing for Southern Africa at scale in a fragmented worldReleased on Tuesday.
The report reviews the region's macroeconomic prospects, measures its development financing gap, and sets out the reforms needed to strengthen financial systems and the region's agency in a changing global economy.
The report projects regional growth to accelerate from 2.1% in 2026 to 2.7% in 2027, supported by strong domestic consumption and services. However, limited diversification, weak agricultural productivity, infrastructure gaps and low domestic resource mobilization are hampering long-term growth and resilience, reducing gains in per capita GDP and efforts to tackle deep economic inequalities.
a growing financial gap
At the core of the report is a clear diagnosis: Southern Africa's development challenge is not simply a lack of resources, but persistent obstacles to mobilizing, intermediating and deploying available capital effectively and at scale.
Kennedy Mbekeni, African Development Bank Director-General for Southern Africa, said, “The challenge is not just a shortage of money. It is how to mobilize, intermediate and deploy the capital that already exists effectively and at scale in an increasingly fragmented global economy.”
The Bank's Chief Economist and Vice President for Economic Governance and Knowledge Management, Kevin Urama, urged regional leaders to rapidly implement the New African Financial Architecture for Development (NAFAD), a continental initiative championed by President Dr. Sidi Ould Tah and supported by African leaders earlier this year.
“Only through the effective implementation of the key building blocks of the new financial architecture can the continent withstand financial storms and the increased volatility and uncertainties that come with the ongoing fragmentation of global financial markets,” Urama said.
Gross capital formation in the region is projected to fall to about 18.6% of GDP by 2025 – below the threshold required for middle-income economies to achieve structural transformation. The problem is compounded by tight global financial conditions and a decline in concessional aid, with Southern Africa projected to face an annual financing shortfall of approximately $55 billion by 2030.
“The gap between domestic savings and investment reflects both dependence on external funding and poor utilization of local resources,” the report said, citing weak financial intermediation, poor project preparation and a lack of long-term funding sources as major obstacles to converting available capital into productive investment.
Inflation reduced, but risks remain high
On the macroeconomic front, the report finds that inflation is largely slowing across the region – falling from 26.1% in 2024 to 12.3% in 2025, with a further decline to 8.4% in 2026.
Despite the cautiously positive trajectory, the report warns that the fiscal deficit, rising public debt burden and external imbalances are constraining policy space. Poverty reduction has slowed due to declining incomes, inflation and climate shocks, while persistent inequality, unemployment and weak service delivery are limiting welfare gains. Tightening global financial conditions could trigger capital outflows and exchange rate declines, putting further pressure on an already fragile recovery.
unused capital
The report identifies significantly underutilized financing sources across the region – from migrant remittances and institutional investors to capital markets and natural resource wealth – although their potential varies widely by country. Remittances play a larger role in Lesotho and Zimbabwe, while Namibia and South Africa benefit from deep capital markets and substantial pension assets, pointing to untapped scope for greater institutional investor participation.
To reduce 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 investments through targeted instruments and expanded blended finance; and raising institutional capital through public-private partnerships – including pension funds, insurance companies and sovereign funds. It also calls for leveraging digital technologies to formalize economic activities, broaden the tax base, and strengthen the fiscal social contract.
The report argues that Southern Africa should move beyond a bank-centric financial model to build deeper, more integrated capital markets capable of drawing long-term assets from pension and insurance funds.
South Africa in focus
As well as the regional outlook, the Bank unveiled its South Africa Country Focus Report (CFR) 2026, which applies the development financing theme at the country level and shows that even Africa's most developed capital markets face a significant financing challenge.
In a speech on behalf of the National Treasury of South Africa, Hendrik Oosthuizen said, “Disintegration in the global economy is not just a threat to South Africa. It is also a beginning.” “As traditional sources of concessional finance contract and become more contested, those countries that are better able to raise their own capital and make themselves an attractive, well-governed destination for the capital of others will prosper.”
South Africa's GDP growth is set to accelerate from 0.5% in 2024 to 1.1% in 2025, supported by agriculture and strong finance, real estate and business activity. Growth is forecast at 1.2% in 2026 and 1.6% in 2027, aided by improved energy supply and Operation Vulindla reforms (https://apo-opa.co/3U1q1U8). Power and water shortages, freight and port inefficiencies, and sensitivity to global risks continue to weigh on the outlook. Unemployment remains high at 31.4%, while public debt is expected to reach 78.9% of GDP in 2025/26.
The report said that after successfully completing 22 anti-money laundering and counter-terrorism financing reforms, South Africa's exit from the Financial Action Task Force (FATF) gray list in October 2025 helped strengthen investor confidence and helped Moody's Ratings upgrade its May 2026 outlook from stable to positive. These developments also highlight that strong governance and institutional credibility can reduce the cost of capital.
Both reports were presented by Edward Senoga, the Bank's chief economist for Southern Africa, ahead of a fiery talk on the topic “Mobilizing large-scale development financing: from regional trends to country perspectives.” Moderated by Hervé Lohaus, Acting Director of the Bank's Country Economics Department, the discussion was attended by South African National Treasury, the South African Reserve Bank, Nedbank, the Southern African Development Community (SADC), officials from 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 the African Development Bank Group (AfDB).
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About African Development Bank Group:
The African Development Bank Group (AfDB) is Africa's leading development finance institution. It consists of three separate institutions: the African Development Bank (AfDB), the African Development Fund (ADF) and the Nigeria Trust Fund (NTF). In 34 African countries with an external office in Japan, the AfDB contributes to the economic development and social progress of its fifty-four regional member countries. For more information: www.AfDB.org