|Select Economic and Financial Indicators||2014||2015||2016||2017e||2018f|
|Real GDP (% change)||7.4||6.6||3.8||3.0||3.8|
|GDP (USD bn)||16.9||14.8||11.3||12.3||14.8|
|Fiscal Balance (% GDP)||-10.7||-7.2||-5.7||-8.0||-7.0|
|Broad Money (% change, end period)||27.3||21.7||2.4||9.5||13.1|
|Exports (USD bn)||4.6||4.1||3.8||4.5||5.2|
|Imports (USD bn)||12.2||10.6||8.0||7.5||11.8|
|Current Account Balance (% GDP)||-38.2||-40.3||-38.2||-25.6||-45.8|
|FX Reserves (USD bn, end period)||3.5||3.3||2.1||1.7||2.0|
|Exchange Rate (average)||31.36||39.54||62.89||63.57||61.76|
Real GDP: Over 2018, the Mozambican economy will continue to grapple with secondary effects from the 2014-15 commodity price downturn, El Niñodrought effects (which adversely affected agricultural output and food price-inflation), and more recently, the suspension of donor budgetary support following the revelation of a previously undisclosed loan of about USD2bn. These factors saw growth slow to about 3.0% in 2017 from 6.6% in 2015, and will continue to constrain the country’s growth prospect over the forecast period. Limited donor financing and weaker FDI levels are likely to bode ill for infrastructure-related activity, while weak level of FX liquidity will continue to constrain growth key sectors such as trade and manufacturing, undermining growth prospects. However, we expect real GDP to remain in positive trajectory supported by a recovery in commodity exports and some large investments in extractive industries, especially liquefied natural gas (less so coal). Assuming normal rains over the forecast period, we expect the agricultural sector to also lend a support to overall growth, as will services, particularly communications and financial services.
Inflation: Inflation is expected to decelerate on the back of the recent stabilisation of the currency, alongside an easing of drought conditions, but it will remain elevated given significant supply-side constraints and ongoing FX liquidity challenges which will sustain pressure on the metical; this will restrain the production of domestic goods and services and thereby sustain upward pressure on domestic prices. Furthermore, arising global oil prices will add to prices pressures. As a result, inflation is likely to continue to exceed the Banco de Moçambique’s 5–6% medium-term inflation target in 2018. While lower inflation should see the Banco de Moçambique further ease policy rates (following a cumulative 275bp reduction over 2017), the probability of any aggressive easing cycle is low given significant price pressure in the economy.
Fiscal balance: In 2018, we expect fiscal reforms to gather pace, helping to narrow the deficit during the year. This will include further fiscal consolidation (required to maintain debt sustainability) and reforms including the elimination of price subsidies, debt arrears and measures to make public spending more efficient and transparent. At the same time, government efforts to mobilise tax revenue via the curtailment of tax exemptions and the strengthening of tax collection administration will be essential to reducing the structural deficit significantly. Nonetheless, the deficit will remain wide due to significant expenditure on large state enterprises, infrastructure-related activity and a high wage bill against the backdrop of limited donor financing and impending debt repayments in the aftermath of restructuring negotiations with international bond holders.
Current account: Exports are likely to recover over the forecast period, particularly in the aluminium, coal, and gas sectors. However, this will be insufficient to narrow the wide structural trade imbalance in the country. Imports will continue to grow at a fast pace in 2018 driven by FDI-related goods, in addition to payments for services (mainly transport) and investments income to non-residents. As a result, the current account deficit will increase to more than 40% of GDP in 2018 (remaining very large until the start of liquefied natural gas exports beyond 2020). The deficit will be financed by a combination of FDI capital inflows and donor assistance (albeit limited until donor confidence in the government’s financial management ability fully recovers).
Risks to the outlook are high; this is in relation to sovereign risk, specifically on issues surrounding the previously undisclosed debt of USD2bn. Already this has led to a withdrawal of support by the IMF and other foreign donors, and the government’s commitment to promoting transparency in how the loan proceeds were spent will determine the extent to which donors will re-engage with the government, develop a new economic reform programme and support the budget – also a prerequisite for bond holders to start negotiations with the government. Other risks include Mozambique’s proneness to weather disasters (flooding) and commodity price shocks. Security challenges in certain regions are a growing concern since 2013, although widespread instability is unlikely and the impact on the economy is likely to be contained. Talks between the government and Renamo militants will need to agree on common long-standing concerns if further instability is to be avoided.
Exchange rate structure
|Exchange Rate Structure|
|Target||No target, but the central bank intervenes to limit volatility|
|Type of intervention||Via spot market|
|FX Products||Spot||Forwards||Non-deliverable Forwards||Options||Swaps|
|On offer||Yes||Yes – up to 12 months||No||No||No|
|Daily trading volume (USD mn)||n/a||n/a|
|Average trade size (USD mn)|
|Settlement cycle||T+2||T+3 to T+Tenor+2|
|FX Market Structure||The exchange rate is largely determined by the interbank FX market.|
|Non-resident FX Regulations||Spot||Forwards||Non-deliverable Forwards||Options||Swaps|
|Trade and FDI flow||No restrictions||n/a|
|Financial flow||Participation in T-bills and T-bonds market must be done through financial intermediaries that request authorisation from BoM for such activity|
|Resident FX Regulations||Spot||Forwards||Non-deliverable Forwards||Options||Swaps|
|Trade and FDI flow||No restrictions||n/a|
|Primary Market||Treasury bills||Treasury notes||Treasury bonds||Central Bank bills||OMOs|
|End use||Central Bank and Goverment||Government & infrastructure financing|
|Maturity structure||91-days to 364-days||2- to 5-yrs/non life|
|Daily trading volume||Limited trading||n/a|
|Average trade size||Limited trading|
|Nedbank contact details for Mozambique:||Ecobank local affiliate contact details:|
|AvenueJulius Nyerere Nº 590, Maputo|
Tel: +258 21 488 400<
|Ecobank Mozambique, Avenue Vladimir Lenine Nº 210, Bairro Central “C”, Maputo|
Tel: +258 21 313 344 / Fax: +258 21 313 345
|Government debt (% GDP)||62.4||88.1||113.6||88.2||85.6|
|External debt (official creditors, % GDP)||52.4||66.6||87.1||81.1||71.1|
|External public debt stock (USD bn)||8.8||9.8||9.8||10.0||10.5|
|Share of total sub-Sahara debt (%)||3.5||3.8||3.3||3.0||2.9|
Hydrocarbon & mineral production
Mozambique is a diverse mineral producer, with rich reserves of metals, coal & precious stones. The country’s leading mineral output is aluminium, produced by the Mozal smelter complex outside Maputo, with output of 560,000 tonnes in 2015. Plans to expand production at Mozal (Mozal II & III) have been repeatedly postponed owing to constraints on the availability of cheap power from the Cahora Bassa Dam. Mozambique is emerging as a major producer and exporter of coal. From just 40,000 tonnes in 2010, production surged to an estimated 13mn tonnes in 2017. Two thirds of Mozambique’s output is metallurgical coal, making the country’s sector an ideal source of supply for India’s steel makers. Coal production could exceed 20mn tonnes over the next five years, provided investment is made to boost the capacity of railways running from the coal fields to the coastal ports. Mozambique also produced 425,000 tonnes of titanium and 52,000 tonnes of zirconium in 2015, along with around 20 tonnes of precious stones, including rubies, sapphires and emeralds.
Mozambique has no known oil reserves, but is emerging as an important gas producer, with some of the richest gas reserves in East Africa. Offshore Mozambique is estimated to hold in excess of 150trn cubic feet of gas (second only to Nigeria), based on discoveries by American explorer Anadarko and Italian IOC, ENI. Mozambique produces around 645mn cubic feet of gas per day and exports around 97% of its output via pipelines to South Africa under a bilateral trade agreement with South Africa and the South African oil company, SASOL. Mozambique’s consumption of petroleum products has increased to about 25,000 bpd, most of which is imported from South Africa and Asia. An ambitious US$12bn project to construct a 350,000-bpd refinery and petrochemical plant in Mozambique has progressed slowly. As a result, Mozambique imports all its petroleum products and also serves as an import terminal for its landlocked neighbours, Malawi and Zimbabwe.
Soft commodity production
Mozambique has a diverse agricultural sector, with the bulk of output concentrated in the north of the country. Production of key staples included 9.1mn tonnes of cassava, 1.5mn tonnes of maize, 730,000 tonnes of sweet potatoes and 234,000 tonnes of rice in 2016. Mozambique produces a variety of cash crops for domestic consumption and export. The country is one of Southern Africa’s leading sugar producers, with estimated output of 450,000 tonnes of raw sugar in 2016/17. Mozambique’s nut production has grown in recent years, rising to 115,000 tonnes of raw cashew nuts and 113,000 tonnes of groundnuts in 2017. That year the country’s other significant soft commodity production included 93,000 tonnes of tobacco, 60,000 tonnes of sesame seed and 44,000 tonnes of seed cotton.
Mozambique’s imports totalled US$5.8bn in 2017. Mozambique is reliant on imports of machinery, vehicles, ships & electronics (together worth US$1.4bn in 2017), reflecting the poorly developed manufacturing sector. Given the country’s lack of refining capacity, Mozambique is dependent on imports of petroleum products (worth US$970mn in 2017). The country also imported electricity worth US$269mn from South Africa, all of which comprised re-imports of Mozambican electricity generated at the Cahora Bassa Dam which is transmitted via power lines in Gauteng province. Mozambique also imports large volumes of industrial raw materials, including US$474mn worth of unwrought aluminium from the Netherlands (for use in the Mozal smelting complex), US$270mn of iron & steel and US$125mn of plastics in 2017. That year the country also imported US$365mn of cereal (mostly rice and wheat), accounting for 3.9%, 3.6% and 3.3%, respectively, of Africa’s maize, wheat and rice imports.
Mozambique’s exports totalled US$4.7bn in 2017. Coal has overtaken aluminium as Mozambique’s most valuable export, worth US$1.7bn in 2017, nearly all of which went to India to power its steel industry. Exports of aluminium remain important, worth US$1.2bn in 2017, most of which go to the Netherlands, a key aluminium trading hub. Other energy exports include US$365mn of natural gas and US$361mn of electricity, both primarily to South Africa, via the SASOL pipeline and Cahora Bassa Dam transmission lines, respectively. Around two-thirds of electricity exports are re-imported. Mozambique’s other mineral exports include titanium ore (worth US$157mn in 2017) and precious stones (US$98mn). The country also exports a variety of agricultural cash crops, including tobacco (worth US$212mn in 2017), nuts (US$91mn), wood (US$59mn), sugar (US$27mn) and cotton lint (US$14mn).