2021 Estimated 5,3% Real GDP Growth 2022 22,6% Direct foreign investment as % of GDP 2021 MOZAMBICAN MACROECONOMIC OUTLOOK REPORT BY LUCIANGEL SOARES FILIPE Macroeconomic Overview To say that the Country’s economy is unstable is an understatement. The climate of instability has shaped the economic outlook of the country. From terrorism threats in the North, to civil war unrest in the center of the country and finally corruption scandals leading to soaring levels of debt. Regardless of all these factors the country’s economy has seen significant growth for a country in its position, and will probably recover due to the reasons that will be made clear in this report. INTRODUCTION In the last 10 years the Mozambican economy has been struck with, insurgency (considered to be an aftershock of the civil war) since 2013 to 2021 (at the time of writing insurgency shows signs of halt with the death of Mariano Nhongo, leader of the movement). Then there is terrorism in Cabo Delgado since 2017 and the tuna fish scandal culminating in a debt with a true cost of about $11 billion (Source: AllAfrica.com) compared to Mozambique’s GDP of 14,02 billion in 2020, the debt angered and donors and lenders causing Mozambique to lose at least 800 million in foreign aid. Each one of these factors is enough to derail any small nation, but somehow the Mozambican economy still has a pulse and is expected to grow. According to the IMF the Mozambican economy has experienced a negative Real GDP growth of 1,2% in 2020, this is the first time since 1992. Through the last 10 years of civil unrest the country managed to keep growing although its visible that the Real GDP growth slowed down it only shrank once and for 2021 the IMF estimates a bounce back and growth of 2,5%. This resilience is what will be needed to see the country through these times, and Mozambique has shown time after time that it can bounce back. The key in factor going forward will be the people’s industriousness and better management style. Macroeconomic Overview Chart 2: Inflation, average consumer prices inflation (%) 80 60 40 20 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 0 Year Source: IMF 15 10 5 0 -5 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 Between 1990 and 1999 Mozambique experienced an impressive Real GDP growth of up to 11,7% and then it levelled off at around 7% at until 2016 when the effects of hidden government loans kicked in, loans which had no plan or feasible amortisation plans. These loans exacerbated by political unrest over the following years reduced real GDP growth to a contraction of -1,2% in 2020 lowest in 30 years. In spite of this the IMF predicts a that in 2021 the Real GDP growth will bounce back by 2,5% which is higher than the 2019 real GDOP growth of 2,3% and 5,3% growth in 2022. This could be attributed to several factors, from the end of insurgency in the centre of the country with the death of Renamo militia leader Mariano Nhongo and help from Rwanda and SADC to control insurgency, these factors should bring some political stability. That’s not to say that this is all Mozambique has in its favour. Real GDP growth (Annual %Δ) Real GDP growth -10 Year Chart 1: Real GDP growth (Annual % Δ) Source: IMF INFLATION Mozambique has seen very high levels of inflation in the past 30 years, between 1990 and 1996. Those times are long gone but should be kept in mind for context, ever since then the country has managed to keep inflation at bay in a somewhat acceptable rate of 2% - 6% considering its past. If we are being honest to ourselves the current 6,2% inflation rate is 3 times the deal 2% but it’s far from unbearable to most business but for the population (with 46.1% living under the poverty line according to United Nations Development Programme) with not cushion or insulation this 6 % inflation stings with every household purchase, a 6% rate is also higher than most payment rate increases in Mozambique, overtime this negative difference between will have a big effect. A 6% inflation rate is good for borrowers because it means the loan is worth less and future interest payments will cost less, so it’s a good time to borrow money. Going forward it will be essential that the government is careful with the issuance of new debt and more importantly the government needs to find forms of self-sufficiency that don’t involve borrowing money, there two factors tend to be reflected in the inflation rate. There is little evidence that, that’s where we are headed. Macroeconomic Overview Current Account Balance Thanks to it foreigners have a stronger claim to domestic assets. If we can look past our own sense of nationalism this is not all bad maybe the country will benefit from this from exchange of skills, capital and values exchange, provided these foreign nationals check all these boxes. 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Current account balance U.S. dollars (Billions of U.S. dollars) 0 -1 -2 -3 -4 -5 -6 -7 -8 Year Source: IMF Changes in Exchange rates Against the U.S dollar Dollar to Mzn exchange rate The good news is that consumption has increased exponentially, the problem is that there is a trade deficit of $5 billion in 2021, this refers to both imported goods and services. A trade deficit of 5 billion to an economy with a GDP worth $14.02 billion (Source: World Bank,2020). This is another reminder of how tender and young the Mozambican economy is, a trade deficit is a usual semblance of developing nations. In some cases, a trade deficit happens because of purchase of production inputs, in these cases the negative trade deficit is temporary. The longer a country stays in a scenario of trade deficit the more problematic things tend to get to the future generations since it will be burdened with loans and high interest rates. There are more implications such as depreciation of the Metical and cost push inflation, a moderate depreciation could induce more competition in the market. Current account balance 80 60 40 20 0 Year Source: Investing.com (Adapted by the Author to reflect only prices in January of each year). It is possible to draw some correlations between the current account balance and the exchange rate but we should not dwell on that so much. With the passing of time Mozambique has discontinued several factories and allowed many industries to almost disappear by not offering any protection during recessions or from imports from countries that can produce these goods efficiently. This has caused a scenario where there’s increasingly less demand for the Metical effectively driving the currency down. At present efforts are being made to revive the industrial sector now more than ever with projects such as Oil & Gas, government investments in agriculture. The future of the country has potential but government still needs to time better its interventions to better assist and support growth. Despite all its flaws Mozambique remains far too attractive to pass on as investment. It has almost everything from good arable lands, natural gas, oil, all sorts of minerals from rare ruby’s stones to coal and equally importantly access to the sea. There has been a slowdown in investments as visible in the dent between 2013 and 2022 but as of 2020 direct foreign investment increase. This only goes to show that despite all this insecurity in the air the country still shows potential. Should Mozambique and the allied forces prove to be capable of stopping the terrorist attacks in the north, there would be even more investor confidence and investments could soar and beat past records. The possibilities are endless but it will all come down to how much confidence the country can inspire in investors and partners. 40 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Net foreign direct investment Net Foreign Direct Investment (% of GDP) Macroeconomic Overview Year Source: IMF Macroeconomic Overview Closing Words At present the macroeconomic outlook of the country is dangerous, investors may choose to wait and watch what the economy does in the next 4 or 5 years. Real GDP indicates that there is a bounce back, inflation is slightly off the ideal and desired range although its not major it will be felt by the people, a negative trade deficits are tricky and shouldn’t be seen as an inherently bad thing South Korea saw great economic development while running a trade deficit between the 80s and 90s, net direct investments have increased and is making climb but these values are so small that they become almost insignificant don’t provide any any noticeable change in the peoples lives in the present times. Nonetheless I would like to stress that the amount of resources and upsides Mozambique has cannot be overlooked, there’s immense potential. References USD to MZN Historical data https://m.investing.com/currencies/usd-mznhistorical-data Bank of Mozambique Hikes policy Rate https://www.centralbanking.com/centralbanks/monetary-policy/monetary-policydecisions/7740111/bank-of-mozambique-hikespolicy-rate-by-300-basis-points Mozambique macroeconomic indicators https://www.imf.org/external/datamapper/NG DP_RPCH@WEO/MOZ?year=2021 About Mozambique https://www.mz.undp.org/content/mozambiqu e/en/home/countryinfo.html Mozambique world beating currency April 2021 https://www.bloomberg.com/news/articles/202 1-04-14/world-beating-currency-draws-ire-ofmozambique-s-farm-minister
