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Mozambique Business Forecast Report Q3 2014

  • May 2014
  • -
  • Business Monitor International
  • -
  • 34 pages

Core Views

In the absence of new data, the trajectory of Mozambique’s foreign exchange reserves suggests that the external accounts remain in a healthy state. We retain our view that Mozambique will continue to post large current account deficits until 2020 when natural gas production is set to begin in earnest. In the meantime, successive annual shortfalls will be covered by capital and financial account inflows. Benign inflation and a strong economic growth outlook lead us to believe that the Mozambican authorities will keep the policy rate at 8.25% for the remainder of 2014. The risks to this view are balanced. The authorities are likely hike rates if the metical weakens significantly against the South African rand or cut rates if economic growth comes in lower than expected.

Major Forecast Changes

We have increased our 2014 headline growth forecast to 7.2% from 6.9% as natural resource sectors appear to be picking up some of the slack created by a relatively subdued consumer sector. We continue to forecast that growth will increase towards double digits in the years leading up to the onset of gas production in 2020.

Table Of Contents

Mozambique Business Forecast Report Q3 2014
Executive Summary . 5
Core Views 5
Major Forecast Changes ..5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis .. 7
BMI Political Risk Ratings .. 7
Domestics Politics .. 8
Frelimo Candidate In Prime Seat 8
The election of Felipe Nyussi to be the ruling party's candidate at the October election means that there is likely to be a continuation
of outgoing President Armando Guebuza's policies over the next five years. Despite the fact this might put some dissatisfied voters off
voting for Frelimo, we believe that Nyussi and the party will still emerge victorious. The biggest challenge will come from the Movimento
Democrático de Moçambique, which performed well at local elections in late 2013.
Table: Political Overview 8
Long-Term Political Outlook . 9
Poverty And Corruption At The Top Of The Agenda .9
Frelimo's dominance of the Mozambican political landscape bodes well for policy continuity, although the lack of a credible opposition
party reduces the scope for checks and balances to ensure accountability and transparency. This means that corruption, which is rife
in all levels of Mozambican society, is one of the most difficult and pressing issues to be addressed over the coming decade. Poverty
reduction and ensuring that all income groups and regions benefit from economic development are similarly serious concerns for the
government.
Chapter 2: Economic Outlook . 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity . 14
Resources Picking Up Consumer Slack .14
We have increased our 2014 headline growth forecast to 7.2% from 6.9% as natural resource sectors appear to be picking up some of
the slack created by a relatively subdued consumer sector. We continue to forecast that growth will increase towards double digits in the
years leading up to the onset of gas production in 2020.
Table: GDP By Expenditure .14
Balance Of Payments .. 15
External Accounts To Remain Healthy 15
In the absence of new data, the trajectory of Mozambique's foreign exchange reserves suggests that the external accounts remain in
a healthy state. We retain our view that Mozambique will continue to post large current account deficits until 2020 when natural gas
production is set to begin in earnest. In the meantime, successive annual shortfalls will be covered by capital and financial account
inflows.
Table: Current Account ..16
Monetary Policy . 17
Policy Rates To Remain On Hold .17
Benign inflation and a strong economic growth outlook lead us to believe that the Mozambican authorities will keep the policy rate
at 8.25% for the remainder of 2014. The risks to this view are balanced. The authorities are likely hike rates if the metical weakens
significantly against the South African rand or cut rates if economic growth comes in lower than expected.
Table: Monetary Policy 17
Banking Sector .. 19
Banking Sector Growth Continues .19
Mozambique's banking sector has so far proved resilient to the challenges that led us to slightly downgrade headline economic growth.
We therefore maintain our view that banking sector assets will expand by 20.0% y-o-y to reach MZN326.7bn by the end of 2014 as low
inflation and interest rates drive demand for credit.
Chapter 3: 10-Year Forecast . 21
Natural Resource Boom Ahead 21
Mozambique has witnessed consistently spectacular rates of real GDP growth since the end of the civil war in 1992, averaging 8.0
%between 1993 and 2011, driven by the first generation of post-conflict reforms. Prudent macroeconomic and fiscal management and an
investment-orientated president determined to reduce the country's dire level of poverty, Armando Guebuza, will, in our opinion, help
sustain ongoing robust average annual GDP growth at around 10.0 % over the coming decade.
Table: Long-Term Macroeconomic Forecasts .21
Chapter 4: Business Environment 23
SWOT Analysis 23
BMI Business Environment Risk Ratings .. 23
Business Environment Outlook 24
Institutions . 24
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS 24
Table: BMI LEGAL FRAMEWORK RATING .25
Table: LABOUR FORCE QUALITY ..26
Infrastructure 27
TABLE: AFRICA - ANNUAL FDI INFLOWS 27
Market Orientation . 28
Table: TRADE AND INVESTMENT RATINGS 29
Operational Risk . 30
TABLE: TOP EXPORT DESTINATIONS, 2004-2011, US$mn .30
Chapter 5: BMI Global Assumptions .. 33
Global Outlook . 33
Growth Increasingly Polarised ..33
Table: Global Assumptions ..33
Table: Developed States, Real GDP GrowtH, % 34
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % .. 34
Table: Emerging Markets, Real GDP Growth, % ..35

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