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Mozambique Country Risk Report Q4 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 39 pages

Core Views

Mozambique's long-term growth prospects are promising on the back of progress in the development of its nascent energy sector. However, with the country unlikely to pass structural reforms to turn any newfound wealth into a diversified economy and higher living standards for the population, the country risks falling into the same commodity trap that has hindered growth across many commoditydependent states, limiting opportunities in other sectors. Despite the beginnings of progress in Mozambique's nascent energy sector, the government's finances will remain deep in deficit as a recent debt scandal has left the country unable to access large portions of international debt markets and caused donor states to withdraw aid. This will exacerbate the government's struggle against RENAMO's insurgency by forcing cuts to military expenditure. Increasing investment into Mozambique's emerging energy sector will help to buoy investor sentiment and boost financial account inflows, suggesting that the country is past the worst of its balance of payments crisis. However, any stabilisation of the economy's external dynamics will be a slow process, ensuring further downside pressure on the currency. Mozambique's central bank will pause its recent monetary tightening cycle over the coming months, after a 300 basis points hike at the most recent monetary policy committee meeting in July left the key interest rate at 17.25%. However, the persistence of inflationary pressure means we expect further hikes, most likely in Q117, before the hiking cycle comes to a complete end. Political instability will continue to undermine prospects for development in Mozambique, as the country lacks the institutions or levels of good governance needed to facilitate the kind of reforms that promote a more stable political outlook. FRELIMO's comprehensive control of elite-level politics will offer a boon for policy continuity, but their history of corruption will mean this offers little consolation to potential investors.

Table Of Contents

Mozambique Country Risk Report Q4 2016
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Stronger Growth On The Horizon But Risks Abound..................................................................................................................8
Mozambique's long-term growth prospects are promising on the back of progress in the development of its nascent energy sector.
However, with the country unlikely to pass structural reforms to turn any newfound wealth into a diversified economy and higher living
standards for the population, the country risks falling into the same commodity trap that has hindered growth across many commoditydependent
states, limiting opportunities in other sectors.
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: GDP GROWTH FORECASTS....................................................................................................................................................................10
TABLE: PRIVATE CONSUMPTION FORECASTS..................................................................................................................................................10
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................10
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................10
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................11
Fiscal Policy And Public Debt Outlook.................................................................................................................. 11
Rocky Road Ahead For Government Finances..........................................................................................................................11
Despite the beginnings of progress in Mozambique's nascent energy sector, the government's finances will remain deep in deficit as
a recent debt scandal has left the country unable to access large portions of international debt markets and caused donor states to
withdraw aid. This will exacerbate the government's struggle against RENAMO's insurgency by forcing cuts to military expenditure.
Structural Fiscal Position........................................................................................................................................ 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES.............................................................................................................................12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................13
External Trade And Investment Outlook................................................................................................................ 13
Light At The End Of The Tunnel For External Accounts...........................................................................................................13
Increasing investment into Mozambique's emerging energy sector will help to buoy investor sentiment and boost financial account
inflows, suggesting that the country is past the worst of its balance of payments crisis. However, any stabilisation of the economy's
external dynamics will be a slow process, ensuring further downside pressure on the currency.
Outlook On External Position.................................................................................................................................. 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.........................................................................................................................................15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS.......................................................................................................................................15
TABLE: TOP 5 GOODS IMPORTS..........................................................................................................................................................................16
TABLE: TOP 5 GOODS EXPORTS ........................................................................................................................................................................16
Monetary Policy........................................................................................................................................................ 16
Hikes On Hold Until 2017..............................................................................................................................................................16
Mozambique's central bank will pause its recent monetary tightening cycle over the coming months, after a 300 basis points hike at the
most recent monetary policy committee meeting in July left the key interest rate at 17.25%. However, the persistence of inflationary
pressure means we expect further hikes, most likely in Q117, before the hiking cycle comes to a complete end.
Monetary Policy Framework.................................................................................................................................... 18
Currency Forecast.................................................................................................................................................... 18
Correction Looming For The Metical...........................................................................................................................................18
Chapter 3: Political Outlook.................................................................................................................. 21
SWOT Analysis......................................................................................................................................................... 21
BMI Political Risk Index........................................................................................................................................... 21
Long-Term Political Outlook................................................................................................................................... 22
Poverty, Corruption, And Conflict Will Feed Further Instability...............................................................................................22
Political instability will continue to undermine prospects for development in Mozambique, as the country lacks the institutions or levels of
good governane needed to facilitate the kind of reforms that promote a more stable political outlook. FRELIMO's comprehensive control
of elite-level politics will offer a boon for policy continuity, but their history of corruption will mean this offers little consolation to potential
investors.
Chapter 4: Operational Risk.................................................................................................................. 25
SWOT Analysis......................................................................................................................................................... 25
Operational Risk Index............................................................................................................................................ 25
Operational Risk....................................................................................................................................................... 26
TABLE: OPERATIONAL RISK.................................................................................................................................................................................26
Market Size And Utilities ......................................................................................................................................... 27
TABLE: SUB-SAHARAN AFRICA - MARKET SIZE AND UTILITIES RISK............................................................................................................28
Labour Costs ........................................................................................................................................................... 31
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE............................................................................................... 31
Chapter 5: BMI Global Macro Outlook................................................................................................... 35
Global Macro Outlook.............................................................................................................................................. 35
EMs Past The Worst, But Structural Problems Persist.............................................................................................................35
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................35
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %..................................................................................................................................36
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %.................................................................................................................................37
TABLE: MACROECONOMIC DATA and FORECASTS..............................................................................................................................................39

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