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Mozambique Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Opposition concerns about the Mozambican election's credibility areshared by many observers but the result – a victory for ruling partyFrelimo – will not be overturned. A negotiated settlement, which givesRenamo leaders more status, will nonetheless be necessary. Thechances of a successful agreement are bolstered by the consensusbasedapproach President-elect Felipe Nyussi.Mozambique's short-term economic outlook will be hit by stalled investmentin its burgeoning natural gas sector – the country's primarygrowth engine – with ongoing commodity price weakness dimminginvestor sentiment. As the key Anadarko onshore gas project getsoff the ground in 2017, we see growth once again taking off.Mozambique's monetary policy committee will hike rates to 8.75%in the first half of 2016 given the above mentioned factors. The BMhiked rates by 50 basis points (bps) in November 2015 to 8.25%,bringing the total rate increases to 75bps in 2015, following a 25bpshike in October. The rate hikes will come in H116 in order to adhereto the terms of an emergency IMF loan, increase currency stabilityand maintain a positive rate differential with neighbour and key tradepartner South Africa.

A slowdown in prices for key commodity exports and elevated capitalimport demand will lead to an expansion of the trade in goods deficitin Mozambique over the next two years, increasing the current accountdeficit in the process.Major Forecast ChangesWe have downgraded our near term real GDP growth forecast,from 7.0% in 2016 to 5.6% for the year on the back of investmentdelays in the burgeoning liquefied natural gas sector. This followsour growth estimate of 6.2% in 2015.

Table Of Contents

Mozambique Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Violent Outbursts Will Undermine Peace Negotiations8
The 2014 peace accord between the ruling FRELIMO and opposition RENAMO party will come under additional strain in the coming
quarters, following three armed clashes in September and October 2015 We expect both sides will grant minimal concessions and that
negotiations will continue to be interspersed with violent outbursts
Chapter 2: Economic Outlook 11
SWOT Analysis 11
BMI Economic Risk Index 11
Economic Growth Outlook 12
Growth To Slow Amid LNG Project Delays12
Mozambique's short-term economic outlook will be hit by stalled investment in its burgeoning natural gas sector - the country's primary
growth engine - with ongoing commodity price weakness dimming investor sentiment As the key Anadarko onshore gas project gets off
the ground in 2017, we see growth once again taking off
GDP By Expenditure Outlook 13
TABLE: GDP GROWTH FORECASTS13
TABLE: PRIVATE CONSUMPTION FORECASTS13
TABLE: GOVERNMENT CONSUMPTION FORECAST14
TABLE: FIXED INVESTMENT FORECASTS14
TABLE: NET EXPORTS FORECASTS14
External Trade And Investment Outlook 15
Import Demand To Weigh on Trade Balance15
A slowdown in prices for key commodity exports and elevated capital import demand will lead to an expansion of the trade in goods
deficit in Mozambique over the next two years, increasing the current account deficit in the process
Outlook On External Position 16
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE16
TABLE: TOP 5 GOODS IMPORTS 201417
TABLE: TOP 5 GOODS EXPORTS 201417
Fiscal Policy And Public Debt Outlook 18
IMF Loan Will Boost Fiscal Stability18
An emergency IMF loan will help Mozambique overcome short term challenges to fiscal stability in 2016 Nevertheless, constraints on
traditional revenue sources and growing debt servicing obligations will keep the budget in the red throughout our medium term (2016-
2020) forecast period
Structural Fiscal Position 19
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES19
Monetary Policy 20
IMF Loan Terms To Encourage More Aggressive Rate Tightening20
The Banco de Mocambique will hike rates by 50bps in H116 in order to adhere to the terms of an emergency IMF loan, increase
currency stability and maintain a positive rate differential with neighbour and key trade partner South Africa
Monetary Policy Framework 21
Chapter 3: 10-Year Forecast 25
The Mozambican Economy To 2024 25
Investment in LNG To Drive Long Term Growth25
Mozambique has witnessed consistently spectacular rates of real GDP growth since the end of the civil war in 1992, averaging 80
%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, Filipe Nyusi will, in our opinion, help sustain
ongoing robust average annual GDP growth at around 86 % over the coming decade
TABLE: LONG-TERM MACROECONOMIC FORECASTS25
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
TABLE: OPERATIONAL RISK-MOZAMBIQUE28
Education 29
TABLE: SUB-SAHARAN AFRICA-EDUCATION RISK30
TABLE: GRADUATES OF TERTIARY EDUCATION BY SUBJECT ('000), 2010-2012 32
Government Intervention 34
TABLE: SUB-SAHARAN AFRICA-GOVERNMENT INTERVENTION RISK35
Chapter 5: BMI Global Macro Outlook 39
Global Outlook 39
Emerging Markets Bending, Not Breaking39
TABLE: GLOBAL ASSUMPTIONS39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %41

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