The once-promising Mozambican economy, which had seen steady 8 percent growth for many years, skidded into economic crisis following the revelation of USD 2 billion in illicit government debt in 2016, causing the IMF to cancel a second tranche of its standby credit facility and donors to suspend direct budget support. In 2016, economic growth rates fell to 3.5 percent, the local currency– the metical– devalued by over 40 percent against the U.S. dollar, and inflation rates climbed above 20 percent. Through decisive actions, the Central Bank was able to stabilize the currency and reduce inflation rates to the single digits. Devastated by Cyclones Idai and Kenneth in 2019, the IMF revised Mozambique’s economic growth forecasts down to 1.8 percent in 2019 and 6 percent in 2020, with growth accelerating to near 10 percent after 2023 with the advent of liquefied natural gas (LNG) exports. Two consortiums led by ExxonMobil and Anadarko are expected to take final investment decisions (FID) in 2019, which would eventually lead to more than USD 50 billion in investment to the LNG sector in Mozambique.
The country still faces significant security challenges related to violent extremism in Cabo Delgado province, the future home of the LNG investment. Since 2017, Islamic extremists have carried out more than 200 unprecedented attacks against government facilities and communities, killing scores of government security personnel and local villagers. The extremists, which claim affiliation with ISIS and claim to wish to establish an Islamic state, reject secular government, secular education, and gender equality. Most members of the extremist group appear motivated by local socio-economic grievances, income inequality, and perceptions of political favoritism and corruption.
Negotiations between the Government of Mozambique (GRM) and Renamo, the main opposition party, made significant progress towards a lasting peace. The two sides have agreed to a decentralization package, which was incorporated into the Mozambican Constitution by Parliament in May 2018, and will allow for the first time, the election of provincial governors during the October 2019 elections. The parties have also agreed in principle to the integration of Renamo personnel into leadership and working level positions in Mozambican security forces, and some critical appointments have already been made. With ongoing technical and financial support from the international community, a comprehensive plan for disarmament and demobilization of Renamo military personnel and their reintegration into local communities is being developed and is scheduled to be implemented prior to the October 2019 elections.
Mozambique offers the experienced investor the potential for high returns, but remains a challenging place to do business. Investors must factor in corruption, an underdeveloped financial system, poor infrastructure, and significant operating costs. Transportation inside the country is slow and expensive, while bureaucracy, port inefficiencies, and corruption complicate imports. Local labor laws remain an impediment to hiring foreign workers, even when domestic labor lacks the requisite skills. The financial crisis also impacted the GRM’s ability to secure financing for even the most critical infrastructure projects. Additionally, because of the economic crisis, inflation, and currency fluctuations, local Mozambican partners selling imported products in the local currency have trouble making payments in U.S. dollars to suppliers.
Natural gas development will drive economic growth in Mozambique, presenting many investment opportunities. There are also significant opportunities for investment in the power and infrastructure sectors, particularly related to the reconstruction after Cyclones Idai and Kenneth in Manica, Sofala, and Cabo Delgado provinces. The agriculture and tourism sectors remain underdeveloped relative to their potential, as do critical services sectors, such as the health care sector.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||158 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||135 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||115 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2018||$398||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2018||$420.00||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|