Economic growth in Mozambique remains “comfortable” despite the economic crisis

20 July 2009

Lisbon, Portugal, 20 July – Economic growth in Mozambique will remain at “comfortable” levels, despite the slowdown caused by the economic crisis, which is reflected in the fall in the State’s export revenue, said Portuguese bank, BPI.

“There doesn’t appear to be any great risks to growth, since there is a certain isolation from the international financial crisis. This would only become more apparent through possible funding difficulties, through international aid or Direct Foreign Investment, or by a greater slowdown in production of Mozal’s industrial complex, factors which appear to be relatively under control,” said the bank in its June report on the country.

Current predictions for growth this year – between 4 and 4.5 percent – are “comfortable” and even “quite positive” given the “recessive global panorama,” added the document from the Department for Economic and Financial Studies, signed by Paula Carvalho and João Vítor de Sousa.

Economic growth in Mozambique has slowed down from 8.7 percent in 2006 to 7.6 percent in 2007 and 6.8 percent in 2008 according to official figures.

Last year agriculture was the sector which contributed the most towards the growth in GDP (30 percent), showing “great dynamism thanks to the priority the authorities have given to its development.”

Next were transport and communications (25 percent), trade (10.8 percent) and financial services (9.4 percent).

Already this year a fall in activity in the transport of goods for export is clear, particularly of ore (down 30 percent in the first few months of the year) due to the sharp fall in demand from Asian countries, particularly China and India.

The crisis “should be felt particularly in the withdrawal of planned investment and also in the fall in exports, particularly of aluminium, given its still considerable stature in terms of production and the overseas balance of payments,” said the report.

International donor countries had already pledged funds until 2010, representing close to 14.5 percent of the GDP and 50 percent of public income, enabling the “funding of State expenses” and “boosting investment.”

“The government has sought to develop strategies which minimize the damaging effects of the financial crisis, such as finding alternative destinations for the worst affected exports, as well as the ongoing effort to formalize economic activity, so as to create a basis for more sustainable expansion of public finances,” it added.

The inflation rate is evolving “positively”, thanks to the fall in oil and food prices on the international market and the prospects of a good domestic harvest, “although the evolution of the exchange rate threatens its path.”

Another comforting factor is the prospect of access to an IMF credit line against external shockwaves, in order to manage the fall in exports and the metical’s depreciation.

As regards large-scale projects, if some have been postponed, such as the heavy sands of Moatize and others downsized (Mozal, Moma), there are also increases in production (Sasol) and even “frenetic” activity, in the case of the coal mine at Tete, the Sena railway (Caia – Beira port), oil exploration in Rovuma and the second dam in Zambezi.

In the medium and long terms there are “some reservations” given the “apparent absence of strong convictions as to which path to follow” in order to reduce external dependence, particularly on foreign aid.

The “globally positive” evaluation by the BPI comes after a visit to the country, the first since 2007, highlighting the dynamism of trade and circulation of goods and merchandise, as well as the “ease of movement and the almost complete lack of insecurity,” which favours the business environment.

Less favourable, it points out, are the deficiencies in basic sanitation, the degeneration of buildings and housing and the need for infrastructures and public transport.

“We are honestly optimistic about the Mozambican economy, although the real improvements seen in the main development indicators now show signs of losing momentum. But Mozambican politicians and leaders already have important experience, which means they are already aware of the need to be very pro-active,” say the economists. (macauhub)