Mozambique’s economy should grow by just 3.8% in 2016

9 August 2016

Mozambique’s economy should grow this year at a real rate of 3.8 percent before rising to between 4.2 percent and 5.6 percent in 2017-2020, indicates the most recent report from the Economist Intelligence Unit (EIU).

This year’s economic growth is the lowest in the last 15 years and reflects lower government spending, the downturn in foreign direct investment due to the weak business environment and lower agricultural production following weather disruptions.

The EIU states that a gradual acceleration of economic growth is expected to take place from 2017 on, as macroeconomic stability improves and investor confidence revives. It nevertheless adds that average growth of 5.1 percent during the 2017-2020 period will be well below the 7.2 percent average the previous decade.

Coal production will remain a key growth factor owing to the expected rise in coal prices in 2017 and 2018, strong demand from India and efforts by mining companies to reduce operating costs.

The EIU mentions risk associated to worsening security conditions in Mozambique’s mining regions, along with disruptions in the logistics network supporting the outflow of coal and other ores, adding that mining companies should remain committed to their respective projects.

Agricultural production is expected to revive in 2017 as the effects of El Niño wane. But growth will remain low due to low productivity of family operations, mostly subsistence, and low prices for the main cash crops of sugar, tea and cotton.

Year-on-year inflation in June was 19.7 percent. Inflation should remain high due to rapid devaluation of the Mozambican metical against main foreign currencies. The EIU forecasts that inflation will close this year at 17.1 percent, the highest figure in more than a decade.

Investment or gross fixed capital formation should be negative this year, at a rate of -1.2 percent, before rising to 0.5 percent in 2017 and 2.9 percent in 2018, and then to 11.2 percent and 11.6 percent in 2019 and 2020. (Macauhub/MZ)