Economy: Maputo on a high

Economy: Maputo on a high

Mozambique has long been one of the IMF’s favoured partners in Africa. Its economy has generally been soundly managed and the government has listened to IMF advice, adjusting its budgets after listening to any concerns raised by the Fund.

However, the country’s new-found gas and coal wealth has emboldened Maputo to adopt a more ambitious approach. It is investing more heavily in infrastructure in support of coal and gas projects, and to ensure that the country benefits more widely from the exploitation of natural resources, partly through stepping up the pace of the electrification programme.

The IMF is concerned about the budget deficit that this investment is generating. The head of the most recent IMF mission to the country, Doris Ross, said: “We expect the total deficit after donations [from multi- and bilateral donors] to rise from 3% of GDP, in 2013, to 9.5% of GDP in 2014, after taking into account extraordinary revenues of 4% of GDP in 2013, and of 2.9% of GDP in 2014. This level of deficit is not sustainable in the mid-term, particularly because it is not very likely that the extraordinary revenue will occur again.”

Economic growth averaged 7.3% a year between 2002 and 2012, was almost par for the course at 7.1% in 2013 and the IMF predicts that it will accelerate to 8.3% this year and 7.9% for 2015. Most sources estimate growth over the next few years will average 8% a year, putting it among the five fastest-growing economies on the continent.

Yet there is reason to believe that even double-digit growth is possible over this time. The country is the hottest new gas province in the world, with tens of billions of dollars in investment planned over the next few years.

Alongside Mongolia, it is also one of the two biggest new sources of coal production on the planet. Taken together in the context of a relatively poor country like Mozambique, coal and gas have enormous potential if properly managed.

There is every reason to believe that this will be the case, given good governance and the progress that has been made on putting the transport infrastructure in place to enable coal exports. The key will be ensuring that the two new resources benefit the wider economy. Again, with established sound government, foreign and local investors will invest in the consumer sector, property and some forms of infrastructure.

Standard Bank’s chief economist in Mozambique, Fáusio Mussa, says: “Continued inflows of foreign investment and increased exports point to the maintenance of a relatively stable exchange rate for the metical against the US dollar, which will keep inflation in single digits, between 5% and 6%.

“The planned development of natural gas projects in the Rovuma Basin and associated infrastructure spending, together with development of the Nacala corridor for exporting coal from Moatize, will result in Mozambique’s accelerated gross domestic product growth to above average levels of the past 10 years.”

English takes hold
The government does not just need to attract foreign investment but also to have the capacity and the expertise to oversee private sector activities. In the forestry sector, for instance, there has been a great deal of illegal logging of protected hardwoods, with the resulting timber exported overseas, 80% of it to China. Beijing imposed a ban on domestic logging in 1998 and so traders have been increasingly hungry for overseas supplies.

There are some state inspectors but these lack the resources to police logging and containers holding illegal and unprocessed timber have been discussed at the nation’s ports. The gas and coal sectors will provide government revenue that could be used to step up inspections but there will be many other competing demands on the public purse.

Mozambique may be the fastest-growing Lusophone country in the world over the next few years but it is only a Portuguese-speaking state in an official sense, as just 5% of the population speaks Portuguese. English is also gaining ground, both among the millions of Mozambicans who have worked in South Africa and among the better educated and more highly skilled. The country has joined the Commonwealth and English is likely to become increasingly popular in tandem with closer integration with the rest of the Southern African Development Community (SADC). The Portuguese language may prove to have as shallow roots in Mozambique as Portuguese colonial rule.

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Written by Sherelle Jacobs

Sherelle Jacobs is a British freelance journalist covering sub-Saharan African business and development news. In 2013, she won 'Best Newcomer' at the Diageo Africa Business Reporting Awards. She has written for the Economist, BBC, Financial Times, Guardian, Independent, African Business and African Banker. She speak French, Arabic, Russian and German.

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