Impact of Slow Global Growth on Mozambique

PESA Editorial - Mozambique - 1Q2017/18

According to the National Institute of Statistics (INE), in 2016, Mozambique’s economy recorded economic growth of 3.3%, half of the 6.6% registered in 2015. Low commodity prices and the regional drought were the primary reasons for decelerated growth1. This was further complicated by lower demand amongst trading partners and the slow growth rate in China, which accounts for about 5% of Mozambique’s exports.

 

However, the secondary sector grew by 5.2%, including the sub-sectors of the manufacturing industry, which increased by 7.3% and the construction industry by 6.7%. The tertiary sector contributed to GDP with growth of 5.1%, which was driven by financial services whose production grew by 25.4%. The primary sector recorded positive growth of about 3.9%, which was driven by mining2.

 

According to the state budget of 2017, Mozambique recorded a deficit of 11% of GDP amounting to USD 3.729 billion. The minister of Economy and Finance announced during the 2016 budget that the deficit will be covered by issuing debt in the domestic market and borrowing from foreign markets3. The country will also await the IMF’s response on a new aid programme. Inflation decreased to 2.15% in January 2017 from 4.78% the previous year due to the Mozambican currency appreciating 8% against the US dollar after depreciating 40% in the first nine months of 20164. The central bank has set an inflation target of 14% for 2017.

 

Mozambique’s balance of trade improved in late 2016 as Mozambique ran a surplus on its trade balance, exporting USD 18.2 million worth of goods more than it imported. This was due to a fall in imports in the last three months of 2016 and an increase in exports. The export revenues from coal and aluminium rose by 25% and 18% respectively in comparison to 2015. The annual trade deficit remained – but was 65% lower than in 2015. In 2016, imports declined at a faster rate than exports.

 

The 2017 Economic Freedom Index report notes that Mozambique has undertaken reforms to encourage economic development, although progress has been gradual. The World Bank Ease of Doing Business report 2017 highlights that Mozambique established new legal frameworks to improve the functioning of credit reporting markets. However, private-sector involvement in the economy is substantial, but privatisation of state-owned enterprises has slowed. This is exemplified in the difficulty in starting a business in the country due to increasing registration and notary fees5. Foreign capital is treated the same as domestic capital in most cases, and trade liberalisation has progressed.

 

The government faces numerous challenges but the outlook remains positive, provided the government manages its fiscal arrangements with careful consideration. With the decline in China’s economic growth and lower commodity prices, the country should expect a decline in the performance for the primary and secondary sectors in 2017. Furthermore, the country’s main challenge is to maintain growth while balancing public debt sustainability6. On the political side, government still needs to address the issue of Renamo forces, which creates political uncertainty in the region; negatively impacting investment opportunities for the country.


1 World Bank
2-3 Mozambican National Institute of Statistics
4 International Monetary Fund
5 World Bank
6 African Development Bank; Organisation for Economic Cooperation and Development; United Nations Development Programme


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