Mozambique - Market OverviewMozambique - Market Overview
The Mozambique Country Commercial Guide (CCG) presents a comprehensive look at Mozambique’s commercial environment using economic, political, and market analysis.
Though one of Africa’s poorest nations, Mozambique’s annual growth rate averaged 7% over the past decade. In 2015, real GDP slowed to 6.2% due to a fall in commodity prices as well as floods in the north of the country and droughts in the south. GDP fell to 3.1% in 2017, due to an economic crisis after the discovery in 2016 of $2 billion in government-backed loans made to three state-owned defense and security companies without parliamentary approval and notification to the IMF. Economic growth is projected to be below 4% in 2018 but gradually rise to 8% over the next decade. GDP growth has traditionally been driven by the agriculture, construction, and financial sectors, while growth in the next decade is expected to be driven by the oil and gas industry due to the discovery of vast natural gas deposits.
Basic Economic Statistics:
- Total Population in 2018: 30 million
- Real GDP Growth in 2017: 3.1%
- Nominal GDP in 2016: USD11.00 billion
- GDP per capita in 2016: USD382
- Total Exports in 2014: USD4.73 billion
- Total Imports in 2014: USD8.74 billion
- Total Imports from U.S. in 2016: USD147 million
- Exchange rate (June 2018): MZN 59 equal USD 1
- Average Inflation Rate (May 2018): 3.26%
- Commercial Bank Prime lending rate (June 2018): 22.50%
During the second half of 2016 the metical depreciated sharply, though it has since stabilised. The devaluation of the metical caused higher than expected inflation and forced the Mozambican Central Bank to impose harsh foreign currency control measures. Borrowers in local currency face interest rates of up to 30%, which hinders entrepreneurship and business development, although such rates are beginning to decline slowly. To cover the government account deficit, the Government of Mozambique requested a USD283 million loan from the IMF, but this loan was put on hold due to the government’s lack of transparency in its public debt portfolio. The IMF has maintained a technical assistance mission in Maputo, which consults frequently with the Mozambican government, but has declined to offer either a funded or unfunded program until such time as the Mozambican government institutes reforms in public financial management and provides additional details on the use of the $2 billion in government-backed commercial loans made to state owned companies.
The Government of Mozambique encourages foreign direct investment (FDI). Currently, FDI is largely in infrastructure and the extraction of minerals, including graphite, coal, and gemstones. FDI investment slowed dramatically since 2015, largely due to the economic crisis, a drop in commodity prices, especially coal and aluminium, and slow negotiations in the development of hydrocarbon projects.
South Africa and Portugal are Mozambique’s largest trading partners. Brazil, China, India, and Japan have established projects in Mozambique and are increasing their investments. The largest bilateral donor of development assistance is the United States, which until recently was not a major trade partner. However, U.S. involvement in the oil and gas sector will create significant demand for U.S. exports in that sector, as well as others, and the U.S. is likely to become the largest investor in Mozambique in the next decade.
Several megaprojects will be the key drivers for the Mozambican economy in the next five years and will provide both direct and indirect business opportunities. The most significant opportunities are the construction of separate onshore Liquefied Natural Gas (LNG) plants by separate consortia led by Anadarko and ExxonMobil valued at USD25-30 billion and over $20 billion, respectively. Exploration activities by ExxonMobil, Rosneft, ENI, Sasol, and others will provide further opportunities in the oil and gas sector. The development of the Nacala Logistics Corridor, comprising multiple industrial projects and a transportation corridor valued in the billions of dollars, offers additional opportunities. The corridor will serve as the logistics backbone for the north of the country, providing services both for the off-shore development of the country’s hydrocarbon deposits (most of which are found in the northern region)and the development of the northern region’s potentially lucrative inland agricultural and mining sectors.
Similar to other emerging markets, Mozambique has a very weak power infrastructure that is concentrated in urban locations but sparse throughout rural areas. Its limited transmission capacity runs the length of the country, connecting the northern and southern parts of Mozambique into a single grid. It is common for industry and business to rely on backup generators for long periods of time due to intermittent power supply. One of the most successful infrastructure projects in Mozambique, the Cahora Bassa hydroelectric dam with a 2075MW capacity, is located in the Tete Province on the Zambezi River. This dam supplies power to Mozambique, Zimbabwe, and South Africa. Mozambique has strong potential for hydroelectric and thermal power generation, as well as for solar and wind farms along its lengthy coastline. However, the underdeveloped power grid and bureaucratic hurdles make the development of power projects difficult and time consuming.
The transportation sector is expanding, driven by major investments in ports and road infrastructure. There are three major ports in the country: Maputo for the southern part of the country, Beira for the center, and Nacala for the north. The Nacala Port is considered one of the best deep-water ports in East Africa. The far northern ports of Pemba and Palma require substantial upgrades in order to provide logistics support for planned oil and gas projects. Infrastructure and construction project development remain vibrant in Mozambique despite the general economic slowdown.
Mozambique currently ranks 138th out of 190 countries in the World Bank’s Doing Business report, a significant drop from its 127th ranking in 2014. Some improvements were made in insolvency legislation and streamlining procedures for registering property, paying taxes, and obtaining construction permits. However, registration of businesses, labor laws, and access to land and infrastructure continue to restrict economic opportunities. Myriad bureaucratic and infrastructure challenges, such as getting access to electricity and water, are often cited as barriers to doing business. Access to credit remains a major obstacle for companies to operate competitively. Because of issues related to the non-disclosed, government-backed commercial loans, Mozambique dropped five places in 2016 in the “Doing Business” report’s Access to Credit indicator.
Mozambique Trade Development and Promotion