Mozambique - Market OverviewMozambique - Market Overview
Mozambique Country Commercial Guide (CCG) presents a comprehensive look at Mozambique’s commercial environment using economic, political, and market analysis.
Mozambique’s economic situation had been improving until Tropical Cyclone (TC) Idai hit the central region of Mozambique and TC Kenneth hit the northern province of Cabo Delgado in March and April 2019, respectively. The cyclone inundated entire neighborhoods and destroyed most homes, hospitals and schools in Beira. Until these Cyclones hit the country, economic growth was recovering gradually and becoming broader following the crisis that hit the counrty in 2015-16. Transportation, electricity, communications and commercial activities were severely disrupted. The Government estimated emergency assistance needs and reconstruction costs at around USD 1.5 billion (10% of GDP). On April 19, 2019, the International Monetary Fund (IMF) approved USD 118 million for emergency assistance under the Rapid Credit Facility (RCF) in the wake up of TC Idai. Though one of Africa’s poorest nations, Mozambique’s annual growth rate averaged 7% over the past decade. 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 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 2018: 3.3%
- Real GDP Growth 2018: 3.3 %
- Nominal GDP in 2018: USD14.60 billion
- Nominal GDP in 2018 : USD 9 billion
- GDP per capita in 2018: USD539
- Total Exports in 2017: USD6.58 billion
- Total Imports in 2017: USD5.99 billion
- Total Imports from U.S. in 2018: USD113 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%
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 has slowed dramatically since 2015, largely due to the economic crisis, a drop in commodity prices, especially coal and aluminum, 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 billion, signed in June 2019 and over $20 billion to be signed by end of 2019, 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 is 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 135th out of 190 countries in the World Bank’s Doing Business report, a slight improvement from its 138th ranking in 2018. Tight monetary policy and lower food price increases brought annual inflation down to low single digits at the end of 2018. 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.