Mozambique’s economy drifts on to the ‘rocks’

Currency hits historic low

MAPUTO, Dec 20, (AFP): ”There’ll be no festive season,” grumbles a greengrocer in Maputo, the capital of Mozambique, where the economy has taken a nosedive and the local currency has hit a historic low against the dollar.

Lourdes Mutembene hopes to sell a kilogramme of tomatoes for 60 meticals (1.1 euros / $1.2), compared with 35 meticals a few months back, but her stall has become too costly for most customers.

Hard times have fallen on the southern African country because of a fall in world prices of raw materials coupled with some much-criticised public spending.

“At Zimpeto (a Maputo suburb) where we fetch our supplies, they say that everything has gone up because of the dollar and the rand” in neighbouring South Africa, Mutembene explains, leaning on her counter.

At the next stand, Abou Sangare, a tailor from Ivory Coast, points to his reels of fabric with equal bitterness. “All the stuff we buy here comes from South Africa and all the prices have gone up,” he says.

The Mozambican metical has dropped by more than 40 percent against the US dollar since the beginning of the year, marking the worst ever decline by an African currency except for the Zambian kwacha, according to Bloomberg’s financial information service.

Inevitable

The outcome has been a hike in domestic prices, particularly inevitable in a country like Mozambique, which has to import an enormous proportion of consumer goods.

Mozambique exports natural gas, coal, cotton and aluminium, but the prices for such raw materials have fallen over several months.

Economic prospects depend largely on exploiting vast reserves of gas, which were discovered in the north since 2010 by the Italian oil and gas corporation ENI and the US firm Anadarko.

But both corporations have pushed back their investment plans for 2016 because of the steep fall in the price of the fossil fuel.

“Since the rate of these projects is slower, the economic dynamics of Mozambique are not up to our expectations,” says Rogerio Nkomo, a spokesman for the economy and finance ministry questioned by AFP.

Meantime, prices rocket. “We should work to compensate for imports. After all, we’re an agricultural country, but also a trading route for several landlocked nations that need our ports, rail links and roads,” central bank governor Ernesto Gove said.

Though the average annual growth rate has been seven percent for 20 years, the poverty level is stagnating at 54 percent of the population, former prime minister Luisa Diogo pointed out. “The structure of our economy remains fragile.”

Indeed, for the first time in a decade, Mozambique turned to the International Monetary Fund (IMF) at the end of October for a loan of $286 million to improve the financial situation. Then last Monday, parliament approved cuts in the 2016 budget.

Concerned

However, observers are most concerned by a lack of foreign currency reserves. On November 30, the central bank announced a ceiling on cash withdrawals abroad in a measure to avoid currency flight.

Critics blame former president Armando Guebuza, in charge from 2005 to 2015, for wasting money on questionable investments. They include a giant bridge in the capital and an unfinished ring road around the city, both more costly than planned.

Equally controversial is the acquisition of a tuna fishing fleet by state-owned firm Ematum. Financed by a state-guaranteed bond of $850 million, the deal caused uproar once it emerged that much of the money was actually being spent on surveillance vessels and military equipment ordered from France.

Under pressure from international donors, the government finally shifted $500 million of the loan into the official defence budget. The sum was therefore counted as part of the country’s public debt, which is expected to soar to 62 percent of gross domestic product at the end the year, compared with 38 percent in 2011, according to financial services firm Fitch.

“The boats have still not been used and are rusting in the harbour,” protests Ivone Soares, the head of the parliamentary opposition group. “The money has been spent uselessly and nobody is able to say what it was for.”