Stay positive
• Chapter summary
Mozambique started off 2020 with very positive expectations for economic recovery after a string of difficult years following the hidden debt crisis in 2016 and the ensuing financial crisis, as well as cyclones Idai and Kenneth in 2019. With the re-election of president Nyusi, the resumption of IMF support, and the prospects of final investment decisions for the gas megaprojects in Cabo Delgado, 2020 promised to be a good year for Mozambique. However, in just a few months, COVID-19 changed the economic outlook of the whole world. Mozambique is now set to face a huge economic setback: the initial forecast for 2020 GDP growth (5.8% according to the African Development Bank) has now been revised to 1-2%. Sectors such as tourism, transport, and services have been the hardest hit, while the whole workforce and student population had to quickly adapt to the new reality of working and studying from home, often coping with the challenges of inadequate internet connections.
Economic disruption took its toll on the metical, which turned 40 this year. After three years of little fluctuation, 2020 saw the metical depreciate from 61 to the dollar in January to over 70 in July, awaking in many the fears of what Mozambique experienced in 2015-16. Combined with high interest rates, the environment is currently not favorable to business, local investments, or credit. Some say the conditions might encourage foreign investors, although investment remains tricky due to COVID-19 restrictions.
Despite this rather grim picture, field research revealed an underlying spirit of cautious optimism. The impact of COVID-19 on the Mozambican economy has not been as strong as elsewhere. According to Mark Lundell, Country Director of the World Bank, “domestically, the economic impact of COVID-19 has been weaker in rural areas, which are less integrated into the national export system; on the contrary, Mozambique has witnessed a stable crop year. The worst impact will be felt in the urban areas, especially by SMEs and the service sector.” The banking sector has shown resiliency and commitment to assist the country during the crisis, while the only partial lockdown has enabled industry and agriculture to keep operating, though with some disruption.
Mozambique is no stranger to crises—to the contrary, it is somewhat of a deft hand at navigating challenging circumstances. Indeed, all preconditions for growth are still on the table, once the crisis is over. The resumption of IMF support in 2020 is likely to signal a return of donor money, and the prospect of gas revenues approaching has assumed somewhat of a redemptive, symbolic value for Mozambique’s business elite. International observers warn, however, that the country must now put in place all the measures it needs to ensure that imminent GDP growth truly nurtures development.
According to Pietro Toigo, Country Manager for the African Development Bank (AfDB), the top priorities for Mozambique are to create local content legislation with provisions for the involvement of local industry and the local workforce in upcoming megaprojects, including formation and training, improve debt management and sustainability, transparent governance, and higher institutional efficiency; and set up the right enabling environment for SMEs and entrepreneurs. While Mozambique has hardly made any improvement in the ease of doing business index over the last decade, this is an area where Mozambique’s businesses are increasingly active, with entities such as FAN and IPEME and programs such as Pronacer leading the way. ✖