Economy Finance Government Mozambique South Africa

Mozambique: Firms threaten price hikes as runaway inflation deepens

Private firms in Mozambique are threatening to increase the prices of their products in the face of worsening devaluation of the national currency, the metical, a senior official of the country’s business association told journalists in Maputo on Thursday.Coming on the eve of the festive season, the head of the Mozambican Business Association, Luis Sitoe, said the increase in interest rates announced earlier in the week by the Bank of Mozambique makes this inevitable.

Sitoe declared his organization’s demand that the central bank intervenes to fix the exchange rate for the importation of raw materials for industry and essential goods such as improved seeds for farmers as a way of stimulating national production.

If the cost of money to do business is increasing, then we are clearly saying that the price of goods will go up because companies are not going to produce at a high cost and sell at a low cost. That’s logical, Sitoe observed.

As a stop-gap measure, he urged the government to redirect subsidies away from “less productive” sectors, in order to encourage production and protect companies from exchange fluctuations.

Businesses operating in Mozambique have been complaining about foreign currency shortages which they blame for slowing down imports and reducing their profitability.

They claimed it takes five days to obtain foreign currencies required for imports while by the beginning of the year only one day was needed.

The metical has suffered a sharp depreciation against the dollar, a drop of over 35 percent between October 2014 and November 2015, although Mozambique’s main trading partner is not the United States, but South Africa.

The devaluation of the metical against the South African rand has been much less steep and between 31 October 2014 and 1 November this year it stood at 7.8 percent.

Source: StarAfrica

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