The Mozambican Confederation of Business Associations (CTA) today held its 5th Economic Briefing, analysing the performance of Mozambique’s economy and offering insights into the country’s macroeconomic scenario. The online conference was attended by several key players in Mozambique’s private sector and the Mozambican Minister of Industry and Commerce, Carlos Mesquita.
CTA’s President, Agostinho Vuma, made the introductory speech in which many of the key insights were offered for the last trimester of 2020 as well as the perspectives for 2021 and its many challenges.
Agostinho Vuma explained that the Macroeconomic Index for the last trimester of 2020 fell 1%, from 47% to 46%, owed to several factors, which include, in summary:
- the Metical’s depreciation over 2020’s last trimester, oscillating on average to 74,6 metical per US dollar;
- the maintenance of fuel prices;
- inflation, which rose 3,12 points, sitting at 4,98%;
- covid-19 second wave of infections and subsequent restrictions;
- the Mozambican prime rate seeing a rise on its 3-month average, from 15,77% to 16,27%.
According to CTA’s analysis, the combination of these macroeconomic factors, as well as the coronavirus’ second wave of infections, saw the private sector’s business revenues decline by over 26%, thus contributing to a drop in CTA’s Business Robustness Index, from 40% in the third trimester to 28% for the last trimester of 2020.
The security threats faced by the country in the gas-rich northern province of Cabo Delgado, have since then impacted business confidence for 2021, with foreign investment having been put on hold, CTA’s president claims, offering that over 40 contractors connected to Total’s Area 1 LNG project have been directly impacted by the suspension of operations, their losses amounting to US$148,11M, mainly due to infrastructure damages, suspended payments under the force majeure and perishable goods which had already been purchased by said contractors.
Also read: Mozambique’s Metical expected to devalue and end year at 74 per U.S. dollar – Fitch Solutions
To this effect, CTA offers short-term and long-term solutions in order to mitigate the effects of the security threats, including:
- A plan to purchase the perishable goods acquired by companies affected by Total’s project suspension;
- A postponement on import tariffs and VAT collection for the companies affected;
- Exceptional fiscal measures to the Cabo Delgado province;
- 50% reduction on electricity bills in the Cabo Delgado province.
The appreciation of the metical
Regarding the recent appreciation of the mozambican currency, the metical, which appreciated over 35% since the begining of the year against the US dollar, Agostinho Vuma provided CTA’s take on the trend:
“The market has been looking for answers that would explain the metical appreciation. In CTA’s view, the role of major importers and the interventions by the Bank of Mozambique have played a crucial role.”
“In regards to the importers, only 30 companies accounted for 46% of the total US$6,4B of imports in Mozambique in 2020. This concentration means that the slightest change on a few importers can play a big role in the foreign exchange market. In the begining of 2021, the majority of these importers reduced their foreign currency payments as much as possible, due to the covid-19 restrictions and the security threats we have already touched upon.”
“Additionally, the Bank of Mozambique has been active in the first months of 2021, having sold US$165M to the interbank foreign exchange market, a clear shift in policy in relation to 2020, where no foreign currency was injected into the market”.
Perspectives for 2021
With regards to the perspectives for the economic developments for the year to come, CTA expects:
- a reduction of inflation, reflecting the effect of an increase on the Reference Monetary Policy Interest Rate (MIMO) increase by 300 base points, carried out by the Bank of Mozambique at the end of January 2021;
- Metical stabilization trend – reflecting the increase in imports that will be matched by a foreign currency injection into the market by the Bank of Mozambique;
- Increase in Net Credit to Government to finance the expenses of support to the families displaced from Cabo Delgado and the continuity of the process of and Covid-19 vaccination;
- Recovery of business activity – due to the new measures announced in April 2021, which ease restrictions, allowing the reopening of some sectors, which may, in addition to contributing to the
resumption of activity in these sectors, allow some previously suspended jobs to be recovered.
- Start of agricultural commodity exports – the second quarter of the year is seasonally characterised
by the start of exports of a large part of cash crops and fishery products, such as cotton, shrimp, etc.