The Fitch ratings agency expects Mozambique’s growth to accelerate this year as investment and production in Liquefied Natural Gas (LNG) ramps up.
In an analysis released on Monday, Fitch predicts a strong economic rebound as “the lifting of social distancing restrictions boosts private consumption, while a somewhat more stable security environment supports stronger investment, particularly into the hydrocarbon sector”.
It forecasts real GDP growth of five per cent this year, up from an estimated 2.8 per cent in 2021 and notably stronger than the 2015 to 2019 average of four per cent.
The ratings agency notes that the latest available data from the government’s National Statistics Institute (INE) shows that real GDP expanded by 3.4 per cent in the third quarter of last year, up from two per cent in the second quarter.
Fitch expects this acceleration to continue. It previously predicted real GDP growth of 4.4 per cent and this is a sign of growing business confidence in the country. It should also be noted that Fitch predicts average real GDP growth for sub-Saharan Africa of 3.8 per cent.
In particular, growth in private consumption is expected to accelerate due to the government’s decision to reduce restrictions put in place due to the Covid-19 pandemic. This is forecast to grow by 2.5 per cent, up from 1.6 per cent last year. Among the measures taken by the government are the opening of beaches and the return to normal business opening hours.
In addition, Fitch notes that the country’s vaccination programme is gathering pace and that “the government’s target of fully vaccinating half of the population by the end of 2022 looks likely to be achieved and even exceeded, potentially providing space for a faster loosening of restrictions. As the economy reopens, this will support labour market conditions and household incomes”.
Fitch argues that private consumption will be “further buoyed by the first increase in the minimum wage in two years, which took effect in August 2021”. However, it acknowledges that this increase is on a sector basis with wage increases ranging from 1.5 per cent to 8.7 per cent, whilst inflation is predicted to be 7.5 per cent in 2022, up from 5.6 per cent last year.
The agency is optimistic about the future of the LNG gas production facilities that are due to be built in the northern province of Cabo Delgado. Last year, the operator of one project, TotalEnergies, declared force majeure on its 20 billion US dollar development due to islamist terrorism. The other project, headed by ExxonMobil, has had its final investment decision delayed. However, Fitch notes the improved security situation and states that “Total indicated that it plans to restart construction on the large project this year, which we think should boost fixed investment”.
In addition, Fitch points out that the country will become an exporter of LNG in the second half of the year when the floating LNG project operated by the Italian company ENI comes into production with a capacity of 3.4 million tonnes per annum.
Fitch predicts that the LNG exports will more than offset increased imports of both consumer goods, due to stronger domestic demand, and capital goods as work on Total’s LNG project ramps up.
For Fitch, these forecasts are dependent on the continued success of Mozambican defence and security forces and its allies from Rwanda and SADC (Southern African Development Community). It warns that “further attacks or instability could delay the progress of the ENI and Total projects, potentially even encouraging them to pull operations out of the country, and would stall other firms currently considering investment in the country, like ExxonMobil”.