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Mozambique’s Post-Pandemic Growth

Mozambique’s Post-Pandemic Growth

Bruno Dias • EY Partner | Business Consulting

It is fair to say that Mozambique is recovering from the third wave of the covid-19 pandemic, which peaked at around 1,900 cases per day.

Due to restrictions imposed by the government and vaccination campaigns, the number of daily cases has fallen to around 50. The vaccinated population figures are still low, but the Government plans to vaccinate 6.4 million people (20% of the population) by December 2022.

As if the pandemic were not enough, other problems from the near past had to be dealt with, such as the destruction caused by cyclones Idai and Kenneth, the insurgency in Cabo Delgado province and the suspension of the natural gas mega-projects. It is a case of saying… what else will happen?

In fact, the Mozambican economy was significantly affected in 2020 due to the impact of the pandemic, political instability and natural disasters and contracted for the first time since 1992. Additionally, between March 2020 and January 2021, there were large exchange rate fluctuations against the US dollar.

The Government of Mozambique has taken several social measures to contain the impact of the pandemic, such as reducing the number of people in gatherings, reducing opening hours and curfews. However, here, as globally, these mitigation measures have led to significant costs and economic losses.

A recent CTA study indicates, unsurprisingly, that the hospitality and tourism sector has been the worst affected, with activity levels shrinking by more than 75 per cent. The level of business activity reduced by around 65% in the first half of 2020 and contributed to the reduction in household income, particularly in rural areas.

As we know, fiscal, monetary and financial policy measures have been implemented with the aim of minimising this impact. Of particular note are the temporary and targeted tax exemptions to support families and the health sector, the provision of a Line of Credit for banks ($500 million) for a period of nine months, and the opening at the BNI of a line of credit for treasury and investment for micro, small and medium enterprises.

These measures were possible and are to be commended, but they are a palliative measure in view of the impact previously mentioned. Mozambique is playing a different league when compared with developed economies, which have injected a lot of liquidity through various economic stimulus packages and direct payments to individuals.

As an example, the US government approved three phases of emergency funding to combat the coronavirus and its impacts. The first phase totalled $8.3 million, most of which went to medical supplies and R&D, but $1.25 billion went to economic stabilisation measures such as small business loans. The second phase, at $100 million, was for funding compulsory paid leave, food assistance programmes and unemployment-related payments. The third phase, $2.2 billion and included direct payments of up to $1,200 to individuals, such as increased unemployment benefits, $350 billion in loans for small businesses and $500 billion in loan funds to support large businesses ($25 billion for airlines).

We are talking about a response of a different capacity and magnitude (!)… but let us not despair. There are some facts that contribute to an improving economic outlook for Mozambique and that should keep us optimistic.

Let us see:

In the internal context, the situation in Cabo Delgado seems to be more under control and there is already talk of the resumption of Oil & Gas mega-projects. Exxon’s top management recently visited Mozambique and reaffirmed their commitment to the project. It should also be noted that in the first half of 2021 Mozambique approved a total of investments worth US$753 million, with the energy sector standing out.

In the external context, it is notorious that strong economies show signs of recovery and back “to normal”. This is relevant for Mozambique in the context of the balance of exports and taking into account that it is heavily dependent on donations and capital flows from foreign investments.

But there are many risks and several factors to be taken into account to ensure the growth of the economy.

Firstly, the vaccination of the population is the key for a return to “business as usual” and for companies to achieve the pre-pandemic revenue volume. This will have to be guaranteed by means of public and private financing, cooperations, multilaterals, etc.

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Secondly, increasing internal consumption is of paramount importance in the short term and can be boosted with subsidies or measures to promote employment and social protection programmes that guarantee food assistance and support for the informal sector, which is highly relevant in the economy. Thirdly, it is fundamental to diversify the economy and reduce dependence on the current growth model based on mega-projects, and to continue along the path of improving infrastructure and the primary fabric.

Finally, it is a priority to guarantee fiscal sustainability, which will only be possible with efforts to mobilise revenue more efficiently and to increase the efficiency of public spending.

As a jazz lover, I always remember a classic on these subjects – “Pick yourself up” – whose refrain has the necessary recipe: “Pick yourself up, dust yourself off and start all over again”. It is worth listening to Ella Fitzgerald’s version, which has a cheerful swing and the beat that is necessary in this context.

This is the message of optimism that I would like to see prevailing. It is a fact that in recent decades Mozambique has had several cycles of apparent strong growth which were interrupted, and that this recent past was complex and challenging, but as most managers know, and particularly the most entrepreneurial, economic cycles are just like that and resilience is key.

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