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Economic Impacts of Political Instability in Mozambique

Economic Impacts of Political Instability in Mozambique

Joel Almeida • Founding Partner of Forvis Mazars
Joel.Almeida@forvismazars.com

This document analyses the impacts of political instability on Mozambique’s economy, examining the reduction in GDP, the flight of foreign investment, the destabilisation of the transport and trade sector, the unfavourable business environment and the social consequences.

The document also presents economic data and risk assessment, highlighting the risk rating and outlook for economic growth, public debt, inflation, unemployment and international reserves.

Finally, the analysis concludes with recommendations on the urgent need to take measures to stabilise the political situation in Mozambique and promote an environment conducive to economic growth and social well-being.

Reduction in GDP

Political instability has had a negative impact on Mozambique’s Gross Domestic Product (GDP). Political uncertainty and conflict have resulted in a reduction in foreign investment and a slowdown in economic growth.

Impact on foreign investment

The political crisis drives away foreign investors, who are crucial to the development of strategic sectors such as natural gas and infrastructure. Important projects may be postponed or cancelled due to the lack of security and predictability.

Impact on the transport and trade sector

Demonstrations and blockades at borders and ports have paralysed the transport of goods, affecting internal and external trade. This results in product shortages, price increases and damage to the economy.

Unfavourable business environment

Instability creates an unfavourable business environment, leading local and multinational companies to reconsider their operations in the country. Political and economic insecurity can result in companies withdrawing and jobs being lost.

Social impact of political instability

In addition to economic impacts, political instability also affects the daily lives of citizens. Violence and unrest make it difficult to carry out economic activities and maintain a stable routine.

Given the current situation, there could be an increase in public spending due to the increase in security costs and the need for reconstruction

Economic data and Fitch rating

Fitch Ratings has categorised Mozambique’s risk at ‘CCC+’ and the economic and social instability we are currently experiencing is not helping matters. This rating reflects the high levels of public debt, difficulty in managing public finances, low GDP per capita, weak external finances, poor governance indicators and a challenging security situation.

Fitch expected Mozambique’s real GDP growth to remain strong, averaging 4.5 per cent between 2024 and 2025, driven by the development of the liquefied natural gas (LNG) sector and the resumption of infrastructure projects. However, given the current situation, there could be an increase in public spending due to increased spending on security and the need for reconstruction.

See Also

The government’s debt/GDP ratio was also expected to fall to 93.6 per cent of GDP at the end of 2024 and 90.2 per cent in 2025, mainly due to strong nominal GDP growth, but this target is currently compromised.

The post-election demonstrations are jeopardising the performance of the Mozambican economy

Additional statistics

Mozambique’s GDP is expected to grow to 1536 billion meticals (approximately 22.322 million euros) in 2024, which corresponds to an expected economic growth of 5.5 per cent.

The annual inflation rate was 6.8 per cent in October 2024, reflecting increases in food and fuel prices. The unemployment rate in Mozambique was estimated at 25.3 per cent at the end of 2023, with a slight reduction expected to 24.8 per cent in 2024 due to the creation of new jobs in the construction and energy sectors.

Net International Reserves stood at 3.7 billion dollars in November 2024, enough to cover around five months of imports of goods and non-factor services

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