The Mozambican Economy

The Mozambican Economy

Expansionary budget to support growth

Real GDP advanced 7.4% in 2014

Economic activity expanded 7% YoY during 4Q14, aided by healthy performances in the financial services, mining and construction sectors. The statistics bureau also revised upwards its growth figures for 3Q14 from 7.4% to 7.6% YoY. Overall, real GDP advanced 7.4% in 2014 (vs. 7.3% in the previous year) with financial services being the fastest growing sector in the period. Mozambique was one of the fastest growing countries in Sub-Saharan Africa in the last decade, witnessing an average annual growth rate of 7.3% (vs. 4.7% in the region) in the period.

Expansionary budget in 2015

The budget for 2015 kicks off the government's five-year program for the period 2015-19. It is centered on five key priorities, namely (1) consolidation of national unity and peace, (2) development of human and social capital, (3) job creation, productivity and competitiveness, (4) development of infrastructures and (5) sustainable and transparent management of natural resources and environment. The government plans to increase its spending by 9.3% YoY, mainly capital expenditures and net lending as both domestic and external financing surge from last year. This should help sustain economic growth at around 7.5%, the government's target for this year. All in all, the local authorities expect the budget deficit (before grants) to increase to 11.1% of GDP and to 7.6% (if including grants).

Mr. Nyusi replaces Mr. Guebuza as Frelimo party leader

Former Mozambican president, Mr. Armando Guebuza, resigned as the Frelimo party president at end-March, a move that surprised many local market participants. Mr. Filipe Nyusi was almost unanimously voted as the new party head and now holds the dual position of being the country's president as well. Mr. Nyusi is part of a post-war generation and is reportedly less resentful of the opposition, namely the leader of Renamo, Mr. Afonso Dhlakama. It will be critical that the two leaders come to a sustained and long-lasting agreement so that the image and credibility that the international community has of the country is not damaged any further.

Final investment decisions in LNG projects due in 2015-16?

The current oil price environment has led oil and gas companies to evaluate and scale back their exploration and development budgets. This may have an impact on Mozambique, which has recently announced the largest natural gas find in Africa, an estimated 200 trillion cubic feet. This is equivalent to 33 billion barrels of oil, or almost as much as Nigeria's proven oil reserves. Anadarko and ENI are planning to make a final investment decision on their LNG projects later this year or in early 2016 with production and export of the first LNG expected after 2020. Anadarko recently announced the selection of a consortium for the initial development of its LNG park in Mozambique. This followed news reports suggesting that the company could simply sell its natural gas assets in the country. Although Anadarko has denied this, we believe this scenario should not be completely ruled out for the time being and the sale could eventually happen at a later stage.