Transport & Logistics sector to fuel growth in Mozambique

MEDIA RELEASE

13 JUNE 2022

Extractive industries to boost growth in Mozambique

During the recently held FNB Mozambique Business Breakfast, in Maputo, Daniel Kavishe, Africa Economist of Rand Merchant Bank (RMB), commented on the impact of Russia-Ukraine war, which continues to reverberate throughout Africa’s economies. Coupled with the lingering effects of the Covid-19 pandemic, which is adding to higher oil and food prices. RMB is the corporate and investment banking arm of FirstRand Bank Limited – sister company of FNB Mozambique.

Despite these challenges, Mozambique is widely expected to notch up growth above 4% over the next few years as a major liquified natural gas (LNG) project comes online and as government spending in key areas remains strong.

“We believe Mozambique will remain on a path of economic recovery, with key growth expected to come from the transport and logistics sector. The increased use of Mozambique’s port due to activity in South Africa being impacted by extreme weather conditions suggests that the transport and storage sector will perform above average in the short to the medium term. The primary industry is further expected to remain pivotal to growth as gas activity ramps up and as higher commodity prices boost export earnings,” says Eugénia Ah-Hoy, FNB MozambiqueTransport and Logistics Sector Lead.

Whilst growth is expected, challenges do exist across the economy. “The Mozambican economy has been affected by severe weather conditions over the past few years as cyclones have devasted different parts of the economy. Notwithstanding, the restrictions imposed during the pandemic further curtailed economic performance,” says Eugénia.

The monetary policy committee of Mozambique opted to hike interest rates by 200bp in March, a sign that the central bank is concerned about inflation.  “Notably, the central bank targets single-digit inflation. This hike suggests that the central bank is convinced that inflation could edge over 10% in the short to medium term,” says Kavishe.

So far, inflation has printed over 7.0% y/y in the first quarter, with food inflation having escalated. Moreover, petrol prices will put further pressure on overall inflation as well. While the government has reiterated that there are unlikely going to be any additional fuel price hikes, a view that could likely change given the volatility in international markets overall inflation is likely still expected to be high. Broader challenges impacting global supply chain due to the war in Eastern Europe are a key risk to Mozambique’s economic inflation profile as CPI is expected to edge past 10% over the next few months.

In line with RMB's view for IMF board approval to be obtained within the first half of this year, an Extended Credit Facility (ECF) to Mozambique was approved worth 340.8 million SDR (US$456m). According to the IMF board, “the three-year arrangement will help support the economic recovery and policies to reduce public debt and financing vulnerabilities, creating space for priority investments in human capital, climate adaptation and infrastructure.”

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Contact:

Jigna Popatlal l FNB Mozambique l Jigna.Popatlal@fnb.co.mz