A general election is due by the end of the year, but there is little doubt that the incumbent Frentede Libertacao de Mocambique (Frelimo) party will emerge dominant, with President ArmandoGuebuza returned for his second (and last) five-year term. Frelimo delivers on macroeconomicpolicy, which keeps the donor tap open, but the polity is still flawed, with corruption, administrativeinefficiencies and politically driven regional biases undermining the country’s fledgling democracy.Matters are not helped by the fractious and negative stance of the opposition, which fails to inspireany widespread popular enthusiasm. But given that Mozambique was, less than 20 years ago,embroiled in a bloody civil war, the country is rightly regarded as one of the success stories amongpost-conflict states in Africa.
Donors are key to the viability of the budget and external accounts, and maintaining their confidenceand support is the over-riding risk consideration. Mozambique has benefited from large FDI inflowsin natural resource projects, but these are going through a difficult period due to the slump in theglobal economy. Yet FDI interest in Mozambique remains bullish, and there are still opportunitiesin sectors such as coal, natural gas and hydropower on the FDI radar screen. However, urgentattention needs to be given to the electricity sector, where historical contracts have created abizarre situation in which Mozambique has to re-import its own generated output in order to feedthe power needs of mega-projects such as the Mozal aluminium complex.
We expect real GDP growth to average 5.8% range through our forecast period, with inflation atthe upper-end of single-digit territory. External payment risk will remain manageable on the provisothat international confidence and support is maintained. The most likely trajectory for the meticalis a continuing gentle downward slide on a trade-weighted basis, with recent strength against therand continuing over the short term.
Official policy recognises the need to upgrade the contribution of the domestic private sector tosocio-economic development. Policy reforms are taking place to make it easier to establish andoperate enterprises, but entrepreneurs still face major hurdles in terms of official interference,corruption, and gaining access to seed and working finance. Furthermore, the country’s physicalinfrastructure is in many places inadequate. That said, the government has launched major plansto upgrade the country’s two main ports, part of its railway network, seaports and airports whichwill improve trade, as well as expanding its power generation capacity.
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