Download 2015 Quarter 1

2015 Quarter 1
Inflation - The latest data from the Instituto Nacional de Estatistica’s (INE) showed that consumer price index (CPI) inflation was recorded at 3.11% y-o-y in
March, compared to 3.99% y-o-y in February. On a monthly basis, the CPI increased by a marginal 0.06% m-o-m in February, compared to an increase of
1.56% m-o-m the preceding month.
Growth - Preliminary data published by the INE indicates that the Mozambican economy grew by a real rate of 7% y-o-y in the fourth quarter of 2014,
slowing from the revised 7.6% y-o-y recorded in the preceding quarter. The industrial sector showed the strongest growth (8.7% y-o-y), within which the
manufacturing sector also expanded strongly at 6.9% y-o-y.
National development plan - The government has several medium- to long-term plans in place to address the issues of the impact of the coal and gas
industries on the economy, public investment spending, external competitiveness, debt sustainability, and investment planning. These plans include the
Economic and Social Plan, the Medium Term Expenditure Framework (MTEF, 2014-16) and also the longer term plan – Agenda 2025.
OPPORTUNITIES
STRENGTHS
Diversification of exports – while mega-projects (including aluminium, coal,
Significant coal reserves – estimated reserves of some 20 billion tonnes, with
and natural gas) still dominate Mozambique’s economic landscape, the areas
Mozambique potentially becoming one of the largest coal producers in Africa.
of interest are widening.
Vast natural gas deposits – deposits in the Rovuma basin are attracting
Strong economic expansion – real GDP growth has averaged an impressive
significant investment inflows, and could transform Mozambique into a large
7% p.a. during 2008-14, and is projected to average 7.6% p.a. during 2015-17.
player in the industry.
Potential to become a biofuel powerhouse – Mozambique boasts with relative Benign inflationary environment – consumer price inflation averaged 2.61%
abundance of land, labour, water, and a favourable climate.
last year, and is projected to remain under control in the coming year.
Growing tourism industry – abundant natural beauty, combined with
Large amount of foreign direct investment (FDI) inflows – net FDI averaged
improving infrastructure, is set to attract increasing amounts of international
an estimated 34.8% of GDP in the 2012-14 period.
tourists.
VULNERABILITIES
WHAT IS BEING DONE?
External debt levels are forecast to increase significantly in the short to
medium term.
Business environment is challenging and corruption rampant.
Weak protection and enforcement of property rights.
Very low level of social and economic development. Estimated GDP/head of
only $647 in 2014. Potential for sporadic protests about the cost of living.
The majority of the external debt being accumulated by the government is on
concessional terms, thereby mitigating risk of debt distress.
Reforms have led to a vast improvement over the past five years, and this is
expected to continue in the coming years.
Private ownership of land is not permitted. Although progress has been made,
the legal system is still inefficient.
Real GDP growth rates of 7.2%-plus p.a. in the short to medium term are
expected, which will lead to significant improvement in GDP per capita.
MEGA TRENDS
Population
24,692,144 (July 2014 est.); Age 15 - 64: 51.8%
Population growth rate (%)
2.45% (2014 est.)
Life expectancy at birth
Total population: 52.6 years; male: 51.85 years; female: 53.37 years (2014 est.)
HIV/AIDS
Adult prevalence rate: 10.75%; People living with HIV/AIDS: 1.6 million (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 58.8%; male: 73.3%; female: 45.4% (2015 est.)
and write)
Urbanisation
Urban population: 31.7% of total population (2013); Urban population growth: 3.3% (2013)
Population below national poverty line
54.7% (2009 est.)
Unemployment rate
17% (2007 est.)
Employment (% of total)
Agriculture: 80.5%; Industry: 3.4%; Services: 16.1% (2003 est.)
Labour participation rate (% of total
population ages 15+)
84.2% (2013)
Business languages
Emakhuwa, Portuguese (official), Xichangana
Telephone & Internet users
Main lines in use: 77,568; Mobile cellular: 12.40 million; Internet users: 1.33 million (2013)
Sources: CIA World Factbook, World Bank, Trading Economics, ITU, UNAIDS & NKC Research
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Total
Mozambique
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
Doing Business 2015 (1 best, 189 worst)
Global Competitiveness 2014-15 (1 most, 144 least competitive)
Economic Freedom 2015 (1 most, 178 least free)
HDI Ranking 2013 (1 most, 187 least developed)
189
144
178
187
178
0
Source: NKC Research
175
119
127
133
125
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
S&P
Fitch
Moody’s
B/Stable
B+/Stable
B1/Stable
Standard and Poor’s (S&P) affirmed Mozambique’s long-term sovereign credit rating at “B” with a stable outlook on 6 February 2015. (S&P had lowered
Mozambique’s rating from “B+” in February 2014). The stable outlook reflects S&P’s expectation that “investment spending will continue to weigh on
Mozambique’s fiscal and external imbalances, but that the spending will also support economic growth over 2015-18”. In turn, Fitch Ratings affirmed
Mozambique’s foreign currency sovereign credit rating at "B+" in November 2014. According to the rating agency, the affirmation reflects projections of
strong economic growth, and continued benefits from “high levels of infrastructure investment and the development of extractive industries, particularly
natural gas”. The rating agency noted, however, that revenues from the country’s natural resources are still subject to a degree of uncertainty, thereby
increasing fiscal risk and the possibility of building up external debt prematurely. Along with the country’s long-term foreign and local currency Issuer Default
Ratings (IDRs) being maintained at “B+” with a stable outlook, Fitch also affirmed the country ceiling at “B+” and short-term IDR at “B”. Separately,
Moody’s Investors Service announced on 20 September 2013 that it had assigned debut local- and foreign-currency issuer ratings to the government of
Mozambique. The agency provided the sovereign with a “B1” rating with a stable outlook, equivalent to the “B+” rating of Fitch.
Infrastructure
Diversity of
the Economy
Banking
Sector
Continuity
of Economic
Policy
GDP Growth
Key Balances
Foreign
Investment
Socioeconomic
Development
Forex
Reserves
Poor
Fairly good and
improving
Underdeveloped
Improving
Robust
Large structural
twin deficits
Strong
Very low
Healthy and
upward trend
Stock Market
Listed Companies
Liquidity
Market Cap
Dominant Sector
Daily Trading
Volume
Bolsa de Valores de
Moçambique (BVM)
4
Limited
$490m
(13 April 2015)
N/a
N/a
Capital Market
Development
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
Yes
Underdeveloped
Limited
91 days to 10 years
No
Yes, but still limited
Macro-economic overview
The Mozambican economy has grown at a brisk pace over the last few years, expanding at an estimated p.a. average of 7.3% over the 2009-14 period. While
this is an impressive performance, real GDP growth has come from a very low base; as a result, estimated GDP per capita was only around $647 last year.
Poverty levels are also still extremely high, and infrastructure remains a key rating constraint. That said, there continues to be a favourable outlook for the
country’s economic growth performance over the coming years, with annual growth rates of over 7.2% being projected. Therefore, Mozambique’s GDP per
capita should improve considerably over the medium to long term.
An additional indicator that warrants a cautionary eye is Mozambique’s very large structural current account deficit. Although the country’s exports of coal,
natural gas, and electricity are expected to increase significantly in the coming years, imports related to the natural gas sector are projected to increase
significantly as well, thus ensuring that the current account deficit is likely to remain large for some time. Furthermore, Mozambique also needs to import most
of its capital and consumption requirements. The services deficit is also expected to remain large, in line with ongoing expansions at several mining projects,
as well as planned construction of liquefied natural gas (LNG) plants. The current account deficit is forecast to average 39.5% of GDP during 2014-16, but this
is offset by significant levels of foreign direct investment (FDI). Net FDI inflows are projected to average 26.6% of GDP over this period. Although
Mozambique’s external debt is forecast to rise substantially, the majority of the increase can be ascribed to extensive forecast borrowing by the private sector.
Specifically, the forecast debt accumulation will be issued by foreign companies in order to produce and export LNG. Therefore, despite the increasingly high
levels, Mozambique’s accumulation of debt is deemed sustainable. That said, the International Monetary Fund (IMF) has warned the local authorities on
several occasions to note the level of government debt accumulation, particularly after the opaque nature of the $850m ‘tuna fishing’ bond issuance in 2013.
The IMF executive board approved Mozambique’s third review under the programme supported by the Policy Support Instrument (PSI) in February 2015.
Mozambique’s performance under the PSI, which was first approved in mid-2013, has been mixed, with “some slippages during the second half of [2014] and
some delays in implementing structural reforms”. The Fund maintains that the country’s primary short-term challenge is to continue its strong GDP growth
momentum, while preserving Mozambique’s fiscal and debt sustainability. We consider the IMF’s continued support and approval of Mozambique’s
economic policies to be a boon to the country’s sovereign debt rating.
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Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Agriculture/
GDP
28.4%
Service/GDP
49.7%
Industry/GDP
21.9%
Agriculture remains extremely important for the economy, especially from an employment perspective, and the sector contributed an estimated 28.4% to GDP
last year. The services sector is gaining in importance, with robust growth seen in telecoms and banking during the last few years, and the sector accounted for
49.7% of GDP in 2014. Although the industrial sector dominates Mozambique’s export earnings – led by aluminium, coal and electricity – it makes a smaller
contribution to GDP and employment. That said, Mozambique has a massive amount of natural resources, including agricultural land, coal, natural gas, and
water. The contributions of coal and natural gas to foreign exchange earnings are expected to increase considerably over the medium to long term.
Real GDP Growth & Net FDI/GDP
8.5
40.0
Source: NKC Research
8.0
35.0
7.5
30.0
7.0
25.0
6.5
20.0
6.0
15.0
5.5
10.0
5.0
5.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
The IMF representative in Mozambique indicated that the Fund may well lower the country’s economic expansion projection for 2015 due to the economic
impact of the floods during Q1 2015. While damage to the agricultural sector will likely affect a large number of the Mozambican populace, given that almost
80% of the population is reliant on agriculture, there is also estimated damage to the telecommunications, transport, and energy sectors. As such, the industrial
sector is forecast to slow from last year’s estimated growth rate of 11.5%, but remain healthy at 9% in 2015. The sector is set to be supported by growth of the
coal industry, as well as continued strong activity in other extractive sectors and construction projects. Consequently, the industrial sector’s contribution to
GDP is forecast to increase from an estimated 21.9% in 2014 to 22.3% this year. The floods at the beginning of the year led to our projection for the
agricultural sector’s expansion rate decreasing from 6.3% last year to 5% in 2015, before recovering to 7.2% next year. With regard to foreign investment,
Mozambique received some $5.9bn of net FDI in 2013 – representing the highest level of net FDI on the African continent that year. While there is some
trepidation with regard to future energy projects in the wake of the plunge in global oil prices over the last few months, Mozambique is projected to continue
to attract healthy levels of net FDI in coming years, with the IMF projecting some $20bn worth of inflows aimed at the LNG sector over the next few years.
Nevertheless, Mozambique’s net FDI is estimated to have decreased to $4.9bn in 2014, and is projected to decrease slightly to $4.8bn this year, before
increasing again to $4.9bn in 2016.
Main Imports: % share of total
2014E
2015F
2016F
Petroleum
Petroleum
13.90
10.30
9.66
Aluminium
Aluminium
6.56
4.96
5.34
Cereals
4.42
3.05
3.02
Electricity
3.19
2.82
2.75
Petroleum
2014E
2015F
2016F
Aluminium
26.09
26.68
27.11
Coal
11.37
16.55
18.60
Electricity
6.22
5.88
5.54
Tobacco
5.75
5.40
5.67
Exports ($ bn)
Imports ($ bn)
2014E
2015F
2016F
Cereals
Electricity
Aluminium
Coal
Electricity
Tobacco
0.0
Source: NKC Research
0.5
1.0
1.5
2.0
Megaprojects tend to dominate Mozambique’s exports, with aluminium averaging 33% of total exports from 2011-14. Due to an estimated decrease in
aluminium exports that stemmed from low global prices of the commodity, coupled with an increase in coal exports, aluminium’s percentage of total exports is
estimated to have decreased from 52% in 2011 to around 26% last year. Looking ahead, aluminium exports are forecast to remain relatively stable in coming
years at p.a. average of $1.5bn over the 2015-17 period. Coal exports, on the other hand, are projected to increase sharply this year at a rate of almost 57% to
$820m as railway projects come online, and further to almost $1bn by 2016. As such, coal exports are projected to increase from 11.4% of total exports last
year to some 18.6% of total exports by 2016. In a similar vein, LNG exports are expected to increase dramatically, but only in the medium term, as the
requisite infrastructure necessary to produce the sought-after commodity is still only in the developmental stages.
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Current Account & Budget Balance
(% of GDP)
-10.0
-2.0
-20.0
-4.0
-30.0
-6.0
-40.0
-8.0
Source: NKC Research
-50.0
-10.0
2009 2010 2011 2012 2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
The latest statistics from the Banco de Moçambique (BdM, the central bank) indicate that Mozambique’s current account deficit amounted to just over $3.7bn
in the first three quarters of 2014, representing a narrowing of some $267.1m from the same period a year earlier. The central bank attributes the narrower
deficit to a combination of higher exports and lower imports over the period. According to the BdM’s calculations, Mozambique’s cumulative total exports
grew by 6.3% y-o-y during the first nine months of last year, while cumulative total imports declined by 5.8% y-o-y during the same period. The central bank
also noted that if mega-projects are excluded, then the current account deficit amounted to almost $2.5bn in the first three quarters of 2014 – approximately
$189.5m wider than the same period in 2013. The government’s fiscal revenues are forecast to rise over the short to medium term, despite external grants
stagnating last year. The mining sector’s contribution to tax revenues is set to rise, both as the sector gains in importance, and as the terms of some contracts
are renegotiated. Windfall receipts from capital gains taxes have already significantly boosted Mozambique’s fiscal coffers, with more such ‘once-off’ receipts
expected in the coming year. As such, domestic fiscal revenues are forecast to increase substantially, although public spending pressure will remain for some
time.
Average CPI (% change, y-o-y)
14.0
Source: NKC Research
12.0
10.0
8.0
6.0
4.0
2.0
0.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
The susceptibility of the agricultural sector to adverse weather conditions poses a particular challenge for the monetary authorities, with the floods at the
beginning of the year leading to an increase in price pressures. An acceleration in Mozambique’s inflation was not unexpected, given the severity of the floods
at the beginning of the year and the subsequent damage to the country’s agricultural sector. However, the central bank expects the rise in inflation to be
mitigated somewhat by the metical’s stable exchange rate against the US dollar and the South African rand, as well as lower inflation in South Africa (a major
source of imports). We project average inflation to increase from 2.6% in 2014 to 4.5% this year, before accelerating slightly to 5% in 2016.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
Filipe Mandlate – designation is Partner
Tel +258 21 355 200
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
The foregoing information is for general use only. NKC does not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon
such information or opinions.
© 2015 KPMG Auditores e Consultores SA, is a Mozambican limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG
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