Mozambique: Similar problems to Angola if no economic reform-Fitch
Solutions warned on Tuesday that Mozambique would face the same problems as Angola or Nigeria. It is overly dependent on a single commodity if it does not diversify its economy by taking advantage of future huge gas revenues.
“Unless we start to see significant economic reforms that encourage the distribution of gas benefits across the economy, Mozambique could face the same problems that have limited growth in countries like Angola or Nigeria during the recent commodity price slump,” the analysts at Fitch Solutions wrote.
In the most recent long term analysis of the country’s economy, sent to investors and seen by Lusa, the experts from this consulting company owned by the same owners of Fitch Ratings agency noted that “several estimates point to between 100 and 185 billion cubic feet of gas off the coast of the country, more than the total consumption in the United States for two decades.
This, they say, “will lead to a transformation of the economy, with more growth, greater exports and huge revenues, as well as greater and more attractive business opportunities for foreign investors”.
However, they added, “with the country unable to approve major structural reforms to transform the wealth of resources into a diversified economy with higher living standards for the population, Mozambique risks falling into the same trap of raw materials that has harmed growth in several economies dependent on natural resources, limiting opportunities in other sectors.
It gave the examples of Angola and Nigeria, which have an economic model that relies heavily on exports: “regardless of the wealth and real GDP growth that an increase in gas could bring to Mozambique’s economy, the examples of Angola and Nigeria reveal a dramatic slowdown in export growth following the collapse of prices in 2015 and 2016.”
If gas plays a similar role, “the economy will be exposed to the same risks, with volatility in global gas prices likely to result in large and sudden variations in external revenues,” they warned.
To avoid a similar fate as the two largest oil producers in the region, Fitch Solutions says will require “the government to implement various reforms to promote alternative methods of economic growth when prices fall, but this is a challenging prospect in the region, and in the case of Mozambique we are particularly sceptical about the government’s ability to implement these types of reforms due to the recent history of poor governance.”
Fitch Ratings expects that “the economic outlook will improve over the next decade as progress on natural gas projects provides a significant boost to long-term growth” after GDP contracted 1.3% last year due to the Covid-19 pandemic.
During this decade, however, the outlook could be diametrically opposed: “When exports begin, which we expect to happen from 2022, we foresee an acceleration in economic activity, which means that Mozambique could have one of the highest growth rates in sub-Saharan Africa,” the analysts predict.
This, of course, if the security situation in the north of the country, where the largest gas reserves in the region are located, improves, as currently, the fighting is “a significant threat to the development of the liquefied natural gas sector and the attractiveness of foreign investors.
Fitch Solutions, moreover, warned that “without more significant progress in the fight against insurgents, the risks of direct attacks on megaproject sites will increase in the medium and long term.”