Mozambique’s resources sector investment on the up - CNBC Africa

Mozambique’s resources sector investment on the up

Southern Africa

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Despite Mozambique's high current account deficit, it has had little effect on the metical. PHOTO: Getty Images

“Initially we’ve seen above seven per cent [economic] growth over the past decade, and I would say it is definitely the resources sector but more from a coal perspective. In a few couple of years we’ve seen large firms coming into the economy, bringing in capital goods so that your import bill is high, your current account is starting to get high [as well as] your fiscal balances,” Celeste Fauconnier, Africa analyst at Rand Merchant Bank (RMB), told CNBC Africa.

“All of it, even though it sounds like structural deficiencies, it’s actually benefiting this economy and helping the massive growth rate that we are seeing and expecting. Mozambique is one of our fastest-growing economies on the list of countries that RMB focuses on.”

Fauconnier added that while global ratings agencies tend to negatively rate the outlooks on countries with high current account deficits, it’s not something to be too concerned about for Mozambique.

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The main reason the country’s high current account deficit, which is at 40 per cent, is due to the capital imports into the coal industry, specifically into gas and oil.

(READ MORE: Mozambique to become self-reliant due to gas deposits)

“Of course you’re going to see that import bill increasing significantly. Your exports haven’t come out yet significantly, [but] we will see that over the next few years. That’s going to help reduce the current account deficit,” Fauconnier explained.

“The main reason why we’re not too concerned is that the current account is actually being funded by the large amount of foreign direct investment flowing into the economy. In fact, Mozambique has actually overtaken Nigeria last year as one of the largest recipients of foreign direct investment. That is specifically into the resources sector.”

The current account deficit has also had little effect on the Mozambique metical, and the fact that the county’s foreign direct investment (FDI) numbers continue to grow is a reassurance of a growing economy.

(READ MORE: Mozambique epitomises a positive spirit- Lagarde)

“Unfortunately [FDI is] still dominating the resources sector, but we do realise that the government is initiating projects to invest in other infrastructure areas: into your social sectors and specifically into your services sectors,” said Fauconnier.

“We must remember that in some countries, especially in Mozambique, that the services sector is a large contributor to GDP levels. Overall, we do see some investment but unfortunately it’s only focused on resources for the time being.”

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