Navigating Economic Challenges: Standard Bank’s Insights on Mozambique's Economy

The International Monetary Fund recently approved the disbursement of a further special drawing rights to Mozambique valued at around $60 million to support the economy. In the decision the IMF said inflation expectations in Mozambique remained well anchored though monetary policy remained tight and recommended further easing. Joining me now is Celio Hamide, Head of Sales and Global Markets at Standard Bank for more on his take. Celio, thanks so much for your time. So perhaps we begin with some of the latest numbers for growth coming out of Mozambique, which did show a GDP cooling in the first quarter, growing but not as strong as has been the case in previous quarters, particularly in 2023. Just your take on the state or the health of Mozambique's economy then, just reflecting those GDP numbers. From GDP numbers perspective, I think it's important to share that Q1, we saw a bit of a slow start, 3.20, that's what we saw in Q1. But this was supported mainly by, we have seen a deceleration on the mining industry, when you're talking about the coal side perspective. Similarly, you can notice that our PMI numbers, it would be low 50. However, Q2, we have seen a change in that perspective. And I think Q2 numbers should be close to 4% in GDP or even more. Considering the economic activity, and remember, in that year, we should foresee maybe, I would say, a shared growth, maybe year end, we could see about 4.8, 4.92. So I think it's important to mention that what really is driving the coming so far, it's mainly the big projects. If you look from that perspective, the mining industry is crucial. And again, what we're seeing as well on the oil and gas, we're seeing a lot from floating LNG perspective, we're seeing a lot happening. However, everyone is still waiting in terms of the Moz LNG onshore, which is going to be key for the economy in that perspective. I guess put differently, let's talk about the state of the consumer and just reflecting some of the sentiments from the IMF saying that while there has been a bit of relief in terms of monetary policy and the interest rate cuts that the central bank has put through, monetary conditions still remain tight. So how much of the weakness in the first quarter of the economy would you say is as a result of too tight of monetary policy conditions in your view? Yeah, I think the central bank, they're trying as much as possible to be cautious. And I think they have been, let's say, somehow supportive, right? They've clearly in the beginning advised the market that we will be cutting rates. So, so far as we speak, they've done a 225 basis point rate cut. Yes, it's still a bit high if you look from primary perspective. And I think the next MPC, which we're expecting to have at the end of this month, there is definitely room for them to cut around 50 to 75 basis point. I think it wouldn't be a surprise for the market, right? If you look at the last week's treasury bill auctions, bids were on the average of around 16%, right? So it tells you that they were looking for lower, lower levels of debt. We believe that what really the market is waiting is, they want to see a downwards in terms of cash reserve requirement in terms of local currency and foreign currency, which is around 39, 39.5 respectively. So all in, if also considered from inflation perspective, 3.04 June numbers. It's our view, this is really supported by the exchange rate, which is still stable around 63, 25, 64, 52. You know, it's one of the main reasons, you know, we believe why the central bank wants to continue to cut rates. But again, we do believe it's going to be, it's going to be on a cautious way. And they will obviously, you know, find a better route to monitor and making sure that doesn't impact the plan in terms of inflation that is stabilized for the year. Sure. Going back to your comment on the outlook and the positive outlook for your LNG sector. I mean, I just read earlier that the economy of Zambia had to import a bit of power from Mozambique, just given the constraints it has because of the drought. But thank goodness Mozambique being able to be in a position to supplement the lack thereof. But on the turn, and when you actually expect real activity to filter through from the private sector, when do you reckon that starts to happen? Because on the one hand, there is this big opportunity and consensus of the opportunity thereof. On the other hand, there's still lingering concerns around the safety of capital, just in light of some political stability, instability, security, rather, that is still there in the sidelines. Just your assessment on when everything comes together. Well, I think there has been, let's say, many discussions around that. And I think it's really crucial that, you know, the government together, even with the Mosul energy, and I can tell you the total, you know, to get into agreement. Recently, we know there has been some agreements in terms of contracts with Rwanda to support a security there. And I think it's a step to make sure that the things are stabilised. And if that is stabilised, it means that we're going to see maybe the oil and gas, you know, final decision, you know, happening, let's say, maybe by the end or before that. And I think with that is going to help, not just for me, I know you mentioned about Zambia Electricity. You know, yeah, there is a lot of talks and there's a lot of investments that also the public company is doing there. And sooner or later, we're going to be able to supply more and more throughout the regions. And I think it's Mozambique is key from that perspective. And we're going to be able to support that. Sure. Just drawing back on the latest support, financial support coming from the IMF of that equivalent of 60 million US dollars. How meaningful do you reckon it will be in addressing some of the concerns around public debt, as well as financial vulnerabilities? Suppose put simply, do you reckon it's enough? So the three-year facility, right, the extended facility is 465 million dollars, right. So let me tell you, 72% that has been agreed, you know, it has been released at first, right. I think this shows the commitment from the government in their made progress to address the conditions that have been stated by the IMF, you know. But I think we shouldn't ignore the fact that there's a real, real push to have fiscal discipline, you know, further consolidation given Mozambique high debt. The IMF has really reiterated that the wage bill spending, there should be a rationalization. So I think, you know, this would also create more space in terms of high priority to develop the social and, you know, the social spending. So I think the government has done good work on that. And there is more throughout the year, and even for the next year for them to support that. You remember, that is until June 2025. And the government is pushing for that to make sure that 465 million dollars all is internalized. But again, if that is enough or no, maybe it's not, you know. If you look from a fiscal perspective, there is a lot, a lot to be done in that perspective. And the government, they have been done more in terms of investments. Just finally, I mean, Mozambique being one of the economies on the African continent that will be hosting elections this year. Your assessment on the political risk environment and how investors are viewing it right now? I think it's a very important question, right? Yeah, we do have elections this year. I really believe that the government would put effort to make sure all happen on the best effort basis, right? Safety and security, not just for the population, but the people who they voted, right? We saw this year municipality with a bit of volatility, but I think at the end, things were uncontrolled. And I think it's going to be the same for this year. Okay, Celio, thanks so much for your time. So really insightful update on the latest happening in Mozambique. We'll leave it there and catch up with you at the next time. Celio Hamide, the Head of Sales for Global Markets over at Standard Bank.

The IMF recently approved the disbursement of a further special drawing rights to Mozambique valued at around $60 million to support the economy. In the decision the IMF said inflation expectations in Mozambique remained well anchored thought monetary policy remained tight and recommended further easing. Joining CNBC Africa for a focus on Southern Africa’s macro economic and investment picture is Celio Hamide, Head of Sales and Global Markets Mozambique at Standard Bank. 

Standard Bank’s economic outlook for Mozambique 

The IMF recently approved the disbursement of a further special drawing rights to Mozambique valued at around $60 million to support the economy. 

Standard Bank’s economic outlook for Mozambique

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Standard Bank’s economic outlook for Mozambique

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