The Mozambican economy is expected to contract this year for the first time since 1992 due to the Covid-19 pandemic.Exports, such as coal, aluminium and rubies, would fall sharply due to shuttered mines, closed borders and diminished global demand, said Gerrit van Rooyen, an economist at NKC African Economics. “Furthermore, we forecast a reduction in new business and public investment projects due to increased economic uncertainty and weakened balance sheets. The local lockdown will also reduce private consumption due to the closure of non-essential businesses, the loss of income and rising unemployment.” In August NKC African Economics predicted an economic growth rate of -2.8% for 2020, but this is expected to be revised to about -0.5% following the preliminary Q2 GDP release in September, which was much better than expected. “It appears that subsistence farming and other informal activities, which account for as much as 80% of total employment, were quite resilient in the face of the coronavirus pandemic,” said Van Rooyen. “This is probably thanks to the informal sector’s lower compliance with Covid-19 containment measures and less dependence on exports as opposed to the formal market.” Construction activity was also surprisingly strong in the second quarter, which could partly be attributed to reconstruction efforts in the wake of the destruction of last year’s tropical cyclones. The replantation of crops that were destroyed during the cyclones may also account for the robust growth in the agricultural sector during the quarter. According to Van Rooyen, there will be a bounce-back in economic growth next year as mining and construction activities that were halted due to health concerns resume. “However, the weak global economic recovery and poor investor confidence in light of the ongoing Covid-19 pandemic will put a damper on economic growth. Due to our recent expectations of a slower global recovery due to the lack of a medical breakthrough in the pandemic being unlikely until 2021, we will probably lower our growth forecast for Mozambique to closer to 2.6% in 2021.” Commenting on insurgency fears, Van Rooyen said the area in northern Cabo Delgado that was being besieged made a negligible contribution to GDP. “The insurgency also has no discernible impact on the economic activities in the rest of the country. That said, it has caused a major humanitarian disaster with an estimated 300 000 people displaced and 2 100 killed in Cabo Delgado since October 2017. “The refugees from the crisis are vulnerable to the current outbreaks of cholera and Covid-19 in the region. The security and health disaster in the province requires a response from government which it is unable to fund due to budget constraints and a lack of foreign backing,” said Van Rooyen. “Apart from the LNG developments, the insurgency is also bordering on valuable ruby and graphite interests that seem ripe for the taking. The situation needs decisive action.
INSERT: “Apart from LNG, the insurgency is bordering on valuable ruby and graphite interests.” – Gerrit van Rooyen
