Historically, Mozambique was a former colony of Portugal for almost 500 years until it achieved independence in 1975. Shortly thereafter, Mozambique’s civil war began which impaired the country greatly until the Peace Accord was signed in October 1992 returning the nation to stability after 16 years of civil war. Mozambique is considered to be a relatively poor nation as measured by GDP with approximately 50 percent of the population living below the poverty line. Unfortunately, major flooding in year 2000 sent many more into poverty. As a young population with the median age at only 18 years for Mozambique’s 18.8 million citizens, the AIDS crisis has claimed 350,000 Mozambican lives with upwards of 1.4 million infected with HIV. Some reports have upwards of 100,000 having died from AIDS in year 2003 alone. Although the country is hampered by these challenges, Mozambique today currently has one of the world’s highest GDP growth rates averaging 10 percent over the last decade, albeit from a very low level. Below is a summary of our research findings as presented by BankINTRO.com as it relates to Mozambique’s currency, the metical.
POLITICS: political stability for the most part since multi-party elections began in 1994. The current leader of Mozambique is the retiring President Joaquim Chissano, a moderate of the ruling Front for the Liberalization of Mozambique FRELIMO party has his term in office ending after serving three terms. More recently, national Presidential elections during December 2004 have a heated contest between President’s Chissano’s hand picked successor, Armando Guebuza of the current party in power FRELIMO and his main opponent Afonso Dhlakama of the former rebel guerrilla movement known as Mozambique National Resistance RENAMO. Early election results had Armanda Guebuza in a substantial lead but election monitors including that of former U.S. President Jimmy Carter did make complaints regarding monitoring groups that were denied access to tabulation centres. However at time of currency review on December 21, 2004, the authorities confirmed that Armando Guebuza won the election by a very wide margin. The country has been at a tug of war politically between two opposing parties known as FRELIMO and RENAMO that each take their roots from the country’s civil war. Candidate Guebuza has stated that he pledges to fight corruption within the government bureaucracy.
ECONOMICS: the government abandoned Marxist economic and centrally planned theory of economics in 1989 in favor of free market principles with the implementation of the country’s new constitution in 1990. Historically, Mozambique’s economy has been dependent on foreign assistance but now it is slowly developing industry segments in a goal of becoming self-reliant. For the most part, the southern areas of the country in an around Maputo is wealthier while the rural north is quite poor. During the 1990’s, Mozambique implemented privatization policies with upwards of 1000 businesses being privatized coupled with macro-economic reforms to stabilize the economy. A large percentage of the Mozambican population (75 percent) earn their living as subsistence farmers within the agricultural sector which represents 30 percent of the GDP output. Major industry groups include agriculture, beverages, chemicals (fertilizers, paints, soap), aluminum, tobacco, cement, garment manufacturing, mining and natural gas. During year 2001, Mozambique was a net electricity exporter at 5.8 billion Kwh.
Of importance is the fact that much of the foreign debt is reduced (forgiveness from foreign lenders) including $3.6 billion USD alone in year 1999. During year 2001, Mozambique received $630 million USD in economic aid as the country relies heavily on foreign grant monies for economic development. Annual aid monies are now currently running in the $700 million USD figure. The key question is how much foreign support from lenders like the IMF and World Bank is too much? Both Mozambique and international creditors must find a key balance to lending/borrowing to Mozambique in order to provide prudent economic development in order to avoid a culture of Mozambicans seeking handouts. Too much foreign aid brings more domestic corruption within Mozambique and creates a less productive society. It also sends the wrong message to Mozambicans with some analysts suggesting some authorities were embellishing the floods of 2000 in attempt to raise more aid monies than was required. As the country is advancing forward economically, the government has introduced a VAT in order to increase tax revenues.
Economic Statistics
GDP as measured by purchasing power parity is at $21.2 billion USD (2004) equivalent to $1,200 USD per capita. As measured by market prices, GDP/Capita would be closer to $230 USD (2003). GDP growth rates have year 1997 at 8 percent, year 2000 at 2.1 percent, 2001 at 14.1 percent growth, 2003 at 7.1 percent, year 2004 to come in at 8.4 percent growth and year 2005 is projected to moderate at 7 percent. Inflation rate is projected for year 2004 at 13 percent after inflation was running at 17 percent in January 2004 but expected to decline to 11 percent by year-end. Year 2005 is estimated to fall to 8 percent, 2003 inflation came in at 13.5 percent. Inflation averaged 35 to 60 percent from years 1990-96 with 1995 inflation recording 54 percent. During the late 1990’s, inflation fell to single digits but rose modestly after the floods of year 2000-01 at 11 percent. The current account deficit is estimated to come in at $566 million USD for 2004 reflecting the country’s large trade imbalance, this CA deficit is improving since year 2000 when it recorded a huge shortfall of 18 percent (after grants) of GDP in 2000, year 2003 number was a 6.2 percent shortfall. The fiscal account recorded a deficit of 4.5 percent for year 2000-01, year 2003 at 4 percent deficit which is forecasted to decline to 3 percent in 2004 due to increased tax revenues. No oil production during year 2001 although a natural gas producer. Official unemployment is at 21 percent although probably much higher towards 50 percent. Economic composition consists of agriculture at 20 percent, industry at 27 percent, services at 53 percent (services account for 13 percent of labor force). Export markets include Belgium, South Africa, Italy while import are derived mostly from South Africa and Australia.
POSITIVE: eco-tourism with large natural big game parks, member G-77, beautiful beaches, reconstruction of infrastructure, stock exchange opened in Maputo. CONCERN: telecommunications - fair, elephant poaching for ivory, droughts, floods, very high infant mortality rate, infectious diseases - risk is high for typhoid fever & malaria, etc.
BANKING SYSTEM: vulnerable to corruption, poor regulatory environment. Monetary policy is governed by the nation’s central bank, Bank of Mozambique ‘BM’. The nation’s largest commercial bank was privatized in the 1990’s. Broad money growth is forecasted to decline to 15 percent for year 2004 down from 19 percent in 2003. Consequently, commercial lending rates have fallen to the 25 percent range. International foreign exchange reserves at year-end 2003 were measured at 797 million USD or equivalent to 7 months imports which is quite good. Both credit cards and travelers cheques are not accepted coupled with limited ATM availability.
REGIONAL ANALYSIS: Malawi, Tanzania, Zimbabwe, South Africa
Mozambique has key geographical advantages being a coastline country with major sea ports. With several neighboring African countries landlocked, Mozambique will play an increasing important role for a transportation export hub for countries like Zimbabwe, Malawi and Zambia. Southern Africa has had food shortages at times with Mozambique itself realizing lower maize crop yields as was the case when the region was hit with floods (2000) and droughts (2002). There has been an emigration wave of white highly skilled Zimbabwean farmers who have been expelled from Zimbabwe over government land claims, a highly controversial issue spearheaded by its authoritarian leader, President Mugabe. It is these skilled white farmers that provide the knowledge and wealth. The overall situation with Zimbabwe is quite precarious where a significant percentage of the population is without work or much food. Mozambique economically has a large potential in providing South Africa with hydropower as transmission lines are in place. The large regional economy of South Africa is very important to Mozambique for both exports and as an employer of many Mozambicans who work the South African gold mines.
KNOWLEDGE: Aluminum and Natural Gas
Mozambique is uniquely blessed with extensive mineral and natural resources including bauxite, coal, titanium, hydropower, natural gas fields, tantalum, graphite, beryl, salt, iron ore, etc. Bauxite along with hydropower for aluminum production has made Mozambique a world leader in aluminum production with the opening of the $2.3 billion USD MOZAL aluminum smelter which is one of the world’s most modern and technically advanced. The MOZAL smelter is the largest foreign direct investment project within Mozambique in its history. Year 2001 approximate aluminum production came in at 275,000 tonnes. Moreover, mining is becoming more in demand with monies being directed towards titanium extraction and processing. Further, large natural gas fields at Temane and Pande in Mozambique have now brought capital in the amount of $1.2 billion USD for development of these energy projects including an $800 million USD pipeline to South Africa. Large South African energy giant SASOL is the operator creating 1000 Mozambican jobs.
CURRENCY: ISO Symbol ‘MZM’, Mozambican metical, meticais (plural). At time of review on December 21, 2004, the metical had an exchange value of 18,750 MZM to the US-dollar ‘USD’. The currency exchange rate regime in place for the metical is that of a float. The metical has experienced a significant appreciation in value of 8 percent from the previous month in relation to the US-dollar when the exchange was valued at 20,285 MZM to the USD on November 4, 2004. However, the performance for the metical is not as spectacular when compared to the South African rand which itself has appreciated tremendously over the last two years to the US-dollar which has impacted Mozambique with higher inflation levels.
CURRENCY HISTORY: historical exchange quotes for the metical include: year 2003 average at 23782 MZM to the US-dollar ‘USD’, year 2002 at 23678, year 2001 at 20703, 2000 at 15447, July 1999 at 12620, January 1998 at 11635, year 1997 at 11543, 1996 at 11294, 1995 at 9024, 1994 at 6038 and year 1993 at 3874 MZM to the USD.
CURRENCY FORECAST: positive developments as Mozambique is moving towards self-sufficiency. Mozambique can now begin the transition to development status with foreign exchange monies now entering the economy from the sale of aluminum, garment exports, and rare earth mining which should help to close the trade shortfall going forward. Now with political stability and the unlikely return of chaos/civil war, Mozambique can realize the gains from increased foreign direct investment that may finally seek allow the country to seek the rewards of its resources. Other vibrant industry sectors within Mozambique such as agriculture, transportation hub at sea ports and hydropower will certainly help to bring in foreign exchange monies to resulting in greater prosperity and improved social programs. Ultimately, a stronger self-reliant economy less dependent upon foreign aid will give the metical greater currency stability. The current account deficit is expected to decline towards 2 percent of GDP due to a significant jump of 30 percent in exports from MOZAL from increased global aluminum demand and to South Africa (SASOL) for natural gas exports from Mozambique.
UPDATED: December 21, 2004
