Mozambique Business Forecast Report

Economy To Slow, But Will Remain A Regional Outperformer As we have been arguing for several quarters, Mozambique has been weathering the global economic crisis better than its regional peers. While economic activity is set to slow in 2009 and 2010, Mozambique is expected to outperform its neighbours, as it focuses on mega-projects and infrastructure works. Moreover, while Mozambique's banking sector is still under-developed, credit to the economy has been expanding rapidly, which should provide a boost to private sector investment. Despite 2009 being an election year, we do not expect a significant rise in political unrest in the run-up to the presidential elections scheduled for October, given that ruling party Frente de Liberta????o de Mo??ambique (Frelimo) is a clear favourite to win. However, although Mozambique has been able to attract much foreign investment in recent years, its business environment remains weak, suffering from poor legal institutions, as well as high levels of corruptions and bureaucracy.

Frente de Liberta????o de Mo??ambique is the most likely party to win both the presidential and parliamentary elections scheduled for October 28. Indeed, market-friendly President Armando Guebuza has remained popular among voters since the landslide victory in 2004, while the growing rivalry between the main opposition party, Resist??ncia Nacional Mo??ambicana (Renamo), and breakaway Mozambique Democratic Movement (MDM) will likely ensure that the opposition will remain fragmented and weak. We believe both these parties will shift their efforts to garner support from members of the parties that were excluded by the Constitutional Council in an attempt to improve their respective support bases.

Despite the strong performance over the last decade, which saw real GDP growth average 8.0%, we expect Mozambique's growth potential to be weighed down by a weak external sector and a less robust domestic demand picture in coming years. That said, while we expect growth to come in below trend in 2009 and 2010, we are growing increasingly bullish for 2010 given a confluence of factors that will support the economy going forward. Indeed, we expect Mozambique's low level of financial integration, declining inflation rates and still-strong focus on mega-projects and infrastructure development will be a positive for growth in 2010.

Although Mozambique's economy has experienced rapid growth over the past decade and is likely to continue performing strongly going forward, the business environment will remain weak. Indeed, still-high levels of crime and corruption will hinder the local investment climate. While we expect the government to continue to address these issues, it will be a slow and difficult process. That said, some progress has been made with regard to the provision of infrastructure and opening up the economy to the private sector in recent years.