Previous Quarterly Editions
Expropriation Risk: 68 68 68 68 ►Political Violence Risk:59 59 59 58 ▼Terrorism Risk:45 43 43 41 ►Exchange Transfer and Trade Sanction Risk: 63 63 63 63 ►Sovereign Default Risk:83 83 83 83 ►
TREND ►
Protest intensity to date* 2022 2023 Low Low Unrest risk in 2024**Cost of living: HighAnti-austerity: Medium
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Before 2016, Mozambique had been benefiting from a natural resources and extractives boom. The subsequent downturn was amplified in Mozambique’s case by a fallout with donors, the International Monetary Fund (IMF) and foreign investors. This followed the “hidden debts” corruption scandal. In 2017 insurgency added to the negative situation, and in 2020 the COVID-19 pandemic added further economic pain.
The government, led by the Mozambique Liberation Front (Frelimo), hopes offshore natural gas resources will ultimately bring a boost to national income, but investors (two consortia led by Total and ExxonMobile) are delaying the massive construction of the land installations needed to convert the offshore gas into liquefied natural gas (LNG).
Mozambique’s economy is growing again, after contracting in recent years, but inflation was 12% in the second half of 2022, driven by imported food and fuel prices, which citizens feel keenly. That, combined with tight monetary policy, will further tend toward reduced economic activity. Meanwhile, public sector debt has been over 100% of GDP for nearly 10 years, a level usually
regarded as unsustainable. Other “debt bombs” may be lurking in key public enterprises.
Responding, the government and frugal central bank have stuck within IMF-guided fiscal parameters, with significant austerity measures. Furthermore, socioeconomic inequality is rising, and poverty remains the main development challenge of the country.
Austerity measures are generally met with little understanding, though seldom by active protest. Recently, a public sector wage reform has been hugely unpopular: Public sector employees feel their living standards are falling. Most Mozambicans, however, work in the private and informal sectors. Also,
their real purchasing power has been severely reduced in recent years. Other measures, to cut public spending by reducing subsidies and increasing income from raising tariffs, are often met with resistance — and subsequently backtracked upon. This limits the government’s effective policy basket for macroeconomic management and reform.
Politically, Frelimo is supreme and entrenched and thus is blamed for austerity measures. Looking ahead, municipal elections will be held in 2023, but only in cities and some towns, and then presidential and legislative elections will be held in 2024. Frelimo will likely, as before, try to reduce austerity to gain voters’ favor; however, this will
jeopardize the fiscal balance, drive inflation and debt, and perhaps undermine donor relations again. Otherwise, or in combination, Frelimo may attempt manipulating the polls, which would portend political instability.
In March, there was an outpouring of popular sympathy following the musician Azagaia’s death. The funerary marchers chanted slogans against the Frelimo government. Police violence against peaceful marches around the country was widely interpreted as an indication of the perceived explosiveness of the situation. Such protests could ignite large riots, given the regime’s unpopularity.
Mozambique’s constitution embraces multiparty democracy and the rule of law and sets down the state as the custodian of all land and resources; however, legal changes, regulations and controls can be used to resume state control over land and concessions from private investors when politically expedient. Nevertheless, this rarely happens to foreign investors if they have strong backing from major players. For smaller foreign enterprises, expropriation risks will be related to corruption rather than hostile politics.
TREND ▼
The political violence risk is constant. The first risk is the war in the northern province of Cabo Delgado, running since 2017. This involves Islamist insurgents versus government forces, aided by thousands of allied troops from Rwanda and the forces of the Southern Africa Development Community. In the past year, the insurgents have seemed unable to spread the conflict geographically nor to intensify it. Even so, the insurgents’ regular hit-and-run activities show the threat is ongoing, despite government propaganda indicating the opposite. The social conditions that underpin the insurgency suggest the risk that the insurgents could recruit and spread to the rest of the north remains real. Currently, a negotiated solution is not likely for the future.
A second risk is possible military confrontation: The government-Renamo peace agreement may fail. Renamo is Mozambique’s largest opposition party, which fought Frelimo in the civil war (1977 – 1992). Parts of Renamo could split off and reignite their military threat in the central provinces. Several national political issues could be triggers, such as if Renamo leadership fails to negotiate any perceived benefits or power for Renamo loyalists.
Moreover, currently it seems that Frelimo will delay or cancel the 2023 district elections — polls promised in the most recent (2019) peace agreement. Additionally, there is the steady maneuvering to manipulate the electoral playing field before the 2024 presidential and legislative elections. All these could provoke parts of Renamo to turn to arms. The most dangerous scenario is if the latter event connected with the northern insurgency.
The third area of political violence risk is the massive popular frustration due to generalized economic and social hardship and the distrust in Frelimo. The recent street demonstrations connected with Azagaia’s death may have been spontaneous, decentralized and quickly brought under control. Yet when and if political opposition leaders decide to channel this anger into a language of regional discontent in Mozambique’s center and north, this largely youth expression could turn into political violence. In Maputo, such protests against hardship are likely to be hefty but short-lived episodes of street unrest, without clear political leadership.
A final possibility, though unlikely, is that Frelimo factions decide to attack each other by mobilizing supporters, through regionalism, ethnic or other identity cleavages. Both Renamo and Frelimo are currently deeply factionalized.
Mozambique’s government has primarily responded militarily to the northern insurgency, using the country’s own rather inefficient defense and security forces, and since July 2021 with support from Rwandan and Southern Africa Development Community forces.
Yet the government has dealt poorly with the issues underlying the conflict and is unable to challenge powerful vested interests that control land and many opportunities related to resources extraction in Cabo Delgado. While social and political stability remain poor, the military campaign against the insurgents is likely, at best, merely to keep them checked.
Nonetheless, it seems unlikely that the terrorism threat will fan out nationally from northern Mozambique, though it could spread to the neighboring Muslim-dominated provinces of Niassa and Nampula.
Present legislation provides various instruments for the conversion of foreign currency into the Mozambican metical and for central bank control over currency accounts. All legislation has presently been de facto relaxed, to attract major foreign investments. Mozambique is dependent on foreign trade and foreigners, so exchange transfer risks will remain relatively low — but corruption and red tape could mean risks for smaller foreign enterprises.
There is no or very small risk that Mozambique will become subject to trade sanctions, as the international actors in Mozambique would always threaten to withhold development aid before sanctions.
Public debt stood at 111.6% of GDP at year-end 2022, but now the estimation is that it will fall to 101.5% in 2024. Fitch Ratings retains Mozambique’s credit rating in the range of very high risk.
Without any prospect of immediate revenue from LNG beyond small windfalls from the start-up of production of the floating LNG factory offshore Cabo Delgado, or from strong economic growth, Mozambique will continue borrowing to meet public expenditure.
The chances of strong fiscal discipline are also weakening, given the forthcoming 2023 and 2024 elections. Finally, the development of the insurgency in the north may force further public lending to finance counterinsurgency activities, unless funded by promising shares in the country’s natural wealth.
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