Index Trend Previous Quarterly Editions
Expropriation Risk: 66 ► Political Violence Risk: 60 ► Terrorism Risk: 45 ► Exchange Transfer and Trade Sanction Risk: 64 ▲ Sovereign Default Risk: 83 ►
Overal Risk Temperature TREND ▲
Special topic: Government's commitment on climate policy 3
Mozambique is one of the poorest countries globally. The population has precarious access to water and housing, and largely depends on agriculture. The country, and thousands of its people, are frequently badly affected by natural disasters such as floods, drought, and tropical cyclones. These conditions will worsen as global temperatures rise.
Authorities respond to natural disasters effectively, supported by international aid and emergency organisations. Mozambique’s national institute for disaster management, the INGD, organises the country’s response to climate change with the government aware of the need to pre-empt climate change and natural disasters where possible. One of the main strategies is to create local, INGD-coordinated disaster management committees. However, often such initiatives are weakened by local disorganisation, excessive centralisation and corruption.
In practice, therefore, the government’s capacity to prepare for future shocks still requires development. With help from foreign donors, the government will continue to develop its capacities in climate-related disaster early warning measures, and in disaster response.
As long as a large proportion of the population lives with precarious access to water, sanitation and housing, and to agricultural assistance, health and education services, the effectiveness of climate change adaptation measures will remain constrained. Corruption will also weigh on government capacity in this area.
In 2012, Mozambique produced a National Climate Change Adaptation and Mitigation Strategy, the aims of which are to build the country’s “resilience” economically and among its communities to climate change, and to shift to a greener economy and lower carbon emissions. The government notes that it needs financial and technical resources to do this, from the international community and within the country. Measures envisioned include improving public healthcare, land and water management, and infrastructure.
Regarding the COP26 international climate meetings of late 2021 and UN climate change action process, Mozambique aims to reduce its carbon dioxide emissions per capita from 2.1 tonnes of carbon dioxide equivalent in 2020 to 1.2 by 2025.
Expropriation Risk 66 (Medium-High) TREND ►
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: the country’s ruling Frelimo party elite depends on attracting foreign investment and therefore must balance South African, Chinese, European and U.S. regional and geopolitical concerns.
Therefore, the danger is less about the risk of expropriation than it is that any strategic alliance an investor has formed with top Frelimo elite factions designed to smooth access to concessions and economic opportunities can backfire. This could occur if the political context changes, such as the shifting balances of power among politicians and political ‘turf wars’. For example, Frelimo’s factions –primarily around the current and previous presidents, Filipe Nyusi and Armando Guebuza – are pitted against each other to influence the outcome of the cluster of court cases after the so-called ‘hidden debts scandal’, which concerns government borrowing hidden from donors and the International Monetary Fund (IMF), which has led to several court cases across four jurisdictions.
Political Violence Risk 60 (Significant) TREND ►
The approval of a new media and information bill in 2020, which has the potential severely to curtail foreign and national news agencies’ reporting on the security situation, and on the government’s performance, has so far proved less restrictive than first feared.
Since the SAMIM (Southern African Development Community Mission in Mozambique) intervention of mid-2021, civil society and research institutions have been able to host events discussing Mozambique’s Islamist-inspired youth revolt in Cabo Delgado province. Since 2017 this has steadily escalated, with over 800,000 people displaced and thousands killed.
On the other hand, the government has successfully prevented independent journalists, researchers, and other observers from free access to Cabo Delgado, limiting investigations into the facts of the war and its outcomes.
In the rest of the country, political violence is only really expected nearer to the local elections in 2023 and the 2024 general election. As Frelimo prepares to select a new leader and presidential candidate for 2024, intra-party conflict is expected to escalate.
Additionally, the demobilisation of Renamo soldiers after the Agreement on the Definitive Cessation of Military Hostilities of August 2019 between Frelimo party (Mozambique’s largest opposition party which fought the Frelimo government with arms in the civil war, 1977-1992) and the Mozambican army has seen political violence resurface, including the killing of Renamo cadres in the centre of the country. It may currently look as though the government has managed to pacify Renamo, but as the legitimacy crisis in the central provinces remains unresolved, frustrated groups may return to arms in future. The war in the north is likely to linger on at approximately the same level as in 2021, with no known prospects of a negotiated solution.
Terrorism Risk 45 (Medium) TREND ►
The government faces international pressure to deal with the underlying causes of Mozambique’s Islamist youth insurgency: socio-economic marginalisation, high unemployment, low literacy, poverty, and inadequate public services. Thus far, Mozambique’s government has responded militarily, with support from Rwandan and Southern African Development Community forces.
Unpicking these underlying issues would, however, mean challenging powerful vested interests that control land and many opportunities related to resources extraction in Cabo Delgado, including timber, gas and gems. While the military could win militarily, the long-term outlook for social and political stability could thus remain poor.
Nonetheless, it seems unlikely the terrorism threat will fan out nationally from northern Mozambique, though it could spread to Niassa and Nampula that neighbour Cabo Delgado, which are also largely Islamic provinces, with insurgent attacks in Niassa in late 2021.
A greater immediate security danger is economic hijackings for ransom. While historically, the hijacking ‘season’ has run from November to February and mainly targets ‘Indians’ (Pakistanis, Indians, Middle Easterners) and businessmen from wealthy trading families, the targets have increasingly come to include various people and families with the resources to pay a ransom. Despite attempts at removing unsavoury elements in the police and security apparatus, as they seem to work with the hijackers, the effects have been limited.
Exchange Transfer and Trade Sanctions Risk 64 (Significant) TREND ▲
Present legislation provides various instruments for the conversion of foreign currency into the Mozambican metical and for central bank control over currency accounts. Currently, all legislation has been in effect relaxed to attract major foreign investments.
However, present legislation and policies put local businesses in a difficult situation, with high-interest rents and restrictions on foreign currency accounts. Not only has the private sector suffered greatly from the COVID-19 pandemic, but access to finance is very difficult, with Mozambique’s benchmark interest rate remaining relatively high at 13.25% since mid-2021.
Sovereign Default Risk 83 (High) TREND ►
Fitch Ratings put public debt in 2021 at 112.4% of gross domestic product but expects it to fall to 97.6% in 2023. The overall stock of public debt has increased considerably over the past year, not least due to the vast increase in state expenditure largely due to military spending. Public expenditure was not offset by increased tax revenues because the economy stood still due to COVID-19 and the fallout after the hidden debt scandal, which strained the Mozambique-IMF relationship.
Without any prospect of immediate revenue from liquefied natural gas, or from generally strong economic growth, Mozambique will continue to have to borrow to meet public expenditure. However, confidence in Mozambique remains shaky, with the country expected to continue to experience consequently restricted access to international financial markets. This will put further pressure on the domestic financial market in terms of exchange and interest rates, as the government continues to rely on domestic borrowing.
The chances of strong fiscal discipline are also small; Nyusi wants to strengthen his hand before the Frelimo party congress in September 2022 where the congress will select the party’s next presidential candidate. Then, local elections will follow in 2023 and the presidential elections in 2024.
