Previous Quarterly Editions
Expropriation Risk: 66 66 66 67 ►Political Violence Risk:60 60 60 60 ►Terrorism Risk:45 45 45 45 ►Exchange Transfer and Trade Sanction Risk: 55 64 55 63 ▲Sovereign Default Risk:83 83 83 83 ►
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Russia retains good contacts with key actors in Frelimo, the ruling party since 1975. When the UN general assembly voted over a condemnation of the escalation of conflict in Ukraine, Mozambique abstained, interpreted as a bid to maintain good relations with Russia.
The Russian/Mozambican contacts resulted in a contingent of mercenaries from the Russian Wagner group coming to Mozambique in 2019 to fight the jihadist insurgents. The mission ended badly, and the Russians quickly left. When Russia’s foreign minister, Sergey Lavrov, toured Africa after the start of the Russia/Ukraine crisis, he did not visit Mozambique. Russia clearly has few military, economic, political, or aid resources to offer Mozambique but Mozambique is likely to hedge and try to maintain good relations with Russia.
China is a major economic actor in Mozambique. The crisis in Mozambique’s public finances since 2016 ended the period since about 2007 when China financed a long list of expensive infrastructure construction also built by Chinese companies and largely by Chinese workers with Chinese building materials. However, the economic interaction continues, mainly in trade. China is Mozambique’s third largest export destination, after South Africa and India, and Mozambique only imports more from South Africa than China.
Nevertheless, Mozambique’s financial system remains tied to the West, including considerable foreign development aid from bilateral and multilateral donors. If Mozambique is ever to develop its gas industry, it will depend on Western companies and consortia, which have the necessary technology.
Since July 2021, Mozambique has invited foreign military contingents to help combat the jihadist insurgency in its north. The main contingents are Rwanda and the Southern African Development Community Mission in Mozambique (SAMIM)’s forces, but they are sponsored by European countries. The European Union has had a military training mission in Mozambique since 2021, and Portugal and the U.S. have had bilateral military cooperation.
Overall, with the influence of Russia likely to wane, it is expected that Mozambique will seek greater support from China, but not choose sides between China and the West soon.
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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.
The danger is, therefore, less expropriation than 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.
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 feared. 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.
Recently, the insurgents have attacked Nampula, Cabo Delgado’s neighbouring province to the south. It is also the most populous province in the country. If the insurgents get a foothold in this province, it will be a considerable risk for national stability. In the rest of Mozambique, political violence is only really expected nearer to the local elections in 2023 and the 2024 general election.
In addition, the demobilisation of Renamo soldiers after the Agreement on the Definitive Cessation of Military Hostilities of August 2019 between Renamo, Mozambique’s largest opposition party that fought the Frelimo government with arms in the civil war, 1977-92, and the Mozambican army has seen political violence resurface, including the killing of Renamo cadres in the centre of the country.
For now, 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 escalate from the levels in 2022, with no known prospects of a negotiated solution.
The government faces international pressure to deal with the underlying causes of Mozambique’s Islamist youth insurgency, specifically, socio-economic marginalisation, high unemployment, low literacy, poverty, and inadequate public services. Thus far, Mozambique’s government has responded militarily, firstly with the country’s own rather inefficient defence and security forces, then with the aid of Russian and South African mercenaries, and since July 2021 with support from Rwanda and SAMIM.
Unpicking these underlying issues would, however, challenge powerful vested interests that control land and many opportunities related to resources extraction in Cabo Delgado, including timber, gas, and gems. Since the military campaign against the insurgents is at best likely to keep them only checked, the long-term outlook for social and political stability remains poor.
Nonetheless, it seems unlikely the terrorism threat will fan out nationally from northern Mozambique, though it could spread to neighbouring Muslim-dominated provinces of Niassa and Nampula. There were insurgent attacks in Niassa in late 2021, but the insurgents seem to have withdrawn from the campaign there.
An immediate security danger in the capital is hijackings for a ransom. While historically the hijacking ‘season’ has run from November to February and mainly targets ‘Indians’ (in reality including Pakistanis, Indians, Middle Easterners), and businesspeople 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.
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.
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 difficult, with Mozambique’s benchmark interest rate remaining relatively high at 15.25% in 2022, up five percentage points since mid-2020.
Fitch Ratings put public debt in 2021 at 110.9% of GDP but expects it to fall to 97.7% in 2023. The overall stock of public debt has increased considerably in recent years, not least due to the vast increase in state expenditure largely due to military spending. However, growth seems to be picking up towards the level of population growth at 3.9%. Public expenditure was not offset by increased tax revenues because the economy stood still due to COVID-19 and the fallout from the “hidden loans” debt scandal.
Without any prospect of immediate revenue from the liquefied natural gas (LNG) beyond small windfalls from the start-up of production of the floating LNG-factory offshore Cabo Delgado, or from generally strong economic growth, Mozambique will continue borrowing 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 remains reliant on domestic borrowing.
The chances of strong fiscal discipline are also small, given elections in 2023 and the presidential elections in 2024. Finally, the development of the war in the north may force further public lending to finance counter-insurgency activities. However, counter-insurgency activities are likely to be funded by promising shares in the country’s natural wealth.
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