Mozambique country risk assessment

04 September 2019

Mozambique country risk assessmentMozambique will face a number of security, investment and trading challenges in the coming months. In this article we provide a detailed forward-looking assessment of developments in the country.

Mozambique’s government and main opposition movement agreed to a peace deal, which officially finalized more than three years of negotiations.

Security Environment

The signing of a peace deal between President Nyusi and Ossufo Momade, leader of Renamo, the opposition political movement, marks a positive step forward for Mozambique.

The agreement, which includes provisions for the demobilization of more than 5,200 Renamo fighters, should provide a more stable long-term operating environment for the country’s nascent gas sector.

Mozambique has battled conflict in the northern Cabo Delgado province since 2017, during which time more than 250 fatalities have been recorded.

Mozambique country risk assessmentIn the short term there will be increased traffic throughout the Cabo Delgado province, resulting from the flow of disaster relief goods in the wake of cyclone destruction and an increase in liquefied natural gas (LNG) project activity.

Risks to foreign investment in Cabo Delgado province will remain significant in the next year.

However, following the peace agreement, the government is likely to be able to direct military resources toward combating the militant threat active in Cabo Delgado.

Trading Environment

Following the damage caused by cyclones Idai and Kenneth in March and April 2019, Mozambique’s economic growth will be constrained over the coming quarters.

The tropical cyclones caused an estimated US$773 million in damages to buildings, infrastructure, and agriculture. Real GDP growth of 2.1% in 2019 is forecast, as damage to farmland raises food prices and inflation, weighing on private consumption.

Inflation will accelerate from an average rate of 3.9% year on year in 2018, to 5.3% in 2019.

Reduced agricultural output earnings and a rising import bill (total imports rose 26.4% over 2018 compared to export growth of 11%) will contribute to the depreciation of the metical.

This is likely to prevent the Banco de Moçambique (BM) from implementing stimulus until inflation stabilizes in the second half of 2020. In the near term, the metical is forecast to weaken from an average of MZN64.6/US$ in 2019 to MZN67.7/US$ in 2020.

The impact of cyclones in 2019 will also constrain public spending and investment.

Mozambique’s government remains largely cut off from foreign capital markets since it revealed US$1.4 billion of previously undisclosed debt in 2016.

This led the IMF and other key donors to withhold budgetary support.

Tax revenue generation in provinces affected by cyclones will weaken and any available spending will be diverted toward disaster response.

On the upside, the government — demonstrating cooperation with the opposition Renamo party — organized its first donor conference on May 31, 2019, generating US$1.2 billion for cyclone damage relief.

The two parties are expected to work together to hold a second round of international funding in the autumn of 2019.

Mozambique’s long-term growth prospects are more promising on the back of progress in its nascent energy sector. Substantial investment in the gas sector should see significant inward flows of capital return to the economy and stabilize the metical.

Natural gas production in Mozambique is forecast to steadily increase from 5.8 billion cubic meters (bcm) in 2019, to 10.1 bcm in 2023, and peak at 47.7 bcm in 2027.

Investment Environment

Contract alteration threats exist in the oil and gas sector, as the government looks to increase its stake in concessions.

A hydrocarbons code adopted in 2014 raised the ceiling on the state’s stake in future oil and gas concessions from 25% to 35-40%.

However, the government is unlikely to renegotiate existing concessions to impose a higher stake retroactively.

Expropriation risks will also remain low, as the government seeks to attract foreign investment and expertise to help develop its liquefied natural gas sector.

In June 2019, an Italian energy services firm secured a US$6 billion contract to construct a major offshore LNG project in Mozambique.

Contract enforcement will remain a challenge for foreign investors.

Enforcement takes on average 950 days at a cost of 119% of the claim, compared with the sub-Saharan African average of 655.2 days, and 44.3%, respectively.

5 Key Takeaways

  • Mozambique’s government and main opposition movement agreed to a peace deal which officially finalised more than three years of negotiations.
  • Cyclones caused an estimate US$773 million in damages to buildings, infrastructure and agriculture in Q119.
  • Inflation will accelerate from an average rate of 3.9% y-o-y in 2018 to 5.3% in 2019.
  • The metical will weaken from an average of MZN64.6/USD in 2019 to MZN67.7/USD in 2020.
  • Natural gas production is forecast to increase from 5.8 billion cubic metres (bcm) in 2019 to 10.1 bcm in 2023 and peak at 47.7 bcm in 2027.

The monthly Risk Outlook is supported by our proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for DRC, India, Myanmar and Tunisia all of which have been the subject of recent enquiries from our client base.

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  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.


    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)20 8108 9544.

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