Mozambique’s ascent in ECR rankings improves after natural resource discoveries

By:
Matthew Turner
Published on:

Investment associated with the natural resource extractive industries remains a key driver of economic growth.

Mozambique has seen an overall improvement in its risk outlook since January 2012, after the sovereign’s position in the ECR rankings climbed seven positions last year, bringing the country’s global rank up to 101 and into ECR’s tier four for the first time since September 2010.

This improvement has made Mozambique the 10th safest country in the sub-Saharan Africa (SSA) region, according to ECR economists, and it is now ranked alongside other emerging markets economies such as Nigeria, Kenya and Zambia.

The sovereign’s climb in ECR’s global rankings is largely due to enhanced economic performance, with the economy growing by 7.4% in 2012, according to the IMF.

 

Investment associated with the natural resource extractive industries remains a key driver of economic growth. The development of one of the world’s largest unexplored coal reserves in Tete province and the discovery of huge offshore natural gas reserves in the Rovuma basin, north of Mozambique, in 2012 have led to new growth opportunities and government revenue streams opening up.

The sovereign’s improved growth outlook is confirmed by ECR’s economic outlook indicator, which increased by 0.7 points to 5.2 in September 2012. The improvement in the sovereign’s economic outlook indicator means it now boasts some of the best economic conditions in SSA.

 

“FDI inflows as well as disbursement from highly concessional loans from development partners to the central government will remain the main source of inflows on the financial account,” according to a report by Standard Bank.

However, structural challenges remain a crucial impediment to investment optimization in the short to medium term, according to António Alberto da Silva Francisco, associate professor at the Institute for Social and Economic Studies and a member of ECR’s expert panel.

“The major expectations for the economy are coming from the extractive industries,” he says. “However, analysts may have to review their expectations on economic growth as the infrastructure remains unsupportive of large-scale economic development.

“The government has no clear strategy on infrastructural reform due to insufficient funds. Unless the private sector provides leadership on structural development, I really don’t see there will be an improvement in infrastructure.”

The strain of structural hurdles on economic development is reflected in ECR data – with a structural assessment score of only 18.2, the country’s infrastructure lags well behind the southern African average.

Among other notable score improvements for Mozambique is its government stability indicator, which ranks among the fourth highest in SSA, while the sovereign’s regulatory and policy environment remains well-enforced in comparison to the regional average, according to ECR analysts.

 
                                    Source: ECR
Accounting for the improvements in the political landscape, Da Silva Francisco says: “There has been a stride towards effective constitutional reform due to the upcoming municipal elections this year. In this sense, the processes for greater transparency and political stability are still improving.

“There are signs the leadership is moving into transition and recently there has been a better working relationship between the main political parties. These developments have leant themselves to a more inclusive and workable political landscape.”

This article was originally published by Euromoney Country Risk. To find out more: register for a free trial at Euromoney Country Risk