2013-03-12 14:28:43 - New Country Reports research report from Business Monitor International is now available from Fast Market Research

Core Views

Although the authorities are in the process of revamping legislation governing the country's natural resources to ensure that the country receives sufficient benefit from those resources, we believe the business environment will remain conducive to foreign investment.

Our forecasts for the fiscal account deficit and the breakdown of expenditure largely chime with those announced in the 2013 budget.

Over time, we believe that the authorities will increasingly rely on non-concessional forms of deficit financing and this will increase the proportion of total expenditure which will have to be allocated to interest payments.


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Major Forecast Changes

Severe flooding in parts of Mozambique has led us

to downgrade our forecast for 2013 growth which we now see coming in at 6.7% compa red with our previous projection of 7.5%, predominantly owing to lower private consumption. The fact that the water levels have receded and the floods therefore look likely to be short-lived combined with the fact the economy is more diversified than it was ten years ago precludes the need for a larger downward adjustment.

The release of revised historic data by the Mozambican authorities has led us to upwardly adjust our forecasts for the current account deficit. Whereas we previously saw the shortfall peaking at around 11.9% of GDP in 2017, we now believe that this will come in at around 19.4% of GDP. Despite these changes, we continue to believe that robust foreign investment inflows will be sufficient to offset the current account shortfall and that the risks of a balance of payments crisis are remote.

Key Risks To Outlook

Given that the rainy season is ongoing, there is a risk that flooding escalates and has a greater economic impact in 2013 than we currently expect . Over the years ahead the weather, specifically too much or too little rain, will continue to pose a risk to the agriculturally based economy.

A failure to address deficient infrastructure is the most pressing risk to our upbeat view on the Mozambican economy. Transport infrastructure in particular is currently inadequate to get Mozambique's natural riches to international markets. Failure to address this would negatively impact our expectation that exports will be a major driver of growth over the coming years.

Rising money supply growth and weakness in the currency could be a precursor to a spike in inflation. At this stage, we believe that authorities have the power to forestall such an outcome but we will be watching monetary and currency developments closely. Strong headline growth that does not spill over to improved living standards for the average Mozambican would raise the risk of political instability and more populist policymaking.

Partial Table of Contents:

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Potential Legislation Changes Will Not Significantly Harm FDI
- Although the authorities are in the process of revamping legislation governing the country's natural resources to ensure that the country receives sufficient benefit from those resources, we believe the business environment will remain conducive to foreign investment.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Poverty And Corruption At The Top Of The Agenda
- Frelimo's dominance of the Mozambican political landscape bodes well for policy continuity, although the lack of a credible opposition party reduces the scope for checks and balances to ensure accountability and transparency. This means that corruption, which is rife in all levels of Mozambican society, is one of the most difficult and pressing issues to be addressed over the coming decade. Poverty reduction and ensuring that all income groups and regions benefit from economic development are similarly serious concerns for the government.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
2013 Growth Forecast Downgraded Due To Flooding - Severe flooding in parts of Mozambique has led us to downgrade our forecast for 2013 growth which we now see coming in at 6.7% compared to our previous projection of 7.5%, predominantly owing to lower private consumption. The fact that the water levels have receded and the floods therefore look likely to be short-lived combined with the fact the economy is more diversified than it was 10 years ago has prevented us from making a larger downward adjustment. However, given that the rainy season is ongoing, there is a risk that flooding escalates and has a greater economic impact than we currently expect.
TABLE: ECONOMIC ACTIVITY
Fiscal Policy
Official 2013 Budget Expectations Are Realistic
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Full Table of Contents is available at:
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Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at www.fastmr.com/catalog/publishers.aspx?pubid=1010

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