ECONOMIC DEVELOPMENTS IN MOZAMBIQUE CURRENT AND STRUCTURAL - - PowerPoint PPT Presentation

ECONOMIC DEVELOPMENTS IN MOZAMBIQUE

CURRENT AND STRUCTURAL PERSPECTIVES

Shireen Mahdi World Bank 31 May 2018 PRESENTATION TO THE FRANCE-MOZAMBIQUE BUSINESS CLUB AND THE EUROPEAN BUSINESS CLUB HOTEL POLANA - MAPUTO 31 May 2018

CURRENT PERSPECTIVES

MOZAMBIQUE HAS SHIFTED TO A LOWER GROWTH TRAJECTORY

GDP growth is expected to be between 3-4 percent in the near term despite the recente ramp-up in coal production, but to pick up in the 2020s as large LNG investments and exports get underway

• 2%
• 1%

0% 1% 2% 3% 4% 5% 6% 7% 8% 2013 2014 2015 2016 2017e

Contributions to GDP growth

Agricultura Produtos extractivos Manufactura Serviços Crescimento do PIB

• 1

1 3 5 7 9 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 AS Moçambique

Real GDP growth – Mozambique and Africa(%)

Média 2003-08

CONTRIBUTING FACTORS: A DROP IN PUBLIC DEMAND AND IN PRIVATE PURCHASING POWER

50 60 70 80 90 100 110 120 130 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 jan/17

The Consumer Price Index (CPI)

• 25%
• 15%
• 5%

5% 15% 25% 35% 45% 2014 2015 2016 2017

Public sector spending on investment, goods and services (% change)

CONTRIBUTING FACTORS: LOWER INVESTMENT AND THE HIGH COST OF CREDIT

1,000 2,000 3,000 4,000 5,000 6,000 7,000 2011 2012 2013 2014 2015 2016 2017e

Foreign Direct Investment

IDE para projectos de menores dimensões IDE para megaprojectos 0% 5% 10% 15% 20% 25% 30%

Interest rates in selected countries

Angola Cabo Verde Moçambique Tanzânia Uganda Zâmbia

CONTRIBUTING FACTORS: THE DROP IN INDUSTRIAL PRODUCTION

• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 25% 30% jan/17 fev/17 mar/17 abr/17 mai/17 jun/17

Industrial production index

• 1.0%
• 0.5%

0.0% 0.5% 1.0% 1.5% 2.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e

Contribution of manufacturing to GDP growth

Manufacturing made a negative contribution to GDP in 2017 for the first time since 1994 as a result of declining industrial output, signaling a difficult context for firms.

MONETARY POLICY HAS ADJUSTED THROUGH THE RECENT ECONOMIC DOWNTURN TO STABLIZE THE CURRENCY AND LIMIT INFLATION

0% 5% 10% 15% 20% 25% 30% 35% jan/10 jul/10 jan/11 jul/11 jan/12 jul/12 jan/13 jul/13 jan/14 jul/14 jan/15 jul/15 jan/16 jul/16 jan/17 jul/17

Interest rates (central and comercial banks) and Inflation

Taxa de inflação (variação percentual a 12 meses) Taxa de Juro dos Bancos Comerciais (1 ano) Facilidade Permanente de Cedência de Liquidez

Monetary policy helped to stabilize the metical and supported an external adjustment; it is now becoming less restrictive as inflation slows but remains cautious due to uncertain macroeconomic outlook.

Imports (USD millions) and Reserves (in months of import cover)

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 500 1,000 1,500 2,000 2,500 Other intermediary goods Other consumer goods Construction materials Capital goods Fuels Basic goods Import cover (RHS) Import cover, excl MPs (RHS)

FISCAL POLICY HAS ALSO ADJUSTED IN RESPONSE TO SHRINKING FISCAL SPACE, BUT FINANCING REMAINS A CONCERN

Since 2015, the budget has faced major shocks, including a reduction in revenues, a reduction in donor aid, a significant increase in public debt, and a rise in the cost of domestic financing. Fiscal adjustment continues ...

• 7.0%
• 6.0%
• 5.0%
• 4.0%
• 3.0%
• 2.0%
• 1.0%

0.0%

Change in budget receipts and expenditures (2015 – 2017; % GDP)

Receita Donativos e Créditos Despesas

• 8.0
• 7.0
• 6.0
• 5.0
• 4.0
• 3.0
• 2.0
• 1.0

0.0 2015 2016 2017e

Fiscal Balances (% GDP)

Overal balance Primary balance

NATURAL DISASTERS AND COMMODITY PRICES CONTINUE TO BE A SOURCE OF RISK

34 22 13 1 1 9,541,603 3,689,326 19,757,500 1,476 2,500 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 5 10 15 20 25 30 35 40

Occurrence of natural calamities in Mozambique (1956 - 2016)

Ocorrências Afectados

• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 2017p 2018p 2019p

Commodity prices

Alumínio USD/tm Carvão, Austrália USD/tm Carvão de coque, Austrália USD/tm Gás natura, Euripa USD/mmbtu Tabacco USD/tm

STRUCTURAL PERSPECTIVES

THE STRUCTURE OF THE ECONOMY HAS BEEN CHANGING…

Contributions to GDP growth by sector

…AND HAS CONTRIBUTED TO INCREASED PROSPERITY…

Poverty levels have been falling, and at a faster pace than in the past

0.30 0.08 0.68 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 2002/03- 2014/15 2002/03- 2008/09 2008/09- 2014/15

60.3 58.7 48.4 40 45 50 55 60 65 70 2002/2003 2008/2009 2014/2015 Poverty rate, %

(Poverty rates based on official methodology)

(GDP per capita growth elasticity of poverty, Mozambique)

… BUT RISING INEQUALITY IS A CONCERN…

(Gini coefficient for selected countries and years)

A large share of Mozambique’s recent growth and poverty reduction occurred in urban areas – which widens the gap between the poor and rich

… AND RECENT GAINS ARE AT RISK

The recent spike in inflation caused an increase in poverty across all provinces, but mostly in rural areas

Effect of food price increases on poverty (by province)

CAN THE ECONOMY (AND THE PRIVATE SECTOR) SHIFT TO A MORE DIVERSIFIED AND INCLUSIVE GROWTH MODEL?

SOME SILVER LININGS …

A more stable currency and lower inflation

• 60%
• 50%
• 40%
• 30%
• 20%
• 10%

0% ZAR USD Euro

• 5%

0% 5% 10% 15% 20% 25% 30%

Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18

Other non-food Food Electricity, gas, other fuels Transport

SOME SILVER LININGS …

A more competitive real exchange rate

50 100 150 200 250 300 25 45 65 85 105 125 145 165 185

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18

Real effective exchange rate (2010=100) Extractive exports (3 month moving avg), RHS

SOME SILVER LININGS …

Improving confidence levels and easing monetary policy

(school attainment by educational levels) 85.0 87.5 90.0 92.5 95.0 97.5 100.0 102.5 105.0

Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18

Confidence Indicators

Demand perspective Economic Confidence

15.0% 17.0% 19.0% 21.0% 23.0% 25.0% 27.0% 29.0% Mimo FPC

SOME SILVER LININGS …

79% 74% 19% 25% 1% 1% 2002 2015 Micro empresas (<5 trabalhadores) Pequenas e médias empresas (5 a 100 trabalhadores) Grandes empresas (100+ trabalhadores)

Share of firms by size

75% 59% 21% 36% 4% 5% 2002 2015

% of firms in the top productivity quartile by size

Micro empresas (<5 trabalhadores) Small and medium size firms (5 to 100 employees) Grandes empresas (100+ trabalhadores)

The proportion of small and medium-sized enterprises has been increasing, and the share of companies in the higher productivity category has also increased.

SOME SILVER LININGS …

A [slowly] improving educational context

(school attainment by educational levels)

PERSPECTIVES ON: AGRICULTURAL PRODUCTIVITY EXPORT QUALITY: COMPLEXITY AND LINKAGES AND EDUCATION

AGRICULTURAL PRODUCTIVITY

EXPORT DIVERSITY

In 1996, Mozambique exported a low volume/ variety of primary products

EXPORT DIVERSITY

In 2016, Exports have become more diverse, but remain dominated by primary products

CHINA: EXPORT COMPLEXITY AND LINKAGES

Export product linkages in 2016

UGANDA: EXPORT COMPLEXITY AND LINKAGES

Export product linkages in 2016

MOZAMBIQUE: EXPORT COMPLEXITY AND LINKAGES

Export product linkages in 2016

EDUCATION: SOME GAINS, BUT SLOW, AND FROM A LOW BASE

[Slowly] improving educational context

(school attainment by educational levels)

THE WORLD BANK PROGRAM

▪ World Bank Country Partnership Framework for Mozambique 2017 – 2021: A focus diversified growth, human capital development, sustainability and resilience. ▪ Multi-sectoral analytical and technical assistance activities

Commitments by fiscal year

▪ Current portfolio: Around 20 ongoing projects representing over $2 billion in investments. ▪ Since July 2017, all new commitments are grants.

Commitments by sector

THANK YOU