2016 was one of the most challenging years for Mozambique since the end of the civil war. The collapse in global energy prices resulted in delayed plans to develop Mozambique’s extraordinary discoveries of coal and natural gas. In addition the strain placed on the country’s economy following the revelation of previously undisclosed borrowing by the government led to inflation reaching 26% in December 2016 as IMF and donor aid was suspended.
Much of this strain appears to be settling down and firm commitments from the major global energy companies have put the country back on the investment map. Throughout this difficult period, the Edgebold Group remained extremely confident about the medium and long-term prospects of Mozambique. It continues to do so.
Even without the country’s LNG developments in full operation, the World Bank is forecasting the country’s economic growth rate for 2017 at 4.8%. The local currency, the Metical, has strengthened significantly against the US dollar since Q4 2016. Similarly, foreign reserve levels in the country’s Central Bank increased in Q1 of 2017 thanks to effective policy measures, $1.7 billion private sector funding from the World Bank and proceeds from Capital Gains Taxes from the finalisation of Exxon’s $2.8 billion acquisition of 25% of ENI’s Area 4 project in the Rovuma Basin. All these factors have helped to turn the economy around.
Whether it is transportation infrastructure, IT and communication systems, or power, energy and infrastructure, the bottom line is that connectors are desperately needed on the continent. The lack of these amenities that not only link African markets to each other but also to global markets is hindering the region from reaching its true potential. Servicing the gap between what currently exists and what is needed offers possibilities not found elsewhere, and is something that First Base Cargo, Edgebold’s logistics company, has benefited from, tripling in size since its inception.
Africa accounts for only 3% of global trade, and the majority of its trade is exported rather than generated within the continent’s economies themselves; only 12% of the Africa’s total merchandise trade occurs within the continent itself. While the majority of the Western world finds itself looking inwards, African countries are racing to open their borders to each other. Trade barriers are falling and new political alliances are being implemented that open the continent’s borders as regional integration deepens . The Tri-partite Free Trade Area agreement that will merge the three regional economic bodies of SADC, EAC and COMESA will form a common market of 26 countries stretching from Cairo to Cape Town. The meagre percentage share that Africa currently contributes to world trade can only increase.
A better-educated, healthier, urbanised and increasingly brand-aware population is developing more sophisticated consumer habits across the continent. Anticipating this change and gaining a head start on competitors will be vital to success. Similarly, the complexities and variety offered across the continent provide an abundance of markets that can be tapped into.
The rapid growth in mobile phone penetration in Africa is second to no other region in the world. Closely following this trend is the growth of mobile payment networks that were first developed in East Africa. This increased connectivity and access to financial products is allowing some of the world’s poorest and most remote people to have access to banking and other financial services that previously were not available. This development has had significant knock-on effects in other sectors such as medicine, agriculture, education, remittances and insurance.
The need for Africa to diversify its economies from being solely commodity based, raw material exporters to balanced and multi-layered is a priority. Many economies in Eastern and southern Africa countries have already taken the lead in diversification relative to other parts of the continent. As economies across the continent diversify from being simple commodity exporters, the tax base of the economy shifts and governments become more obliged to listen to their citizens and react accordingly. We believe that this is a very positive move and one that will accelerate in the coming years.
Investment Promotion Agencies are working to attract foreign investment while improving the ease of doing business by helping with registrations, taxes, regulatory changes and other steps to establish companies locally.