Central Bank warns coronavirus will affect Mozambique’s economy

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Central Bank warns coronavirus will affect Mozambique’s economy

12:15 CAT | 02 Mar 2020

Photo: A Verdade

Mozambique’s central bank warns that, even though the country does not have any coronavirus-infected patients, the epidemic will probably affect the economy, given that China, the epicentre of Covid-19, is responsible for 9.1 percent of the country’s total volume of trade. This may result in “less internal availability of products from China, especially construction material and diverse machinery (…) worsening the current account deficit”. Also, “Mozambique may be affected by falling prices and demand for commodities in the international market.”

Covid-19, which up to last Saturday (February 29), had caused 2,924 deaths worldwide and infected a total of 85,403 citizens in China and in 53 other countries across five continents, will affect the economic recovery in Mozambique both directly and indirectly.

“In the direct connection, the fact that Mozambique has a relative exposure to trade with China stands out. China currently accounts for 9.1 percent of the country’s total trade volume, being the destination for around 5.8 percent of Mozambican raw material exports and the source of 11.8 percent of imports of various inputs and manufactured products,” the Bank of Mozambique warns.

In its most recent analysis of Mozambique’s economic situation and inflation prospects, the central bank warns: “With the prolongation of the virus, there may be less internal availability of products from China, especially construction material and diverse machinery, which could compromise the dynamics of some sectors of economic activity (construction and agriculture). Additionally, there is a possibility of the reduction of the volume of exports to China, which would result in the worsening of the current account deficit.”

Data from the National Statistics Institute indicate that exports to China accounted for 5.8 percent of the 2018 total, with Mozambique selling mainly minerals to the Asian country (graphite, stones, garnet, granite, sandstones, titanium ores, niobium ores , tantalum, vanadium and zirconium) plus raw and semi-processed wood, fishery products, cotton, nuts, oilseeds and other seeds, and plastic waste.

Chinese goods accounted for 11.8 percent of total imports in 2018, mainly tar, cement, iron, aluminium, glass, paints and varnishes, rice, flour, sugar, vegetables and fish, furniture and electronic devices, clothing and cosmetics, machinery, passenger vehicles, tractors and electronic devices, medicines, insecticides, rodenticides and fungicides, paper, office supplies, tires and accessories for vehicles and machinery.

“From an indirect point of view, Mozambique may be affected by falling prices and demand for commodities in the international market. More recent data from the Balance of Payments (2019) suggest that large projects (including thermal coal and aluminium exporters) account for 69.49 percent of the country’s global exports. Thus, a slowdown in global demand will compromise not only the productive activity of these projects, but also their ability to make foreign currency available in the national market, transmitting the effects to the exchange rate,” the central bank says.

By Adérito Caldeira

Source: A Verdade