Uncertainty in Mozambique impairs stability and investments – Stratfor

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Uncertainty in Mozambique impairs stability and investments – Stratfor

11:05 CAT | 06 Feb 2017

Lusa (File photo) / A view of Maputo

The Stratfor consultancy said on Friday that financial and political uncertainty in Mozambique could slow investment in the natural gas sector, divide the ruling party, hamper economic development and the country’s return to financial markets.

“Financial tightening in Mozambique will undermine the ruling party’s favoured networks and could split the party, which has a new generation of aspiring leaders,” Stratfor analysts write in a country analysis note.

In the document, which Lusa had access to, analysts write that “persistent uncertainty in the financial and political sectors will hinder investment in the burgeoning natural gas sector, slowing Mozambique’s rise as an energy producer”.

Stratfor experts also review the deterioration of the country’s economic situation since the disclosure of the hidden loans and the resulting cut in financial aid by the International Monetary Fund and other donors, along with the decline in the price of raw materials, the slowdown in the growth of the world economy and the reduction in investment of the big oil companies.

The rise of public debt to “an unbearable 130 percent of GDP in 2016″ and the metical fall slashed rating agencies’ analyses to Venezuelan levels, and ‘to make matters worse, the North-American market regulator [the Securities and Exchange Commission] opened an investigation in December into the sale of bonds in 2013, which put debt deals under even greater scrutiny”.

In the oil sector, analysts stress that continued investment is critical not only for the amount of investment, estimated at US$31 billion over the next five years, but also for the stability it would bring to the country.

“The flow of energy revenues would fill Frelimo’s coffers and would almost certainly guarantee unity and dominance in the coming years, and would also improve the ability of the Government to exercise its control in the country. In the long run, this new wealth would give the country more influence in Africa, but if corruption scandals lead to more political and financial instability, foreign energy companies may become reluctant to keep production deals with Maputo,” Stratfor analysts conclude.

Mozambique officially fell into financial default on Friday, after its tolerance period to repay US$60 million the January installment of the public debt issued last April ending on Thursday. The African country thus becomes the first on the continent to fail to make a debt repayment since Ivory Coast was unable to honor its financial commitments in 2011.

The failure to pay has been confirmed to the Bloomberg financial information agency by several analysts and holders of public debt securities and comes as the natural consequence of the announcement by the Mozambique government itself, two days before deadline, that it would not pay almost US$60 million due to holders of US$27.5 million in sovereign debt issued by Mozambique in April of last year.

Source: Lusa