ECONOMIC DEVELOPMENTS IN MOZAMBIQUE CURRENT AND STRUCTURAL - PowerPoint PPT Presentation

ECONOMIC DEVELOPMENTS IN MOZAMBIQUE CURRENT AND STRUCTURAL PERSPECTIVES PRESENTATION TO THE FRANCE-MOZAMBIQUE BUSINESS CLUB AND THE Shireen Mahdi EUROPEAN BUSINESS CLUB World Bank HOTEL POLANA - MAPUTO 31 May 2018 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 Contributions to GDP growth Real GDP growth – Mozambique and Africa(%) Agricultura Produtos extractivos 9 Manufactura Serviços 8% Crescimento do PIB 7 7% 5 6% 5% 3 4% 1 3% -1 2% 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 1% AS Moçambique 0% 2013 2014 2015 2016 2017e -1% Média 2003-08 -2%

CONTRIBUTING FACTORS: A DROP IN PUBLIC DEMAND AND IN PRIVATE PURCHASING POWER The Consumer Price Index (CPI) Public sector spending on investment, goods 130 and services (% change) 120 45% 110 35% 100 25% 90 15% 80 5% 70 -5% 60 -15% 50 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 jan/17 -25% 2014 2015 2016 2017

CONTRIBUTING FACTORS: LOWER INVESTMENT AND THE HIGH COST OF CREDIT 7,000 Foreign Direct Investment Interest rates in selected countries 30% 6,000 25% 5,000 20% 4,000 15% 3,000 10% 2,000 5% 1,000 0% 0 2011 2012 2013 2014 2015 2016 2017e Angola Cabo Verde Moçambique IDE para projectos de menores dimensões IDE para megaprojectos Tanzânia Uganda Zâmbia

CONTRIBUTING FACTORS: THE DROP IN INDUSTRIAL PRODUCTION 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. 30% 2.0% Industrial production index Contribution of manufacturing to GDP growth 25% 1.5% 20% 15% 1.0% 10% 5% 0.5% 0% -5% 0.0% -10% -15% -0.5% -20% -25% -1.0% jan/17 fev/17 mar/17 abr/17 mai/17 jun/17 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e

MONETARY POLICY HAS ADJUSTED THROUGH THE RECENT ECONOMIC DOWNTURN TO STABLIZE THE CURRENCY AND LIMIT INFLATION 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. Interest rates (central and comercial banks) Imports (USD millions) and Reserves 35% and Inflation (in months of import cover) 2,500 7.5 30% 7.0 6.5 25% 2,000 6.0 5.5 20% 5.0 1,500 4.5 15% 4.0 3.5 10% 1,000 3.0 2.5 5% 2.0 500 1.5 0% 1.0 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 0.5 0 0.0 Taxa de inflação Other intermediary goods Other consumer goods (variação percentual a 12 meses) Taxa de Juro dos Bancos Comerciais Construction materials Capital goods (1 ano) Fuels Basic goods Facilidade Permanente de Cedência de Liquidez 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 ... Change in budget receipts and expenditures (2015 – 2017; % GDP) Fiscal Balances (% GDP) 0.0% 0.0 -1.0 -1.0% -2.0 -2.0% -3.0 -3.0% -4.0 -4.0% -5.0 -5.0% -6.0 -7.0 -6.0% -8.0 -7.0% 2015 2016 2017e Receita Donativos e Créditos Despesas Overal balance Primary balance

NATURAL DISASTERS AND COMMODITY PRICES CONTINUE TO BE A SOURCE OF RISK Occurrence of natural calamities in Mozambique Commodity prices (1956 - 2016) 40% Ocorrências Afectados 40 25,000,000 30% 34 35 20% 20,000,000 19,757,500 30 10% 25 22 15,000,000 0% 2017p 2018p 2019p 20 -10% 10,000,000 13 9,541,603 15 -20% 10 5,000,000 -30% 3,689,326 1,476 2,500 5 1 1 -40% 0 0 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 (Poverty rates based on official methodology) (GDP per capita growth elasticity of poverty, Mozambique) 70 0.80 0.68 0.70 65 0.60 Poverty rate, % 60.3 0.50 58.7 60 0.40 0.30 55 0.30 0.20 48.4 50 0.08 0.10 45 0.00 2002/03- 2002/03- 2008/09- 2014/15 2008/09 2014/15 40 2002/2003 2008/2009 2014/2015

… BUT RISING INEQUALITY IS A CONCERN… A large share of Mozambique’s recent growth and poverty reduction occurred in urban areas – which widens the gap between the poor and rich (Gini coefficient for selected countries and years)

… 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 0% Other non-food Food Electricity, gas, other fuels Transport 30% -10% 25% -20% 20% -30% 15% -40% 10% 5% -50% 0% -60% 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 -5% ZAR USD Euro

105 125 145 165 185 25 45 65 85 Jan-11 Real effective exchange rate (2010=100) Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 SOME SILVER LININGS … Jul-12 Oct-12 Jan-13 Apr-13 A more competitive real exchange rate Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Extractive exports (3 month moving avg), RHS 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 0 50 100 150 200 250 300

SOME SILVER LININGS … Improving confidence levels and easing monetary policy (school attainment by educational levels) Confidence Indicators 105.0 102.5 29.0% 100.0 27.0% 97.5 25.0% 95.0 23.0% 92.5 21.0% 19.0% 90.0 17.0% 87.5 15.0% 85.0 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 Demand perspective Economic Confidence Mimo FPC

SOME SILVER LININGS … The proportion of small and medium-sized enterprises has been increasing, and the share of companies in the higher productivity category has also increased. Share of firms by size % of firms in the top productivity quartile by size 2015 74% 25% 1% 2015 59% 36% 5% 2002 79% 19% 1% 2002 75% 21% 4% Micro empresas (<5 trabalhadores) Micro empresas (<5 trabalhadores) Pequenas e médias empresas (5 a 100 trabalhadores) Small and medium size firms (5 to 100 employees) Grandes empresas (100+ trabalhadores) Grandes empresas (100+ trabalhadores)

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 ▪ Current portfolio: Around 20 ongoing ▪ World Bank Country Partnership Framework for projects representing over $2 billion in Mozambique 2017 – 2021: A focus diversified growth, investments. human capital development, sustainability and resilience. ▪ Since July 2017, all new commitments are ▪ Multi-sectoral analytical and technical assistance grants. activities Commitments by sector Commitments by fiscal year

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