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Economic Abyss: Mozambique Teeters on the Brink of Collapse

Mozambique is on the edge of an economic abyss because of a wave of violence, debt, corruption, drought, high inflation and a currency that...

Mozambique is on the edge of an economic abyss because of a wave of violence, debt, corruption, drought, high inflation and a currency that is weakening even faster than the rand.

The country represents 10% of South Africa’s trade with the rest of Africa and 2% of trade with the rest of the world, according to the SA Revenue Service’s trade data.

Sasol, Standard Bank, Shoprite and African Rainbow Minerals are among the local companies doing business in Mozambique.
Renamo Party is Causing Mayhem in Mozambique

According to the World Bank, Mozambique’s economic growth this year slowed to 5.8% after maintaining an average growth rate of 7% between 2001 and 2014.

However, analysts are worried about the country’s growing public debt, which could exceed 100% of the economy later this year, and they warn about the effect that the withdrawal of foreign funds because of a loan scandal could have on government spending and growth.

In addition, inflation for last month was 17% versus last year’s average rate of 3.6%. The Mozambican currency, the metical, has fallen by 27% against the dollar over the past year and 10% against the rand (to R0.30).

The recent El Niño weather pattern caused a devastating drought in the central and southern parts of Mozambique, where 90% of crops have failed and thousands of cattle died, AFP reports.

To make matters worse, violent fighting between militias of the opposition Renamo party and government forces (Frelimo), which began in 2013, continued to increase. An “invisible civil war” is in fact erupting in Mozambique, according to the US magazine Foreign Policy.

The magazine reports that about 12 000 Mozambicans fled to Malawi from the middle of last year, and that the refugees speak about instances of rape and villages that were razed by government forces.

Gustavo de Carvalho, a senior researcher at the Institute for Security Studies, told City Press stablemate Rapport that the fighting was not yet a full-scale war that would threaten the country’s political stability.

“But it shows that peace in Mozambique is a long-term process and that the process of laying down arms is never finished,” he said. Mozambique’s renaissance seems threatened.

In 2015, Mozambique was the 10th-poorest country in the world out of 190 countries by GDP per capita, which is the country’s total income divided by its total population, according to the World Bank’s database.

In recent years, discoveries of coal and natural gas, as well as capital injections for large infrastructure projects, brought a glimmer of hope.

However, Rapport reported earlier this month that in 2013, the former Mozambican government borrowed billions of rands from Swiss and Russian banks supposedly to buy tuna-fishing boats, but actually spent the money on new naval vessels.

According to a military expert, the Mozambican navy does not have sufficient expertise to use these vessels.

Months ago, the scandal caused the International Monetary Fund (IMF) and the UK to suspend millions of dollars in development aid to Mozambique until the government revealed all the details about the transaction.

“The type of aid that was withdrawn helps Mozambique to balance its budget and will lead to government spending cuts,” said Hanns Spangenberg, senior economist at NKC African Economics. He emphasised that emergency funds – for example, for food – were not withdrawn.

In 2011, the aid – at least $535 million (R8.3 billion at the current exchange rate) – Mozambique received from 19 donor countries amounted to 15% of the country’s public spending, according to research by the Open University.

Meanwhile, it appeared that the former Mozambican government lied to the IMF about at least another $1.4 billion in loans, said Spangenberg. He said before this admission, NKC estimated the government’s debt at 75% of GDP, but now they think it stands at 92% and can exceed 100% later this year. - City Press 

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