Wed, 29 Mar 2017
Angola and Mozambique may have very different economies but their current economic problems have the same two root causes: low energy prices and economic mismanagement.
Low oil prices have slashed Angolan revenues and slowed the development of gas and coal projects in Mozambique. At the same time, Maputo’s borrowing resulted in default in January, while Luanda’s continued opacity and state control has not created an economy sufficiently robust to weather the period of low oil prices more comfortably.
Most forecasters have become more pessimistic about the two countries’ prospects. The World Bank has downgraded its forecasts for Mozambican growth in 2017 and 2018 by 2.5% and 1.4% respectively, to the still respectable figures of 5.2% and 6.9%.
It forecasts growth of just 1.2% and 0.9% in those years for Angola. There is little likelihood of strong growth in Angola for the foreseeable future. The Angolan kwanza and Mozambican metical were both among the 10 biggest depreciating currencies in the world in 2016, losing 18.9% and 33.2% of their value against the US dollar respectively.
Readers of African Business will be well used to this refrain, but the long-term answer is of course economic diversification. The rapid improvements in Mozambique’s transport infrastructure – and not just with regard to coal transport – offer some hope, while the tourism and agriculture sectors have huge scope for growth.
However, Ruth Bookbinder, Africa analyst at risk analysis company Verisk Maplecroft, says: “Productivity gains in agriculture remain limited at 3.2% per annum. There is some interest in agribusinesses but the sale of large tracts of land is always contentious and projects struggle to get off the ground. The manufacturing sector continues to underperform, partly due to a high minimum wage, which is likely to deter investors.”
Angola may be the third biggest economy in sub-Saharan Africa but it has made even less progress on diversification. Although there are plenty of other hugely oil-dependent countries, Verisk Maplecroft rates it as the least diversified economy in the world.
Just a few years ago Luanda was the focus of a big property boom and immigration from Europe, as the economy blossomed on the back of oil revenues, at least for the wealthy, although poverty levels and income inequality were always very high. However, the jobs have begun to dry up and there have been numerous reports of empty properties in gated communities.
The official Angolan exchange rate has fallen from 97 kwanza to the US dollar in 2014 to 165 now, although the black-market rate is more than three times as high. This has pushed up the already high cost of imports. The rate of inflation increased from 17.3% at the start of 2016 to 45% by the end of the year.
Some reports suggest that the government is running down its foreign exchange reserves at an alarming rate. The central bank has responded by repeatedly raising interest rates, which now stand at a record 16%. Luanda has improved its finances by cutting expenditure, including the reduction of fuel subsidies, which are eventually to be phased out.