Mozambique Oil & Gas: “Economy will only accelerate in the next wave of megaprojects” – Standard Bank reports

Standard Bank’s economic analysis unit of believes that a significant increase in the growth rate of the Mozambican economy will only happen in the next wave of large investments in the natural gas sector.

“With limited financial support from donors and no schedule for the resumption of financial aid from the International Monetary Fund, a significant acceleration in GDP growth seems contingent on the next wave of foreign direct investment in the Oil and Gas sector,” analysts say.

In the latest report on African financial markets, Standard Bank analysts write that “the IMF base scenario places GDP growth well below 3 percent by 2022, suggesting that the Fund does not expect that the final investment decision (FID) of the project led by Anadarko, probably approved next year, to significantly stimulate economic activity by 2023”.

Standard Bank sees the FID as having the potential to improve the economic climate and accelerate growth well before the start of liquid natural gas exports, provided steps are taken to address Mozambique’s budgetary vulnerabilities.

In any case, the analysts point out, “any positive impacts of investments in gas megaprojects in Mozambique can only happen if there is a clear strategy to remove Mozambique from its current difficulties”.

Mozambique’s economic difficulties stemmed from the hidden debt scandal and the sharp drop in the price of raw materials in the summer of 2016, which led to a depreciation of the metical and a consequent budgetary imbalance.

In 2013 and 2014, according to the Kroll audit, three state-owned companies, acting as front firms, contracted debts of about US$2 billion (about one-eighth of the country’s annual GDP) on the basis of state guarantees granted illegally and without disclosure to authorities and aid partners, in what became known as the hidden debt scandal.

Among the investments the government has had to renegotiate are US$727.5 millions-worth of debt securities which have already seen default in their remuneration.

Holders of these securities (which result from the exchange for Ematum bonds) refuse to be treated equally with the banks and investors who lent the remaining US$1.4 billion to public companies Mozambique Asset Management (MAM) and Proindicus.

The banks that lent the money were Credit Suisse and Russia’s VTB, whose actions are also being investigated by the US FBI and the United States Department of Justice, as well as financial regulators from the United Kingdom and Switzerland.

“We hold to the opinion that, with below-potential economic activity and relatively low import demand, economic fundamentals do not support a sustained metical rise,” which Standard Bank predicts will remain at 60 meticais to a dollar for the remainder of the year. Source: Lusa