Presentation on“country risk analysis of Mozambique”

BySachin s. Nagargoje.

Roll No. 17

Mozambique is a rising economic power. Political stability and the economists’ prospects suggest that the country's Gross Domestic Product (GDP) will grow an annual rate of 7.7% until 2015, placing the country among the four most accelerating world growths.

  The economic growth is being powered in particular by the structure of the industry

sector and the discovery of important energy resources, including coal, salt, graphite, gold, precious stones, marble, and especially coal, oil and natural gas.

Particularly in relation to natural gas, Mozambique may become the third largest exporter, since the discovered gas reserves are quite significant, which approximate to those of Algeria, which is the largest African producer, and happen to be among of the five largest natural gas reserves holders in the world.

Having said that, considering that the big companies are developing these sectors - industry and energy resources - and since Mozambique does not have sufficient structures, for instance, in transport, such as railways and roads and bridges, other companies will have to come in order to develop the necessary infrastructures.

This will inevitably lead to more growth in many other areas and not only those related to energy resources, thus enabling the country to achieve that expected growth of GDP, boosted by the returns of foreign direct investment.

A) ECONOMY OF MOZAMBIQUE

Last 5 years annual GDP growth rate

http://www.tradingeconomics.com/charts/mozambique-gdp-growth-annual

INDEX YEAR 2013

OVERALL SCORE 55.0

LABOUR FREEDOM 37.9

MONETARY FREEDOM 74.7

TRADE FREEDOM 75.4

INVESTMENT FREEDOM 50.0

FINANCIAL FREEDOM 50.0

PROPERTY RIGHTS 30.0

FREEDOM FROM CORRUPTION 27.0

FISCAL FREEDOM 76.2

BUSINESS FREEDOM 63.9

Currency Mozambican metical (MZN)

Fiscal year Calendar Year

Trade organizations AU, African Development Bank, SADC ,World Bank, IMF, WTO, Group of 77

GDP $26.69 billion (PPP) (2012 est.)Rank: 119 (2012 est.)

GDP growth  7.5% (2012 est.)

GDP per capita $1,200 (PPP) (2012 est.)Rank: 212 (2012 est.)

GDP by sector agriculture (29.5%)industry (23.9%)

services (46.5%) (2012 est.)

Populationbelow poverty line

52% (2009 est.)

Main industries aluminum, coal, petroleum products, chemicals (fertilizer, soap, paints),cement, asbestos, glass, textiles, tobacco, 

food processing, beverages

Inflation (CPI) 2.1% (2012 est.)

Foreign reserves $2.77 billion (31 December 2012 est.)

Ease of Doing Business Rank 139th

http://en.wikipedia.org/wiki/Mozambique

• GCI 2011–2012 ...................................................... 133......3.3• GCI 2010–2011 (out of 139)................................................131........3.3• GCI 2009–2010 (out of 133)................................................129........3.2• Basic requirements (60.0%)............................................. 133........3.4• Institutions..........................................................................105........3.4• Infrastructure......................................................................123........2.6• Macroeconomic environment......................................... 122........3.9• Health and primary education......................................... 132........3.8• Efficiency enhancers (35.0%).......................................... 129........3.2• Higher education and training......................................... 136........2.5• Goods market efficiency................................................... 116........3.8• Labour market efficiency.................................................... 120........3.8• Financial market development........................................ 128........3.2• Technological readiness................................................... 117........2.9• Market size .........................................................................108........2.8• Innovation and sophistication factors (5.0%).............. 115........3.0• Business sophistication ................................................... 118........3.3• Innovation............................................................................107........2.8

B) GLOBAL COMPETITIVENESS INDEX

http://www3.weforum.org/docs/GCR2011-12/CountryProfiles/Mozambique.pdf

TOPIC RANKINGS DB 2013 Rank DB 2012 Rank Change in Rank

Starting a Business 96 82  -14

Dealing with Construction Permits

135 135 No change

Getting Electricity 174 174 No change

Registering Property 155 160  5

Getting Credit 129 127  -2

Protecting Investors 49 46  -3

Paying Taxes 105 103  -2

Trading Across Borders

134 135  1

Enforcing Contracts 132 132 No change

Resolving Insolvency

147 146  -1

http://www.doingbusiness.org/data/exploreeconomies/mozambique

Mozambique’s Competitive Advantages and Challenges

STRENGTHS - One of the fastest growing economies in sub-Saharan Africa with a high average growth over the last 5 years; - Political stability; - Government commitment to a business-friendly economic environment; and - Access to a potentially significant regional market

WEAKNESSES - Poor physical infrastructure; A lack of skilled and technically trained labour; - Weak and non-transparent administration, especially as regards land rights.

OPPORTUNITIES - Processing of commodities; - Infrastructure development, including power generation, water development management, rail and air transport, and telecommunication; - A variety of unexploited mineral deposits;

THREATS - Tensions between the two main political parties, deriving from their history of civil war; and - HIV/AIDS epidemic and its impact on

Based on: UNCTAD 2010, SWOT analysis

C) EMERGING SECTOR

AGRICULTURE

AGRICULTURE

• Mozambique has an estimated 36 Million Hectares of arable land of which only around 10 - 12 percent is under cultivation. There is immense agricultural potential in Mozambique, diverse soil types and climatic conditions are suitable for a large variety of crops. There are around 60 rivers in Mozambique to which are useful in irrigating the fields. The post – independence policy on agriculture, lays stress on large scale farming and market incentives.

• Some of the large export crops have been revived by foreign investments and joint ventures, but many crops domestically produced still face a lot of constraints in infrastructure, poor road network and marketing. The rehabilitation of such facilities is one of the priorities of the government. Development of commercial agriculture in suitable areas with existing water resources and irrigation facilities is another priority.

(http://focusafrica.gov.in/Investment_Opportunities_in_Mozambique.html)

MINING

• Mozambique has a significant amount of mineral deposits in coal, natural gas, gold, oil, diamonds and titanium. With an increase in the geological studies there has been a vast increase in the investment by the leading international and regional mining companies. Still in 2007, mining and quarrying contributed to only 1.6 % of the GDP. The constraints in this sector are poor infrastructure and the late civil war.

• The mining sector has been growing due to the presence of international mining companies. The other known deposits are of graphite, marble, bentonite, coal, gold bauxite, granite, fluorite, diatomite, emeralds, tourmaline, apatite and limestone. The regulatory responsibility for mining rests with the Ministry of Mineral Resources and Energy.

(http://focusafrica.gov.in/Investment_Opportunities_in_Mozambique.html)

ENERGY

• In July 1997, the Mozambican government liberalized the electricity market, which allowed the private investors in the sector. The country has enormous resources for production of energy, large hydro resources, coal, natural gas, biomass and high levels of solar radiations.

• The demand for electricity is expected to grow around 11% each year till 2015. With the new reforms both the national and international players have equal opportunities. The solar power and hydro electric power can create power for domestic use as the electrical power grid only reaches to 14% of the population.

(http://focusafrica.gov.in/Investment_Opportunities_in_Mozambique.html)

MANUFACTURING

• At the time of independence, Mozambique’s industrial base was well developed by Sub-Saharan standards due to the boom in investments in this sector in the period of 1960 -70. The sector has benefited immensely by the macro economic situation and the increase in the demand resulting to massive foreign investment and high economic growth. The food processing sector is one of the largest segments of this industry. Light manufactures, such as beverages, textiles and wood processing are also important.

(http://focusafrica.gov.in/Investment_Opportunities_in_Mozambique.html)

INFRASTRUCTURE

FORGIEN DIRECT INVESTMENT (IN FLOW)

FDI Values in USD Million

Inflow

1999 381.7

2000 139.2

2001 255.4

2002 347.3

2003 336.7

2004 244.7

2005 107.9

2006 153.7

2007 427.4

2008 587

FDI POLICES IN DIFFERENT SECTOR (http://rru.worldbank.org/BESnapshots/Mozambique/default.aspx)

D) Earlier Indian companies and their business

• Coal India Limited• Coal Venture International• Tata Mozambique• Tata Steel• JSW Steel• Essar Group• JSPL• Adani Group• Patel Engineering• Videocon• BPCL Varun Beverages• Angelique International Limited• Overseas Infrastructure• Mohan Energy Corporation• Jaguar Overseas etc.(http://www.hicomind-maputo.org)

Business of Indian companies in Mozambique

1) Tata steel Location : Key coal exploration tenements (the Benga and Tete licences) held by Riversdale in MozambiqueProject HighlightsTata Steel and Riversdale Mining Ltd. Australia signed a joint venture agreement on November 30, 2007.Under the terms of agreement, Tata Steel will pay AUD100 million (approximately 88.2 million USD) to acquire 35% of Riversdale's Benga and Tete licences.2) JSW SteelThe Company, which has plans to produce 10 million tonnes per annum (MTPA) coal from the mine at peak level, is also looking to set up a 2,640 MW thermal power plant in the African nation.The Company has earlier said that it is also planning to set up a coal washery in Mozambique by the fiscal-end, to reduce the high ash content from the mine there.3) Essar GroupThe Essar Group wants greater mobility for the products from its mining and steel operations in Africa, so Essar Ports has finalised a plan to develop a port in Mozambique.Essar Ports   is readying for Rs 3,000 crore investment in Mozambique, Africa for its first overseas port project. The port will initially boast facilities that can handle 30-40 million tonne of coal and iron ore per annum and will eventually expand into a multi-purpose port.

4) Adani Enterprises

The Gujarat-based Adani group’s flagship firm, is in discussions with the Mozambique-based NCondezi Coal to acquire a minority stake in its coal assets. The deal with the AIM-listed NCondezi is expected to be in the range of $350-400 million (Rs 2,000-2,200 crore).

5) Coal India limited

Taking its plans to develop coal blocks in the African nation forward, Coal India  has started further exploration of its twin mines in Mozambique. "The drilling (of blocks in Mozambique) has started in the first week of June, 2013. The selection of agency for further drilling of 30,000 metre was completed in May, 2013," Coal India informed an inter-ministerial panel in a meeting.

Business of Indian companies in Mozambique

F)PEST ANALYSIS

Political overview

• Following independence from Portugal in June 1975, the country underwent a 16-year armed conflict that ended in 1992. The transition to peace, political stability, and democracy culminated in the country’s first democratic elections in 1994 and the emergence of the Front for the Liberation of Mozambique (FRELIMO) as the dominant political force in the country, a fact that still holds true today.

• Looking ahead, the next two years will be marked by several political milestones. The well anticipated designation of the party’s candidate to succeed President Guebuza who is due to step down at the end of his term in 2014 and the 2013 municipal elections. In the meantime, the country is undergoing political turmoil since the leader of the largest opposition group (RENAMO) decided to boycott this year’s municipal elections and the subsequent general elections of next year, following years of successive poll defeats.

• RENAMO is demanding, among other things, the revision of the electoral law and regulations governing the composition of the electoral body. It considers this issue a precondition for the realization of municipal elections that they've threatened to disrupt if agreement is not reached. In parallel, there have been calls for direct talks between President Guebuza with RENAMO leader. Delegations of both sides have been holding talks since the crisis first erupted some three months ago.

• (http://www.worldbank.org/en/country/mozambique/overview)

Economical environnent

• Mozambique’s transition from a post-conflict country to one of Africa’s “frontier economies” has been nothing short of impressive.  Economic growth – spurred on by political stability, steady macroeconomic management, reconstruction, and structural reforms – has been bolstered by a boom in large foreign investments in the burgeoning energy and natural resources sectors. 

• The country has become a world-class destination for mining and natural gas development. Vast untapped coal reserves have attracted multinationals such as Brazil's Vale and Australian Rio Tinto.

• Recent figures indicate that foreign direct investment (FDI) doubled to US$5.2 billion in 2012. The country’s recent achievement of Extractive Industry Transparency Initiative (EITI) compliant status (October 2012) is an important milestone in the country’s economic development. 

• Alongside its natural resources, Mozambique’s long coastline positions it as a natural gateway to global markets for neighbouring land-locked countries. Mozambique's economy is forecast to grow at 7% this year (2013).

• The country has weathered the global economic and financial crises, with economic growth dipping to 6.3% in 2009 but rising to 7.2% in 2011 and 7.5% in 2012.

• Inflation has reached record low levels, at 1.2% in the 12-months ending in September 2012. Infrastructure spending as well as foreign investments in new mega-projects are expected to drive economic growth to 8% over the medium-term.

• However, this impressive trajectory of growth has not been matched by a concomitant reduction in poverty and creation of jobs and livelihoods, prompting questions about the current development model and the need for greater inclusiveness and economic diversification.

SOCIAL FACTOR

AGE DISTRIBUTION  POPULATION GROWTH (ANNUAL %)

Maternal mortality is estimated at 1,000 per 10,000 live births per year. The total fertility rate is 5.5, With 40% of all deliveries attended by skilled personnel.

The HIV/AIDS epidemic is expanding with an estimated prevalence of 13%. The majority of new Infections occur among those under 29 years of age. Life expectancy, estimated at 45 years in 2003, is expected to drop to around 38 years in 2010. Mozambique is on the list of countries for Treatment scale-up under the WHO 3 by 5 Initiative.

Malaria is the primary cause of mortality among children, causing 15 to 30% of all under-five Deaths. The main parasite is P. falciparum. Chloroquine is the first line drug for uncomplicated Malaria.

Tuberculosis case notification rate was 138 per 100,000 in 2002. Mozambique ranks 11th on WHO’s list of high-burden TB countries.

With 41% of children under five stunted and 24% underweight, malnutrition remains a problem.

 

HEATH ISSUES IN MOZAMBIQUE

RESEARCH AND DEVELOPMENT EXPENDITURE (% OF GDP) IN MOZAMBIQUE

Internet users Rank Penetration Rank

1,140,311 114 4.8% 188

G) FTA AND MOZAMBIQUE

H) Role of world Trade organization

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