Mozambique: Central Bank Calls for Endogenous, Inclusive Growth

Maputo — Mozambicans must turn the country’s current mineral resource boom into economic growth that is “endogenous, inclusive and encouraged by a state budget that is less dependent on foreign aid”, declared the Governor of the Bank of Mozambique, Ernesto Gove, on Monday.

Giving his annual, end-of-year address, Gove stressed “the urgency of drawing up a development strategy which consolidates poverty relief activities and includes them in a broader framework of the challenges emerging from the exploitation of non-renewable resources”.

Key to the future, he added, were the creation of jobs for young Mozambicans and the linkages between the integration of the domestic market, regional integration and the internationalization of the Mozambican economy.

Mining and hydrocarbon exploration, Gove said, together with public and private investment in infrastructure “have made it possible to re-launch the country’s enormous potential, which in time will lead to improving Mozambique’s international position”.

Despite the persistence of the international financial crisis in 2012, foreign investors had continued to display confidence in Mozambique, he continued, regarding the country as “a safe destination and attractive market for their investments”.

“Gradually we have been occupying a meaningful position in the statistics for foreign direct investment, in Africa and the world, and we should all be proud of this”, he declared.

Gove regarded the macro-economic picture as promising, with the government’s target of economic growth of 7.5 per cent this year almost certain to be achieved, and inflation down to its lowest levels since the country embarked on structural adjustment programmes in 1987.

He noted that the Maputo Consumer Price Index showed inflation of 2.46 per cent from December 2011 to November 2012, a substantial decline on the inflation of 7.74 per cent the previous year.

Macro-economic stability had allowed the central bank to relax its monetary policy and allow an expansion of credit to the economy. Over the year the bank’s Monetary Policy Committee had reduced its key interest rate, the Standing Lending Facility (which is the interest rate paid by the commercial banks on money borrowed from the central bank on the Interbank Money Market), five times. This rate fell from 15 per cent at the start of the year to 9.5 per cent now.

However, Gove admitted that the commercial banks had only followed the central bank’s example “timidly”, a delicate way of expressing annoyance at the current extortionate interest rates charged by the banks.

“As the monetary authority, and as supervisors of the financial system, we recognise that there are challenges facing our strategic goal of low and attractive interest rates, with competitive financial services and fair transaction costs, in an environment of low inflation and financial stability”, the Governor said.

Gove recognised that over the year there had been “some periods of anxiety” about the exchange rate, “associated with the seasonal nature and excessive concentration of import operations, and paying the bill for liquid fuels (he put this bill at about a billion US dollars a year)”.

The Mozambican exchange market had met the demand for foreign currency, but at a price – over the year the metical had suffered a nominal depreciation against the US dollar of 9.7 per cent.

This could be viewed as an adjustment the market had made, improving the competitiveness of Mozambican goods. “We hope that exporters now play their role, assisting our balance of payments, with effective increases in the amounts exported”, said Gove.

The governor warned that, in the short term, the boom in foreign direct investment would worsen the deficit on the current account of the balance of payments. In the first nine months of 2012, foreign direct investment of 1.45 billion dollars entered the country, 330 million dollars more than in the same period of 2011

But the current account deficit deteriorated by 70 per cent to 1.8 billion dollars. This was essentially due to the increased demand for imported specialist services by the projects reliant on foreign direct investment (mostly in the mining sector). Without those projects, the deficit would only have risen to 1.49 billion dollars.

This rise was cushioned by an improvement in the balance of trade, thanks to a rise in the export of goods by 9.5 per cent between January and September, to 2.6 billion dollars. Coal accounted for 313 million dollars of this, and coal is now second only to aluminium in Mozambican exports.

Total imports rose by 5.1 per cent, to 4.26 billion dollars. Gove said that imports sucked in by the mega-projects accounted for 1.28 billion dollars.

During 2012, the country’s net international reserves increased by 306 million US dollars and now stand at 2.546 billion dollars. This, Gove said, is enough to cover imports of goods and services for 5.6 months.

The governor reported an expansion of the financial services industry during the year. 19 new micro-credit institutions had opened, and the commercial banks had opened 39 new branches. There are now 479 bank branches in the country, but they are mainly concentrated in the large cities. There are banks in only 62 of the country’s 128 districts.

“There is no doubt that there is still a great deal to be done”, said Gove, “since the demand for financial services by the public cannot be delayed”.

It was imperative to bring those services “to more places in our vast territory, where people produce wealth, but lack the support of banks, either to deposit their savings or for investment”.

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