BETWEEN A ROCK AND A HARD PLACE

Mozambique 2020 | ECONOMY | FOCUS: MOZAMBIQUE VERSUS COVID-19

Mozambique is paying a heavy economic price for the stringent lockdown measures the country has enacted to slow down its COVID-19 infection rates.

When the novel coronavirus first appeared on the world stage, many thought the economic impact would be limited to China's supply and demand, with a ripple effect to be felt by all of China's trading partners. But what has become increasingly obvious with time is that COVID-19's economic impact will devastate the developing world much more than its developed counterpart. A significant reason is because of the fall in FDI flows that developing countries, especially Mozambique, rely on to bring investment and liquidity to their markets. Further exacerbating the economic fallout of low liquidity is lockdown measures, which limited the ability of workers, especially those in the informal market, to work and limited consumer access, thus impacting bottom lines. Mozambique is especially at risk from protracted economic hardship, with its already weakened economic system and small—but growing—insurgency in the country's north. And as the country's cases hit 3,440 toward the end of August 2020, it has many wondering about the necessity of additional heavy lockdown measures imposed by the government in the face of the economic downturn.

With macroeconomic headwinds reaching gale speeds, FDI flows around the world have rapidly dried up, as multinationals reassess their investment plans. In March 2020, Investment Trend Monitor estimated that global FDI flows would contract 30-40% in 2020-2021, in accordance with the revision of annual projections by multinational enterprises. Indeed, according to the report, the top 5,000 of multinationals that account for a significant amount of the world's FDI have revised their 2020 earnings by 30%. The sectors that have been most affected have been energy and basic material industries for energies, as oil prices have dropped, airlines have lost billions in revenue, and automotive industries have experienced a loss of demand.
Unfortunately for Mozambique, the gas industry was slated to be the country's saving grace, pre-COVID-19, due to the discovery of the fifth-largest natural gas field found off the coast of Cabo Delgado. With ExxonMobile has recently announcing it will postpone its FID USD30-billion exploration project with Eni, the country's chances for turning the black stuff into greenbacks has slimmed greatly. However, as of June 2020, Total secured USD15 billion for its planned LNG export facility from a bank consortium, and Eni plans to move ahead with investments for its Coral South floating LNG offshore project. Of course, this does not mean either company should cut back on its safety measures, as the Financial Times reported a few dozen confirmed infections linked to an outbreak at Total's LNG facility. To keep its workers safe, the company has cut personnel and scaled down its activities even further.

Of course, while cutting workers may keep infections down, it certainly depresses economic recovery in the country. Indeed, according to SDAC's June 2020 report, lockdowns have debilitated the livelihoods of workers in the region, as reduced movement has led to job loss especially in the informal sector, poor sales, and bankruptcy. With nine out of 10 people working in the informal sector in Mozambique, strict lockdown measures immediately affected many in the country, especially as prices for basic items started to increase throughout the SADC region due to the closing of borders and market pressures. It isn't only the informal sector at risk: around 6,400 workers have had their jobs suspended at over 217 companies, as the country's transportation and tourism sectors have been especially hard hit by the visa suspensions.

That isn't to say Mozambique is entirely without a lifeline: The World Bank and IMF have allocated USD313.4 million to Mozambique's state budget, or around 6% of its planned expenditures. However, with citizens' increased need for state social and health protection, this is only a drop in the ocean. Already, the government has reduced its 2020 health and social budgets by 14% and 6%, respectively, in a country that, at last count, had 24 ventilators in total. For the time being, SDAC has advised its member states, including Mozambique, to channel “scarce resources to identified economic sectors to resuscitate their economies, strengthen resilience, and improve competitiveness."