- Oxford Economics, a renowned economic analysis firm, released a report on Thursday, shedding light on the inflation trajectory in Mozambique
- TotalEnergies’ anticipated return to Cabo Delgado to drive projected inflation to 8.8%
- Mozambique’s one-year inflation rate hit a 14-month low of 6.81% in June, according to the National Statistics Institute (INE)
Oxford Economics, a renowned economic analysis firm, released a report on Thursday, shedding light on Mozambique’s inflation trajectory. After a decline and reaching levels last seen in March 2022, experts project inflation to rise to 8.8 per cent in the final quarter of 2023. The imminent return of TotalEnergies to Cabo Delgado will play a significant role in this scenario.
The report highlights the expectations that TotalEnergies will recommence construction of the Afungi LNG Park in the second half of the year. This move will have significant implications, including a notable surge in imports. Consequently, the move will exert pressure on foreign currency reserves. This will potentially prompt the Bank of Mozambique to abandon the current “de facto” peg towards the end of the year.
The subsequent depreciation of the metical exchange rate will expectedly lead to an upsurge in the prices of imported goods, particularly food products. Consequently, this will contribute to the projected inflation rate of 8.8 per cent in Q4 of 2023.
June’s Price Increase
Notably, the release of the report came just days following the announcement of June’s price increase, which demonstrated a marginal uptick of merely 1.4 percentage points. This figure marked the lowest level observed since March 2022. Annual inflation dropping below 7 per cent for the first time since October 2021. However, analysts at Oxford Economics anticipate a gradual upward trend in the inflation rate during the final quarter of the year. They attribute this projected increase to the import requirements for the restart of the TotalEnergies project and the anticipated depreciation of Mozambique’s official currency, the metical.
Mozambique’s inflation outlook and recent trends
Providing further context, the National Statistics Institute (INE) disclosed that Mozambique’s one-year inflation rate reached a noteworthy low of 6.81 per cent in June. This represents the lowest figure witnessed over the past 14 months. A decline in the price of cereals in the international market, coupled with an increase in the domestic supply of fruits and vegetables could have contributed to inflation reduction in June.
Comparatively, May witnessed a one-year inflation rate of 8.23 per cent, marking it the lowest value in 13 months in terms of monthly growth. Although the monthly rate of change in inflation experienced a decline of 0.58% compared to May, the cumulative increase since the beginning of the year stands at 2.57%, according to INE records.
These latest findings provide valuable insights into Mozambique’s inflation trends, highlighting the potential impact of TotalEnergies’ activities on the nation’s economic landscape. With inflation predicted to rise in the coming months, it will be crucial to closely monitor the developments in Mozambique’s economy and the measures implemented by relevant authorities to mitigate potential challenges.
Exploiting Natural Gas Reserves in the Rovuma Basin
Mozambique holds tremendous potential in the form of natural gas reserves located in the Rovuma Basin off the coast of Cabo Delgado. The country has approved three development projects to tap into these substantial reserves, which rank among the largest in the world.
The two larger projects involve channelling the gas from the seabed to onshore facilities for cooling and subsequent exportation as liquefied natural gas (LNG) via seaborne transportation. One of these ventures is led by TotalEnergies, known as the Area 1 consortium. Progress got underway until operations were indefinitely suspended due to an armed attack on Palma in March 2021. TotalEnergies made it clear that work would only resume once the security situation in the area improved.
Another significant project, the Area 4 consortium, is led by ExxonMobil and Eni. While details about this endeavour are yet to be officially announced, it showcases the continuous interest and investment in Mozambique’s natural gas potential.
Additionally, a completed smaller project operated by the Area 4 consortium involves a floating platform that captures and processes gas for direct exportation by sea. This platform has been operational since November 2022 and is expected to produce approximately 3.4 million tons per year (mtpa) of liquefied natural gas. In comparison, Area 1 aims to achieve a capacity of 13.12 mtpa, while the onshore plan for Area 4 forecasts an impressive 15 mtpa.
These projects represent Mozambique’s strategic endeavours to harness its natural gas reserves and capitalize on the immense opportunities they present for economic growth and development.
Read:Mozambique’s debt repayment hinges on Total’s LNG Project
