EIU WARNS OF DANGER OF UNREST

The London-based Economist Intelligence Unit (EIU) has warned that increases in the cost of living in Mozambique pose a greater threat to the hegemony of the ruling party Frelimo than “the enfeebled opposition parties”.The latest EIU Country Report on Mozambique, published in June, carries details of the current mineral boom, but warns that this “may sharpen inequality and increase frustration among the majority of people who will not directly benefit from it”. The EIU report considers that the risk of instability similar to the riots against price rises that erupted in Maputo in September last year is “considerable”.The report continues that “in addition to price rises, other triggers for future unrest could include power cuts, a localised rise in unemployment or a delayed official response to a disease outbreak or flooding”. Such prophecies are laughable – power cuts are a regular occurrence in Maputo and other Mozambican cities, and have yet to lead to any disturbances. Responses to epidemics and to floods in recent years have been swift, and there is no reason to believe that this is likely to change in the near future.On the economy the report is more encouraging, and expects growth to be “brisk”. Industrial output is expected to rise briskly, and growth is predicted in agriculture. However, the report claims that “industrial production will remain below potential owing to the fitful power supply”.Overall growth is expected to accelerate to 7.3 per cent this year and 7.5 per cent next year, mainly due to increased investment in minerals and infrastructure megaprojects.Worryingly, the EIU forecasts that global food prices will rise by 30 per cent this year. However, the report expects that government measures will manage to keep Mozambique’s inflation rate down to 7.5 per cent this year, before falling to five per cent next year.Exports are expected to increase from 2.7 billion US dollars last year to 3.6 billion dollars this year and 4 billion dollars next year. These increases are due to a strong global demand for aluminium (the Mozal smelter on the outskirts of Maputo exports aluminium ingots) and coal (exports from the west of the country will shortly begin if not delayed by transport bottlenecks). The EIU also expects agricultural exports to increase.However, partly due to predicted rises in oil prices, the report expects that imports will also rise sharply, from 3.7 billion dollars last year to an average of 4.9 billion dollars during 2011/12.The report therefore expects the trade deficit to widen from 11.2 per cent of GDP in 2010 to 12.3 per cent this year, before falling to 9.7 per cent in 2012.