Good afternoon. Last year, this newsletter noted that the prospects for a minimum wage increase did not look good for Mozambique’s lowest-paid employees. Much the same could be said about this year. Last year, the country was emerging from months of protests which shut down large parts of the economy. This year, the challenges are different, but equally severe. Last year, the government still managed to increase minimum wages by around 5% for most sectors. Will that be possible this time around?
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Southern Mozambique is about to be hit by a second wave of floods, which will damage crops and infrastructure and cut transport links all over again. The war in the Middle East is of course causing economic shock waves all over the world; however, those shocks are likely to be particularly big in a country like Mozambique that relies so heavily on imports for basic necessities; not just fuel, but food as well. The predicted rise in fertiliser prices is going to make that imported food more expensive. The Bank of Mozambique is going to struggle to control inflation. Yesterday, it announced that the Mimo policy interest rate would remain at 9.25% for the next month, the first time in about two years that it has not reduced the rate every month. Soon the bank may feel obliged to increase interest rates, further restricting growth. Meanwhile, many businesses remain in a defensive posture, unwilling to invest or expand operations without more reasons for optimism. Recent government interventions in businesses and the economy, from controlling rice and wheat imports to taking legal action against aluminium maker Mozal, have destabilised the business climate and will do nothing for confidence.
