Good afternoon. The scale of the fuel crisis facing Mozambique as a result of the war in the Middle East is laid bare in the latest figures for fuel imports. Imported fuel for this month cost $230m, nearly three times the cost in recent months, according to government figures (see below). Part of the cost increase is due to a rise in the basic price of fuel: petrol went up by nearly 50% and diesel, the backbone of the economy which powers everything from lorries to water pumps, doubled in price. But a substantial chunk of the increase was due to other costs, such as insurance and transport. The government confirms that some 80% of the country’s fuel imports have to pass through the Strait of Hormuz. Even if the strait is now going to reopen to shipping, which is not yet clear, the risks, and therefore the costs, of shipping fuel through it are likely to remain elevated for some time.
As this newsletter noted yesterday, the spike in fuel prices comes amid a shortage of foreign currency, which means that fuel importers will find it particularly hard to pay these elevated prices in US dollars. The Bank of Mozambique is refusing to provide foreign currency to pay for the imports, as it has done in the past.
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Quite what all this means for the economy and society remains unclear, not least because it is not clear what the government’s response is going to be. The rise in transport costs is going to hit people hard: it is usual for a Maputo resident earning about MZN10,000 ($156) a month to spend about MZN3,000 on transport. President Daniel Chapo has promised subsidies for public transport, but has not said if this will cover only publicly run bus services or also the minibuses (chapas) used by the majority of urban residents. And then there is the inevitable rise in food costs. Potentially the government could mitigate this by removing VAT on food items that currently carry it. But at the end of the day, the government does not have the money to subsidise the cost of living in a big way. It cannot even repay all its debts on time as things stand. A rise in living costs seems inevitable, which could well fuel social unrest.
