Country Risk Rating

A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high. - Source: Coface

Business Climate Rating

The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.


  • Favorable geographical location: long coastline, proximity to the South African market
  • Significant mineral (coal) and agricultural resources, and hydroelectric potential
  • Huge offshore gas fields discovered in 2010


  • Under-diversified, dependent on commodity prices (aluminum, coal)
  • Inadequate transport and port infrastructure, which constrains the country’s commodity export capacities
  • Banking system constrained by government financing needs
  • Unstable political and security environment
  • Weak governance
  • Difficult climatic conditions

Current Trends

Despite the security threat, economic activity continues to recover

Plunged into its first full year of recession in nearly 30 years in 2020 by the COVID-19 pandemic crisis, the economy returned to modest growth in 2021. In 2022, activity was expected to strengthen, supported by the start of liquefied natural gas (LNG) production at the Coral South offshore site. With an annual capacity of 3.4 million tons, the project is expected to strengthen exports from June. The favorable trend in external demand for coal and aluminum will also drive the contribution of net exports to the activity. The gift of investment should remain supportive, thanks to opportunities in LNG. However, the Islamist insurgency in Cabo Delgado, a critical region for gas production, will delay private investment in the most important projects, dampening its contribution. The security situation forced French company TotalEnergies to halt a significant development project (USD 20 billion investment) in April 2021, and a resumption in 2022 remains highly uncertain. These issues have also delayed a project led by U.S. company ExxonMobil. While public investment spending is expected to increase, fiscal difficulties will limit the contribution of gross fixed capital formation. Private consumption will continue to recover as the COVID-19 vaccination campaign progresses (less than 10% of the population was vaccinated by the end of 2021) and as restrictions on business activity are lifted. Private consumption should also benefit from the expected growth in agricultural production in 2022, as more than 70% of the population still depends on income from this sector. However, a resumption of the epidemic and forced population displacement in Cabo Delgado will be significant risks.


Twin deficits reduced, but vulnerability persists

In 2022, fiscal consolidation efforts, which were derailed by the pandemic, are expected to resume. By broadening the tax base, modernizing the collection system, and encouraging taxpayers to meet their tax obligations, the authorities hope to improve tax revenue. Revenues from the start of operations at the Coral South project will support the increase in government revenue. Debt payments (15% of government revenue) and the wage bill (more than 50%) will continue to put pressure on government spending, but some measures should be rolled out to curb these expenditures, such as the rule that one civil servant should be hired only after three have left. The increase in capital expenditure will be financed mainly by external grants. These will limit the use of debt, which will still be necessary to fund the deficit, although public debt remains worrying. Delays in gas projects, and the associated revenues, could lead to a reworking of the restructuring agreement for the Eurobond that defaulted in 2017.


In 2022, the large current account deficit will be maintained due to the impact of major projects, especially in LNG, on the trade deficit. However, suspending these projects could reduce imports of the requisite capital goods and the use of engineering services. The trade balance could also improve with the start of exports from the Coral South site. Although less significant, the income deficit will be increased by repatriating investment profits. The current account deficit will mitigate the transferred surplus, mainly maintained by existing international cooperation. FDI and international aid will finance much of the debt. However, suspending projects risks FDI inflows, threatening further pressure on the medical and foreign exchange reserves (six months of imports excluding significant projects).


The security situation is still a concern in Cabo Delgado

The Al-Shabab Islamist group, which has pledged allegiance to the Islamic State, is continuing its insurgency, which began in 2017, in the northern region of Cabo Delgado. Following an attack in late March 2021 on the port city of Palma, TotalEnergies suspended the gas project it is leading near that location. The support of Rwandan troops from July 2021 made it possible to retake the towns of Mocímboa da Praia, Palma, and Mueda. Still, the major oil companies are unlikely to return until the situation is under better control. Despite the support of SADC troops, the Islamist insurgency is likely to be the main security threat. In contrast, the threat posed by the Renamo military junta (RMJ) appeared to diminish in 2021. The assassination of Mariano Nhongo, the self-proclaimed leader of the RMJ, by Mozambican forces in October 2021 and the surrender of many of its members should prove a blow to the rebellion. These armed factions have been responsible for attacks in the central provinces of Sofala and Manica since 2019. They emerged from Renamo’s political wing, breaking away after Renamo’s elected leader, Ossufo Momade, signed a peace agreement with President Filipe Nyusi, who was re-elected for a second five-year term following general elections in October 2019, although accusations of fraud marred these. The polls also saw Frelimo, which has been in power since the country's independence in 1975, win 184 of the 250 seats in the assembly. While the country's center has become calmer, the long-standing tensions between these two parties, inherited from the post-independence civil war (1975-1992), could be rekindled in the next national elections, scheduled for 2024. In this context, the social climate remains extremely tense. The unstable political environment and corruption contribute to the perception of a challenging business climate.


Coface (02/2022)