Mozambican Metical

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In 2011 the future fortunes of Mozambique was transformed with the discovery of a giant offshore natural gas field by the Italian exploration company ENI.

The Mamba South Gas field find has been predicted to deliver an estimated £233bn in revenues over the lifespan of the field. From 2015 ENI have predicted that it will be producing upwards of 100,000,000 tonnes a year. Making it almost the 10th largest producer in the world.

This is an extraordinary turn around for an economy which produces in the region of only £17bn a year prior to the gas find.

Between 1891 and 1976 Mozambique was a colony of the Portuguese following which for almost 16 years the country was mired in a brutal civil war. As a consequence the country has particularly poor infrastructure, according to the UK’s Department for International Development (DIFD), it is the “14th least internally connected country in the world”, which has meant that the economy has had its hands tied behind its back.

However with increasing stability foreign investment, aid and the natural resource finds DIFD calculated that it has been the fastest growing, non-oil economy in sub-Saharan Africa in the last 15 years.

What does this mean for the Mozambican Metical (MZN)?

Since the gas find back in 2010/11 we can see the strength of MZN corresponds very closely to world commodity prices.

Back in Q2/3 of 2010 the Metical spiked against the US Dollar and Euro at around 39MZN/$1USD but when worldwide commodity prices fell off in 2011 the rates dipped to a low of around 26MZN/$1USD.

So why would the rate be effected in this way? Where there is an expectation that an economy is going to improve and grow in the future you have currency traders speculating that domestic demand for foreign imports will rise.

However the primary reason for a country like Mozambique, which doesn’t have large consumer driven demand, to have a strengthening currency is because of foreign direct investment which will have required to purchase the local Metical currency. So part of that spike in 2010 can be attributed to ENIs massive investment which they have had to make, both in the discovery of the gas and now the extraction of it in Mozambique.

We can see that MZN has been creeping up from a low of 26MZN/$1USD in 2011 to the current rate of 29MZN/$1USD. This is in direct correlation with improving commodity prices and the increasing foreign direct investment.

We believe that for the next 3-6 months that the MZN will continue to strengthen at a similar rate as the past 12 months to a level of around 30MZN/$1USD is realistic.

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Mozambican Metical

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