The Final Investment Decision (FID) for the exploration of natural gas in the Rovuma basin can contribute to the improvement of the availability of foreign currency in the domestic market and the reduction of risks of inflation

In this context, we believe that the Bank of Mozambique (BM) may decide to resume the reductions on interest rates, interrupted in December 2018, with positive effects on corporate financing and on household income.

According to Standard Bank chief economist Fáusio Mussá, depending on FID's volume of inflows, “the Central Bank would be comfortable to reduce the interest rate, depending on the magnitude of the funds that will be available in the Mozambican market.”

This would be, in his view, one of the immediate impacts with some benefit to the Mozambican economy, i.e. improving prospects for macroeconomic stability, through currency and inflation stabilization.

“If the Central Bank decides to reduce interest rates, it means that the rates of the banking system may reduce, allowing the increase of the households income and enable requests for financing of economic agents”, said the economist.
However, Fáusio Mussá was cautious in calling attention to the need for better dissemination of the impact of FID due to the difficult moment in the Mozambican economy: “Some impacts may be immediate and others may occur over a long period of time,” he said.

Another important advantage that may come from the FID, as he indicated, is the creation of greater confidence in the foreign exchange market on the supply of foreign currency and on the prospects of the evolution of foreign exchange rate, in the short term. The impact on the generation of employment may occur during and after the period of construction of natural gas liquidation platforms.

“The positive impact on economic activity in general will only be relevant once the country begins to export natural gas between the end of 2023 and 2024. Then we can see an acceleration above normal, of the Gross Domestic Product (GDP)”.

In order for the macroeconomic impact to materialize, according to Standard Bank's chief economist, there needs to be a capacity to absorb the business opportunities that natural gas projects will create in Mozambique, which depends on the level of preparation of companies that operate in Mozambique to meet the demand for goods and services by multinationals.

“This preparation is occurring at various levels in the country, but there is still a long way to go, and Standard Bank has created a Business Incubator that has been supporting Small and Medium Enterprises (SMEs) to access some of these opportunities”, he emphasized.

In another development, Fáusio Mussá said that from the fiscal point of view, when the country starts to collect revenues from gas exploration, it can obtain surpluses, which the State can use to leverage key sectors of the economy, such as agriculture and tourism.

It should be noted that Standard Bank has a specialized department in Oil and Gas, which since the discovery of these resources in the Rovuma basin in 2011 has been following closely and defining the best way to participate in the benefits that can be generated for the economy.

As such, Standard Bank has conducted macroeconomic studies on the potential of Area 4 of the Liquefied Natural Gas (LNG) project and another one for Anadarko on the impact of the LNG project in Area 1, which represents the flagship of one of the largest LNG projects in the world.