On 30 March, President Filipe Nyusi declared a state of emergency after authorities reported eight confirmed COVID-19 cases. Parliament then unanimously approved the decree on 31 March. The 30-day state of emergency, effective from 1 April, strengthens preventative measures that are already in place. Its provisions include mandatory quarantine for people who have recently traveled abroad or were in contact with confirmed cases; prohibition of all events; restrictions on circulation of people across national territory and on the entry of people through land borders, airports and ports (with exceptions for authorized goods transport operators and health-related cargo); closures of all commercial establishments or, when applicable, limitations on their activities; and the implementation of tax and monetary policies to support the private sector. The government is expected to soon publish the full details of the measures.
Shortly before, Economy and Finance Minister Adriano Maleiane reported that he had requested $700mn in direct budget assistance from international cooperation partners to help mitigate the impact of the COVID-19 pandemic. The support would largely be aimed at building and supplying health units, covering the expected loss of tax revenues, and supporting small and medium enterprises (SMEs). Of note, the government has revised its GDP growth forecasts downward from 4% in 2020 to 2.2%, and increased the Ministry of Health’s budget allocation from $30mn to $50mn. The IMF’s resident representative said that financial assistance may be sent via an emergency fund from the $50bn package that the institution has approved for affected countries.
In our view, Maleiane’s request was well-crafted and issued at an opportune time. Notably, state budget support has been suspended since 2016, when the hidden loans were discovered, leaving the government with severely strained finances and no access to international markets. Maleiane is now using the COVID-19 crisis to drive donors to resume assistance, given how incapable the Mozambican healthcare system is of responding on its own. In recent months, donors have become increasingly amenable toward resuming direct budget support, as Horizon assessed in previous notes.
Moreover, Nyusi highlighted that the country is not beginning a lockdown. Such a condition would necessarily mean the suspension of parliament at a time when it needs to approve three major documents to implement the 2020 state budget. A lockdown would also lead to severe restrictions of basic liberties, potentially driving protests and civil unrest, as the bulk of Mozambican society cannot afford to stay confined to their homes. We believe that an exponential growth in cases could trigger a lockdown, given the country’s limited resources to fight the pandemic. Of note, several thousand people crossed the Ressano Garcia border after the South African government announced plans for a lockdown. According to our contacts, Mozambican authorities there did not test for COVID-19, instead only taking people’s temperature. Many of those who returned to the country have not been observing a mandatory quarantine, including a number who crossed back illegally.
Although a lockdown may be unpopular, we assess that many in Frelimo’s Political Commission favor it, namely the old guard and those with interests in the oil and gas sector. In our view, the old guard wants a tougher approach to armed groups in the central and northern regions, while those with energy interests want the violence to end. A lockdown would be useful for both groups, by providing the authorities with better tools to stifle the insurgencies. For example, restricting civilian movements would both remove vulnerable targets from roads and markets and facilitate military operations.
Overall, investors and operators should expect protests against the restrictions on local populations, as well as ongoing civil unrest resulting from enforcement. Restrictions on the movement of people and goods will also likely impact logistics nationwide. Notably, according to the constitution, a state of emergency lasts for 30 days and can be renewed twice. This means that the state of emergency may last until the end of June 2020 if the authorities fail to control the pandemic and address the insurgencies simultaneously.