S&P sees Mozambique vulnerable to war in Middle East

The financial rating agency Standard & Poor’s (S&P) considers Mozambique to be one of the African economies most vulnerable to the effects of the war in the Middle East, placing Angola among those most protected from the consequences of the conflict. Egypt, Mozambique, and Rwanda are among the most exposed countries, although Egypt’s deep domestic capital markets and Rwanda’s high levels of concessional debt provide an offset; less exposed are Nigeria, Angola, and the Republic of the Congo, as net oil exporters, as well as Morocco, with its more solid foreign currency reserves, write the analysts of this rating agency in a report on the degree of exposure of African countries. In the document, S&P points out that Egypt is the most exposed, followed by Mozambique and Rwanda, in a list that places Cape Verde as the 14th most exposed African country, and Angola in 16th, out of a total of 25 African countries to which S&P assigns a rating.

Analysts emphasize that “the risk that the conflict in the Middle East represents for African sovereigns will likely worsen as the disruption prolongs” and add that “most African countries are net importers of oil, fuels, and fertilizers, although some have protection measures.” On average, African countries import only 11% of products from the Middle East, exporting 14% of their goods and services to this region, but despite the percentages being insignificant, the effects are more pronounced. “The increase in fuel and fertilizer import costs will worsen inflation and the budgetary and external pressures on African countries, potentially leading to pressure on ratings,” the analysts warn, stressing that “existing fertilizer reserves may provide some countries with temporary relief, but sustained price increases represent a risk.” More than three in every four African countries are net importers of fuels and fertilizers, despite many being oil exporters, which is explained by the fact that the existing refineries in Africa are not sufficient to process crude into fuel for local use. Regarding the response of governments through support and subsidies to the most disadvantaged and affected by the conflict in the Middle East, S&P says that “budgetary pressures will increase as countries try to mitigate the impact of the rise in fuel prices.” It adds that Angola, which spends 2.8% of GDP on fuel subsidies, is an exceptional case compared to the average of 0.3% of GDP in State support for the prices paid by African consumers.

The price of a barrel of Brent, a reference for Europe, fell almost 8% to 101.27 dollars on Wednesday, far from the peak of 126 dollars reached already during the war. Iran has been blocking the strategic passage of the Strait of Hormuz for the global trade of hydrocarbons since the start of the war, which has caused thousands of deaths, mainly in Iran and Lebanon.