MENZI NDHLOVU: Chapo’s trifecta — is the worst over for Mozambique?

In recent weeks Mozambique has enjoyed tentative calm. After months of disruptive opposition unrest threatened the transition from former president Filipe Nyusi to the new incumbent, Daniel Chapo, the streets have largely cleared, business is gradually normalising and the Chapo administration is slowly taking shape.

However, investors remain apprehensive about Mozambique’s future, with scar tissue lingering from civil war, debt crises, insurgency and political turmoil. This raises important questions — is Mozambique stabilising or is this simply the calm before another storm; and should investors wait and see, or pull the plug on a volatile Mozambican jurisdiction? 

The reality is more complicated. While postelection unrest has simmered down, systemic risks remain. Specifically, Chapo faces a trifecta of challenges — political uncertainty, economic fragility and insecurity. The way in which he navigates these challenges will determine whether Mozambique stabilises or unravels once more.  

Politically, by far the most pressing concern is whether Chapo can contain opposition leader Venâncio Mondlane’s protest campaign. In Mondlane, Chapo and Frelimo face arguably their most formidable foe in the party’s 50-year rule. His antigovernment protest campaign rattled a deeply entrenched Frelimo establishment, while his party’s performance has fundamentally reshaped opposition politics.

In a single electoral cycle Mondlane elevated Podemos from a party without representation in parliament to the largest opposition bloc, displacing mainstays in Renamo and the Democratic Movement of Mozambique (MDM). Unlike his predecessors, Mondlane has built consensus among the youth and across party lines, tapping into deep-seated and shared grievances with the political and economic status quo, and frustrations with an inane opposition.

This situation requires deft political manoeuvring by Chapo and Frelimo, who have little goodwill given the controversial nature of their victory. A crackdown on Mondlane and his supporters could reignite street protests, while a soft hand could embolden Mondlane to demand more concessions.

The early signs are positive. Parliamentary parties have taken office, including Mondlane’s Podemos, which ignored his directive. As such he is isolated and more amenable to co-operation in the hopes of achieving a symbolic victory. Protest fatigue also appears to be setting in for a Mozambican populace worn out by months of unrest.

Meanwhile, regional and international partners are putting pressure on Mozambican stakeholders to resolve their differences due to fear of economic and political contagion. If Chapo maintains the balance between consolidation and reform, political stability may endure. 

Economically, Chapo must confront a ticking debt time bomb. The concern is whether he can avoid default in the medium term, and about the means to do it. Default risk is certainly higher than in recent years. Aggregate debt service obligations will increase from about $1.7bn in 2024 to $2bn in 2025, due to domestic maturities, interest and increased coupon payments for the country’s sole $900m eurobond.

Payment of IMF and World Bank loans is also scheduled to begin in 2025, and amortisation of the eurobond in 2028. This while fiscal buffers have been corroded by the protest campaign, with at least $650m in revenue lost to the ensuing disruptions.

Mozambique’s potential bailout, liquefied natural gas (LNG), is also in doubt. Nearly half of the funding for TotalEnergies’ $20bn is being withheld by the American, British and Dutch export credit agencies, with no clear indication if or when it will be released. This puts in doubt Mozambique’s gas boom and its ability to meet rising repayment obligations.

Chapo is thus faced with a conundrum — implement austerity, reduce default risk but flirt with public fallout, or loosen the purse strings, raise default risk but garner political capital. Early signs suggest he is veering towards fiscal discipline, which should create some headroom and give mild confidence to investors.

The nature of austerity thus far should also limit fallout. Chapo has halved the size of the cabinet and withheld half of the 13th cheque due to public sector workers, significantly reducing the largest revenue drain. More concretely, he has secured a commitment from Eni, whose new Coral Norte facility could be operational as soon as 2027/28. This would provide crucial interim revenues as larger LNG projects take shape. 

A dual security crisis threatens the LNG sector and the commercial environment — a resurgent insurgency in Cabo Delgado province and increasing organised crime in major cities.

Islamic State-affiliated militants have evolved their strategy after interventions by Rwandan and Southern African forces, releasing territory in the gas rich north and resorting to more classic guerrilla tactics.

The fluidity of the insurgents coupled with overstretched security resources due to recent political unrest has made them a far more difficult proposition. Restarting gas-related activity may also draw increased attacks from the insurgents, who consider them lucrative targets.

In the south, kidnapping is emerging as a growing security and economic risk. Data from the Confederation of Business Associations suggests at least 185 people have been kidnapped in major cities since 2011, triggering a significant business exodus. If left unchecked there is worry among the business community that abductions may evolve to levels and sophistication seen in countries such as Mexico and Brazil. 

Dealing with these concerns will require a balance of political, security and sociopolitical interventions that has eluded previous administrations. An adaptable militarised campaign in Cabo Delgado must be combined with economic and social initiatives that deal with displacement, marginalisation and tensions among local communities. In urban settings, reforms are needed to recapacitate policing and judicial institutions that are mired in the kidnapping trend.

So far Chapo has demonstrated some sensitivity to the security imperatives. In retaining the defence minister from the previous administration he has allowed for a degree of familiarity and continuity in the counterinsurgency. The initiative will also be supported by further troop commitments from Rwanda. Yet, in the absence of “soft” interventions, a sustained improvement in Mozambique’s security situation is unlikely.

Ultimately, Mozambique’s stability hinges on Chapo’s ability to straddle political consolidation, economic pragmatism and security reform. Relative calm and sound personnel and policy decisions suggest the worst is at least contained, and the direction is positive.

As such, investors should not yet pull the plug on Mozambique. If Chapo successfully navigates these challenges, Mozambique may yet emerge stronger. However, missteps in any domain could unravel recent gains, plunging the country back into crisis. The coming months will reveal whether this is a turning point or a temporary reprieve. 

• Ndhlovu is lead analyst at Signal Risk.