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Mozambique - Economy

Mozambique is a rapidly growing country that has experienced significant economic recovery since the end in 1992 of a devastating fifteen year civil war. The recent discoveries of vast gas deposits in the northern part of the country give Mozambique the perspective of a major economic growth. The challenge will be to translate such wealth into equitable and inclusive growth. Currently, Mozambique still remains a poor country, ranking 178 out of 187 in the 2014 Human Development Index, and has to deal regularly with natural disasters, mainly floods, droughts and cyclones.

Mozambique is one of the most dynamic economies on the African continent, with an economic growth rate of 7% in 2015, although this has not yet been translated into improved living conditions for the majority of the population. More than half Mozambicans live in absolute poverty with less than $1 a day. About 80% of the population remains hit by chronic underemployment and malnutrition; 39% of Mozambicans are undernourished, and half of the children under five are stunted. Going forward, Mozambique’s development is linked to the recent huge gas discoveries and the full exploitation of other existing natural resources, but also to a coherent diversification agenda that involves agriculture transformation, since this is the sector where 80% of the people work.

Mozambique is a developing country with dependence on agriculture and limited industrial activity. Industry is concentrated in the Maputo/Matola and Beira areas. Thirty five percent of Mozambique's gross domestic product (GDP) is from the agriculture sector, including beef, cashew nuts, cassava (tapioca), corn, cotton, poultry, rice, sugarcane, tea, and tropical fruits. Thirteen percent of GDP is related to industry, including asbestos, beverages, cement, chemicals (fertilizer, soap, and paints), food, glass, petroleum products, textiles, and tobacco products.

Mozambique’s gross domestic product (GDP) growth rate slowed in 2015 as the economy adjusted to lower world commodity prices and decreased inflows of Foreign Direct Investments (FDI). Real GDP growth is expected to continue decelerating through 2016 and into 2017 at 6%, driven by falling exports revenues, rising import costs and reduced FDI. Weak external demand conditions and low commodity prices are anticipated to continue over 2016-2017, and then recover gradually by mid-2017 in line with world forecasts.

Inflation accelerated in the second half of 2015, as rising food costs and the depreciation of the metical drove an increase in consumer prices. The deterioration of the external accounts caused the metical to depreciate in 2015, exacerbating inflationary pressures. The consumer price index (CPI) inflation rate reached 11.1% in December 2015, up from 1.1% a year earlier. This coincided with almost a 70% depreciation of the metical against the US dollar and a roughly 40% depreciation against the South African rand. Over the longer term the continued depreciation of the real exchange rate could help stimulate nontraditional exports given adequate investment in complementary infrastructure.

Despite recent high economic growth rates, Mozambique remains among the world's poorest countries, with a gross national income (GNI) of approximately US$600 per capita per annum (PPP). Ranked near the bottom of the UN’s Human Development Index, poverty is endemic. High unemployment rates, little investment in employment-generating industries, and low incomes from work in the informal sector create conditions of gross economic hardship.

The labor market is dominated by the informal economy with the vast majority of people (approximately 70 percent) working in subsistence agriculture, particularly in rural areas. People in cities often work in informal trade. There is an acute shortage of skilled labor in Mozambique. As a result, many employers import foreign employees to fill these skill gaps. The government limits the number of expatriates a business can employ in relation to the number of Mozambican citizens it employs. The government passed a labor regulation in 2016 strengthening the requirement for employers to devise a skills transfer program that trains Mozambican nationals to eventually replace the foreign workers.

At the end of the civil war in 1992, Mozambique ranked among the poorest countries in the world. It still ranks among the least developed nations with very low socioeconomic indicators. In the last decade, however, Mozambique has experienced a notable economic recovery. Per capita GDP in 2010 was estimated at U.S. $414, up from the mid-1980s level of U.S. $120. With high foreign debt and a good track record on economic reform, Mozambique was the first African nation and sixth country worldwide to qualify for debt relief under the World Bank and International Monetary Fund (IMF) initial HIPC (Heavily Indebted Poor Countries) Initiative. In April 2000, Mozambique qualified for the Enhanced HIPC program and reached its completion point in September 2001. This led to the Paris Club members agreeing in November 2001 to substantially reduce the remaining bilateral debt, resulting in the complete forgiveness of a considerable volume of bilateral debt. The United States already finished the process and has forgiven Mozambique's debt.

During their summit in Scotland in July 2005, the G8 nations agreed to significant multilateral debt relief for the world's least developed nations. On December 21, 2005, the IMF formalized the complete cancellation of all Mozambican IMF debt contracted prior to January 1, 2005, worth U.S. $153 million.

In July 2006, the World Bank announced it was writing off $1.3 billion, all Mozambican debt to the World Bank contracted before January 1, 2005, as part of the Multilateral Debt Relief Initiative (MDRI). In 2007, under MDRI, the IMF wrote off $153 million in Mozambican debt, and the African Development Bank wrote off $370 million. As a result of the debt relief it has received, the Government of Mozambique’s outstanding debt stock has fallen to well below debt distress thresholds, according to the IMF.

The resettlement of civil war refugees, political stability, and continuing economic reforms have led to a high economic growth rate. Between 1994 and 2006, average annual GDP growth was approximately 8%. Mozambique achieved this growth rate even though the devastating floods of 2000 slowed GDP growth to 2.1%. GDP growth rates hovered around 6%-7% from 2008 to 2010. Future strong expansion requires continued economic reforms, major foreign direct investment, and the resurrection of the agriculture, transportation, and tourism sectors. Focusing on economic growth in the agricultural sector is a major challenge for the government. Although more than 80% of the population engages in small-scale agriculture, the sector suffers from inadequate infrastructure, commercial networks, and investment. However, a majority of Mozambique's arable land is still uncultivated, leaving room for considerable growth.

The government's tight control of spending and the money supply, combined with financial sector reform, successfully reduced inflation from 70% in 1994 to less than 5% in 1998-1999. Economic disruptions resulting from the devastating floods of 2000 caused inflation to jump to 12.7% that year. Inflation ranged from 9%-11% in 2004-2006, but remained in the single digits in 2008-2009. As global food prices rose, inflation spiked to 13% in 2010. After September 2010 protests over high food prices, the government has pursued a policy of keeping its currency strong in efforts to keep the cost of living down for average Mozambicans. As of October 2011, the floating exchange rate was approximately 27 meticais per dollar, compared to 36 meticais per dollar in October 2010.

Extensive economic reform. Economic reform has been extensive. More than 1,200 state-owned enterprises (mostly small) have been privatized. Preparations for privatization and/or sector liberalization are underway for the remaining parastatals, including telecommunications, electricity, ports, and the railroads. The government frequently selects a strategic foreign investor when privatizing a parastatal. Additionally, customs duties have been reduced, and customs management has been streamlined and reformed. The government introduced a value-added tax in 1999 as part of its efforts to increase domestic revenues.

In 2010, Mozambique exported $2.3 billion and imported $3.8 billion in goods, creating an overall trade deficit of $1.5 billion. Mozambique imported $223 million in goods from the U.S. in 2010, mainly cereal, machinery/equipment, petroleum oils, and petroleum coke. In 2010, Mozambique exported $64.7 million in goods to the United States, consisting of primarily agricultural products. Support programs provided by foreign donors and private financing of foreign direct investment mega-projects and their associated raw materials have largely compensated for balance-of-payment shortfalls. The medium-term outlook for exports is encouraging, as a number of recent foreign investment projects have improved the trade balance. This export growth is expected to continue. Traditional Mozambican exports include cashews, shrimp, fish, copra, sugar, cotton, tea, and citrus and exotic fruits. Most of these industries are being rehabilitated. In addition, Mozambique is less dependent upon imports for basic food and manufactured goods as the result of steady increases in local production.

In December 1999, the Mozambican Council of Ministers approved the Southern African Development Community (SADC) Trade Protocol. The Protocol envisions creating a free trade zone among more than 200 million consumers in the SADC region. Implementation of the Protocol began in 2002 and had an overall zero-tariff target set for 2008; however, Mozambique's country-specific zero-tariff goal is currently 2015. Mozambique joined the World Trade Organization (WTO) on August 26, 1995.





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Page last modified: 26-04-2021 12:38:05 ZULU