Mozambique Economy

THE ECONOMY

Macroeconomic Review

Alleviating poverty
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 2006 was estimated at U.S. $320, a significant increase over 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.

Rebounding growth
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%. The World Bank is predicting average growth of 7% through 2008. 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.

Low inflation
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. The government is still working to bring inflation down to those lower numbers. In 2004 inflation was 9.1%; in 2005 it climbed to 11.2%; in 2006 it dropped back down to 9.4%. As of March 2007, the floating exchange rate was approximately 26 meticais per dollar. (Note: In July 2006 the government revised its currency, dropping three zeros. Thus a coin formerly worth 1,000 meticais was from then on worth only one metical. And thus, where a dollar previously had been worth, for example, 26,000 meticais, it was from July onward worth 26.)

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.

Improving trade imbalance
In 2006 Mozambique exported U.S. $2.43 billion worth of goods and imported U.S. $2.82 billion worth of goods. 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. MOZAL I, a large aluminum smelter that commenced production in mid-2000, greatly expanded Mozambique's trade volume. In April 2001, the International Finance Corporation (IFC) approved financing assistance for MOZAL II, which doubled overall production capacity. Phase two went online in April 2003, five months ahead of schedule, using primarily Mozambican workers during construction. 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.

SADC trade protocol
In December 1999, the Mozambican Council of Ministers approved the Southern African Development Community (SADC) Trade Protocol. The Protocol will create a free trade zone among more than 200 million consumers in the SADC region. Implementation of the Protocol began in 2002 and has 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.

GDP (2006): $6.4 billion.

Annual economic (GDP) growth rate (2006): 7.9%.

Per capita gross domestic product (2006): $320.

Natural resources: Hydroelectric power, coal, natural gas, titanium ore, tantalite, graphite, iron ore, semi-precious stones, and arable land.

Agriculture (21% of GDP; annual growth 7.9%): Exports--cotton, cashew nuts, sugarcane, tea, cassava (tapioca), corn, coconuts, sisal, citrus and tropical fruits, potatoes, sunflowers, beef and poultry. Domestically consumed food crops--corn, pigeon peas, cassava, rice, beef, pork, chicken, and goat.

Industry (31% of GDP; annual growth 10%): Types--food, beverages, chemicals (fertilizer, soap, paints), aluminum, petroleum products, textiles, cement, glass, asbestos, and tobacco.Services (39.7% of GDP; annual growth 4.7%).

Trade: Imports (2006)--$2.82 billion. Import commodities--machinery and equipment, vehicles, fuel, chemicals, metal products, foodstuffs and textiles. Main suppliers--South Africa, Netherlands, Portugal. Exports (2006)--$2.43 billion. Export commodities--aluminum, cashews, prawns, cotton, sugar, citrus, timber, bulk electricity, natural gas. Main markets--Belgium, South Africa, Zimbabwe.