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Overview
During the 1990’s Mozambique was one of the world’s fastest growing economies, but this has been off a very low base for it is one of the poorest and most aid-dependent countries in the world, GNP per capita in 1997 at US$90 being the lowest in the world. Much of Mozambique’s economy was devastated by almost three decades of internal warfare during which millions of Mozambicans were displaced and many thousands killed or maimed by armed strife. Meaningful reconstruction could start only after the first multi-party election, in October 1994, which signalled the end of Renamo's armed struggle against the government and also confirmed Frelimo in power. Not only the economy, but also the educational and health services needed to be built up almost from nothing. Nevertheless, impressive economic performance and heavy investment in human capital since the early 1990s has had a strong impact on poverty reduction.
Characterized as a dual economy because of the large divide between the dynamic, capital-intensive sector and under-performing traditional sector, Mozambique’s economy is today relatively diversified. All sectors make an important contribution, although agriculture, which contributed 32% to GDP in 1999, is the most important contributor employing 80% of the population. It is for this reason that it, and other traditional sectors, remain the focus of efforts to reduce poverty. The recent commissioning of the (US$,3bn) Mozal aluminium smelter has contributed to the rapid expansion of the industrial sector, aluminium now making up over 50% of exports.
Mozambique’s economy is closely integrated with those of southern and South Africa. As linkages have re-emerged since the end of the civil war, transport has again become an important element of the economy and a significant foreign-exchange earner. However, with imports more than double the value of exports, a negative current account balance, and a crushing debt burden, the country is extremely dependent on outside financial help, and will remain so for a long time.
Labour market and unemployment
Of the estimated labour force of 8.8 million, 80% work in the agricultural sector, mainly in subsistence activities, 3% in the shrinking industrial sector and 1.2% in transport and communications and other services. There are no reliable figures on unemployment or underemployment, but estimates of unemployment range from 50 to 80%.
Up to 1m Mozambicans are estimated to be working legally and illegally as migrant workers in South Africa -- mainly from the three southern provinces of Inhambane, Gaza and Maputo. Most work in the South African mining industry, but also in agriculture, construction and industry. The numbers recruited by the South African mines have decreased over time, partly because of political tensions between the two countries, but mainly because of economic constraints facing the mines, especially shrinking gold reserves. Remittances by wage workers (US$38m in 1999) have always been an important source of foreign exchange earnings for Mozambique, the impact of which is thought to be higher than indicated by official data.
Agriculture, fishing and forestry
Agricultural potential is high, particularly in the fertile northern regions, which accounts for the bulk of the country's agricultural surplus. The main cash crops are sugar, copra, cashew nuts, tea, and tobacco. Total sugar production is expected to rise by 160% in 2001, which if achieved will make the country a net exporter for the first time in 18 years. All the plantations and refineries have been privatized.
Marine products, particularly prawns, are Mozambique's largest single export. There is an abundance of marine resources that are not fully exploited.
The return of internally displaced persons and the gradual restoration of rural markets have enabled Mozambique to increase agricultural production dramatically.
Mining and semi-processing
There are large mineral deposits, but exploration has been constrained by the civil war and poor infrastructure. The World Bank has estimated that there is the potential for exports worth US$200m by 2005 – they currently total US$3.6m, some 1% of total exports, and a contribution of less than 2% of GDP. The development of geological database is one of the constraints, which is currently being addressed. Minerals currently being mined include marble, bentonite, coal, gold, bauxite, granite and gemstones. Illegal exports from artisanal production are estimated at being as high as US$50m.
Manufacturing
Although very well developed during the 1960s and 1970s, industrialisation declined rapidly with the decline of most Portuguese after independence. Since 1995 production has increased sharply and is expected to grow by 33% in 2001 due to the expansion (costing US$860m) of the Mozal aluminium smelter which was approved in mid-2001. The country’s largest ever foreign investment, Mozal has little impact on employment, but is making a substantial contribution to balance of payments through taxes generated. Exports generated in the first quarter of 2001 were worth US$85.3, the primary factor for the 172% expansion in Mozambique’s exports for the period. Completion of the smelter in 2004 is expected to result in aluminium accounting for up to 70% of exports. Construction materials, agricultural processing, beverages and consumer goods were the main sub-sectors.
Tourism
This sector declined sharply after independence, but picked up in the mid-1990s although it is still performing well below potential. The national strategy is to promote high-value, low-volume tourism. The first section of the“Peace Park” initiative which links with Kruger Park in South Africa, and Gonarezhou in Zimbabwe, is expected to open in early 2002.
Note: International drugs experts claim that drugs are now one of the country’s most prominent exports. First identified in the mid-1990s, Mozambique has now become a major transit centre for international illegal-drugs trade. Local earnings are estimated at between US$30m and US$60m per year.
Government finance and fiscal policy
From an earlier position (in the 1980’s) of central government control of the economy, Mozambique has initiated rapid reforms in recent years, accelerating the implementation of market-based economic policies, and committing to a policy of fiscal and monetary discipline.
In 1995 the government introduced its medium-term economic growth, strategy which it continues to pursue. Key priorities of the strategy are those of maintaining macroeconomic stability, promoting poverty reduction through greater prioritisation of health, education, agriculture and social assistance (especially in the rural areas), and establishing an environment for rapid economic growth and private-sector development. Public-sector reform remains a government priority.
Foreign Aid and Donors
The IMF has supported Mozambique’s sustained adjustment efforts since 1990– first under the Structural Adjustment Facility, and then by three arrangements under the Enhanced Structural Adjustment Facility. In April 1999 Mozambique qualified for assistance under the Initiative for Heavily Indebted Poor Countries (HIPC) conditional upon adequate progress in implementing social policies and on successful reviews of IMF supported programmes. In September 2001 the IMF and World Bank agreed that the necessary steps had been taken, Mozambique thereby becoming the third country to reach its completion point under the HIPC initiative. Total debt service relief under the HIPC Initiative will amount to amount US$3.8bn, reducing total external debt by some 73 percent, and debt-service as a percentage of government revenue from 23 percent to around 10 percent over 2000-2010 and 7 percent from 2011-2020. Resources made available by debt relief will be allocated to anti-poverty programmes.
In 2000 the World Bank established a two-year reconstruction programme following an assessment of flood damage, estimated at $495m in direct damages, indirect costs and relief costs.
Regional and International economic grouping/alliances:
- African Union
- Southern African Development Community (SADC)
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