Mozambique borders Tanzania, Malawi, Zambia, Zimbabwe, South Africa, and Swaziland. Its long Indian Ocean coastline (of 2,500 kilometers) faces east to Madagascar. About 70% of its population of 28 million (2016) live and work in rural areas. It is endowed with ample arable land, water, energy, as well as newly discovered natural gas and mineral resources offshore; three, deep seaports; and a relatively large potential pool of labor. It is also strategically located, with four of the six countries it borders landlocked and hence dependent on it as a conduit to global markets.
Mozambique’s strong ties to the region’s economic engine, South Africa, underscore the importance its economic, political, and social development to the stability and growth of Southern Africa as a whole.
Mozambique’s political landscape bears the scars from the 15-year civil war that followed independence from Portugal in the 1970s, leaving the country and its economy in ruins. The former rebel movements, the Front for the Liberation of Mozambique (Frelimo) and the Mozambican National Resistance (Renamo), today remain the country’s main political forces, followed by the Mozambique Democratic Movement (MDM). While Frelimo won the most recent presidential elections in 2014, and retains a comfortable majority in parliament, the two main opposition parties, Renamo and MDM, have both gained ground.
Renamo has maintained armed militias and from time to time parts of the center of the country have witnessed active conflict between its residual militia and Mozambique’s armed forces. Peace talks between the two parties have gathered momentum in 2017, however. President Filipe Nyusi met Renamo leader, Afonso Dhlakama, in August. Working groups are developing recommendations on decentralization and military affairs for endorsement by parliament, set for February 2018. Meanwhile, the ruling party’s congress in September 2017 marked an important political milestone in the
The Mozambican economy is showing some signs of recovery after a difficult 2016, which saw a sharp slowdown in growth and shocks to both the country’s currency and to inflation. First quarter GDP growth in 2017 picked up to 2.9%, more than double the growth rate of the preceding quarter. The metical, which had been steadily depreciating in the first ten months of 2016, is now more stable, having strengthened by 28% against the US dollar in the last 9 months. A strong monetary policy was key to this shift, which also helped inflation to slowly begin easing by mid-2017. Strengthening prices for coal, aluminum, and gas, a post-el Niño recovery in agriculture, and progress in the peace talks, could steer growth to 4.6% in 2017, and toward 7% by the end of the decade.
Inflation remains very high at 18%, with direct implications for Mozambican households, and for monetary policy seeking to ensure a stable price environment. Monetary policy has remained tight and has supported a significant adjustment in the external sector. Mozambique’s reference lending rate is now amongst the highest in sub-Saharan Africa, however, and average commercial bank lending rates in the region of 30% are prohibitively high for much of the private sector. A stronger exchange rate, easing inflation, and lower credit levels suggest that the monetary policy cycle could begin to loosen as the economy continues to adjust. However, making this transition smoothly will require a coordinated and robust fiscal policy response.
Without progress in the debt restructuring process to date, the country’s debt position remains untenable. The wage bill continues to be a significant source of pressure, whilst recent cuts to the investment budget are affecting the economic and social sectors, potentially worsening the composition of the budget. Fiscal risks, particularly from some of Mozambique’s large State-Owned Enterprises (SOEs), are materializing and may compromise recovery efforts if not managed proactively.
Mozambique’s overarching development challenge is to translate its impressive performance in terms of economic growth to poverty reduction and improved development outcomes. While rapid growth and poverty reduction went largely hand in hand immediately after the civil war, the pace of poverty reduction slowed significantly after 2003. The explanation for this lies in the pattern of growth, which has been increasingly driven by large, capital intensive public and private investment projects with limited links to the rest of the economy. This has benefited relatively few people living in urban areas and has been accompanied by little sustained formal employment.
The result has been increasing inequality and a markedly uneven distribution of poverty, left concentrated in rural areas and among illiterate female-headed households. The challenge is to diversify away from the current focus on capital-intensive projects and low-productivity subsistence agriculture toward a more diverse and competitive economy, all the while strengthening the key drivers of inclusion, such as improved quality education and health service delivery.
Improving social indicators is also an important challenge. Malaria remains the most common cause of death in Mozambique, responsible for 35% of child mortality and 29% for the general population. HIV prevalence among adults shows a downward trend, stabilizing at a relatively high rate of 11.5%. In education, a 2013 national assessment revealed that only 6.3% of Grade 3 students show required reading skills. The social progress index for access to improved sources of water and sanitation ranks Mozambique 128th and 119th, respectively, out of 135 countries. Indeed, Mozambique has one of the lowest levels of water consumption in the world despite being endowed with a variety of water sources.
Last Updated: Oct 11, 2017