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 mineral resources and newly discovered natural gas offshore; three deep seaports; and a relatively large potential pool of labor. It is also strategically located; four of the six countries it borders are landlocked, and hence dependent on Mozambique as a conduit to global markets. Mozambique’s strong ties to the region’s economic engine, South Africa, underscore the importance of its economic, political, and social development to the stability and growth of Southern Africa as a whole.
The Front for the Liberation of Mozambique (Frelimo) and the Mozambican National Resistance (Renamo)
Meanwhile, the government is grappling with a new, low-level so-called Islamic insurgency in parts of the gas-rich province of Cabo-Delgado. While localized, the risk that it will spread to other areas of the province and the country should not be underestimated.
Last year’s municipal elections confirmed Frelimo dominance. Renamo gained ground, winning eight municipalities out of 58, the most it has ever held. MDM lost all the municipalities under its control but one.
Presidential, legislative, and provincial elections are scheduled for October 2019. It’s expected that for the first time, provincial governors will emerge from provincial elections. This would be a radical departure from the current situation where provincial governors are appointed at the central level as members of the executive branch. Mozambique is currently defined as an “authoritarian regime,” with a rating of less than four out of 10 possible points, according to the most recent Democracy Index of the Economist Intelligence Unit (EIU). The report indicates a sharp drop in the ranking of the country’s electoral process due to “irregularities and violence against members of the opposition during and after the municipal elections held in October 2018.”
Mozambique continues in a slow growth trajectory that followed the 2016 hidden debt crisis. Macroeconomic conditions are improving, but the economic performance is yet to revert to the pre-crisis levels. Real gross domestic product (GDP) growth is estimated at 3.3% in 2018, down from 3.7% in 2017 and 3.8% in 2016. This is well below the 7% GDP growth achieved on average between 2011 and 2015. Small and medium enterprises have fallen back and their capacity to generate jobs has been restricted even further as credit supply and demand for goods and services remains constrained. A slight recovery in growth is expected, projections sit around 4% of GDP for 2019 and may be higher in the medium term if gas production investments are materialized.
Inflation has eased to 3.5% roughly the pre-crisis levels, supported by a cautious monetary policy stance, stable currency, and stable food prices.
Debt levels remain unsustainably high. External debt declined from 103.7% of GDP at end-2016 to an estimated 85.2% by end-2017, mainly due to the appreciation of the metical. In the meantime, central government domestic debt levels have increased due to budget financing needs. Further, contingent liabilities and debt costs continue to arrive from state-owned enterprises under operational and financial difficulties. Mozambique continues to be in default of its Eurobond and the two previously undisclosed loans. The government reached an agreement in principle with 60% of the Eurobond holders but final closure is still pending and may take time due to revived public appeals for the cancelation of this debt following the revelation of illegalities surrounding the borrowing process.
The main challenges include maintaining the macroeconomic stability considering exposure to commodity price fluctuations and upcoming general elections, and reestablishing confidence through improved economic governance and increased transparency, including the transparent handling of the hidden debt investigation. Moreover, structural reforms are needed in support of the currently struggling private sector.
Another major challenge for the economy 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, which could
lastupdated: Mar 28, 2019