Mozambique’s transition from a post-conflict country to one of Africa’s “frontier economies” has been nothing short of impressive. Economic growth has been bolstered by important Foreign Direct Investments (FDI) into the burgeoning energy and natural resources sectors, among others. The country has become a world-class destination for mining and natural gas developments. The country’s achievement of Extractive Industry Transparency Initiative (EITI) compliance status is an important milestone in the country’s economic management of natural resources. Alongside its natural resources, Mozambique’s long coastline positions it as a natural gateway to global markets for neighboring land-locked countries.
Mozambique continues to enjoy strong economic growth, projected at over 8% of gross domestic product (GDP) in 2014. Led by investments in its extractive industries, Mozambique has been growing at over 7% of GDP over the past three years. Growth is projected to accelerate in 2014 due to a rebound from the 2013 floods and continued investments in its extractive industries and large infrastructure investments. However, lower commodity prices (in particular coal) pose a downside risk to growth. Inflation remained low and stable over the past two years (4% at the end of 2013), which has allowed the central bank to ease monetary policy. Monetary easing has led to strong credit growth, although market rates have not followed the decline in policy rates.
Mozambique’s current account deficit, projected at 46% in 2014, is to a large extent financed by FDI inflows. The current account deficit has widened in the past few years, as FDI into the extractive industries (coal, gas) led to a surge in imports. The deficit will remain high during the construction phase of the gas industries in the North of the country and will only narrow as the construction phase comes to an end and exports of LNG commence toward the end of the decade.
Mozambique has increased public spending at a rapid pace, and public spending as a share of GDP is projected at 41% in 2014. The rapid increase in public spending can be explained by large public investments (public investment is estimated at 16% of GDP in 2014), a surge in the public sector’s wage bill, and spending related to the 2014 general elections. The large increase in public investment has been accompanied by large increase in debt, partly on non-concessional terms. Mozambique has embarked on an ambitious infrastructure investment program to close the large infrastructure gap (transport, energy). Public debt has increased rapidly and is projected to continue increasing, although at a much slower pace, in the medium term.
Following independence from Portugal in June 1975, the country underwent a 16-year armed conflict that ended in 1992. The transition to peace, political stability, and democracy culminated in the country’s first democratic elections in 1994 and the emergence of the Front for the Liberation of Mozambique (FRELIMO) as the dominant political force in the country, a fact that still holds true today.
General Elections (Presidential, Legislative, Provincial) are scheduled for October 15th 2014. These will take place almost a year following the municipal elections of November 2013, which propelled to the national stage a third political force, MDM, which won important municipal towns and cities, including the strategic cities of Beira, Nampula, and Quelimane, the second, third and fourth largest cities in the country respectively, as well as the small town of Gurué, thus signaling a more contested general elections this year. A recent peace agreement with Renamo, a former rebel group and the largest opposition party, and its subsequent interest in joining the elections campaign alongside Frelimo and MDM, all point to peaceful elections. Note that a year ago, Renamo had boycotted and refused to take part in the municipal elections.
Mozambique’s rapid economic expansion over the past twenty years has had only a moderate impact on poverty reduction, and the geographical distribution of poverty remains largely unchanged. In 2013 Mozambique’s per capita income was $593, less than one-third of the Sub-Saharan Africa (SSA) average. Economic growth in the 1990s was accompanied by a significant drop in poverty rates, but since the early 2000s the link between growth and poverty reduction has weakened; between 2004 and 2009 poverty fell by only four percentage points to 52%. The weakened relationship between growth and poverty reduction is due to the changing pattern of growth, which in the past decade was driven by capital-intensive, import-dependent sectors and individual megaprojects.
As in many other resource-rich countries, it will be challenging to manage natural resources and maximize the benefits for Mozambique. Effectively utilizing resource wealth poses complex challenges for macroeconomic and fiscal policy. Mozambique also faces enormous challenges in improving social indicators. Mozambique ranked 178th out of 187 countries in the UN Human Development Index (HDI) in 2014. The adult literacy rate is 56%, and average life expectancy at birth is just 50 years. Malnutrition significantly worsened between the mid-1990s and 2003 and it took almost a decade for malnutrition to return to the mid-1990s levels. Malaria remains the most common cause of death, responsible for 35 percent of child mortality. Limited progress has been achieved in improving water and sanitation and alleviating hunger and malnutrition. Nevertheless, Mozambique has made important progress in some areas. School enrollment rates—and gender parity in enrollment—have increased dramatically over the past decade, while infant and maternal mortality rates have consistently declined.
World Bank Group (WBG) Assistance
Since 1984, the WBG has been providing development assistance to Mozambique in accordance with the country’s needs and priorities, from economic stabilization in the 1980s, to post-war reconstruction in the early 1990s, to a comprehensive support strategy in the late 1990s, to the current Country Partnership Strategy (CPS) for FY2012-2015, which involves close collaboration with the government, development partners, and civil society to ensure sustainable and inclusive growth.
Like the current WBG Africa Regional Strategy, the CPS has two cross-cutting pillars and a foundation:
- Competitiveness and employment. In view of structural issues and growth and poverty trends, the World Bank looks to help improve the regulatory environment; prioritize investments through spatial planning; enhance agricultural productivity and employment in potential growth sectors; improve provision of transport, water, energy, and other infrastructure; and promote an educated, skilled, and healthy workforce.
- Vulnerability and resilience. Given the country's susceptibility to idiosyncratic and exogenous shocks, the Bank aims to help improve health services for the vulnerable; strengthen social protection; and encourage climate change adaptation and reduce vulnerability to natural disasters.
- Governance and public sector capacity. Key to achieving the country's development objectives is improved public financial management, particularly at the sector and local levels; improved citizen participation in service delivery monitoring; greater contribution of wildlife conservation to the economy; and improved transparency in extractive industries.
The next Country Partnership Framework (CPF), which will replace the CPS, is planned for FY16.
World Bank Group Lending
The WBG, through its International Development Association (IDA), has invested over $4 billion in projects and programs in Mozambique to date, and its current portfolio is comprised of 23 projects with an overall net commitment of approximately $1.5 billion and distributed across all major sectors, including budget support, transport infrastructure, energy, water and sanitation, agriculture, business environment and small-medium enterprise (SME) support, decentralization, governance and municipal development, education, health, safety nets, and climate change. In addition, there are currently 53 Trust Funded-operations with total allocation of $222 million.
World Bank Group Non-Lending
Mozambique benefits from an important number of analytic work and technical assistance that are prepared in collaboration with the Mozambique government, development partners, and other stakeholders, and are widely disseminated once completed. The financing for these studies is from the World Bank’s administrative budget as well as from other development partners. In addition to country-specific activities, the World Bank offers a range of regional and global knowledge products relevant to Mozambique, including the Doing Business annual survey and report, and the Africa Development Indicators report that provides macroeconomic, sectoral, and social indicators of 53 countries. Recently the WBG launched a Development Dialogue Series, set to be its knowledge sharing platform through which the Bank experts interact with local institutions and the society in general as it disseminates but also prepares its knowledge products.
The International Finance Corporation, IFC
Mozambique also benefits from the International Finance Corporation’s support in Africa in the areas of tourism, mining and energy, and financial services. This support encompasses the cross-cutting issues of mobilization of both local and foreign direct investment to key sectors of the economy; improving private sector access to finance; developing infrastructure; improving the investment climate; increasing linkages between large investments and the local economy; increasing private sector awareness of HIV/AIDS issues; and supporting private sector involvement in the water sector. IFC’s main investments have been in the Mozal aluminum smelter near Maputo, and the Mozambique-South Africa gas pipeline.
The Multilateral Investment Guarantee Agency, MIGA
Mozambique is one of MIGA's largest host countries. MIGA cooperated with IDA in relation to the previous IDA-funded Enterprise Development Project (PoDE) by providing assistance to Mozambique’s Investment Promotion Center. MIGA is working on several applications for guarantee coverage of investments, and its newest program in Mozambique is a small investment guarantee program for investments of less than $5 million.
Last Updated: Oct 10, 2014