Mozambique - Economy

Overview: The government first embarked on economic reforms in the late 1980s, aiming to undercut the unofficial economy, give real value to the currency and remove administrative hindrances to productive enterprises. Subsidies to state enterprises in deficit were progressively reduced. Food subsidies in urban areas were removed in 1988. After 1989, the government focused on reducing poverty, improving living standards and strengthening the country’s institutions. An ambitious privatisation programme was implemented from the mid-1990s and efficiency in the former state enterprises rose dramatically. Fishing is an important activity and prawns are a major export. Aluminium exports have grown rapidly since the Mozal smelter came on stream in 2000, and large reserves of oil, gas and coal have been found.

Mozambique’s economy has since 1994 been recovering after almost two decades of war and underdevelopment. The government’s reconstruction and reform programme has won approval from the international financial institutions and from donors. Growth from the mid-1990s was very strong and new confidence in the economy began to attract investment. This growth started from a very low base: the country is among the world’s poorest and is heavily dependent on aid, compounded in February 2000 by the disastrous floods, when 650,000 people were made homeless, huge areas of farmland and 30,000 cattle lost, and roads and bridges destroyed, and again in early 2001 – though damage was less severe.

Until 1987, the metical was maintained at an artificially high level and a black market rate of 50 times the official rate developed. Between 1987 and mid-1994 the currency depreciated by 14,000%. Then from the mid-1990s, with continuing strong growth, the metical remained reasonably stable and inflation was brought under control, until it climbed over 10% again in the early 2000s, and monetary policy had to be tightened to stabilise the currency. The strong growth of the 1990s was interrupted briefly in 2000, due to the devastation caused by the extensive floods, and then resumed at 13% in 2001. The Mozambican economy has been increasingly resilient to external shocks. A booming construction sector and continued growth in agricultural production have helped sustain strong economic growth which has averaged 8% p.a. during 2002–06.

Trade: Exports of goods and services account for 30% of GDP and manufactured exports for around 3% of total merchandise exports (2004). Principal exports are aluminium, prawns, electricity (from the Cahora Bassa dam on the Zambezi river) and cotton fibre; principal imports are machinery, transport equipment, fuels and consumer goods. Main trading partners are Belgium, South Africa, Zimbabwe, Spain and Portugal for exports; South Africa, Portugal and the USA for imports. The country signed an interim Economic Partnership Agreement on trade with the EU in 2007, which allows for reciprocal tariff-free goods’ trade with EU countries.