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Economy of Mozambique

From Academic Kids

Economy - overview: At independence in 1975, Mozambique was one of the world's poorest countries. Socialist mismanagement and a brutal civil war from 1977-92 exacerbated the situation. In 1987, the government embarked on a series of macroeconomic reforms designed to stabilize the economy. These steps, combined with donor assistance and with political stability since the multi-party elections in 1994, have led to dramatic improvements in the country's growth rate. Inflation was brought to single digits during the late 1990s although it returned to double digits in 2000-02. Fiscal reforms, including the introduction of a value-added tax and reform of the customs service, have improved the government's revenue collection abilities. In spite of these gains, Mozambique remains dependent upon foreign assistance for much of its annual budget, and the majority of the population remains below the poverty line. Subsistence agriculture continues to employ the vast majority of the country's workforce. A substantial trade imbalance persists although the opening of the MOZAL aluminum smelter, the country's largest foreign investment project to date has increased export earnings. Additional investment projects in titanium extraction and processing and garment manufacturing should further close the import/export gap. Mozambique's once substantial foreign debt has been reduced through forgiveness and rescheduling under the IMF's Heavily Indebted Poor Countries (HIPC) and Enhanced HIPC initiatives, and is now at a manageable level.

Macroeconomic Review
Alleviating poverty. At the end of the civil war in 1992, Mozambique ranked among the poorest countries in the world. It still ranks among the least developed nations with very low socioeconomic indicators. In the last decade, however, it has experienced a notable economic recovery. Per capita GDP in 2000 was estimated at $222; in the mid-1980s, it was $120. With a high foreign debt (originally $5.7 billion at 1998 net present value) and a good track record on economic reform, Mozambique was the first African country to receive debt relief under the initial HIPC (Heavily Indebted Poor Country) Initiative. In April 2000, Mozambique qualified for the Enhanced HIPC program as well and attained its completion point in September 2001. This led to the Paris Club members agreeing in November 2001 to substantially reduce the remaining bilateral debt. This will lead to the complete forgiveness of a considerable volume of bilateral debt, including that owed to the United States.

Rebounding growth. The resettlement of war refugees and successful economic reform have led to a high growth rate: the average growth rate from 1993 to 1999 was 6.7%; from 1997 to 1999, it averaged more than 10% per year. The devastating floods of early 2000 slowed GDP growth to a 2.1%; estimates point to a full recovery in 2001. The government projects the economy to continue to expand between 7%-10% a year for the next 5 years, although rapid expansion in the future hinges on several major foreign investment projects, continued economic reform, and the revival of the agriculture, transportation, and tourism sectors. More than 75% of the population engages in smallscale agriculture, which still suffers from inadequate infrastructure, commercial networks, and investment. Yet 88% of Mozambique's arable land is still uncultivated; focusing economic growth in this sector is a major challenge for the government.

Low inflation. The government's tight control of spending and the money supply, combined with financial sector reform, successfully reduced inflation from 70% in 1994 to less than 5% from 1998-99. Rates spiked in 2000, however, to a rate of 12.7% due to economic disruptions stemming from the devastating floods. Inflation began to increase in the second half of 2001. The value of Mozambique's currency, the Metical, lost nearly 50% of its value against the dollar since December 2000, although in late 2001 it began to stabilize.

Extensive economic reform. Economic reform has been extensive. Over 1,200 state-owned enterprises (mostly small) have been privatized. Preparations for privatization and/or sector liberalization are underway for the remaining parastatals, including telecommunications, electricity, water service, airports, ports, and the railroads. The government frequently selects a strategic foreign investor when privatizing a parastatal. Additionally, customs duties have been reduced, and customs management has been streamlined and reformed. The government introduced a highly successful value-added tax in 1999 as part of its efforts to increase domestic revenues. Plans for 2001-02 include Commercial Code reform; comprehensive judicial reform; financial sector strengthening; continued civil service reform; improved government budget, audit, and inspection capability; and introduction of the private management of water systems in major cities.

Improving trade imbalance. In recent years, the value of imports has surpassed that of exports by almost 2:1, an improvement over the 4:1 ratio of the immediate post-war years. In 2000 imports were $1,217 million, and exports were $723 million. Support programs provided by development partners have largely compensated for balance of payments shortfalls. The medium-term outlook for exports is encouraging, since a number of foreign investment projects should lead to substantial export growth and a better trade balance. MOZAL, a large aluminum smelter that commenced production in mid-2000, has greatly expanded the nation's trade volume. Traditional Mozambican exports include cashews, shrimp, fish, copra, sugar, cotton, tea, and citrus fruits. Most of these industries are being rehabilitated. As well, Mozambique is less dependent on imports for basic food and manufactured goods because of steady increases in local production.

SADC trade protocol. In December 1999, the Council of Ministers approved the Southern African Development Community Trade Protocol (SADC Trade Protocol). The Protocol will create a free trade zone among more than 200 million consumers in the SADC region. Beginning the 10-year implementation process of the SADC Trade Protocol is a major goal for the region in 2002.

GDP: purchasing power parity - $19.2 billion (2002 est.), $18.7 billion (1999 est.)

GDP - real growth rate: 8% (2002 est.), 10% (1999 est.)

GDP - per capita: purchasing power parity - $1,000 (2002, 1999 est.)

GDP - composition by sector:
agriculture: 22% (2001 est.), 34% (1998 est.)
industry: 23% (2001 est.), 18% (1998 est.)
services: 55% (2001 est.), 48% (1998 est.)

Population below poverty line: 70% (2001 est.)

Household income or consumption by percentage share:
lowest 10%: 2.5% (1997)
highest 10%: 31.7% (1997)

Distribution of family income - Gini index: 39.6 (1996-97)

Inflation rate (consumer prices): 15.2% (2002 est.), 4% (1999 est.)

Labor force: 9.2 million (2000 est.)

Labor force - by occupation: agriculture 81%, industry 6%, services 13% (1997 est.)

Unemployment rate: 21% (1997 est.)

Budget:
revenues: $393.1 million (2001 est.), $402 million (1997 est.)
expenditures: $1.025 billion, including capital expenditures of $479.4 million (2001 est.), $799 million (1997 est.)

Industries: food, beverages, chemicals (fertilizer, soap, paints), aluminium, petroleum products, textiles, cement, glass, asbestos, tobacco

Industrial production growth rate: 3.4% (2000), 39% (1997)

Electricity - production: 7,193 GWh (2001), 1,200 GWh (1998)

Electricity - production by source:
fossil fuel: 2.9% (2001), 25% (1998)
hydro: 97.1% (2001), 75% (1998)
nuclear: 0%
other: 0%

Electricity - consumption: 1,390 GWh (2001), 1,018 GWh (1998)

Electricity - exports: 5,800 GWh (2001), 483 GWh (1998)

Electricity - imports: 500 GWh (2001), 385 GWh (1998)

Oil - consumption: 8,500 barrel/day (1,400 m³/d) 2001

Oil - proved reserves: 0 barrel (January 2002 est.)

Natural gas - proved reserves: 63.71 km³ (January 2002 est.)

Agriculture - products: cotton, cashew nuts, sugar cane, tea, cassava (tapioca), maize, coconuts, sisal, citrus and tropical fruits; potatoes, sunflowers, beef, poultry

Exports: $680 million f.o.b. (2002 est.), $300 million (f.o.b., 1999 est.)

Exports - commodities: aluminum, prawns, cashews, cotton, sugar, citrus, timber; bulk electricity (2001)

Exports - partners: South Africa 15.3%, Zimbabwe 5.3%, Japan 4.2%, Portugal 4.0%, Spain (2001),

Spain 17%, South Africa 16%, Portugal 12%, United States 10%, Japan, Malawi, India, Zimbabwe (1996 est.)

Imports: $1.18 billion c.i.f. (2002 est.), $1.6 billion (c.i.f., 1999 est.)

Imports - commodities: machinery and equipment, vehicles, fuel, chemicals, metal products, foodstuffs, textiles (2001)

Imports - partners: South Africa 40.5%, Portugal 8.4%, US 1.8%, UK, 1.1%, Australia (2001),

South Africa 55%, Zimbabwe 7%, Saudi Arabia 5%, Portugal 4%, United States, Japan, India (1996 est.)

Debt - external: $966 million (2002 est.), $4.8 billion (1999)

Economic aid - recipient: $632.8 million (2001), $1.115 billion (1995)

Currency: 1 metical (Mt) = 100 centavos

Exchange rates: meticais (Mt) per US$1 - 13,392.0 (January 2000), 12,775.1 (1999), 11,874.6 (1998), 11.543.6 (1997), 11,293.8 (1996), 9,024.3 (1995)

Fiscal year: calendar year

See also

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