Tapping great potential
After its independence in 1975 Mozambique went through 16 years of civil war (ending in 1992), followed by a period of poor economic performance before turning around in 1995. Mozambique has since attracted significant FDI to its “megaprojects,” generating faster economic growth. The share of agriculture in GDP has fallen, but still contributes about a third of output. Manufacturing has maintained a slow upward trend thanks mainly to the megaprojects. And services have emerged as the largest sector.
Exports have increased in recent years but remain concentrated in a small number of products. In 2011 aluminum ingots, electric current, and fruits and nuts made up 60% of the country’s exports. More recently Mozambique has become Africa’s second largest exporter of coal, with plans to increase production and exports.
The economy has been highly dependent on aluminum exports (about 45% of total exports) and thus dependent on aluminum prices. Agriculture contributes slightly less than a third of total output and employs about 80% of labor force. Export performance has been impressive, as the share of exports in GDP doubled from 14% to 30%, raising the relative export intensity of production from 0.62 in the 1990s to 1.07 in the 2000s.
Mozambique’s real GDP growth was 7.4% in 2012. The progressive increase in coal production and the implementation of large infrastructure projects are expected to drive growth above 8% in 2013 and 2014. But unemployment is still high, estimated at 19% of the economically active. Poverty and income inequality remain high. In 2008, the latest year with data, the $1.25 a day poverty rate was 60%, down from 81% in 1996, and the Gini index of inequality was 45.7, up from 44.5 in 1996.
Since independence, Mozambique has suffered prolonged periods of instability. And since the signing of the 1992 Peace Agreement, Mozambique has held relatively peaceful elections (in 1994, 1999, 2005, and 2009), though the last one was marked by tension. Mozambique suffers from a deficit of technical capacity in the civil service, which limits the state’s ability to design and implement adequate development and transformation strategies. It is estimated that only 9% of public servants have higher education, while 42% have basic education and 26% elementary.
Mozambique’s economic planning is incremental. Donors play a large role in its design and implementation, and it suffers from weak internal demand for accountability (through parliament and civil society) to improve public finance management. But the government is improving the planning process to allocate resources based on priorities and outputs. It is also promoting the creation of higher education institutions to strengthen institutional capacity.
Mozambique’s performance on the World Bank’s Doing Business Index has been inconsistent and poor. In 2012 it was ranked 139th of 183 countries. But Mozambique is doing relatively well in protecting investors and starting a business. Global competitiveness is low, which does not favor private sector development. The country ranked 133rd of 142 countries on the 2011–12 Global Competitiveness Index. Weak institutions, poor infrastructure, and low educational levels are the main factors reducing competitiveness. Its institutions, infrastructure, financial markets, and technological readiness do not support a competitive economy. Mozambique also suffers from a weak macroeconomic environment.
The government has recently promoted private sector development. The Institute for Promotion of Small and Medium Sized Enterprises was created in 2008, and a new law for public-private partnerships was passed in 2011. The Mozambique Confederation of Economic Associations, a private umbrella organization of various economic associations, undertakes independent studies and reviews its member priorities.
Given its coastal location, abundant natural and mineral resources, and unexplored potential in agriculture, Mozambique can embark on a wide range of opportunities in agriculture, tourism, and extractive industries. It also has an advantage in maritime transport that can serve neighboring landlocked countries.
Cotton and cashew nuts have the most promise for expanding exports. Intensive in labor, the two crops can be major sources of income for the majority of rural population, and if linked to light manufacturing, their beneficial spillover effects could be considerably high.
Cotton farming involves more than 100,000 producers, 70% of them family-based enterprises. The companies operating in cotton production employ about 4,700 people. Adding textile and garment industries makes the scenario look even more promising in terms of economic transformation. Some estimates show that the textile industry could employ, with existing capacity, more than 15,000 workers, 20% of them at Textile of Mocuba.
The cashew subsector is not much different from the cotton subsector. Cashew growing involves around 1 million people, all in rural areas. The cashew industry employed 8,200 nonfarm workers in 2010.
Significant FDI flows have boosted manufacturing prospects. Megaprojects should link with the rest of the economy and create jobs. Providing farmers with affordable agricultural inputs and investing in infrastructure and skills should be high priorities for Mozambican policymakers.
Mozambique’s growth with depth
- Transformation—11th of 21. Mozambique’s progress has been encouraging. It ranked 15th in 2000 (1999–2001) and improved to 11th in 2010 (2009–11), moving ahead of Ghana, Benin, Malawi, and Tanzania.
- Growth. GDP per capita growth has been impressive since the war ended in 1992. From 1993 to 2000 average GDP growth was 5.7%, with per capita growth at 3.1%. In 2001–10 GDP growth accelerated to an average of 6.4% a year, with a corresponding jump in per capita growth to 4.1%.
- Diversification—10th. Mozambique’s rank on diversification in 2010 was the same as in 2000. The share of manufacturing in GDP in 2010 was 13.7%. The top 5 exports—aluminum, electric current, fruits and nuts, natural and manufactured gas, and unmanufactured tobacco— made up around 70% of merchandise exports and the top 10 about 89% in 2010. The share of manufacturing and services in total exports was 23% in 2010.
- Export competitiveness—5th. Mozambique’s rank improved significantly, moving from 16th in 2000 to 5th 2010, mainly due to the expansion of electric power exports and the electric power–intensive exports from the megaprojects. Its competitiveness ratio, or the relative export intensity of production, rose from 0.61 in 2000 to 0.87 in 2010.
- Productivity—11th. Mozambique improved from 13th in 2000 to 11th in 2010. Manufacturing value added per worker (in 2005 US$) increased from $15,594 in 2000 to $34,102 in 2010, while productivity in agriculture, proxied by cereal yields, rose from 911 kilograms per hectare in 2000 to 1,042 in 2010.
- Technology—10th. Mozambique’s technology rank remained unchanged from 2000. The share of medium and high technology in exports is low, at 4% in 2000 and 6% in 2010, while the share in production is around 16%.
- Human well-being—17th. Despite significant growth in per capita income in the 2000s, Mozambique’s per capita income is very low—$824 in 2010 (PPP 2005 US$)—and so is the level of formal and nonvulnerable employment— around 12%. Mozambique’s 17th rank on human well-being in 2010 was a drop from its 15th rank in 2000.