Economy of Mozambique

Although the Portuguese participated in the trading networks of East Africa as early as the 16th century, they did not establish hegemonic (total) colonial dominance over the entire territory that now comprises Mozambique until the 19th century. Portugal founded settlements, trading posts, forts and ports. Cities, towns and villages were founded all over the territory by the Portuguese, like Lourenço Marques, Beira, Vila Pery, Vila Junqueiro, Vila Cabral and Porto Amélia. Others were expanded and developed greatly under Portuguese rule, like Quelimane, Nampula and Sofala. By this time, Mozambique had become a Portuguese colony, but administration was left to the trading companies (like Mozambique Company and Niassa Company) who had received long-term leases from Lisbon. By the mid-1920s, the Portuguese created a highly exploitative and coercive settler economy, in which African natives were forced to work on the fertile lands taken over by Portuguese settlers. Indigenous African peasants mainly produced cash crops designated for sale in the markets of Portugal. Major cash crops included cotton, cashews, tea and rice. This arrangement ended in 1932 after the takeover in Portugal by the new António de Oliveira Salazar government. Thereafter, Mozambique, along with other Portuguese colonies, was put under the direct control of Lisbon. In 1951, it became an overseas province. The economy expanded rapidly during the 1950s and 1960s, attracting thousands of Portuguese settlers to the country. It was around this time that the first nationalist guerrilla groups began to form in Tanzania and other African countries. The strong industrial and agricultural development that did occur throughout the 1950s, 1960s and early 1970s was based on Portuguese development plans, and also included British and South African investment.

In 1959–60, Mozambique's major exports included cotton, cashew nuts, tea, sugar, copra and sisal. The expanding economy of the Portuguese overseas province was fuelled by foreign direct investment, and public investment which included ambitious state-managed development plans. British capital owned two of the large sugar concessions (the third was Portuguese), including the famous Sena states. The Matola Oil Refinery, Procon, was controlled by England and the United States. In 1948 the petroleum concession was given to the Mozambique Gulf Oil Company. At Maotize coal was mined; the industry was chiefly financed by Belgian capital. 60% of the capital of the Compagnie de Charbons de Mozambique was held by the Societe Miniere et Geologique Belge, 30% by the Mozambique Company, and the remaining 10% by the Government of the territory. Three banks were in operation, the Banco Nacional Ultramarino, Portuguese, Barclays Bank, D.C.O., British, and the Banco Totta e Standard de Moçambique (a joint-venture between Standard Bank of South Africa and Banco Totta & Açores of the Portuguese mainland). Nine out of the twenty-three insurance companies were Portuguese. 80% of life-insurance was in the hands of foreign companies which testifies the openness of the economy. The Portuguese overseas province of Mozambique was the first territory of Portugal, including the European mainland, to distribute Coca-Cola. Lately the Lourenço Marques Oil Refinery was established by the Sociedade Nacional de Refinação de Petróleo (SONAREP) - a Franco-Portuguese syndicate. In the sisal plantations Swiss capital was invested, and in copra concerns, a combination of Portuguese, Swiss and French capital was invested. The large availability of capital from both Portuguese and international origin, allied to the wide range of natural resources and the growing urban population, lead to an impressive growth and development of the economy. From the late stages of this notable period of high growth and huge development effort started in the 1950s, was the construction of Cahora Bassa dam by the Portuguese, which started to fill in December 1974 after construction was commenced in 1969.

In the face of intransigent Portuguese ruling authorities, the main nationalist movement, FRELIMO, began a guerrilla war which gradually wrested control of parts of the northernmost regions of the territory from the Portuguese. The Mozambican War of Independence came to an end in 1974 following a leftist military coup in Portugal. The new left-wing government in Lisbon had no wish to maintain an empire and negotiations on the country's independence began immediately. In 1975, after the leftist military coup of 24 April 1974 in Portugal that overthrew the Estado Novo regime which had governed the nation and its overseas territories, the colonial wars that raged in the various Portuguese African territories since the early 1960s ended. At independence, Mozambique's industrial base was well-developed by Sub-Saharan Africa standards, thanks to a boom in investment in the 1960s and early 1970s. Indeed, in 1973, value-added in manufacturing was the sixth highest in Sub-Saharan Africa. However, further industrialisation was stopped by the hasty exodus of 90 percent of the ethnic Portuguese citizens during and after the independence process which was concluded on June 25, 1975. Portuguese population's rapid exodus left the Mozambican economy in disarray. The situation was exacerbated by the Mozambican Civil War (1977–1992) during the following years that destroyed the remaining wealth and left the former Portuguese Overseas Province in a state of disrepair.

GDP per capita (current), compared to neighbouring countries (world average = 100)

Mozambique became an independent state in 1975. The exodus of trained Portuguese and the eruption of the Mozambican Civil War in 1977 opposing RENAMO to FRELIMO, drove the country to absolute chaos. Mozambique became an independent nation and the Frente de Libertacao de Mocambique (FRELIMO), the socialist guerrilla organization that had fought the colonial war against Portugal, assumed power....... Over the next several years, FRELIMO pursued numerous socialist policies, including nationalization of land and large industries, centralized planning, and heavy funding for the national educational and health systems, which however, remained weak for decades in independent Mozambique, and still are among the most ineffective and underfunded in the world. The exodus (mass departure) of the Portuguese following independence in 1975 facilitated the takeover of many shops by Mozambicans. Unfortunately, the exodus, which totaled over 275,000 ethnic Portuguese, also led to a huge loss of professionals, productive machinery, entrepreneurs, and skilled workers. By the early 1980s, Mozambique became what Joseph Hanlon—author of Peace Without Profit: How the IMF Blocks Rebuilding in Mozambique —called a "Cold War battlefield." The term refers to the situation in which socialist FRELIMO, with Soviet backing, was forced to fight a lengthy civil war (Mozambican Civil War) against a counterinsurgency movement of Mozambicans named RENAMO, funded and directed by the neighboring white minority states of apartheid South Africa and Rhodesia. The cold war was defined by animosity between capitalist and socialist world powers, and though there was never an outright military conflict between the former and the latter, each respectively funded counterinsurgency movements against governments they disfavored. The capitalist governments of South Africa and Zimbabwe feared that a successfully ruled African socialist system might send a message of revolution and self-rule to citizens in contemporaneous majority rule African countries, such as their own.

The political pressure of the ideologically charged civil war, in conjunction with the excruciating need for aid and funds to finance imports, compelled FRELIMO to negotiate its first structural adjustment package (SAP) with the World Bank and the International Monetary Fund (IMF) in 1986 (commonly referred to as the Bretton Woods Institutions or International Financial Institutions—IFIs). The series of SAPs that followed thereafter, required privatization of major industries, less government spending, deregulation of the economy, and trade liberalization. The SAPs, therefore, have essentially focused on the implementation of an unfettered free market economy.

Today, the economy of Mozambique continues to be dominated by agriculture. Major exports include prawns, cotton, cashew nuts, sugar, citrus, copra and coconuts, and timber. Export partners, in turn, include Spain, South Africa, Portugal, the United States, Japan, Malawi, India, and Zimbabwe. Imports, such as farm equipment and transport equipment, are capital goods that are worth more than agricultural products, hence Mozambique's large trade deficit. The country also imports food, clothing, and petroleum products. Import partners include South Africa, Zimbabwe, Saudi Arabia, Portugal, the United States, Japan, and India. In the past several years, the value of imports outweighed the value of exports by 5 to 1 or more—a factor that obliges Mozambique to depend heavily on foreign aid and loans by foreign commercial banks and the Bretton Woods Institutions (BWIs). In 1995 alone, Mozambique received $1.115 billion in aid. In 1999, the total external debt stood at $4.8 billion. Fortunately, in the same year significant economic recovery did occur, as the real GDP growth rate reached 10 percent.

The L-shaped recovery with low oil prices in the coming years. Source: RisCura: Bright Africa

Recent oil and gas discoveries across East Africa, most notably in Mozambique and Tanzania, have seen the region emerge as a new player in the global oil and gas Industry.

The discoveries have driven billions of dollars in annual investment to the region.[12] According to BMI estimates, the finds in the last few years are more than that of any other region in the world, and the discoveries are expected to continue for the next few years.[13][14]

In Mozambique, agriculture is the mainstay of the economy and the country has a great potential for growth in the sector. Agriculture employs more than 80 percent of the labour force and provides livelihoods to the vast majority of over 23 million inhabitants. Agriculture contributed 31.5 percent of the GDP in 2009, while commerce and services accounted for 44.9 percent. By contrast, 20 percent of the total export value in 2009 originated from the agriculture sector, mostly through the export of fish (mainly shrimps and prawns), timber, copra, cashew nuts and citrus, cotton, coconuts, tea and tobacco.[15]

Agricultural potential is high, particularly in the fertile northern regions, which accounts for the bulk of the country's agricultural surplus. The main cash crops are sugar, copra, cashew nuts, tea, and tobacco. Total sugar production was expected to rise by 160% in the 2000s, which would make the country a major net exporter for the first time since independence. All the plantations and refineries have been privatized. Marine products, particularly prawns, are Mozambique's largest single export. There is an abundance of marine resources that are not fully exploited. After the Mozambican Civil War, the return of internally displaced persons and the gradual restoration of rural markets have enabled Mozambique to increase agricultural production dramatically.

Mozambique produced, in 2018:

• 8.5 million tons of cassava (9th largest producer in the world);
• 3 million tons of sugarcane;
• 1.6 million tons of maize;
• 625 thousand tons of sweet potato;
• 578 thousand tons of banana;
• 343 thousand tons of tomatoes;
• 273 thousand tons of potato;
• 227 thousand tons of coconut;
• 138 thousand tons of onion;
• 134 thousand tons of rice;
• 108 thousand tons of cashew nuts (11th largest producer in the world);
• 107 thousand tons of peanut;
• 93 thousand tons of tobacco;
• 90 thousand tons of sorghum;
• 89 thousand tons of cowpea;
• 85 thousand tons of castor bean;
• 66 thousand tons of pineapple;
• 65 thousand tons of sesame seed;
• 50 thousand tons of beans;
• 48 thousand tons of cotton;

In addition to smaller productions of other agricultural products.[16]

Mozambique's diverse soils and climatic conditions, influenced by latitude, variations in altitude, topography and the proximity to the coast, offer a wide range of production opportunities; agricultural potential is high despite frequent droughts and floods. Water resources are relatively plentiful and the country is traversed by a number of perennial rivers and enjoys considerable mineral reserves. Nevertheless, Mozambique is a highly indebted, poverty-stricken country.

Mozambique net importer of food. Total annual cereal import requirements average 0.89 million tons (0.14 million of maize, 0.39 of rice and 0.36 of wheat). Mozambique must also import substantial quantities of meat and livestock products.[17]

There are large mineral deposits, but exploration has been constrained by the civil war (1977–1992) and poor infrastructure. The World Bank has estimated that there was the potential for exports worth US$200m by 2005 – in the late 1990s they totaled US$3.6m, some 1% of total exports, and a contribution of less than 2% of GDP. Minerals currently being mined include marble, bentonite, coal, gold, bauxite, granite, titanium and gemstones. Illegal exports from artisanal production are estimated at US$50 million.

Mozambique exported its first batch of coal in 2011 and expects to become the world's largest coal exporter. It is also spending about US$50 billion in infrastructure projects to access its coal reserves. Mozambique is reported to have the fourth largest reserves of natural gas in the world, after Russia, Iran, and Qatar.[18]

Although very well developed during the 1960s and early 1970s, industrialisation declined rapidly with the withdrawal of most Portuguese after independence. Since 1995 production has increased sharply and was expected to grow by 33% in 2001 due to the expansion (costing US$860m) of the Mozal aluminium smelter which was approved in mid-2001. The country's largest ever foreign investment, Mozal has little impact on employment, but is making a substantial contribution to balance of payments through taxes generated. Exports generated in the first quarter of 2001 were worth US$85.3, the primary factor for the 172% expansion in Mozambique's exports for the period. Completion of the smelter resulted in aluminium accounting for up to 70% of exports. Construction materials, agricultural processing, beverages, and consumer goods were the main sub-sectors.

This sector declined sharply after independence from Portugal, but has been developed, although it is still performing well below potential. The national strategy is to promote high-value, low-volume tourism. The first section of the "Peace Park" initiative which links with Kruger Park in South Africa, and Gonarezhou in Zimbabwe, was a project aimed at the development of tourism.

Immediately after a long civil war ended in 1992 the country started to reform telecommunication sector. The mobile sub-sector has experienced excellent growth rates following the introduction of competition in 2003 between Vodacom Mozambique and mCel, the incumbent mobile subsidiary of the national telco, Telecomunicações de Moçambique (TDM). The government is intent on introducing competition to the fixed-line sector as well, but it is hesitating to privatise TDM. All other services are open to competition, subject to licensing by the industry regulator, INCM. Internet usage in the country has been hampered by the inadequate fixed-line infrastructure and the high cost of international bandwidth, but this market sector has started to accelerate following the introduction of various kinds of broadband services including ADSL, cable modems, WiMAX wireless broadband and mobile data services, and then the landing of the first international submarine fibre optic cable in the country (SEACOM) in 2009. Further improvements can be expected from the ongoing rollout of 3G mobile services and a national fibre backbone network as well as the landing of the second international fibre (EASSy) in 2010. The lower cost of bandwidth has already started to trickle down to lower consumer prices in some service segments, while others have remained unchanged.

The banking system, dominated by the Portuguese collapsed after independence in 1975. From an earlier position (in the 1980s) of central government control of the economy, Mozambique has initiated rapid reforms in recent years, accelerating the implementation of market-based economic policies, and committing to a policy of fiscal and monetary discipline. In 1995 the government introduced its medium-term economic growth, strategy which it continues to pursue. Since the late 1990s, both national and international banking, established an environment for rapid economic growth and development of the financial system. On 11 December 2012, the Mozambican Government acquire the Portuguese shares of BNI Banco Nacional de Investimento, owning 100% of the bank and turning it into the country's development bank[19] and nominated a former Governor of the Bank of Mozambique, Adriano Maleiane as CEO.[20]