Recent Developments & Prospects
Economic Cooperation, Regional Integration & Trade
Economic & Political Governance
Public Sector Management, Institutions & Reform
Natural Resource Management & Environment
Thematic analysis: Structural transformation and natural resources
Authors: Andre Almeida-Santos, Luca Monge Roffarello, Manuel Filipe
- In 2013 real GDP posted robust 7% growth, although lower than expected due to severe floods early in the year. The progressive increase in coal production and the implementation of large infrastructure projects, coupled with budgetary expansion, are expected to continue to drive growth, projected at 8.5% in 2014 and 8.2% in 2015.
- The political situation has deteriorated, largely affected by low-intensity confrontations between government and opposition, while the recent deterioration of public financial management and economic governance are of increasing concern.
- The capital-intensive nature of Mozambique's growth has as yet created limited jobs and has had a less-than-desirable impact on poverty reduction. Mozambique remains one of the least developed countries in the world.
Mozambique's economy remained one of the most dynamic on the continent in 2013, with a 7% rate of real gross domestic product (GDP) growth, in spite of the major flooding which occurred during the first quarter and the politico-military low-intensity confrontations between government and the opposition movement. The main drivers of growth are foreign direct investment (FDI), focused mostly on the extractive sector, and increasing public expenditure. The fastest growing sectors in 2013 were the extractive sector, propelled by a boost in coal exports, and the financial sector fuelled by credit expansion and increased income, mostly centred on urban areas. Other dynamic sectors are construction, services, and transport and communication, broadly correlated with infrastructure development and very large-scale projects, known in Mozambique as mega-projects. The agriculture sector, employing 70% of the population, lacks the same economic dynamism, although it is growing at above 4%. Assuming a stable political environment, prospects are positive for 2014 and 2015, with growth forecast to remain above 8%, supported by increased coal production, continued public investment and the forecast start of the preparatory work for the multi-billion dollar liquefied natural gas (LNG) plant.
The Mozambican economy presents little structural transformation, relying mostly on mega-projects in the aluminium, extractive industries and the energy sectors. Its capital intensive nature does not generate enough jobs to provide sufficient opportunities for the fast growing young population. Fiscal revenues cover little more than 65% of the annual budget, while mega-projects benefit from generous fiscal incentives. The weak human capital and the country's deficient infrastructure seriously cripple economic and social development. Increasing public spending on infrastructure and salary increases contributed to the widening fiscal deficit, while the narrow tax base limits revenue collection growth. At the same time, external aid is declining. The rise in external debt levels to fund the public investment programme, particularly from non-concessional borrowing, increases the demand that public investments generate positive economic returns. The misuse of debt to fund poorly performing projects will result in medium- to long-term unbalances.
It is crucial that political stability is maintained so that the country continues to attract FDI that enables infrastructure and human development. Mozambique's current residual role in global value chains (GVCs), mostly limited to the aluminium smelter plant of Mozal, could be transformed by the development of specific industrial clusters related to natural gas and energy. Other sectors, such as the agriculture and light industries, may profit from an enhanced connection with the regional and world markets brought about by these anchor industries. Mozambique has two key opportunities in 2014 to cement its stability and future growth prospects. First is the execution of smooth and orderly presidential elections in October, and second is to attain the final investment decision on the LNG plant. However, the military and political situation is bound to remain uncertain and tense throughout 2014.
Table 1: Macroeconomic indicators
|Real GDP growth||7.2||7||8.5||8.2|
|Real GDP per capita growth||4.7||4.5||6.1||5.8|
|Budget balance % GDP||-3.9||-6.9||-10.8||-11.7|
|Current account balance % GDP||-36||-43.4||-43||-43.1|
Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.