Mozambique

Mozambique weathered the global financial crisis relatively well, maintaining strong, if lower growth than in 2008 while inflation was subdued. The limited exposure of the country’s banking system to international financial markets minimised the direct impact of the global crisis.  Supportive government measures, such as fuel subsidies, helped sustain growth together with an increase in agricultural output.

Gross domestic product (GDP) growth fell to 5.4% in 2009 from 6.8% in 2008, which was better than IMF estimates for around 4.5% but below the government’s target of 6.7%.  Growth continued to be driven mainly by large foreign investment in mineral resources and services while the agro-industry, energy and construction sectors benefited from strong donor support. Growth is expected to pick up to 5.8% in 2010 and 6.1% in 2011, strong but still below trend because of the impact of the global financial crisis on exports and commodity prices; a fall in remittances, especially from mining workers in South Africa; and weaker FDI.

The economy’s structure has changed dramatically in recent years, reflecting the impact of the foreign-owned “mega-projects” in the mining sector.  This has been positive for overall growth in Mozambique but raises the risk of a two-tier economy.  Moreover, such foreign-owned projects have increased Mozambique’s dependency on external resources and consequently increased its vulnerability while failing to deliver sufficient linkages for the rest of the private sector and poverty reduction.  In addition, such foreign-owned projects still do not contribute significantly to government revenue, limiting the public finances and shifting the burden to domestic businesses. Despite these limitations, Mozambique has moved up five places in the 2010 World Bank’s Doing Business report thanks to significant reforms put in place in recent years.  Rigid labour laws and the land use code remain major constraints.

One of the key challenges for the government is to strengthen its fiscal position which continues to be constrained by weak revenue-raising capacity, high spending pressures and heavy reliance on foreign grants.  The government has undertaken reforms to expand the fiscal base and improve the collection of customs duties.  In the medium term expenditure plans will continue to be scaled up, targeting key priority sectors (namely education, health, infrastructures, agriculture and rural development; and good governance) which account for 65.% of total spending.  Further improvements through the successful roll-out of the State Financial Management System (SISTAFE) and improved efficiency at the recently established revenue administration authority may increase Mozambique’s revenue generating capacity.

Mozambique remains among the poorest countries on the African continent despite rapid GDP growth rates in the past five years.  The poverty rate has declined from 69.4% of the population in 1997 to 54.1% in 2003 and this is expected to decline further to 45% in 2009. Overall, development indicators have improved during recent years but basic challenges remain daunting, such as improving the quality of education and health services and the fight against HIV/AIDS.  

In 2009, GDP growth slowed to 5.4%, reflecting a fall in private capital flows, remittances and foreign aid coupled with an unfavourable external trade position.  As the global financial crisis undercut demand and credit, some of the major mining projects were delayed or postponed, among them Titanium Corridor Sands, and coal exports from Chibuto and Moatize.

The government continued to implement its Poverty Reduction Strategy Paper (PARPA, 2006-2010) with a focus on improving the country’s infrastructure. As a result, key investments were made in the construction sector in 2009 -- the upgrade of Maputo International Airport; completion of the Armando Emilio Guebuza Bridge to link the south and centre with the north; implementation of a 506 million US dollar (USD) basic infrastructure project in four provinces (Nampula, Cabo Delgado, Niassa and Zambezia); and the completion of the Vanduzi-Changara road to improve links between Manica and Tete provinces.  

Two major coal mining investments began -- the Moatize project led by Brazil’s Vale, and the Benga mine involving the Australian company Riversdale and the Indian conglomerate Tata.

The 2008/09 agriculture season suffered from late planting and pest infestation, especially in the central region.  Food production was below forecasts, particularly for maize, cassava, beans and groundnuts which were up only 8.8% rather than the 14.5% expected. The result was that more than 450 000 people faced food shortages in 2009.  Sugar production, meanwhile, increased on the back of a USD 300 million investment by South African and Mauritian interests in the rehabilitation and partial privatisation of four sugar-processing plants in Maputo and Sofala provinces.  This enabled the country to become a net exporter of sugar.  From January to September 2009, Mozambique exported 84 000 tons of sugar to European Union preferential markets but this was down 39% from 2008 levels, reflecting the overall decline in demand on global commodity markets.

In March 2009, the government approved a National Policy and Strategy for Biofuels aimed at reducing the country’s dependency on imported oil.  The first ethanol plant in Mozambique, inaugurated in 2007, received some USD 510 million from the United Kingdom and currently produces 120 million litres of ethanol per year. Two more large ethanol projects were approved in 2008 and others are awaiting clearance.  Meanwhile, the government cancelled a 30 000 hectares land concession for a massive biofuels investment led by the British multinational firm CAMEC and local investors, due to their inability to comply with Mozambique’s 1997 Land Law.  Overall, it is estimated that even with modest biofuels expansion to cover about 450 000 hectares, the industry will generate substantial benefits, among them 150 000 new jobs.

 

Industry’s share of GDP has expanded sharply from 19% in 1999 to 31% in 2009, largely due to the large foreign-owned projects.  Industrial sector exports are estimated to account for more than 70% of exports, compared with virtually nil in the late 1990s. Among the largest projects is the Mozal aluminium smelter in Maputo province, built with a USD 2.1 billion investment by Australian and South African interests and which now accounts for half of all manufacturing output and has made Mozambique one of the world’s leading exporters of aluminium.  Other large investments were made in the Cahora Bassa hydroelectric plant and the Sasol gas pipeline to South Africa.  Industrial output, however, dropped 5.2% in 2009, in particular in gas and titanium heavy sands production.

Several foreign companies are exploring for oil in the Rovuma Basin and at Inhaminga, in the central province of Sofala. So far, the results have been inconclusive.  Mozambique  applied for membership of the Extractive Industries Transparency Initiative (EITI) in 2008 and significant progress has been made in preparing the National Action Plan for EITI country validation which is expected in 2011.  Donors support this initiative as it should improve transparency in the management of natural resources and accelerate reforms to reduce the cost of doing business.  

Coal is the most dynamic mining sector.  The government signed a deal with Australian company Riversdale for a coal mine in Benga, in central Tete province.  The company plans to invest USD 800 million and the mine will have annual capacity of 20 million tons, with production expected to start in 2010.  In addition, Brazilian mining giant Vale, which in 2004 won a license to exploit coal reserves for 25 years, is also expected to start production this year. Its investment is estimated at USD 1.26 billion to produce 40 million tons of coal a year, most of which will feed its Brazilian steel plants.   The company also plans to develop a coal-fired power plant with capacity of 1 500 MW. The Moatize basin contains at least 2.4 billion tons of coal and Vale believes it is one of the last great unexploited coal reserves in the world. 

The construction sector also continues to grow, benefiting from the large foreign-owned projects as well as donor-funded infrastructure rehabilitation and some private sector investment. Further expansion is expected in 2010 with several large projects in the pipeline -- construction of the USD 112 million Nacala International Airport by the Brazilian company Odebretch; an investment of USD 1.6 billion on a railway link to Nacala port in the northern province of  Nampula; and the ongoing Corridor Sands titanium development.  The energy sector has attracted both private and public investment.   For the period 2007-17, the country is spending USD 1 billion on an electrification programme.  New power facilities are planned for Moamba, Mpanda Nkuwa, Cahora Bassa Norte, Lupata, Moatize and Benga. A Center-South (Backbone) transmission link will increase reliability of energy supply domestically and offer outlets to neighbours Botswana, Malawi and  Zimbabwe.  

The communications sector will continue to expand due to massive investments in equipment driven by mobile telephony, a market expected to grow 22.7% in 2010 which is dominated by M-Cel and its South African rival Vodacom.  Telecommunications of Mozambique (TDM) has also embarked on an ambitious project to restructure its national network.  A link with the East African Submarine Optical Fibre System (EASSY) will ensure reliable connections between Mozambique and the rest of the world, allowing for lower charges.  TDM also plans to cover all districts with basic telecommunications services (data, voice and internet), drawing financial assistance from the Chinese government.

Domestic demand continued to be driven by investment.  In 2009, public investment and private consumption accounted for more than half of total GDP growth and this trend is expected to continue as the second wave of projects in mining, refining, infrastructure and energy sectors become operational.  Private investment is expected to grow significantly in 2010 and beyond as some delayed projects such as the Titanium Corridor Sands and the Moatize and Benga coal developments get under way.  Government consumption also grew in 2009 and will continue to do so in 2010, due mostly to the recruitment of 11 500 teachers, 138 doctors and the training of 1 135 health staff.  Private consumption, which is the largest component of GDP, grew 5.9% in 2009 but this will likely fall to 3.7% in 2010 because of the ending of fuel subsidies and lower agricultural productivity.  This measure is projected to pick up again to 5.9% of GDP in 2011, largely due to increased agriculture production and rising incomes.

Despite strong exports of electricity and traditional products (tobacco, sugar, timber and prawns), external demand deteriorated in 2009 as aluminium demand faltered in the global downturn.  Export prices are expected to increase in 2010 and 2011, reflecting the recovery of the global economy.  Higher oil prices may at the same time increase the import bill, as will the need for capital goods for the large extractive projects.

Mozambique has achieved sustainable macroeconomic stability through prudent fiscal and monetary policies as mandated by the 2006-09 PARPA and the recently approved IMF Policy Support Instrument (PSI) which replaced the Poverty Reduction and Growth Facility (PRGF) that expired in July 2007.  Mozambique’s Action Plan for Relief of Absolute Poverty (PARPA II) includes investment in infrastructure and reforms to boost revenue and ease the cost  of doing business while ensuring price and exchange rate stability.

Fiscal policy in 2009 continued to aim for 65% of spending on priority areas -- basic infrastructure, agriculture, water and sanitation, education and health -- in line with PARPA II, and the implementation of measures to offset the impact of the global financial crisis.  Among such measures, the government put in place an expenditure rationalisation plan that is expected to generate savings of about USD 108 million.  Mozambique also obtained USD 170 million from the IMF’s Exogenous Shock Facility (ESF) in order to boost its foreign reserve position.

Tax revenues as a percentage of GDP are put at 14.3% in 2009, 14.7% in 2010 and 15.3% in 2011, with grants at 9.9%, 10.9% and 10.8%, respectively.  The authorities’ commitment to implement the new Mining and Petroleum Fiscal Regime laws and adherence to EITI principles are expected to improve efficiency and transparency in revenue collection.  

The government increased spending substantially in 2009, in particular on public sector wages and priority social sectors (health, education, infrastructure, agriculture), a third of which was financed by donor contributions.  Capital expenditure rose to 12.5% of GDP in 2009 and is projected to rise to 13.3% and 13.4% in 2010 and 2011, respectively.  The roll-out of SISTAFE to all state bodies and 50 district administrations, together with the expansion of the fiscal base and the approval of the new tax code for small and medium-sized enterprises (SMEs), helped improve spending management.  Reflecting the government’s increased spending commitments, the budget deficit jumped to 5.7% of GDP in 2009 but this should narrow to 3.3% in 2010 and then further to 2.2% in 2011.

In 2010, Overseas Development Aid is expected to finance 47% of government expenditure, down from 56% in 2008. This in part reflects increasing government efforts to reduce such dependency and improve revenue collection.   About 46.4% of ODA to Mozambique in 2010 is expected to take the form of direct budget support.  The group of 19 donors who provide direct budget support to Mozambique – led by the European Union, the World Bank, the  United Kingdom and Sweden – is expected to confirm pledges worth USD 766 million in 2010 which would represent a slight decrease from 2009.  Three-quarters of 2010 ODA will be in grants and the remainder in loans.

Program Aid Partners (PAP) questioned the government’s ability to sustain fuel subsidies over the long term and after a review of expected revenues and spending, based on various economic growth scenarios, the authorities agreed to end the policy by March 2010.

Inflation continued to autumn 2009, hitting 3.4%, a 10-year low compared with the government target of 8% as set out in its Economic and Social Plan (PES).  Lower oil and food prices on international markets coupled with gains in agricultural output plus fuel subsidies dampened domestic cost pressures.

The Mozambican metical (MZN) experienced a modest depreciation against the dollar during the global financial turmoil and it could continue as world developments weigh on foreign payments and investment inflows.  In the medium term, the prospect of sustained large capital inflows should prevent sustained weakening although competitiveness measures suggest some depreciation could be beneficial.

Looking beyond the global downturn and its beneficial disinflationary impacts, it will be hard for the authorities to keep inflation below high single-digit levels, given the likely return of higher oil prices, currency depreciation and the possibility of sustained capital inflows boosting money supply.  In order to reduce inflationary pressures, the Bank of Mozambique is expected to continue a tight monetary policy in 2010, restraining broad money growth to below 16% and reducing liquidity through the issuance of Treasury bills and the sale of foreign exchange.  The central bank’s benchmark standing lending facility and standing borrowing facility rates at 11.5% and 3.0% were unchanged through 2009.

In recent years, Mozambique’s current account has benefited from strong export growth, notably in aluminum, as commodity prices boomed, with the extractive industries accounting for two-thirds of shipments overseas.  Imports have also increased rapidly, reflecting still-limited domestic supply and the equipment needs of the large mining projects.

The financial crisis hit Mozambique hardest in the external accounts with export receipts declining by 26% from their 2008 level due to falling global demand and commodity prices. The most afflicted sectors were agriculture and fisheries, manufacturing and mining which experienced significant reduction in export value and volumes by December 2009 as follows: timber (-37.5 per cent); shrimp (-66.7 per cent); cashew nuts (-64.4 per cent); gas (-29 per cent); aluminium (-47.3 per cent); cotton (-47.8 per cent); tobacco (-14 per cent). The economic slowdown also resulted in 837 job losses as a consequence of output reductions.

The trade balance deteriorated sharply in 2009, showing a deficit equal to 20.3% of GDP from 12% in 2008 as exports tumbled to 18.5% from 29.4% of GDP while imports were much less affected, slipping to 38.8% from 41.5%.  The 2009 current account showed an estimated deficit equal to 14.2% of GDP, up from 12.2% in 2008, but it is projected to narrow to 12.3% in 2010 and to 9.5% in 2011.  Lower oil prices may help the position along with reduced profit repatriation. There is some downside risk to remittance transfers due to the downturn in South Africa’s mining sector.  On the financial account, FDI could also suffer due to the adverse global context.  Foreign reserves are expected to remain at five months import coverage through to 2011.

The country continued to participate actively in negotiations under the Southern African Development Community (SADC) and Economic Partnership Agreements (EPA) with the European Union as part of an interim agreement signed in 2007.  A key achievement of these negotiations has been to preserve preferential trade agreements by keeping them consistent with WTO rules.  In addition, Mozambique continued talks with the United States under the Trade and Investment Framework Agreement (TIFA) in order to increase the potential for growth through the African Growth Opportunity Act (AGOA).

Net government debt was almost halved in 2006 as a result of the multilateral debt relief initiative (MDRI).  Net general government debt as a percentage of GDP is estimated at 28% in 2009 and it is expected to remain stable around this level.  Total debt service in 2009 came to USD 123.7 million, over two thirds of which was paid on domestic debt.  Domestic debt stood at 8%  of total debt in 2009,  including treasury bills issued by the central bank on behalf of the government for foreign currency sterilisation purposes.  Compared with concessional lending, the cost of domestic debt is relatively high and will need closer monitoring in the next few years. 

Mozambique improved its business environment in 2009 as reflected in the 2010 Doing Business report where its ranking improved to 135 from 140 in 2008, out of 183 countries reviewed.  Reforms to starting a business largely explain this change.  Under a new framework, the procedures required have been reduced to 10, close to the average in Sub-Saharan Africa.  The time taken to start a business was lowered to 26 days, compared to an average of 45.6 days in Sub-Saharan Africa.  Most importantly, there is now no minimal capital requirement to set up a business, whereas MZN 10 000 was required previously.  At the same time, labour hiring regulations were also relaxed.

The banking sector proved largely resilient to the global financial crisis in 2009, largely because of its limited integration with international capital markets.  Additionally, the central bank had previously put in place regulations compliant with International Financial Reporting Standards (IFRS) that helped ensure the sector was well capitalised and liquid.  The ratio of non-performing loans is low, at between 1% and 2%.

Mozambique has higher intermediation costs than other SADC countries because of high fees and large interest rate spreads.  A working group of the commercial banks and the central bank has identified measures to make the sector more competitive.  As a result, new legislation on intermediation costs came into effect in August 2009 which standardised fees and commission charges, and increased transparency in favor of consumer choice.  It also increased to 12 the number of bank services without charge, with the fee on accounts eliminated.  

In 2009, the commercial banks were cautious but continued to expand, setting up new branches in suburban areas and in Tete, Nampula and Zambeze which have benefited from a good harvest year.  Out of 128 districts in Mozambique, 44% have bank branches but their distribution is heavily weighted toward urban areas at the expense of the countryside.  Three million people out of a population of 21 million had a bank account in 2009, mostly among the middle and upper class.  New technologies will be necessary to deliver banking services to the lower income and rural population.

In 2009, the government reformed public sector wages, introducing a system to evaluate performance relative to pay. A new government plan for 2010-15 supports decentralisation, enabling districts to manage and allocate their budget through the overall financial management information system.  Salary payments were decentralised at the district level in 2008, with goods and services procurement following in 2009.  

Overall access to electricity increased to 17% of the population in 2009 from 14% in 2005.  Of the energy generated by the Cahora Bassa Hydro Electric (HCB) plant, 900 MW is consumed by the Mozal aluminium smelter in Maputo, leaving 400-450 MW for the rest of the country.  As a result, almost all the energy generated by HCB is already allocated.  A strategic plan for energy was developed in 2009 to increase production through five generation projects and transmission infrastructure.  The plan also addresses the problem of structural energy shortages in the SADC region.

New generation capacity of 6 000 MW is planned in northern Tete province, with another 2 400 MW to come from the Mpanda Uncua hydroelectric plant on the Zambezi River.  It is also planned to boost HCB output by nearly 50% to 2 925 MW via a USD 403 million programme while a feasibility study for two thermal power stations funded by Australian and Brazilian investors was finalised in 2009.  A transmission line is planned to link the north and south.

Several rail projects are planned to be operational in 2010, mostly linked to the extractive industry, such as the transport of coal from Moatize to Beira.  Maritime transport experienced a 32% fall in revenues in 2009 due to the departure of a company that accounted for 50% of traffic. Port concessions are to be revised since there are delays on payments and not enough investment in infrastructure.  In 2010, the government plans to license a new airline operator.

By December 2009, all district capitals were covered by mobile communications, two years ahead of schedule, with a new mobile licence to be granted in 2010.  The SEACOM fibre-optic submarine cable is accessible through a landing station in Maputo.  Another such link, to EASSY, will be available from June 2010, with its services more easily accessible and affordable for smaller companies.

The government is revising its 2005-15 strategic plan on the environment to account for climate change, looking at the experience of India and several Gulf countries in combating desertification.  Following a sharp spike in food prices, the government approved a USD 400 million strategic plan in 2007 that prioritises the cultivation of maize, rice, wheat, soya, sweet potato and manioc.  Out of the three planned strategies -- distribution of seeds and tractors, distribution of fertilisers and irrigation -- the first was partly implemented during the 2008/09 season.  Seeds were delivered to selected producers and this, together with adequate rainfall, resulted in surplus production in the north and central areas.  Storage facilities, commercial services and local roads are included in the plan but the N1 link is not in an adequate state to allow food to be transported from the north to the south.      

Total tax revenues in Mozambique increased from 10.5% of GDP in 1998 to 14.2% in 2008, in part due to the reform of the tax system over the period.  In terms of paying taxes, the Doing Business survey ranked the country 98.   By category, direct taxes accounted for 33.8% of the total tax take in 2008, with indirect taxes at 53.2% and trade taxes 10.7%.  For the same year, direct taxes were equal to 2% of GDP, indirect taxes 7.4% and trade levies 1.5%.  By 2008, personal income tax proceeds were 2.5% of GDP and corporate tax 2.4%, up from 0.8% and 0.7% in 1999, respectively.  VAT as a percentage of GDP increased to 5.4% in 2008 from 3.9% in 1999.  The government plans no further major reforms on tax for the moment as the changes already made are bearing fruit.  At the same time, the cost of tax administration relative to tax revenue is one of the highest in sub-Saharan Africa.

Under the 2009 Code of Fiscal Benefits, 10 categories of investment are exempt from customs duty and VAT, partial tax holidays and additional provisions such as accelerated depreciation and deductions for professional training. The categories include: investment in public infrastructure, rural commerce and industry, manufacturing and assembly industries, agriculture and fisheries, hotels and tourism, science and technology, parks, large-scale projects, rapid development zones, industrial free zones and special economic zones.  The government also introduced a Simplified Tax for Small Contributors (ISPC) system to ease the burden on taxpayers.  For example, SMEs can now pay their tax once or twice a year instead of monthly.

In 2006, the government established the Revenue Authority by merging its tax and customs departments.  By 2009 the authority employed 2 700 agents. The United Kingdom, Belgium, Germany and Switzerland provide aid of EUR 4.5 million each year for tax administration.  The reconciliation of taxes by the central government is still done manually and an electronic tax system will not be in place before 2012.

Tax exemptions already granted to previous major projects will not be revised. These foreign-owned projects account for up to 12% of GDP but less than 3% of tax revenues and 3% of employment. It is estimated that a 30% tax on profits on the three ‘mega-projects’ in Mozambique would be sufficient to offset donor budget support.  The 2009 General Tax Law, however, does end the special low-rate regime for new large projects and increases taxation on mining and petroleum.  A 25% tax break over eight years for mining investment was also eliminated. New large mining projects could eventually allow Mozambique to increase tax revenues so as to replace aid flows, which by 2009 accounted for around 80% of on- and off-budget expenditures.  Mozambique was accepted in June 2009 as a candidate country for EITI, which audits major projects such as those in the mining sector with the aim of increasing transparency.

The government has tried to improve the speed of cross-border exchanges, especially with South Africa, with payments to be made electronically in future.  Up to 2009, imports and exports were checked manually but the government is now putting in place electronic scanners to increase efficiency although companies will have to pay USD 100 per container. The government is also willing to set up other one-stop control points on the borders with Zimbabwe, Malawi and Tanzania.    

The ruling party Frente de Libertação de Moçambique (Frelimo) that has been in power for 23 years, won the legislative, presidential and provincial elections held in October 2009.  Frelimo won 192 out of 250 seats in the National Assembly, increasing its representation in parliament by 20%. The Mozambique National Resistance (Renamo) ran second with 48 seats, down from the 90 won in 2004.  The Mozambique Democratic Movement (MDM) established in March 2009 by former Renamo members came third with eight seats, below the level required to have official party status in the assembly.

In the presidential elections, President Armando Emílio Guebuza from Frelimo won 77% of the votes, followed by Afonso Dhlakama of Renamo with 14% and David Simango of the MDM on 9%.  Guebuza was re-elected for a second and last term in office.  Frelimo also won Mozambique’s first provincial assembly elections with more than 70% of the vote.

There were some civil disturbances in 2009, with riots sparked by the high cost of transportation and concerns over health policies which it was feared would jeopardise HIV treatments.  Some isolated riots also preceded the elections, with a few people injured.  Out of the 19 political parties that took part in the national and provincial polls, only Frelimo and Renamo successfully filed nomination papers to contest every constituency for the 250 seats in the National Assembly.  Some 750 certificates of residence would have had to be processed at the district level to cover all the prospective candidates but only 1 or 2 could be processed per day. As a result, 16 political parties contested the election results to the National Electoral Commission (CNE) but no action followed.

The government’s poverty reduction policy sets targets in line with the Millennium Development Goals (MDGs).  While progress is evident in some of the MDGs, Mozambique is unlikely to halve the proportion of those suffering from hunger by 2015 (MDG1) because of drought, floods and structural constraints.  Poverty levels in Mozambique remain high in spite of the sustained strong GDP growth over most of the past decade.  In the south and central regions, the population still suffers from food insecurity due to structural constraints.

The last Human Development Index (HDI) reading for Mozambique ranked the country 172 out of 182.  There has been some progress in education, with student numbers from primary school to university jumping to 6 million by 2008 from 4 million in 2005.  Primary school enrolment alone rose to 4.2 million from 3.7 million in that period.  There are 1 000 new teachers per year in training.

The current budget allocates 20% of spending to education and 17 donors contribute via the Common Fund of Education.  The government plans to increase the number of secondary schools so as to reduce class sizes and bring facilities nearer to students, especially in rural areas. Secondary school enrolment was limited at just over 616 000 students in 2008 and even though this marked a more than 50% increase from 2004, there were still not enough places.

The number of health centres and rural and general hospitals has grown steadily since 2003 but Mozambique continues to have one of the lowest staffed health sectors in the world, with only 1 doctor per 30 000 inhabitants and 1 nurse per 15 000.  Until recently, there were only 20-25 new doctors per year graduating from the single university that offered a medical degree.  By 2009, 4 universities offered medical degrees, with 140 new doctors graduating per year.  There were problems with medicine supplies during 2009 but the health sector continues to get roughly the same percentage of GDP for its budget, meaning that it increasingly relies on donors.

In November 2008, the government approved a new strategy on HIV which focuses on prevention of new infections.  Groups at higher risk were identified and tests are now done locally, avoiding the need for patients to go to special centres which also lessens the risk of social stigma.  A 5-year plan will be launched in 2010 based on the results of studies in 2009 that showed the HIV prevalence rate overall falling to 15% from 16% in 2007.  In northern areas, it appears to have stabilised around 7% and in central areas around 16%, but in the south it has risen to about 25%.  Some 40% of those infected follow treatment.  A factory built by Brazil to provide generic HIV/AIDS treatments is now operational, with the drugs available for free in public hospitals.