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Mozambique

Authors : Andre Almeida Santos, Glenda Gallardo, Manuel Filipe

  • GDP growth declined to 4.3% in 2016 due to fiscal tightening, slowdown in foreign direct investment and the “hidden” debt crisis; it is expected to pick up to 5.5%, driven by exports from the extractives sector.
  • Though the incidence of poverty has declined, the number of poor people remains almost the same, amidst growing inequalities.
  • A weak manufacturing sector employs just 3.2% of the population, and is made up of small and micro-enterprises (90%).

Growth in real gross domestic product (GDP) is estimated at 4.3% in 2016 reflecting Mozambique’s vulnerabilities. Traditional export earnings dropped due to depressed global demand, and the El Niño drought affected agricultural production while the economy faced logistical constraints related to internal military conflict. Weak foreign-currency inflows – as gas megaprojects were stalled and external partners suspended budget support – have left the economy to its restricted internal financing capacity. Monetary tightening contracted internal demand, and imports were curtailed by further depreciation of the metical (MZN). A pick-up in coal and electricity exports, together with the expected start of an offshore natural-gas project, should help growth to increase to 5.5% in 2017 and 6.8% in 2018.

In the aftermath of the USD 1.4 billion hidden-debt disclosure in 2016, Mozambique became Africa’s most indebted country, classified by the International Monetary Fund (IMF) to be in debt distress and by rating agencies in restricted default. With potentially large revenues from liquefied natural gas (LNG) projects still in the future, in the short term the country faces a liquidity crisis to balance its external accounts and finance its fiscal deficits. A credible fiscal tightening stance is crucial to ensure debt sustainability, hinging on the restructuring of its commercial debt. The necessary political resolve will face internal resistance, particularly to addressing governance and accountability issues, and settling the political-military conflict. In the medium term, diversification of the domestic productive base is the pathway to economic resilience and inclusive development. Recent poverty data reveals slow poverty reduction but growing inequalities amongst regions, and between urban and rural populations.

Thanks to large inflows of foreign direct investment (FDI) since 2000, aluminium, coal and gas now constitute the country’s industrial backbone, with the natural gas sub-sector poised to become the main industrial cluster. These are mostly export-oriented industries, however, with limited value addition. The rest of the manufacturing sector has mainly stagnated, with the exception of food, drinks, tobacco and cement. Since independence in 1975, traditional industries such as ceramics, tea, cashew, metalworking and textiles have disappeared or become residual. In 2016, the government approved a new industrial strategy aimed at using industry as the main vehicle to prosperity.

Mozambique

Press release

Unlock the potential of African entrepreneurs for accelerating Africa’s industrial transformation, says the African Economic Outlook 2017

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