Economy of Mozambique

Economy of Mozambique

The colonial economy was characterized by private monopolies, central planning, and state marketing of key products—all designed to promote capital accumulation by the state, Portuguese settlers, and Portuguese-based commerce and industry. Colonial policy excluded most Africans from highly skilled and managerial positions until the years immediately preceding independence. After independence the Mozambique Liberation Front (Frente de Libertação de Moçambique; Frelimo) government tried to change the colonial economic patterns by nationalizing key properties, promoting African education and training, and breaking up the Portuguese and South Asian hold on commercial distribution. Despite Frelimo’s public stand against ethnic discrimination, Portuguese settlers and South Asian traders—threatened by the government’s economic policies—left by the thousands. Settlers anticipating nationalization abandoned their properties, adding by default to the proportion of the national economy that the state controlled, and large-scale state-run farms and communal and cooperative farming replaced the settler and company plantations. Frelimo’s agricultural undertakings proved unproductive and unmanageable, however, and, in combination with the flight of South Asian merchants and the instability caused by guerrilla warfare, much of the country’s agricultural production, commerce, and distribution system collapsed. In an effort to rebuild the economy, the state ultimately reoriented economic policy in accordance with plans imposed by the International Monetary Fund, which emphasized decentralization and privatization and provided assistance to family farmers.

Although agriculture has been the most widespread economic activity, remittances from migrant labourers in South Africa and revenues from tourism and the country’s port and railway sector have been equally important historically as sources of foreign exchange. While all these sectors declined severely during the 1980s and early ’90s because of civil unrest, they rebounded after the 1992 peace accord, and the industry sector —specifically, resource exploitation, aluminum smelting, and electricity production—also expanded. By the early 21st century, Mozambique had attained a significant amount of economic growth.

• Agriculture, forestry, and fishing

Although agriculture employs about four-fifths of the country’s workforce, it constitutes only about one-fifth of Mozambique’s gross domestic product. Most agricultural production comes from family farming operations, which produce the two staple crops of corn (maize)—in which Mozambique was self-sufficient by 1997—and cassava, as well as beans, rice, and a variety of vegetables and oilseeds such as peanuts (groundnuts), sesame, and sunflowers. Family labour is also responsible for gathering a large part of the cashew nut crop and produces cotton for the local market and for export. Although agricultural output declined in most rural areas during the late 1970s and ’80s, greater social and political stability and favourable climatic conditions led to a marked increase in production in the 1990s. Agricultural performance is particularly vulnerable to natural disasters such as droughts and flooding; in 2000, for example, severe flooding in the central and southern part of the country seriously disrupted agriculture and infrastructure in the affected regions.

Sugar, tea, copra, and sisal, developed as plantation crops during the colonial era, are still produced by private plantations, state farms, government-sponsored cooperatives, and communal villages. Irrigation occurs primarily in the area along the Zambezi River that is irrigated by the Cahora Bassa Dam and in the former settler areas in the south, particularly along the Limpopo River, that are irrigated by schemes developed in the 1950s and ’60s. Production of beef and pork, formerly important, has been surpassed by poultry.

The forests along the Beira railway and in Zambézia province in the north have been exploited since independence as the country’s key source of domestic fuel, firewood, and charcoal, though South African investors are interested in Mozambique’s potential to provide wood for building materials and pulp for paper industries. The country’s forest resources were briefly exploited for both export and local building material during the 1960s and ’70s, but significant hardwood forest reserves have survived deforestation for fuel. More timber is cut than replaced by reforestation initiatives, however, and the long-term ecological effects of eucalyptus plantations are a concern.

Fishing is one area of the economy that is immune to rural insecurity. Mozambique’s offshore waters contain lobster, tuna, mackerel, sardines, and anchovies but are best known for the shrimp (prawns) that are an important export commodity. Since 1973 production and marketing of saltwater fish, shrimp, and shellfish have increased steadily.

• Resources and power

Mozambique’s natural resources remained largely underdeveloped during the 1980s, but, with greater political stability after the peace accord of 1992, investment increased dramatically in a wide range of resource-development projects. The Tete highlands in the west-central region have large bituminous coal reserves at Moatize. Although exploration for oil has been disappointing, the development of large commercially viable natural gas fields at Pande and Temane in Inhambane province has been successful.

Key metallic resources include high-quality iron ore and the rare and important mineral tantalite (the principal ore of tantalum), of which Mozambique has what may be the world’s largest reserves. Gold, bauxite, graphite, marble, bentonite, and limestone are mined and quarried, and sea salt is extracted in coastal areas. Other development efforts have focused on the production of heavy mineral sands in Zambézia province and on a project to mine ilmenite (a major source of titanium) at Moma in Nampula province. Mozambique’s other mineral deposits include manganese, graphite, fluorite, platinum, nickel, uranium, asbestos, and diamonds. Foreign investors have expressed interest in expanding the development of these deposits, especially since the Mozambique government has made foreign investment more attractive.

On the strength of its resources, Mozambique should now be Southern Africa’s most important energy producer and exporter. The country’s postindependence security problems, however, undercut production in everything but refining of imported crude oil near Maputo. The centrepiece of Mozambique’s energy potential is the Cahora Bassa Dam on the upper Zambezi. Financed and constructed by an international consortium at the close of the colonial era, it was designed in cooperation with South Africa’s national power company to produce electricity largely for South Africa, not Mozambique. Upon the completion of the dam in 1974, less than one-tenth of its electrical capacity went to Mozambique, with the rest transmitted to South Africa’s industrial heartland. At the beginning of the 21st century, most of its capacity was still exported, primarily to South Africa. Portugal long held the majority share of ownership in the company that operates Cahora Bassa. After much negotiation, an agreement between Portugal and Mozambique that increased Mozambique’s share of ownership to 85 percent was implemented in 2006.

The entire national electrical grid was targeted by Renamo during the years of political conflict, frustrating efforts to make the best use of the country’s hydroelectric potential and forcing cities to build and improve self-contained facilities. The country was able to repair much of the national electrical grid in the years after the conflict, and at the beginning of the 21st century almost all of Mozambique’s electricity was generated by hydroelectric power. In addition to the Cahora Bassa installation, there are two privately run dams on the Revuè River that produce hydroelectric power.

• Manufacturing

In 1975 Mozambique’s industrial and manufacturing sector was typical of much of colonial Africa, being based largely on minimally processed raw materials for export (shrimp, tea, sugar, cashews, citrus, copra, coal, and cotton) combined with processing and light manufacturing of commodities for local consumption. There was a sharp increase in the local manufacturing capacity from the late 1950s to the early 1970s in response to consumer demand from the burgeoning urban population. The limited development of heavier industry, such as the metalworking and railway equipment sector, was linked to trade, service, and transportation agreements with neighbouring countries.

Although much of Mozambique’s skilled labour and managerial class left the country at the end of colonial rule, industrial production increased modestly until the early 1980s, when manufacturing and construction ground to a virtual halt. By 1990 industrial production had declined by almost two-thirds. Internal conflict interrupted the supply of raw materials from within the country, and soaring debt and diminishing exports combined to strangle Mozambique’s ability to import spare parts and other materials necessary to sustain production. Sabotage and power outages exacerbated the situation.

As the country’s overall social and economic climate improved in the early 1990s, industrial development resumed. Although production levels for the cement industry have not returned to those reached in the late 1970s, other industries are expanding. An ammonia plant opened in the centre of the country in the late 1990s, and a car assembly plant began operation in 2000. A key factor in Mozambique’s economic growth was the opening of an aluminum smelter near Maputo in 2000. It is one of the world’s largest smelters of aluminum, which has become an important export for Mozambique.

• Finance

The Banco de Moçambique issues the national currency, the metical (plural meticais). In 1978 Mozambique nationalized most of its banking assets, but by the mid-1990s the banking sector had been privatized. Mozambique borrowed heavily so that it could fund development, alleviate its shortage of foreign exchange, and, eventually, import basic necessities such as food; by the 1990s debt service was consuming one-fourth of annual foreign exchange earnings. In 1984 Mozambique agreed to join the World Bank and International Monetary Fund (IMF), and in 1987 the government adopted reform programs as a condition for new loans and grants. Owing to Mozambique’s success with economic reform programs, as well as the considerable amount of money it spent on debt servicing, Mozambique benefited from several debt-forgiveness plans beginning in the 1990s and continuing into the early 2000s.

Private and international investment were encouraged in the new economic climate, and by the end of the 1990s and into the 21st century the economy was benefiting from a huge growth in foreign investment. There is a stock exchange (Bolsa de Valores de Moçambique) in Maputo. The state monopoly on insurance ended in 1991.

• Trade

Mozambique’s most important exports by value include aluminum, electricity, shrimp, and cotton, whereas its most important imports by value include fuel, machinery and spare parts, and food products. South Africa is the country’s major trading partner. Other partners include the countries of the European Union. Mozambique’s highly unfavourable balance of trade slowly improved during the 1990s and early 2000s.

• Services

Mozambique’s pleasant climate, beautiful beaches, and Indian Ocean islands made it an attractive vacation destination for neighbouring Rhodesia (now Zimbabwe) and South Africa prior to independence. However, tourism was ruined by the continuing political insecurity that came with the end of colonial rule. With the peace settlement of 1992 and the transition to majority rule governments in Zimbabwe and South Africa, tourism rebounded to the point that more tourists visit Mozambique now than before independence in 1975. Game reserves are being rehabilitated, and Mozambique has developed transnational parks and conservation areas with Swaziland and South Africa.

• Labour and taxation

During the colonial period men often left to take paying jobs in neighbouring countries, and women remained behind to grow cash crops as well as crops for domestic consumption. Although women produced a significant portion of the agricultural products, they did not receive equal pay and rights. The Organization of Mozambican Women (Organização da Mulher Moçambicana; OMM) was founded by Frelimo in 1973 to mobilize women around issues of interest to them. After independence many women moved to the cities to take advantage of new economic opportunities.

Mozambican workers, including women, were guaranteed the right to form trade unions and the right to strike in the 1990 constitution. Numerous trade unions developed, many of which participated in the Organization of Mozambican Workers, a group that has openly criticized the free-market policies of the government.

Government income is derived from taxes on income and goods and services and from customs duties. Mozambique’s tax system was significantly reformed in 1996 and has been modified since then. Such modifications have included the introduction of a value-added tax in 1999 and enhancements made to tax collection and enforcement methods in 2001.

• Transportation and telecommunications

Mozambique’s transportation sector reflects the country’s historical development in relation to its neighbours. The national road, railway, and port sectors were originally developed by the state and chartered companies primarily to service the trade and transport needs of South Africa, Zimbabwe, and Malawi—Mozambique’s western neighbours. Because of this, the country has well-developed east-to-west rail and road systems that link its ports with the key industrial and mining regions of these countries. By contrast, there are few hard-surfaced roads and virtually no railroads oriented north-south.

Mozambique’s potential as a transport centre for the interior is on par with its energy capabilities, with the international ports at Maputo, Beira, and Nacala among the best on the continent. There are also smaller, less developed ports from Pemba in the north to Inhambane in the south. The port and railway complex at Maputo was established at the end of the 19th century in response to the developing gold- and coal-mining industries of Johannesburg and northeastern South Africa. The colonial state managed to link the mining industry’s access to Mozambican contract labour with a commitment to export a substantial fixed portion of the region’s mineral exports through Maputo, thus guaranteeing service and customs revenues for the port. Subsequent rail lines linked Maputo with Swaziland and, in 1955, with the Gweru mining area of Rhodesia (now Zimbabwe).

Beira provides road and rail access to Zimbabwe through what has come to be called the Beira Corridor. It is also linked by rail to Malawi and to the Moatize coal mines near Tete. The rail links from Beira to Zimbabwe and Malawi were originally developed by the Mozambique Company and taken over by the Portuguese colonial government in 1947. When Zimbabwe became independent in 1980, international investors from the United Kingdom took a renewed interest in rehabilitating and upgrading the corridor, which, though closed briefly during the internal conflict, was reopened in 1987 with support from Zimbabwean military patrols.

Nacala, although damaged by a cyclone in the mid-1990s, has the country’s best natural harbour and newest port facilities and is well placed to serve agricultural development in the north. Malawi developed a railway line to connect with Nacala’s port and railway via Zomba, which was refurbished with support from the European Union, Canada, and others and opened in 1993.

Ferry service is available along the lower Zambezi at both Luabo and Marromeu and above Cahora Bassa between Chicoa and Zumbo, an area that lies near the point where Mozambique meets both Zambia and Zimbabwe. Ferries also serve Lake Nyasa, with Mozambican ports at Metangula and Meponda.

Private aircraft were the first to fly regularly in Mozambique, but after World War II Portugal’s national airline opened a route between Beira and Maputo. Eventually colonial Mozambique developed its own airline. It was replaced in 1980 by Mozambique Airlines (Linhas Aéreas de Moçambique; LAM), the national carrier, which also provides international service. Mozambique has a number of domestic airports and international airports at Beira, Vilanculos, and Maputo.

Most of the existing network of internal connecting roads and airstrips in the northern and central areas was developed during the 1960s and ’70s as part of Portugal’s counterinsurgency strategy that emphasized air transportation as an alternate to the less-safe rural roadways. Airline passenger traffic developed in inverse proportion to that of the railways and roads, increasing steadily from the late 1970s as road and railway passage declined in response to the threat of ambush. North-south domestic travel in the country is therefore better served by the airlines than by the more east-west-oriented road or rail system.

Partly in response to long waits for installation of land phone service, the use of cellular telephones expanded rapidly in the early 21st century; Internet use and access, however, were limited and increased at a far slower pace.