What used to be a severely mismanaged economy is now one of the fastest growing economies in the world. Only 20 years after the end of a long civil war following centuries of colonial rule, Mozambique is praised as a standout economy. Discoveries of natural resources such as coal and natural gas make the country’s future look brighter, but will Mozambique be able to control all this newfound richness and make its growth inclusive? With over 50 % of Mozambicans living in poverty, combining economic success with political success is a must.
Considering Mozambique’s history, its current economic development is nothing short of amazing. As late as 1975 the country broke free from almost five centuries of Portuguese colonial rule. Two years later a 15 year long civil war began, in which more than one million people died. A peace agreement was reached in 1992 and the country’s first multi-party election was held as recently as 1994.
The Mozambican economy rose quickly after the end of the civil war and since the elections in 1994, it has with few exceptions been growing at a steady pace. In the decade up until 2010 the economy grew at an average annual rate of 7,2%, last year it grew at the very same rate and growth is expected to remain stable in 2012 and 2013. In its latest report, the IMF praised the Mozambican economy, saying it showed little sign of being affected by the global economic downturn. Also, because of foreign debt reduction under the IMF’s heavily Indebted Poor Countries (HIPC) program, the country’s foreign debt is now at a sustainable level.
A developing coal mining industry and recent discoveries of natural gas off the coast give more reason for optimism. If current estimates are correct, Mozambique is home to the world’s fourth largest natural gas reserves. Thanks to coal mining projects there has been a boost in coal production, and last year Mozambique made its first coal export oversees. Mozambique is a new emerging coal power.
However, while there has been much progress during the past decades, many years will pass before Mozambique has the capacity to extract greater quantities of these natural resources. In order to develop its natural gas industry, the government projects it will need USS50 billion. Furthermore, there is need for more infrastructure investment, which is listed as one of the nation’s main short term challenges along with developing social safety nets, by the African Development Bank Group. So far, infrastructure projects are not keeping up with the pace of demand from industries.
Weak institutions are still an overarching issue and corruption is still significant within both government and business. Even though the result of the last election is said to have reflected the will of the Mozambican people, the electoral process was surrounded by irregularities. As a consequence, Freedom House removed Mozambique from its list of electoral democracies.
Despite a booming economy, growth has yet to benefit most Mozambicans. Poverty reduction has been stagnant since 2003. Today over 50 % of the population find themselves below the national poverty line of about 0,50 USD a day. This, together with a considerable unemployment rate (today at 27 %), caused riots in the capital of Maputo and other parts of the country in September 2010. In response to these riots, the government launched the Action Plan for Reducing Poverty (PARP 2011-14) aiming to reduce poverty to 42 % in 2014 through employment promotion and by increasing agricultural production, focusing on social and human development.
At the same time as there are many obstacles in the way of progress; there are more positive signs. Mozambique ranks in the top 25 highest performers in the world, measured in absolute term increases in relation to key indicators of human and social development, according to the United Nations Development Program (UNDP). Progress has been made concerning business regulations, taxes and customs services, according to Africa Economic Outlook (AEO). Moreover, the nation’s Anti-Corruption Law is also undergoing revision, indicating a political drive for change.
Mozambique needs good governance and sound economic policies to secure a bright future. Focus must be laid on social and human development and policies to make economic gains benefit all Mozambicans through the creation of social safety nets and employment promotion. Investing in infrastructure to keep up speed with the business sector’s demands, together with measures such as the PARP action plan, will hopefully constitute a successful framework for progress.
Wealth of resources can become a curse and has many times led to widespread corruption, division and more poverty, rather than growth and prosperity. Mozambique still has potential to succeed where many countries, not least African, have failed. If all goes well, Mozambique could be on track to become a model country in the region.