Mozambique

Profile

Almost five centuries as a Portuguese colony came to a close with independence in 1975. Large-scale emigration by whites, economic dependence on South Africa, a severe drought, and a prolonged civil war hindered the country's development until the mid 1990s. The ruling Front for the Liberation of Mozambique (FRELIMO) party formally abandoned Marxism in 1989, and a new constitution the following year provided for multiparty elections and a free market economy. A UN-negotiated peace agreement between FRELIMO and rebel Mozambique National Resistance (RENAMO) forces ended the fighting in 1992.

In December 2004, Mozambique underwent a delicate transition, as Joaquim CHISSANO stepped down after 18 years in office. His elected successor, Armando Emilio GUEBUZA, promised to continue the sound economic policies that have encouraged foreign investment. Mozambique has seen very strong economic growth since the end of the civil war largely due to post-conflict reconstruction.

Geography and climate

Mozambique is situated on the east coast of southern Africa between 11° and 27°S with a coastline of over 1,900 km/1,200 mi and is approximately four times bigger than Britain. It is bordered on the west by Malawi and Zimbabwe, to the north by Tanzania and to the south by South Africa.

Although it extends outside the tropics, in the extreme south, the whole country has a typically tropical climate. The extensive coastal lowlands are warm to hot for most of the year, while the interior plateau and the hills along the border with Malawi and Zimbabwe are mild to warm even in the cooler dry season from April to September.

The warm Mozambique current flows southwards along the coast and is an important influence on the climate of the country. The whole country experiences a single rainy season at the time of high sun, when the inter-tropical belt of cloud and rain is farthest south.

The wettest regions are the highlands on the Malawi and Zimbabwe borders and the southeast coast between Beira and Maputo, which are more exposed to the southeast trade winds throughout the year. Here annual rainfall is between 1,000 mm/40 in and 1,500 mm/60 in. The driest areas are the lowlands inland, particularly the Zambezi valley, with between 500-750 mm/20-30 in. In some places the annual rainfall is as low as 375 mm/15 in.

In the south, most of the rain falls between December and March, but farther north this period lengthens by a few weeks. The coast of northern Mozambique is occasionally affected by tropical cyclones in the Indian Ocean. These move south between Madagascar and the mainland, but the majority passes east of Madagascar and hardly affect Mozambique. These cyclones bring heavy rain and strong winds that can cause extensive damage.

One reason for the comparatively low rainfall over much of the coastal lowlands is the shelter provided by the large mountainous island of Madagascar, which is fully exposed to the moist southeast trades. The eastern side of Madagascar is particularly wet when compared with Mozambique.

Temperatures on the coast and in some lowland regions can be rather sultry and oppressive, and this is made worse by the high humidity during the rainy season. Although the days may be hot inland at higher levels, there is a welcome drop in temperature at night and humidity is lower. Over most of the country the weather is fairly sunny for much of the year with an average of seven to nine hours of sunshine per day.

Resources: Coal, titanium, natural gas, hydropower, tantalum, graphite

Economics

At independence in 1975, Mozambique was one of the world's poorest countries. Socialist mismanagement and a brutal civil war from 1977-92 exacerbated the situation. In 1987, the government embarked on a series of macroeconomic reforms designed to stabilize the economy.

These steps, combined with donor assistance and with political stability since the multi-party elections in 1994, have led to dramatic improvements in the country's growth rate. Inflation was reduced to single digits during the late 1990s, and although it returned to double digits in 2000-06, in 2007 inflation had slowed to 8%, while GDP growth reached 7.5%. Fiscal reforms, including the introduction of a value-added tax and reform of the customs service, have improved the government's revenue collection abilities.

In spite of these gains, Mozambique remains dependent upon foreign assistance for much of its annual budget, and the majority of the population remains below the poverty line. Subsistence agriculture continues to employ the vast majority of the country's work force. A substantial trade imbalance persists although the opening of the Mozal aluminum smelter, the country's largest foreign investment project to date, has increased export earnings.

At the end of 2007, and after years of negotiations, the government took over Portugal's majority share of the Cahora Bassa Hydroelectricity (HCB) company, a dam that was not transferred to Mozambique at independence because of the ensuing civil war and unpaid debts. More power is needed for additional investment projects in titanium extraction and processing and garment manufacturing that could further close the import/export gap.

Mozambique's once substantial foreign debt has been reduced through forgiveness and rescheduling under the IMF's Heavily Indebted Poor Countries (HIPC) and Enhanced HIPC initiatives, and is now at a manageable level.

In July 2007 the Millennium Challenge Corporation (MCC) signed a Compact with Mozambique; the Mozambican government moved rapidly to ratify the Compact and propose a plan for funding.

The World Bank Group is continuing to support Mozambique development. From 2003 – 2007 it funded $ 3.6bn of projects.

The IDA is supporting projects to promote market-led agriculture and rural development: The Market-led Smallholder Development in the Zambezi Valley Project aims to increase the incomes of smallholder farmers through market-led agriculture by supporting smallholder groups and other supply chain participants and by strengthening decentralizes capacity to provide agricultural services.

The IDA is also supporting 8 infrastructure projects including:

Roads and Bridges Management and Maintenance Programs I and 2 support the improvement of roads and bridges, connection of provincial capitals to the trunk road network, strengthening of sector policies, and enhancement of road sector management. It also establishes mechanisms to secure the flow of funds for road maintenance, and for improving road transport safety.

Railway and Ports Restructuring Project supports the restructuring of three port-rail systems and the growth of freight traffic with neighboring countries. It also underpins efforts of the national railway company to be more efficient as well as the Ministry of Transport and Communications’ efforts to strengthen policy formulation. Private participation is emphasized in both rail and port sectors.

Beira Railway Project helps to make rail transport more cost effective and to improve efficiency of freight and passenger traffic in the Zambezi Valley. Through a concession arrangement, the project finances the rehabilitation of 600 km of the Sena Line and 300 km of the Machipanda Line. It also strengthens institutional capacity of the Mozambican Railway Company.

Currency: Meticais, 24.125/$ (08 est), 26.264/$ (07), 25.4/$ (06)
The I.F.C.’s current portfolio totals US$124m consisting of 8 projects in finance, agribusiness, primary metals production, oil and gas and general manufacturing.

The Stock Market

The Maputo Stock Exchange was established in 1999.

Doing Business in Mozambique

Mozambique is ranked 135 out of 183 economies in the World Bank’s Ease of Doing Business Survey

Taxation

Corporate tax is charged at rates between 35% and 45% depending on the size of the business.

Politics & Government

Armando Guebuza, from the ruling Frelimo party, succeeded Mozambique's long-time leader Joaquim Chissano in February 2005. The main opposition party, Renamo, disputed the outcome of the presidential poll and alleged that the election had been rigged. Monitors said irregularities were probably not sufficient to have changed the outcome. Mr Guebuza, a wealthy businessman, said he would continue the economic reforms started by his predecessor. On taking office he promised to fight corruption, bureaucracy and poverty.

His predecessor, Joaquim Chissano, became president in 1986 after the death of founding president, Samora Machel. Mr Chissano oversaw a move away from Marxism and the introduction of a multi-party constitution.