Via Future Directions International, a look at how Mozambique – despite consistent economic growth in recent years – will increasingly face the challenges of maximizing its resources wealth, improving fiscal responsibility and increasing political and social stability without impeding economic growth:

Background

The south-east African country of Mozambique has experienced rapid economic expansion over the past two decades. According to the proposed Economic and Social Plan (Plano Económico e Social: PES) which is at the core of the government’s latest five-year plan (Programa Quinquenal 2015-2019), the Mozambican economy is predicted to grow at a rate of 7.5% of Gross Domestic Product (GDP) in 2015. Heavily reliant on Foreign Direct Investment (FDI), the authorities may be forced to postpone natural gas extraction due to licensing issues. Driven by diversification and the development of the natural gas industry, with Anadarko Petroleum and Eni SpA already finding more than 2.8 trillion cubic metres of gas in the Rovuma basin, the largest reserves discovered in a decade, the government will need to implement measures to effectively utilise and benefit from the country’s natural resources.

Comment

According to the country’s National Statistics Institute (Instituto Nacional de Estatística: INE), economic growth in Mozambique averaged 7.38% in 2014. This is a continuation of the seven per cent average growth rate that the country has experienced since 2011, and is a good indication of its economic stability.

In addition to the availability of natural resources, a significant factor behind the economy’s consistent growth is the diversification achieved to date. The primary sector recorded growth of 8.8%, driven by a 14.9% increase in the mining sector. The mining sector has expanded as Mozambique has received international recognition as a world-class destination for mining and natural gas developments. Having a reasonably tax-friendly approach, a ready availability of workers (although largely semi- and unskilled), and with the discovery of the Rovuma basin, Mozambique has attracted US$5.9 billion worth of FDI.^[2] Yet, according to the country’s Centre for Public Integrity, licensing and contract clarity issues may delay the development of Rovuma. With the 30 April deadline approaching, the global drop in oil and gas prices and ongoing government corruption concerns, the number of potential investors may fall. Combined with the current budget deficit, the country’s nascent natural gas industry is likely to suffer, with an accompanying effect on economic forecasts.

The World Bank Group has invested over US$4 billion in projects distributed across the country’s major sectors, including budget support, business and welfare development and energy. A significant driver of economic growth, foreign investment has led to increases in the tertiary and secondary sectors with growth of 8.1% and 7.7% recorded respectively, according to the INE. That the Mozambican economy is so dependent on continued foreign investment is a cause for concern for the government’s economic forecasts.

The political situation in Mozambique is also giving some cause for concern. Despite a peace agreement being reached in September 2014 between the country’s two major political parties, Frelimo and Renamo, the assassination of leading constitutional lawyer Gilles Cistac has again heightened uncertainty. While economic growth has occurred in the recent past despite the relative political instability, the Mozambican economy has reached a point where government direction is needed.

The Mozambican authorities are faced with the challenge of stabilising and strengthening an economy built on foreign investment. They need to implement measures that will effectively utilise the country’s resources wealth, improve fiscal responsibility and increase the transparency of the distribution of that resources wealth if such lofty Five Year Plan goals as sustainable socio-economic development, increased agricultural production and the promotion of both higher and construction-related vocational training programmes are to be realised.