Situation and Cooperation

Mozambique has one of the fastest-growing economies in Africa. Despite the world­wide eco­nomic and financial crisis, the country has in recent years consistently achieved a growth rate of between seven and eight per cent. Growth of 7.5 per cent is expected in 2011. The government's own economic reforms have been backed up by a structural adjustment programme drawn up by the Inter­national Monetary Fund (IMF) and the World Bank. Amongst other things, the programme involved privatising state-owned enter­prises. More than 1,200 such enter­prises, most of them small, have now been privatised.

Various major projects – particularly in the mining sector – promise to continue boosting Mozambique's economy in future years. The government has removed most of the bureaucratic obstacles to these projects. When it comes to smaller in­vest­ments, however, the country is still considered to be a difficult market. Small and medium-sized companies struggle to do business in the face of inefficient authorities, corruption, poor infrastructure and a lack of access to credit.

Most of the population are not yet benefiting enough from the high rates of economic growth. More than half the population still live below the national poverty line. Urban poverty is just as much of a problem as rural poverty. In September 2010 there was unrest in Maputo and in other towns and cities, triggered by price rises for food, energy and transport. Many people protested against the government's inadequate efforts to tackle poverty and inflation and against the increasing affluence of the elites closely affiliated with policy-makers.

Progress

Despite all these problems, the government's focus on reform and development has already taken the country a long way towards achieving the Millennium Development Goals. Child mortality has fallen significantly: in 1990, 235 out of every 1,000 live-born children died before their fifth birthday, but by 2009 the figure had dropped to 142. Maternal mortality has fallen steadily in recent years. Yet at 550 per 100,000 births, the number of mothers who die during pregnancy or childbirth is still among the highest in the world. This is partly due to the fact that, par­tic­u­lar­ly in rural areas, very few births are attended by a trained midwife, nurse or doctor.

The improvement in the school enrolment rate for six-year-olds is particularly positive: it has risen from 29.6 per cent in 2000 to 80 per cent in 2008. Nonetheless, promotion of primary education remains an important activity area of development cooperation. There are still some 660,000 children in Mozambique who are unable to go to school.

Setbacks

Natural disasters in particular have repeatedly set the country back in its development. Hurricanes cause major damage each year, as does flooding along the rivers that break their banks during the rainy season, which lasts from November to April. In 2000, around one million people lost everything they owned in the floods. The waters destroyed large areas of farmland and much of the infra­struc­ture; repairing the damage has been arduous and expensive.

A chronic problem is the drought that prevails in many parts of the country. Rainfall is becoming increasingly unpredictable and this is having significant adverse impacts on the predominantly rain-fed agriculture. As a result, several hundred thousand Mozambicans are permanently dependent on food aid.

Life expectancy in Mozambique is 48.4 years and is thus among the lowest in the world. Around 40 per cent of the population are classed as malnourished. For many children the struggle to survive begins at birth. The number of children suffering from chronic malnutrition rose from 41 per cent in 2003 to more than 46 per cent in 2006. Experts consider that the weak agricultural sector is the reason for this rise.

The low productivity of domestic agriculture, poor harvests in the wake of natural disasters and the worldwide rise in food prices have repeatedly led to supply shortages and triggered unrest among the population. Following the violent disorder of Sep­tem­ber 2010, the government approved financial aid totalling some 10 million euros to subsidise prices. However, the structural deficits in agriculture and production remain.

Mozambique's imports and exports depend very much on the situation in neighbouring countries. The unstable political situation in neighbouring Zimbabwe, for example, is having a serious impact on Mozambique because it means a considerable reduction in the volume of goods from Zimbabwe passing through Mozambique's ports.

Development potential

Located on the Indian Ocean, Mozambique has a geographical advantage over its neighbours, namely access to the sea. It has traditionally been a corridor for transit from Malawi, Zambia and Zimbabwe. Numerous foreign companies have recognised this potential and extensive investments of up to 800 million US dollars are scheduled for the port of the capital city, Maputo, by 2015.

Mozambique exports electricity from the Cahora Bassa hydro­power station to South Africa, Malawi and Swaziland. The state electricity utility, Electricidade de Moçambique (EDM), has plans to expand its energy exports and to install a power station on the Zambesi river. Construction of the dam, which will be 700 metres long and 90 metres high, was approved by the government in 2010. However, financing the project – which is expected to cost up to three billion US dollars – is proving very difficult.

The most important economic sector in Mozambique is the service sector. This is due above all to the expanding tourism sector. Tourists are particularly attracted by the country's 2,400 ki­lo­metres of Indian Ocean coastline. However, the interior with its wealth of flora and fauna could also draw many visitors in the future. That is why Germany is supporting a promising project that involves the South African Kruger National Park, the Mo­zam­bican Limpopo Park and Zimbabwe's Gonarezhou National Park being amalgamated into one cross-border national park in the region where the borders of the three countries come together. The Great Limpopo Transfrontier Park, as it is to be known, will one day cover an area of 100,000 square kilometres. It will be a huge opportunity for both nature conservation and tourism.

Industry is the second most important sector of the economy. Extensive privatisation, for example in the areas of tele­com­mu­ni­ca­tions, water and energy, has in recent years resulted in foreign investment. This creates jobs, and it is hoped that the formal labour market can be expanded. At present, less than five per cent of the population is employed in the formal sector. If the economy develops successfully, it would become easier to export agricultural products such as cashew nuts, maize and cotton. Sufficient fertile land is available to permit both the development of small-scale farming and an expansion of commercial farms.

The extraction of natural resources such as copper, natural gas or coal offers further opportunities for economic growth. The country's resources are so abundant that in the medium term Mozambique could become independent of external financing and fund poverty reduction programmes itself. Mozambique's biggest mining project is the planned resumption of coal mining near Moatize in Tete Province. In October 2008, the government decided to join the Extractive Industries Transparency Initiative (EITI) and the process is under way. It is hoped that EITI membership will be a step towards checking corruption and nepotism in this sensitive sector.

Debt relief within the scope of the HIPC Initiative and the Multi­lateral Debt Relief Initiative (MDRI) has given the government greater financial scope to implement its development programme. Despite this, Mozambique remains one of the countries most dependent on foreign payments. The proportion of donor funds in the national budget has for some time been around 50 per cent.

Foreign policy

Mozambique is an active member of the Southern African De­vel­op­ment Community (SADC), the most important economic area of sub-Saharan Africa. The country's most important trading partner is South Africa, with which there is a lively exchange of goods and visitors and also a lively dialogue. Mozambique also has diplomatic relations with many other countries throughout the world; relations with the former colonial power Portugal are now friendly, and Mozambique is involved in a range of activities undertaken by the Community of Portuguese-Language Countries (CPLP).

Mozambique is a member of the African Union and of the NEPAD initiative (New Partnership for Africa's Development), which aims to take on more ownership for peace, democracy and economic development on the continent. The African Peer Review Mech­a­nism process got under way in Mozambique at the end of 2006. The final report has now been presented and has been approved by the Mozambican cabinet.

Priority areas of German cooperation with Mozambique

Germany is one of the largest bilateral donors working with Mo­zam­bique. Following the end of the civil war, the main thrust of support by the German gov­ern­ment has focused on promoting the country's re­habi­li­tation, the re­in­te­gra­tion of refugees and the clearance of land mines. In 2000, the focus was on emergency aid following the flood disaster. Today, cooperation between Mo­zam­bique and Ger­many concentrates on implementing the country's poverty reduction strategy (PARP) and strengthening and advising Mozambique's institutions, for example by sup­port­ing the national AIDS council. Tackling HIV/AIDS is an overarching issue of German cooperation with Mozambique, since 11 per cent of Mozambicans between the ages of 15 and 49 are infected.

In addition, the following priority areas of cooperation, which were reaffirmed during government negotiations in May 2009, have been agreed with the government of Mozambique:

• Basic and vocational education

• Decentralisation for rural development

• Sustainable economic development.

Germany has pledged a total of 155 million euros to Mozambique for the period from 2009 to 2011. This includes 38 million euros in budget support. Budget support will be disbursed on the basis of indicators used to assess Mozambique's governance.

Budget support

Mozambique is one of the first countries in the world to receive direct and untied budget support from German development cooperation. Budget support is a form of programme-oriented joint financing and is always provided in consultation with the other donors in the country concerned.

Budget support is only available to partner countries that have a record of good governance and a willingness to pursue reforms. It harmonises the support provided by the various donors so as to strengthen the reform strategies and ownership of the partner country. It creates a positive incentive to implement reforms and gives the partner country a sufficient degree of predictability regarding external funding.

An intensive political dialogue between all concerned is vital to the success of budget support. As part of this dialogue the basic principles of budget support are laid down in a Memorandum of Understanding between the partner country and the donors. Should there be a deterioration in the general political en­vi­ron­ment, the donors can react using a number of political and financial measures, such as delayed payments, full or partial suspension, the ending of payments, reprogramming or the demand for payments to be reimbursed.

The aim in Mozambique is for budget support to make an effective and coordinated contribution to implementation of the national poverty reduction strategy (PARP). In 2004, Mozambique and the then budget support donors signed such a Memorandum of Un­der­standing, which was subsequently updated in 2009. Since 2007, 16 bilateral and three multilateral donors (G19) have been supporting the Mozambique government through general budget support.

In order to monitor the progress of budget support, a mechanism known as the Performance Assessment Framework (PAF) has been developed. The Mozambique government and the G19 have identified aims, actions and indicators for each priority area of the poverty reduction strategy. Using the PAF, they can verify whether budget support is making an effective contribution to poverty reduction.

After the presidential and parliamentary elections of October 2009, the 19 budget support donors urged the Mozambique government to engage in more detailed discussion of issues of good governance. As a result, the government pledged to introduce extensive reform in the areas of electoral legislation, economic governance and measures to reduce corruption. Since that time a portion of the German contribution to general budget support has been made directly dependent upon implementation of these reforms.

Basic and vocational education

The government of Mozambique is striving to achieve the Mil­len­ni­um Goals in the field of education. As far back as 1998 it adopted an Education Sector Strategic Plan, which was updated in 2006. Germany supports this plan. The aim is to give all children the chance of an education, to guarantee the quality of training, and to promote educational institutions. This is im­por­tant, because almost 50 per cent of adults are still unable to read and write, and around 300,000 children have no access to education.

One of the ways in which Germany is supporting Mozambique is through a bilateral school-building programme. The building or re­pair of schools and teachers' housing, combined with efforts to raise parental awareness of the importance of education, is improving access to education in Mozambique. By improving teacher training and introducing an integrated system of training and advice, it is hoped to improve the quality of lessons.

In the past, most of the curricula have failed to take adequate account of pupils' needs. The new education programme en­visages that one fifth of the material covered in lessons will be defined at the local level. In addition, health, peace studies and HIV/AIDS prevention are all to be included on the curriculum. Another focus of cooperation is capacity-building in the ad­min­istrative institutions responsible for education. In this context, Mozambique's own efforts to reform vocational training are being supported in order to increase people's employment op­por­tunities.

A fundamental structural problem in the education sector is still the relatively low level of education. In the medium to long term, even the seven years of primary schooling and improvements in vocational education are expected to yield only modest im­prove­ment. German and international development cooperation will therefore need to make a point of addressing the shortage of secondary schools and opportunities for further education.

Decentralisation for rural development

Rural development is a focus of poverty reduction efforts in Mozam­bique. Almost two thirds of the country's 23 million inhabitants live outside of towns. They work the land using the simplest tools and farming methods. The harvests they bring in are only enough to ensure their family's bare survival. Transport infrastructure in rural areas is poorly developed: exchange between the rural regions and the few centres of industry is therefore virtually impossible.

That is why reforming the system of government and the administrative system is a core aspect of development activities. The aim is to improve the way in which basic social services are delivered to the rural population by devolving powers to local and regional authorities. Germany is supporting these de­cen­tral­i­sa­tion efforts. Together with other donors, such as the World Bank and UNDP, Germany is advocating a joint national programme to decentralise planning and finance.

The overarching objective of the new programme is to improve access to state services and to enhance their quality and efficiency in the country's 128 districts. Public participation and the ac­count­abil­ity and responsibility of the authorities are also to be improved. Germany is also supporting decentralised rural development at the regional and local levels. The process of democratisation is to be boosted by offering the general public more opportunities to participate. Civil society engagement is a way to empower local people, particularly disadvantaged groups. They are then better able to defend their own interests and improve village life.

In the area of disaster risk management Germany is supporting the national agency INGC and the setting up of local disaster pre­pared­ness committees. These committees, established with assistance from Technical Cooperation, prepare the population for disasters and play an important part in damage limitation. This reduces de­pen­dence on external aid in the event of a disaster. As a result, the human and economic cost of recent natural disasters has been much lower than in similar events previously. District administrators on the Limpopo River have reported that this year they have been particularly conscious of the value of the disaster preparedness committees, because they would not have been able to evacuate people without their help.

The disaster risk management system developed with the aid of Technical Cooperation was first put to the test in 2007, when Hurricane Favio struck the Rio Búzi. The approach is now known nationally and internationally as the Búzi model. It is currently being introduced in other parts of the country on the Rios Save, Chire and Licungo. In 2010 the system was also transferred for the first time to the urban context of the town of Beira. There, too, the simple and established strategy focuses on early warning of the population and preparing them for an emergency. This enables people to move themselves and their possessions to safety in good time. In addition, measures taken in urban settlements such as Beira include annual clearance of drainage channels and improved waste disposal in order to ensure better drainage of the large quantities of water and prevent the spread of disease.

Sustainable economic development

The positive economic development in recent years was triggered above all by a number of large-scale projects. They are located in the capital and in its vicinity. Small companies are mostly active in the informal sector, where they play a major role in providing jobs. Nevertheless, in recent years they have received little attention from the Mozambican government.

Germany is supporting the development of the market economy throughout the whole country. In order to create a positive climate for investment, it is helping to improve the legal, political and institutional environment for small and medium-sized en­ter­prises (SMEs) in Mozambique. The development and strength­en­ing of the financial sector is an important aspect here. Commercial banks in Mozambique are very cautious about granting loans; they favour very financially sound and well-known business partners. As a result, micro and small enterprises lack the capital they need for investments. The German contribution aims to make it easier for small and medium-sized enterprises, par­tic­u­larly those in rural areas, to gain access to microfinance and loans. The microfinance bank Pro Credit that was set up with the support of KfW Ent­wick­lungs­bank now has 36,000 customers and is the largest and most innovative institution in this field.

Mozambique's government has also recognised the difficulties that small businesses face and has initiated a range of structural reforms in order to bring down the costs of doing business. In addition, since 2009 German support has promoted the de­vel­op­ment of a mon­i­tor­ing system that assists implementation of the national strategy for improving the business and investment climate. Eight ministries and the central bank now use this system to improve coordination of their efforts in this area.

German activities in this field are closely coordinated with the two other priority areas of cooperation between Mozambique and Ger­many – education and rural development. For example, Ger­many was involved in founding the Banco Terra bank – the first bank in Mozambique to set out to provide financial services for people in rural areas.

Debt relief

In 2001, Mozambique became one of the first countries to benefit from the debt relief granted through the HIPC Initiative. In all, Mozambique has had some 4.3 billion US dollars in foreign debt cancelled. Under the HIPC initiative Germany, too, has completely written off Mozambique's bilateral debts of 128 million US dollars. The fall in debt service payments has enabled Mozambique to significantly increase its expenditure on poverty reduction measures in recent years.

As part of the Multilateral Debt Relief Initiative (MDRI) for successful HIPC countries agreed by the finance ministers of the G8 countries in 2005, the International Monetary Fund, the International Development Association (IDA) of the World Bank and the African Development Fund (AfDF) cancelled other foreign debts amounting to two billion US dollars.