Economic situation Problems despite great potential

Between 2011 and 2015, Mozambique's economic growth rate was about seven per cent, making it one of the fastest-growing economies in sub-Saharan Africa. In the following years, that rate dropped to an average of 3.3 per cent. In 2020, gross domestic product fell by 1.2 per cent as a result of the COVID-19 pandemic. In 2021, it grew again by 2.2 per cent.

The pandemic had a particularly severe impact on many micro, small and medium-sized enterprises that were still struggling to cope with the consequences of the two cyclones that had hit Mozambique in the first half of 2019. The International Monetary Fund (IMF) expects that economic growth in 2022 will reach over five per cent again.

Hidden debt scandal

The economic crisis was exacerbated by a debt and corruption scandal. In early 2016 it emerged that Mozambique's government had, in contravention of the constitution, issued government guarantees since 2013 to back loans totalling 1.4 billion US dollars taken out by state-owned companies. Much of this money was embezzled through a large-scale bribery system.

This sparked a crisis of confidence. International donors cut off their budget support to the government and the International Monetary Fund (IMF) suspended its aid programme. The high level of public debt has left the current government with very little financial scope. In the first half of 2022, it agreed a new three-year support programme with the IMF which is intended to help Mozambique return to a trajectory of growth and economic stability.

Coal mining in Mozambique

Coal mining in Mozambique

Coal mining in Mozambique

Economic potential

Mozambique is rich in extractive resources. 2011 saw the discovery of enormous natural gas reserves, in addition to the existing coal deposits. However, extraction is currently being hampered by the conflict in northern Mozambique. The country also has other mineral resources, such as titanium, tantalum, graphite, rare earths, gold, diamonds and uranium.

Mozambique has large areas of arable land with good soil. It therefore has the potential to considerably increase its agricultural production. Most farmers have so far primarily been engaged in subsistence agriculture. The expansion of transport infrastructure also offers development opportunities, as neighbouring Malawi, Zambia and Zimbabwe have traditionally relied on Mozambique's ports for their trade flows.

Tourism is another sector with a great deal of potential. Mozambique's coastline stretches for over 2,700 kilometres along the Indian Ocean, and the country has vast biodiversity. Germany is supporting the Great Limpopo Transfrontier Conservation Area, which offers opportunities for socially and environmentally sustainable tourism.

Mozambique also has great potential in the field of renewable energy. Renewables like solar and wind power, biomass and geothermal energy could be used to serve rural areas which currently have no real access to electric power.

However, the investment climate is poor. Mozambique offers little legal certainty and there is a lack of infrastructure and well-trained workers.

As at: 18/01/2023