Population 22.457 million
GDP 14.642 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
7.1 |
7.3 |
7.5 |
8.4 |
|
Inflation (yearly average) (%)
|
12.7 |
10.4 |
3.0 |
6.3 |
|
Budget balance (% GDP)*
|
-12.9 |
-12.8 |
-13.4 |
-12.9 |
|
Current account balance (% GDP)
|
-18.1 |
-18.6 |
-16.1 |
-16.7 |
|
Public debt (% GDP)
|
41.1 |
36.8 |
42.0 |
46.2 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Considerable resources: energy (offshore gas, oil), mines (coal, titanium, gold, precious stones), agriculture (cotton, tea, coffee, sugar, cereals)
- Important hydroelectric potential
- Vast arable land
- Favourable geographic situation: long coastline, proximity to the South African market
WEAKNESSES
- Low agricultural sector productivity
- Heavy dependence on aluminium and international aid
- Poverty, malnutrition and low educational level
- Inadequate telecommunications and energy supply infrastructures
- Regional disparities: the north and the centre disadvantaged compared with the south
Risk assessment
Strong growth driven by foreign investment in the development of natural resources
Growth was strong in 2012, driven by aluminium and coal exports. Exploitation of aluminium and coal is related to the culmination of major foreign investment projects such as the Mozal aluminium factory or Moatize coal mine. In 2013, growth is expected to continue at over 8% thanks to increased investment by foreign companies in the gas sector (discovery of new offshore deposits during and at the end of 2012), mining and in transport infrastructures, which will enable a new surge in production and exports. On the supply side, several sectors are expected to drive growth: transport, telecommunications, tourism and services. Moreover, agriculture, which plays an important role in the economy (about a quarter of GDP and over 80% of employment), will benefit from the government’s efforts to develop yield and production (only 12% of arable land is used at present).
Exports of raw materials dependent on foreign investment
In 2012, strong export growth has enabled a cut in the current account deficit, which remains, high, however, in view of the great need for imports of capital goods and services necessary for the development of natural resources, as well as of the related infrastructures. Foreign investment, which has doubled in two years, enables coverage to a large extent, but aid remains essential to cover part of the remainder: when aid is included in the figures, the deficit comes down to 11.6% of GDP. Nevertheless, aid from European partners, notably the Netherlands, has fallen due to the difficult economic situation in the eurozone. In 2013, the balance of services deficit and especially the revenue gap (-32%), linked to the repatriation of foreign companies’ dividends, are expected to increase because of a booming mining sector. Though less marked than in 2012, a decline in aid will result in a slight widening of the current deficit (12.4% of GDP with the inclusion of foreign aid). In this context of a high current account deficit, the currency is expected to come under downward pressures. The risk of a foreign exchange crisis is, however, relatively low, as foreign exchange reserves are still at a satisfactory level.
The extractive industry and international aid essential for supporting public accounts
Since 2010, with IMF support, the government has initiated major social and infrastructure spending programmes as part of its poverty reduction strategy (“Programa Quinquenal do Governo”). This government spending is largely covered by international aid (over 30% of fiscal revenues). In 2013 the country is expected to benefit from sharp growth in its domestic resources as a result of taxing incomes related to the exploitation of national natural resources, and, in particular, booming coal production. This situation is likely to enable a slight reduction of the budget deficit. Nevertheless, in view of persistent large budget deficits in recent years, public debt is expected to continue rising.
Moderate political risk and still difficult governance
The current President, Armando Guebuza, has been in power since 2005. He is also head of the Frelimo party, which has governed the country since its independence in 1975 and is expected to be the big favourite in the coming 2014 elections. The opposition remains weak and lacks the popularity to counterbalance Frelimo’s well-established hegemony. The traditional opposition party, Renamo, suffers from strong internal divisions and the MDM is still very new (created in 2009). In this context, President Guebuza was re-elected to head the party for five years in September 2012 (Frelimo national congress), indicating that the party is about to reform the constitution to allow him to stand for a third term. This scenario is confirmed by the fact that President Guebuza’s potential successors in the party, Luisa Diogo and Aires Ali, were not elected to the political bureau (the party’s supreme body) at the September congress.
In terms of governance, the business environment remains difficult and the country suffers from continuing corruption as well as poorly performing public services and judiciary.
