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Mozambique Economy
 
 
 

General

The economy of Mozambique has developed since the end of the Mozambican Civil War (1977-1992), but the country is still one of the world's poorest and most underdeveloped. Civil war opposing RENAMO to FRELIMO, ineffective socialist economic policies, government mismanagement, and severe droughts plagued Mozambique's economy throughout the 1980s, leaving it heavily dependent on external assistance. In 1987, the government embarked on a series of macroeconomic reforms designed to stabilise 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 brought to single digits during the late 1990s although it returned to double digits in 2000-02. 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 a large majority of the population remains below the poverty line. Subsistence agriculture continues to employ the vast majority of the country's workforce. A substantial trade imbalance persists although the opening of the Mozal aluminium smelter, the country's largest foreign investment project to date has increased export earnings. Additional investment projects in titanium extraction and processing and garment manufacturing should 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.

The resettlement of civil war refugees and successful economic reform have led to a high growth rate: the country has enjoyed a remarkable recovery, achieving an average annual rate of economic growth of 8% between 1996 and 2006. The devastating floods of early 2000 slowed GDP growth to 2.1%. A full recovery was achieved with growth of 14.8% in 2001. In 2003, the growth rate was 7%. The government projects the economy to continue to expand between 7%-10% a year for the next five years, although rapid expansion in the future hinges on several major foreign investment projects, continued economic reform, and the revival of the agriculture, transportation, and tourism sectors. More than 75% of the population engages in small-scale agriculture, which still suffers from inadequate infrastructure, commercial networks, and investment. However, 88% of Mozambique's arable land is still uncultivated.

More than 1,200 state-owned enterprises (mostly small) have been privatised. Preparations for privatisation and/or sector liberalisation are underway for the remaining parastatal enterprises, including telecommunications, energy, ports, and railways. The government frequently selects a strategic foreign investor when privatising a parastatal. Additionally, customs duties have been reduced, and customs management has been streamlined and reformed. The government introduced a value-added tax in 1999 as part of its efforts to increase domestic revenues. Plans for 2003-04 include Commercial Code reform; comprehensive judicial reform; financial sector strengthening; continued civil service reform; and improved government budget, audit, and inspection capability. Further political instability resulting from the floods left thousands homeless, displaced within their own country.

The official currency is the New Metical (as of March 2011, $1 is roughly equivalent to 31 New Meticals), which replaced old Meticals at the rate of a thousand to one. The old currency will be redeemed by the Bank of Mozambique until the end of 2012. The US dollar, South African rand, and recently the euro are also widely accepted and used in business transactions. Mozambique is a member of the Southern African Development Community (SADC). The SADC free trade protocol is aimed at making the Southern African region more competitive by eliminating tariffs and other trade barriers.


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