Mozambique borders Tanzania, Malawi, Zambia, Zimbabwe, South Africa, and Eswatini. Its long Indian Ocean coastline of 2,700 kilometers faces east to Madagascar. About two-thirds of its estimated 33 million people (2022) live and work in rural areas. The country has ample resources, including arable land, abundant water sources, energy, mineral resources, and newly discovered natural gas deposits off its coast. The country has three deep seaports and a relatively large potential pool of labor. It is also strategically located: four of the six countries it borders are landlocked, hence dependent on Mozambique as a gateway to global markets. Mozambique¡¯s strong ties to the region¡¯s economic engine, South Africa, underscore the importance of its economic, political, and social development to the stability and growth of Southern Africa as a whole.
Political Context
The Front for the Liberation of Mozambique (FRELIMO) and the Mozambican National Resistance (RENAMO) are Mozambique's main political parties, with the Mozambique Democratic Movement (MDM) trailing. Since gaining independence from Portugal in 1975 and adopting multiparty democracy in 1992, FRELIMO has maintained control. In the 2019 elections, they achieved a landslide victory, obtaining a two-third assembly majority and winning the inaugural provincial elections, enabling them to appoint governors across all ten provinces.
Mozambique held presidential, legislative and provincial elections on October 9, 2024. The presidential race includes four contenders: Daniel Chapo of the ruling party FRELIMO, Ossufo Momade of the opposition party RENAMO, Lutero Simango of the country¡¯s third political party, MDM, and Ven?ncio Mondlane, an independent candidate backed by the extra-parliamentarian party Optimistic People for the Development of Mozambique (PODEMOS). In October 2023, Mozambique held municipal elections across 65 municipalities. FRELIMO won in 60 municipalities, RENAMO won in four, and MDM in one. Due to irregularities, the votes were repeated or recounted in some areas. The final election results upheld FRELIMO¡¯s victory in Maputo, Mozambique's capital city, and Matola, Mozambique¡¯s largest city.
Cabo Delgado conflict. Mozambique¡¯s gas-rich northernmost province of Cabo Delgado has experienced a spike in insurgent attacks since mid-December 2023, the most significant of which was a siege on the town of Macomia in May 2024. These events mark the latest developments in a 7-year conflict which has exacted a high toll in terms of lives, livelihoods, physical infrastructure, as well as human and social capital. The conflict also temporarily stalled progress in key LNG investments in Cabo Delgado. The surge in hostilities came as the SADC Mission in Mozambique withdrew its troops due to the closing of its mandate in July 2024, while Rwanda announced it would boost its own troop numbers on the ground to help bridge the gap. The 7-year conflict has resulted in 5,785 fatalities to date. As of July 2024, the total number of displaced stands at over half a million people, while 610,732 have returned to their places of origin. To address this crisis and its impacts, the government is leading reconstruction efforts in the north to help improve alignment and collaboration between development actors, with a focus on prevention, recovery, peacebuilding, and resilience. Work has begun to rehabilitate destroyed districts in the north of the province under the government¡¯s Plano de Reconstru??o de Cabo Delgado, while authorities have also approved the Programa de Resili¨ºncia e Desenvolvimento Integrado do Norte de Mo?ambique, a recovery, development, and peacebuilding plan for the three northern provinces of Niassa, Cabo Delgado, and Nampula.
Challenges related to civic voice remain. The 2023 CIVICUS Monitor Report downgraded Mozambique's civic space from ¡°obstructed¡± to "repressed," while the 2024 Freedom House report deems its expression "Partially Free." The Economist Intelligence Unit 2023 Democracy Index considers Mozambique¡¯s governance ¡°authoritarian¡± based on various democratic indicators.
Economic Outlook
The economic recovery gained momentum in 2023, and the economy is expected to grow by 4% per year in 2024-2026. Growth has been driven by the extractive sector, mainly liquefied natural gas (LNG) production at the Coral South offshore facility, and the service sector. Agriculture, the main source of employment in the economy, has not regained its pre-COVID dynamism.
Inflation moderated significantly, from 10.3% in 2022 to 3.6% in the first half of 2024 (year-on-year), due to easing global oil and food prices and a tighter monetary policy stance. The total level of public debt has declined in recent years and is deemed sustainable in a forward-looking sense.
Although the economic outlook is broadly positive, it is subject to considerable uncertainty, with risks tilted to the downside. Delays in the larger LNG projects under construction could undermine growth prospects. Other risks stem from the large wage bill, climate shocks, increasing domestic debt costs, and uncertainty around the security situation in the north.
The national poverty rate surged from 48.4% to 62.8% between 2014/15 and 2019/20. The number of poor increased from 13.1 to 18.9 million, partly reflecting the impact of COVID-19 on families. There has been a disproportionate increase in poverty in urban areas. This can be explained by the fact that, while there has been a generalized contraction in consumption, urban areas appear to have been disproportionately impacted by the global pandemic due to the heavier impacts of reduced mobility and slower economic activity.
With regards to inequality, the Gini Coefficient (which measures inequality on a scale from 0 to 1, where higher values indicate higher inequality) fell from 56.1 to 50.4 between 2014/15 and 2019/20. Multidimensional poverty has also worsened. The share of households experiencing deprivation rose from 71% to 78.3% between 2014/15 and 2019/20. In rural areas, conditions went back to the levels observed in 2002/03, with over 95% of households falling into multidimensional poverty. Urban households also saw a sharp increase in multidimensional poverty, from 32% to 46% during the same period.
Development Challenges
Mozambique experienced strong economic growth before 2016, with an average growth rate exceeding 7% between 2000 and 2015. However, multiple shocks between 2016 and 2021¡ªincluding the hidden debt crisis, cyclones, COVID-19, and conflict in northern Mozambique¡ªhave severely impacted economic activity and reversed poverty reduction.
The economy remains heavily reliant on natural resources, with extractive industries driving growth. Agriculture, which employs over 72% of the population, suffers from low productivity and high vulnerability to climate shocks, contributing to high and entrenched rural poverty. Frequent natural disasters undermine economic activity and food security, exacerbating poverty, which was projected at 74.7% in 2023 when measured according to the $2.15-a-day poverty line criterion.
High underemployment and inequality are significant barriers to economic inclusion, while the informal sector, which encompasses over 80% of the labor force, dominates the labor market, leaving many workers without social protection. With a human capital index of 0.36, the extremely low levels of human capital constitute a structural constraint to rapid, inclusive, and sustainable growth. The scarcity of sound training and the insufficient channels between supply and demand lead to a weak labor market and low productivity growth. Disempowerment among girls and women hinders growth through unfavorable fertility levels, high child and maternal mortality, low levels of skills among women, and poor productivity of women in the labor market.
Basic services in education and health are unevenly delivered across the country, driving spatial inequalities. The mechanisms set up to protect the most vulnerable from the impacts of shocks are limited, thus leading to fragility, instability, and violence.
Despite recent fiscal consolidation efforts, fiscal pressures remain elevated. The wage bill and debt-service costs amounted to nearly 90% of tax revenues in 2021-2023, limiting resources for non-salary spending on education, health, social protection, and other vital services. This hampers medium-term growth prospects and poverty reduction. Additional financing constraints include a high risk of public debt distress, the lack of access to international capital markets, and a shallow domestic market.
A more resilient and inclusive economic model is essential to create jobs, reduce poverty, and manage vulnerabilities to shocks. Reducing wage bill pressures, enhancing spending efficiency, and improving debt management are crucial for fiscal sustainability. In parallel, managing future LNG revenue streams effectively, improving access to finance, investing in education, closing infrastructure gaps, and addressing regulatory challenges are critical for job creation, structural transformation, and reducing fragility.
Last Updated: Oct 18, 2024
