Rapid Growth and Economic Transformation in Mozambique, 1993-2009 Since the end of Mozambique’s 16-year civil war, annual growth has averaged more than 8 percent. Such growth was made possible by macroeconomic stability and sequenced policy reforms, which attracted strong donor support to finance investments in social and physical infrastructure, broad-based expansion across most sectors of the economy, healthy agricultural growth, and a few foreign mega-projects. Despite growth, however, the economy is characterized mainly by subsistence agriculture and a few isolated mega-projects. Although economic growth continues to be strong, it is not generating the jobs required to broadly share the benefits. Macroeconomic stability and investments in infrastructure need to be accompanied by far-reaching reforms to enable private sector activities to flourish and exports to expand into nontraditional commodities with higher value-added content.. Mozambique’s economic growth after 1992 and the poverty alleviation achieved since then constitute an extremely successful development take-off. Average real GDP growth rate soared from 0 percent (1981–1992) to 8.1 percent (1993–2008), making Mozambique the fastest- growing nonoil economy in Sub-Saharan Africa over the period (AfDB 2009) (figure 1). As a result, per capita GDP doubled since 1992 (figure 2). The poverty headcount dropped rapidly during the early years of this process, falling from 69 percent in 1996 to 54 percent in 2002. Figure 1 Real GDP Growth in Mozambique and Sub-Saharan Africa, 1981–2005 Figure 2 Per Capita GDP in Mozambique and Sub-Saharan Africa, 1980–2006 Real GDP Growth -20 -15 -10 -5 0 5 10 15 20 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 % Mozambique Sub-Saharan Africa (Median) GDP Per Capita (2000 US$ Dollars) -300 -200 -100 0 100 200 300 400 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2000 US$ Distance from Median Mozambique Sub-Saharan Africa (Median) Source: World Bank World Development Indicators various years. The political stability brought about by the end of the armed conflict in 1992, a first wave of structural reforms coinciding with responsible macroeconomic policies, and the increasingly coordinated support of the international donor community are the bedrock of Mozambique’s transformation. They have enabled the country to better face the development challenges that lie ahead—in particular, how to tap into Mozambicans’ resources (labor, land, and entrepreneurial drive) to promote strong, sustainable, and inclusive economic growth. This chapter provides a brief overview of Mozambique’s profound economic transformation and highlights the major drivers of change and the challenges ahead. It does not discuss the
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GDP Per Capita (2000 US$ Dollars) Real GDP Growthsiteresources.worldbank.org/AFRICAEXT/Resources/258643...FDI (Percent of GDP), RHS FDI (USD million), LHS Source: Bank of Mozambique.
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Rapid Growth and Economic Transformation in Mozambique, 1993-2009
Since the end of Mozambique’s 16-year civil war, annual growth has averaged more than 8
percent. Such growth was made possible by macroeconomic stability and sequenced policy
reforms, which attracted strong donor support to finance investments in social and physical
infrastructure, broad-based expansion across most sectors of the economy, healthy
agricultural growth, and a few foreign mega-projects. Despite growth, however, the economy
is characterized mainly by subsistence agriculture and a few isolated mega-projects.
Although economic growth continues to be strong, it is not generating the jobs required to
broadly share the benefits. Macroeconomic stability and investments in infrastructure need
to be accompanied by far-reaching reforms to enable private sector activities to flourish and
exports to expand into nontraditional commodities with higher value-added content..
Mozambique’s economic growth after 1992 and the poverty alleviation achieved since then
constitute an extremely successful development take-off. Average real GDP growth rate soared
from 0 percent (1981–1992) to 8.1 percent (1993–2008), making Mozambique the fastest-
growing nonoil economy in Sub-Saharan Africa over the period (AfDB 2009) (figure 1). As a
result, per capita GDP doubled since 1992 (figure 2). The poverty headcount dropped rapidly
during the early years of this process, falling from 69 percent in 1996 to 54 percent in 2002.
Figure 1 Real GDP Growth in Mozambique and Sub-Saharan Africa, 1981–2005
Figure 2 Per Capita GDP in Mozambique and Sub-Saharan Africa, 1980–2006
Real GDP Growth
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GDP Per Capita (2000 US$ Dollars)
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Distance from Median Mozambique Sub-Saharan Africa (Median) Source: World Bank World Development Indicators various years.
The political stability brought about by the end of the armed conflict in 1992, a first wave of
structural reforms coinciding with responsible macroeconomic policies, and the increasingly
coordinated support of the international donor community are the bedrock of Mozambique’s
transformation. They have enabled the country to better face the development challenges that lie
ahead—in particular, how to tap into Mozambicans’ resources (labor, land, and entrepreneurial
drive) to promote strong, sustainable, and inclusive economic growth.
This chapter provides a brief overview of Mozambique’s profound economic transformation and
highlights the major drivers of change and the challenges ahead. It does not discuss the
macroeconomic policies and performance that underpinned the economic transformation over the
past two decades (for a detailed discussion of macroeconomic and stabilization issues in
Mozambique, see Clement and Peiris 2008).
The chapter is divided into three sections. The first section highlights key features of the
structural transformation that has taken place in Mozambique and briefly highlights the key
drivers of this process. The second section focuses on the challenges ahead for the Mozambican
economy. The last section provides some concluding remarks.
<<A>>Growth Drivers and Economic Transformation
Sound macroeconomic environment allowed donors to contribute substantial amounts of
financial aid to Mozambique, averaging about 14 percent of GDP a year since 1993 (figure 3).
The fact that aid inflows have remained fairly constant as a percentage of GDP over the period,
during a period when the economy grew at an average annual rate of more than 8 percent,
reflects the rapid growth in aid inflows in U.S. dollar terms. These large inflows financed
investments in education and health, as reflected in the rapid improvements in human
development indicators (table 1).1 They also financed substantial investments in rebuilding the
country’s roads, ports, and railways, which had been shattered by 16 years of war.
Figure 3 Gross Annual Aid Inflows to Mozambique, 1998-2008
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Gross Aid Inflows to Mozambique, 1998-2010
Gross aid inflows (percent of GDP), RHS
Gross aid inflows (USD million), LHS
Source: Bank of Mozambique, IMF, and World Bank.
Table 1 Selected Social Indicators for Mozambique, 1990–2008
1990-1996 2000-2003 2006-08
Primary school enrolment (net %) 43 56 96
Primary school enrolment (gross %) 61 84 105
Ratio of girls to boys in primary and secondary education (%) 72 75 85
Under-5 mortality rate(per 1,000 live births) 212 178 138
Infant mortality rate (per 1,000 live births) 145 122 93
Life expectancy at birth (years) 27 42 42
Physicians per 1,000 people 0.012 0.024 0.030
Inmunization, DPT (% of children under 12 months) 60 72 72
Inmunization, measles(% of children under 12 months) 58 77 77
Access to improved water sources (% of population) 39 42 48
Access to sanitation facilities(% of population) 22 27 31
Source: World Bank, DECDG, MDG Report 2008 and INE.
Latest single year
Source: World Bank staff, based on data from Instituto National de Estatistica.
Good macroeconomic management also attracted substantial foreign direct investment (FDI).
FDI inflows increased from an average of 1.5 percent of GDP from 1993–98 to an average of 5.2
percent of GDP between 1999–2010 (figure 4). In 2009 and 2010 FDI reached an estimated $900
million, about 9 percent of GDP. A large part of these inflows have funded large investment
projects in the mining sector, underpinning recent export performance in Mozambique.
Figure 4 Foreign Direct Investment in Mozambique, 1993-2010
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FDI (Percent of GDP), RHS FDI (USD million), LHS
Source: Bank of Mozambique.
From a supply-side perspective, capital accumulation, higher quality–adjusted labor input, and
positive aggregate productivity performance were important determinants of growth in
Mozambique. Growth accounting exercises indicate that physical investments partly associated
with mega-projects and significant improvements in education led to growth dynamics heavily
influenced by the accumulation of labor (quality-adjusted) and capital between 1993 and 2008.
Figure 5 shows the average capital contribution to growth strengthening from 1999 onward, a
result consistent with the timing of mega-projects. Aggregate productivity growth (total factor
productivity)—measured as the residual of output growth after labor and capital contributions are
subtracted—was also important. Figure 6 suggests roughly balanced growth of inputs and
productivity.2 Productivity increases contributed about a third to overall growth between 1993
and 2008. These results are broadly consistent with those of Jones (2006) and Vitek (2010).3
Jones presents evidence suggesting a positive contribution (crowding in) of public capital
accumulation in the aftermath of the civil war, which opened the door for private investment to
play an increasingly important role in Mozambique’s growth.
Figure 5 Decomposition of Growth in Mozambique by Factors, 1993–2008
Figure 6 Average Factor Contributions to Growth in Mozambique, 1993–2008
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Mozambique Growth Decomposition
Capital Contribution Labor Contribution (quality adjusted) TFP GDP Growth
Source: World Bank staff calculations based on World Development Indicators (World Bank various
years) and IAF (various years).
A level change in aggregate investment from mega-projects triggered strong export and import
activity from 1999 onward, with direct impact on aggregate demand. The expenditure
components of output (figure 7) indicate that GDP and consumption have been trending up since
the end of the civil war but that growth after 1999 has been different. Strong investment
performance starting in 1999—which matured into strong export performance from 2001
onward—allowed for continued increases in output and consumption at the same time that
imports were growing. This pattern inaugurated a different growth model for Mozambique,
whereby strong exports, though offset by accompanying imports, reflected stronger private
sector activity.
More recently, as a result of sharp increases in the price of aluminum from 2004 onward, the
pace of profit repatriation associated with mega-projects has widened the gap between GNP and
GDP (figure 8). This stylized fact helps illustrate a key challenge for the country: the need to
implement a diversification strategy that activates a broader set of growth drivers and taps more
efficiently into Mozambican factors of production, particularly labor, land, and entrepreneurial
drive.
Although the private sector has spearheaded large mega-projects in the mining sector, its role in
economic growth over the past decade should not be overemphasized. Sonne-Schmidt, Arndt,
and Magaua (2008) developed a methodology to evaluate the direct contribution of three key
operational mega-projects (Mozal, Sasol, and Moma) to growth at factor cost. They conclude
that the direct effects of these mega-projects were to raise average annual growth rate between
Average Contributions to Growth (1993 - 2008)
45%
23%
32%
Capital Labor (quality-adjusted) TFP
1996 and 2006 by about 1 percentage point (average annual growth rate was about 8 percent).
Moreover, as foreign-owned, capital-intensive, export-oriented companies benefiting from fiscal
exemptions, mega-projects made only a small contribution to job creation, tax revenue, use of
domestic intermediate inputs, and profit reinvestment in Mozambique.
Benito-Spinetto and Moll (2005) present similar results. Using a computable general equilibrium
(CGE) model to replicate the performance of the Mozambican economy, they find that about half
of the 8 percent average GDP growth during 1994–2004 was driven by catch-up growth in the
agricultural sector (as people returned to the fields following the end of the war), a quarter was
driven by the growth in aid inflows (and the resulting investments in social and physical
infrastructure sectors), and a quarter was equally divided between mega-projects and growth in
other private sectors activities.
Figure 7 Components of GDP Expenditure in Mozambique, 1993–2006
Figure 8 Gap between GDP and GNP in Mozambique, 1994–2007
GDP Expenditure Components
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GDP and GDP
GDP growth rate (LHS) GNP growth rate (LHS)
GDP level (RHS) GNP level (RHS)
Source: World Bank 2010a.
Indeed, the positive total factor productivity reflects the reshuffling of labor resources and a
rapid transformation in the output structure of the economy. In a postwar context—where
reconstruction efforts, a first wave of structural reforms, and a stabilized macroeconomic