Mozambique WT/TPR/S/79
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I. THE ECONOMIC ENVIRONMENT
(1) MAJOR FEATURES OF THE ECONOMY
1. The Republic of Mozambique is a coastal country in south-eastern Africa bounded on the
north by Tanzania, on the east by the Indian Ocean, on the south by Swaziland and South Africa, and
on the west by Zimbabwe, Zambia, and Malawi.  The total area of Mozambique is 799,380 sq. km.
Maputo is the largest city and serves as Mozambique's capital.
2. With a per capita GNP of US$210, Mozambique is one of the least developed countries.  The
economy is essentially dependent on agriculture, which currently accounts for around 44% of GDP
(30% of GNP).  Although 45% of the total landmass is arable, only a small portion, 4% by some
estimates, of the arable land is used.  Agriculture is sharply divided between highly mechanized state-
owned, and private plantations on the one hand, and su bsistence farming on the other.  The fluctuating
nature of agricultural production, due both to climatic conditions – the country suffered massive
flooding in early 2000 – and ongoing but incomplete economic reforms, along with variations in
commodity prices have had a major impact  on Mozambique's economic performance.  Because
Mozambique is dependent on commodities for its export earnings, its terms of trade have deteriorated
as commodity prices have generally declined.  Mozambique's prospects depend heavily on thedevelopment of its strong natural resource base, with a few major mining projects soon to come on
stream.  Although Mozambique's manufacturing sector has experienced strong performance
improvements, it is underdeveloped and suffers from a variety of inefficiencies.  The services sector,
approximately 37% of GDP, is predominately characterized by construction, tourism, transportation,
and communication.  Mozambique's GDP growth has been among the highest in the world, at over
10% in 1997-99 (Chart I.1).
02468101214
1995/96 1996/97 1997/98 1998/99 1999/2000 2000/2001 2001/2002
Estimate
Projection
Bank of Mozambique, Statistical Bulletin 1995-99 .Chart I.1
Real GDP growth, 1995-2002
Per cent
a
b
Source: ab bWT/TPR/S/79 Trade Policy Review
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3. Mozambique's population was about 17 million in 1999.  Since 1990, the average, annual
population growth rate has been approximately 2% (Table I.1).  The urban population increased from
1.6 million (13% of the total) in 1980 to 6.0 million (38%) in 1998.1  The percentage of public
expenditure on health between 1990 and 1997 was 4.6% of GDP.2  Mozambique's official language is
Portuguese;  English is taught in secondary school.  In addition, the thirteen main national languages
are recognized. According to the UNDP, Mozambique ranked 168th of 174 countries on the basis ofthe human development index (HDI).  Mozambique  has one of the highest incidences of HIV
infection in the world;  it is estimated that 700 new infections occur daily, and that at least 1.4 million
Mozambicans are infected with HIV.
4. The currency unit is the Mozambique metical (Mt) .  The official exchange rate is determined
on the basis of the rate established in the interbank market for foreign exchange.  While the Bank ofMozambique allows the exchange rate to be determined  freely, it is an active participant in the foreign
exchange market.  The Government intends that inte rvention policy will be directed only at smoothing
exchange rate fluctuations, subject to attaining the desired reserves target.  The Bank of Mozambique
has officially targeted a 5% annual depreciation of the metical against a basket of currencies to
preserve competitiveness.  In September 2000, the exchange rate was Mt 15,320 for US$1.
5. Mozambique is one of the most heavily indebted countries in the world. The debt servicing
requirements of its approximately US$8.2 billion of  debt, are enormous obstacles to Mozambique's
economic development.
3
6. On 27 March 2000, the International Monetary Fund (IMF) completed the first review under
the Poverty Reduction and Growth Facility (PRGF) for Mozambique4, and augmented Mozambique's
access under the PRGF arrangement by enabling the county to draw up to the equivalent of
SDR 36.8 million, approximately US$50 million.5
7. Mozambique qualified for additional debt relief to cushion the adverse effects of its foreign
debt under the Heavily Indebted Poor Countries (HIPC) Initiative.  On 12 April 2000, the IMF and the
World Bank Group's International Development As sociation (IDA) agreed to provide Mozambique
with additional debt relief under the enhanced HIPC Initiative.  Mozambique's inclusion in the HIPC
programme is, in part, the result of the recognition that it has consistently implemented stringentmeasures laid down by the World Bank and the IMF.  Mozambique's total debt reduction under the
Initiative is currently US$4.3 billion.
6
                                                     
1 World Bank (1999a), Table A.2.
2 World Bank (1999a), Table 7.
3 EIU (2000).
4 On 22 November 1999, the IMF's concessional facility for low-income countries, the Enhanced
Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF) and itspurposes were redefined.  It is intended that PRGF-supported programmes will in time be based oncountry-owned poverty reduction strategies adopted in a participatory process involving civil society anddevelopment partners and articulated in a poverty reductio n strategy paper (PRSP).  This is intended to ensure
that each PRGF-supported programme is consistent with a comprehensive framework for macroeconomic,
structural, and social policies to foster growth and reduce poverty.  The PRSP, once broadly endorsed by the
Executive Boards of the IMF and World Bank, is intended to provide the policy framework for future reviewsunder the country's PRGF arrangement.
5 IMF News Brief  No. 00/18, 27 March 2000.
6 IMF Press Release  No. 00/28, April 12, 2000.Mozambique WT/TPR/S/79
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Table I.1
Mozambique at a glance, 1980-99
(US$ and per cent)
1980 1990 1995 1997 1998 1999
GDP per capital (US$) .. .. .. 217 236 256
Real GDP growth (per cent) .. .. 4.3 11.1 9.9 10.0
Population (million) 12.1 14.2 15.8 16.5 16.9 17.3
Growth of population (percentage change) .. 1.6 2.3 2.3 2.3 2.2
Fertility rate (births per woman) 6.5 6.5 6.1 5.9 .. ..
Life expectancy 44.4 45.9 46.9 47.7 .. ..
School enrolment ratio, secondary (per cent) 5.0 7.6 7.0 .. .. ..
Share of GDP (per cent)
Agriculture, hunting, forestry and fishing 37.3 44.5 51.1 51.1 .. 44.0
Industry 57.7 24.1 28.1 32.6 .. 19.0
Services 5.0 31.4 20.7 16.4 .. 37.0
Private consumption 82.1 70.5 99.0 90.3 84.1 79.7
Government consumption 17.9 20.2 9.7 9.0 9.8 11.2
Gross domestic investment 19.2 59.0 23.8 17.8 22.5 ..
Export of goods and services .. 15.9 12.5 10.9 10.3 10.7
Import of goods and services .. 65.7 49.0 28.2 26.9 39.4
Share in employment (per cent)
Agriculture, hunting, forestry and fishing 85.0 82.3 81.2 .. .. ..
Industry 7.4 9.0 9.8 .. .. ..
Services 8.2 8.8 9.0 .. .. ..
.. Not available.
Source: EIU (2000), Country Report:  Mozambique, May;  African Development Bank (1999), Selected Statistics of
African Countries;   and IMF (1995 and 2000), IFS Yearbook.
(2) ECONOMIC DEVELOPMENTS
8. A one-party State based on a socialist model of economic development was established in
Mozambique after its independence in 1975.  Private enterprises were nationalized, collective farms
created, and centralized planning adopted.  A civil war began in 1976, causing a rapid choking off of
trade and industry through systematic sabotage of the country's infrastructure.  By the mid 1980s, the
economy was in disarray.  In 1987, the Government embarked on a programme of economic reformsmoving away from the socialist model of economic development.  Known as the Economic
Rehabilitation Programme (PRE), the reforms were aimed at achieving fiscal stability and reactivating
the economy in a sustainable form through improved fiscal management, reform of the public sector,
restructuring and privatizing of state enterprises, and reform of the civil service.
9. Progress of the economic reforms was slow until after the civil war ended.
7  Since 1993, the
pace of market-oriented reforms has quickened, and further efforts to reduce government control over
the economy and to encourage private sector activity have been undertaken.
10. A programme for privatizing large enterprises was completed in 1998, while a similar
programme for small and medium-sized enterprises will be completed in the near future.  Significant
                                                     
7 A General Peace Accord was signed in Octobe r 1992;  the last peacekeeping force (ONUMOZ)
contingents departed Mozambique in early 1995.WT/TPR/S/79 Trade Policy Review
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further progress was made during the period 1996-99 under Mozambique's Poverty Reduction and
Growth Facility (PRGF) arrangement with the IMF.8  Macroeconomic performance improved
markedly, furthering the consolidation of Mozambique's recovery from civil war and from severely
depressed per capita income.  The economic growth rate rose from an average of 6.7% per year during
1987-95 to 10% a year during 1996-98, while inflation declined from 55% in December 1995 to
virtual price stability in 1998 (Table I.2).  A new value-added tax (VAT) of 17% and supplementaryexcise taxes became effective in June 1999, replacing the turnover and consumption taxes.  Corporate
and personal income tax rates were lowered, and reforms to improve the budgetary process and
strengthen the civil service were initiated.
Table I.2
Domestic inflation, cumulative growth rate, 1995-99
(Per cent change)
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec.
1995 10.0 20.0 22.0 18.0 17.0 23.0 24.0 27.0 30.0 34.0 45.0 55.0
1996 9.0 18.0 21.0 18.0 17.0 17.0 15.0 13.0 13.7 14.0 16.0 16.5
1997 6.0 7.0 6.0 5.0 4.0 3.5 3.0 3.0 2.5 3.0 5.0 6.0
1998 2.2 3.0 2.0 1.0 0.0 -1.5 -2.5 -3.8 -4.2 -3.0 -2.0 -1.5
1999 4.0 5.0 4.2 4.0 3.0 2.0 1.8 1.0 0.0 -0.5 0.0 5.0
Source: Bank of Mozambique  (1995-99), Statistical Bulletin , Maputo.
11. Mozambique has also made significant strides in liberalizing the various components of its
trade regime.  In 1997, Mozambique signed a thr ee-year contract with a U.K. company, Crown
Agents, with the aim of improving revenue mobilization and modernizing customs management.  The
Crown Agents contract was recently extended for one year, after which the customs department will
be returned to government control.  Although the programme has raised customs revenue, the
complexity of import procedures continues to be criticized by the business community.9  The top tariff
rate has been reduced repeatedly, reaching 30% in April 1999.  Currently, among the southern African
countries,  Mozambique has the lowest import tariff rates.
(3) TRADE PERFORMANCE
12. Mozambique's balance of trade has been consistently in deficit despite the continuing process
of economic reform.  The trade balance is expected to have deteriorated somewhat in 1999 due to the
construction of the Mozal aluminium smelter (Table I.3).  The external current account deficit (before
grants) narrowed substantially in 1996-97, but widened to 21% of GDP in 1998 as a result of higherimports in the first year of construction of the US$1.3 billion smelter.  The current account deficits
were financed by large inflows of foreign aid and private financing for the Mozal project, and gross
international reserves rose from the equivalent of 2.7 months of imports in 1995 to 6.7 months in
1998.
                                                     
8 Previously the Enhanced Structural Adjustment Facility (ESAF).
9 EIU (2000).Mozambique WT/TPR/S/79
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Table I.3
Mozambique's balance of payments, 1994-2000
(US$ million)
Items 1994 1995 1996 1997 1998 1999a2000b
Trade account -717.0 -552.7 -556.5 -530.0 -572.7 -902.0 -222.4
Exports (f.o.b.) 164.0 174.3 226.1 230.0 244.6 268.1 48.2
Imports (c.i.f.) 881.0 727.0 782.6 760.0 817.3 1,171.0 270.6
Services (net) -147.3 -124.1 -90.1 -80.7 -176.3 -195.7 -3.9
Receipts 245.9 291.7 314.2 343.3 332.5 353.4 97.0
Payments 393.2 415.8 404.3 423.0 508.8 549.1 100.9
Current account -299.7 -337.6 -421.9 -297.8 -435.8 -682.9 -123.9
Capital account -9.7 63.8 248.0 180.8 262.7 445.4 20.9
Financial account
Direct investment 35.0 45.0 72.5 64.4 212.7 384.7 12.5
Errors and omissions
Overall balance -376.7 -263.7 -41.0 -97.6 -204.4 -206.6 -112.7
Financing 375.8 -263.7 41.0 97.6 204.4 206.7 112.8
Exceptional financing .. .. .. .. 0.0 0.0 0.0
Net change in arrears 147.3 173.6 -48.9 -3,932.2 20.4 0.0 0.0
Debt forgiveness 203.2 120.9 262.4 4,177.9 261.2 253.5 90.6
Use of fund credit (net) 10.6 -14.3 -14.0 19.6 (9.5) 2.8 (45.3)
.. Not available.
aP r e l i m i n a r y .b First quarter.
Source: Bank of Mozambique (2000), Statistical Bulletin, No. 27 Year  8, March;   and data provided by the Mozambique
authorities.
(i) Trade in goods
13. In 1994, the top ten sources for Mozambique's imports were South Africa, Japan, the United
Kingdom, Portugal, Germany, the United States, Zimbabwe, Denmark, Italy, and the Netherlands.
Between 1994 and 1999, South Africa overtook the European Union as the leading source for importsto Mozambique (Chart I.2).
14. Imports in 1994 were characterized by machinery, food and foodstuffs, and transport
equipment.  Fuel and chemicals also accounted for a significant proportion of imports.  In 1999,
transport equipment accounted for slightly more than 25% of imports; other significant imports were
machinery, mineral products, and food and foodstuffs (Chart I.3).
15. The top destinations for Mozambique's exports in both 1994 and 1999 were Spain, South
Africa, India, Portugal, Japan, the United States and Zimbabwe.  As a result of a relative decline in
exports to the EU (overall), to Japan and to the United States, and increases in exports to India,
South Africa and Zimbabwe, the share of merchandise  exports from Mozambique to other developing
countries has increased significantly since 1994 (Chart I.4).WT/TPR/S/79 Trade Policy Review
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Chart I.2
Imports by origin, 1994 and 1999
Per cent
EU  33.01994
South Africa 30.1Japan 8.4United States 
41Zimbabwe 
3.9Other 
20.5
a
Source :1999a
EU  15.8
South Africa 44.1Japan 6.5United States 
65Pakistan 
3.3India 2.9Other 
20.9
US$ 881.0 million US$ 1,171.0 million
1st half and not including MOZAL.
Data provided b y the Mozambi que authorities; and WTO Secretariat estimates.
Chart I.3
Imports by major commodity group, 1994 and 1999
Per cent
Source:   Data provided b y the Mozambi que authorities; and WTO Secretariat estimates.Machinery 
19.01994
Food and 
foodstuffs
17.9
Transport 
equipment
16.5Fuel 14.1Chemicals 
13.5Other 15.7
US$ 881.0 millionOther 
consumer 
goods 
3.31999
Other 24.1
US$ 1,171.0 millionMachinery 
16.0
Food and 
foodstuffs
11.4
Transport 
equipment
25.9
Mineral products
11.8Industrial/
chemical prod.
5.7Ores and 
other 
minerals 
5.1Mozambique WT/TPR/S/79
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Chart I.4
Exports by destination, 1994 and 1999
Per cent
Source:   Data provided b y the Mozambi que authorities; and WTO Secretariat estimates.EU  34.71994
South Africa 
17.7Japan 14.7United States 
8.4Zimbabwe 
4.4Other 13.0
US$ 164.0 millionIndia 7.11999
EU  27.1
South Africa 
26.2Japan 4.3United States 
4.7India 11.8Other 11.0
US$ 268.1 millionZimbabwe 
14.9
Chart I.5
Exports by major commodity group, 1994 and 1996
Per cent
Other 2.21996
US$ 226.1 millionMachinery 
and transport 
11.5Food and 
foodstuffs
68.8
Agricultural 
raw material 
9.1Mining, incl. fuels
5.2Textiles/clothing 
1.6Other consumer 
goods 
1.61994
Food and 
foodstuffs
65.5Other 
6.9
US$ 164.0 millionAgricultural 
raw material 
10.3Mining, 
incl. fuels
9.0Machinery
 and transport 
3.3Textiles/clothing 3.4Gold 1.6
Source:   Data provided b y the Mozambi que authorities; and WTO Secretariat estimates.WT/TPR/S/79 Trade Policy Review
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16. Mozambique's commodity exports rely heavily on agricultural products, especially food
products, such as non-frozen crustaceans, and fresh and dried nuts.  In 1996, exports of machinery and
transport equipment accounted for 11.5% of exports, up from 3.3% in 1994 (Chart I.5).  Exports of
ores and other minerals are likely to increase significantly in 2001 when exports of MOZAL
aluminum are expected to begin.
(ii) Trade in services
17. Mozambique is a net importer of services.  Services receipts come primarily from the tourism
sector, which has grown since 1996.  Mozambique's payments reflect the substantial debt burden that
the country is servicing (Table I.4).
Table I.4
Mozambique's services account, 1994-2000
(US$ million)
1994 1995 1996 1997 1998 1999a2000b
Services receipts 245.9 291.7 314.2 343.3 332.5 353.4 97.0
Transportation 67.1 50.2 59.1 62.8 58.3 97.2 28.9
Compensation of employees 54.8 59.1 61.0 63.6 46.3 38.0 10.1
Travel/tourism .. .. 49.4 61.3 60.9 61.2 10.1
Interests on deposits abroad .. .. .. .. 24.9 19.8 4.6
Other services 124.0 182.4 144.7 154.6 142.1 137.2 43.3
Services payments 393.2 415.8 404.3 423.0 508.8 549.1 100.9
Interest payments 165.5 147.4 143.1 141.5 163.3 118.3 30.6
Scheduled 0.0 98.5 143.1 141.5 163.3 118.3 30.6
Refinancing 0.0 45.7 0.0 0.0 .. .. ..
New borrowing 0.0 3.2 0.0 0.0 .. .. ..
Profits and dividends .. .. .. .. 6.1 5.8 0.1
Transportation 48.2 35.0 33.5 32.2 33.4 28.4 12.6
Compensation of employees 19.4 20.6 15.7 22.9 31.1 31.3 5.7
Investment services .. 78.8 68.7 74.7 67.6 53.7 20.2
Travel/tourism .. .. 68.1 68.1 94.1 134.0 5.4
Services on large project .. .. .. .. 40.4 81.2 0.0
Other services 88.3 137.2 70.5 65.3 72.8 96.4 26.3
.. Not available.
aP r e l i m i n a r y .
b First quarter.
Source: Bank of Mozambique (1994-2000), Statistical Bulletin,  Maputo.
(4) SAVING AND INVESTMENT
18. Gross domestic savings in Mozambique, both by the Government and by the private sector,
are insufficient to meet the needs of Mozambique's growing economy.  In 1998-99, government
saving was approximately 7% of GDP;  it reached 9.2% of GDP in 1999/2000.  The private savingrate increased from 2.5% of GDP in 1997/98 to 4% in 1999/2000.  The total saving rate (government
and private) is estimated to be around 10% of GDP in 2002.  Investment in Mozambique peaked in
1999/2000 at some 29% of GDP, of which 19% was pr ivate investment, with government investment
(relatively constant since 1997) accounting for the remaining 10% (Table I.5).  Foreign investment
flows have traditionally been the source of most investment funds.Mozambique WT/TPR/S/79
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Table I.5
Mozambique's savings and investment, 1996-2000
(Per cent of GDP)
1996/97 1997/98 1998/99 1999/00
Gross domestic savings
Government .. 5.2 7.0 9.2
Non-government .. 2.5 3.0 4.0
Investment
Public 9.9 10.0 10.1 10.2
Private 8.5 10.0 15.2 19.0
.. Not available.
Source: Bank of Mozambique.
(5) OUTLOOK
19. The objective of the Government's economic prog ramme is to maintain real growth of the
economy at approximately 10% through 2002.  Infl ation, which has been declining steadily, is
targeted to remain under control.  However, the disruption to agricultural marketing wrought by the
2000 floods is expected to push inflation in 2000 up to 10%, compared with previous forecasts of 5%.Inflation should begin to ease later in the year, and is expected to be 5% in 2001, subject to normal
weather conditions.
10
20. The outlook for Mozambique's commodity-based exports in 2000-01 is mixed:  while cotton
prices are expected to recover and rise by 28% from 1999 prices, the price of prawns is expected to
fall by approximately 7% in 2000 before recovering somewhat in 2001.  The increase in internationaloil prices in 2000 is expected to worsen Mozambican inflation.
11
21. Mozambique has made significant progress in implementing a comprehensive reform of its
fiscal and monetary policies, and the Government is expected to continue with the policies of
macroeconomic stability and ambitious market-based reforms that have underpinned the strong
economic performance of recent years.  Foreign exchange reserves are expected to remain robust
while monetary policy is not expected to be conducive to prolonged exchange rate weakness.  Fiscal
policy is likely to be expansionary during the immedi ate period, driven by the inflow of assistance for
the post-flood reconstruction programme.  Much of this additional expenditure will be disbursed
through state institutions.  Moreover, the value-added tax (VAT), introduced in 1999 and expected to
improve fiscal revenue, is scheduled to replace the tourism accommodation tax in 2000.
22. Despite its high potential and progress in recent years, Mozambique continues to be
constrained by a number of key factors such as inadequate infrastructure, insufficient managerial andadministrative expertise, fiscal mismanagement, corruption, lack of accountability, and poor
governance.  Moreover, the country is quite susceptible to economic setbacks brought about by
climatic variations that have a detrimental impact on Mozambique's crucial agricultural sector.  Even
with increased agricultural production, the vagaries of the commodities markets can jeopardize
Mozambique's economic progress.  For these reasons, continued trade liberalization and parastatalreform, coupled with progress in attracting foreign investment and promoting non-traditional exports,
will be important for Mozambique's development prospects.
                                                     
10 EIU (2000).
11 EIU (2000).