Mozambique - Economy

Mozambique, with its agricultural economy and considerable mineral reserves, is a highly indebted, poverty-stricken country. Civil war, ineffective socialist economic policies, and severe droughts plagued Mozambique's economy throughout the 1980s, leaving it heavily dependent on foreign aid. As of 2003, the government had received $8 billion in foreign aid since 1986, representing 17% of GDP. Lack of security outside of major cities and the inability of relief organizations to find safe corridors for the transport of relief supplies only further depressed economic activity. Recent shifts in economic policy toward a market economy and a resolution of the civil war have laid the foundation for an economic recovery helping the economy to grow on average by 4.7% yearly between 1988 and 1998. In 2001, it stood at 9.2%. Main exports are prawns, cashew nuts, and cotton.

Problems remain, however, as the poorly trained workforce and the lack of savings continue to constrain growth. The use of outdated data collection systems, geared more to a state-managed economy, means that the increasing vitality of the private sector tends to go unmeasured. The return of rain after the worst drought on record in 1992 and continuing peace meant that many Mozambicans were able to farm their lands again, making them less dependent on food aid. The 1992 peace accords, which halted the 16-year civil war, brought much needed relief from military activities.

In 2000, some of the worst flooding in the history of the country had killed and displaced many citizens, deterring economic well-being. Approximately 80% of the population is employed in agriculture, mostly on a small-scale, subsistence level. Longer term prospects for growth are encouraging, but highly dependent on good weather and a stable political situation. The country experienced double-digit GDP growth in the late 1990s. A value added tax was introduced in 1999, improving the government's capacity to collect revenue, the country witnessed inflows of capital in the early 2000s, and the exchange rate was stable. Although inflation was low, interest rates were high in 2002. The financial sector has been liberalized, and trade is following along that path. The government's privatization program has been one of the most successful in Africa, with more than 900 of 1,250 state-owned enterprises now in private hands. In 2000, Mozambique received debt relief under the Heavily Indebted Poor Countries (HIPC) initiative run by the World Bank and the IMF.

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