Mozambique - Overview of economy

Although the Portuguese participated in the trading networks of southeastern Africa as early as the 16th century, they did not establish hegemonic (total) colonial dominance over the territory that now comprises Mozambique until the early 20th century. By the mid-1920s, the Portuguese succeeded in creating a highly exploitative and coercive settler economy, in which Africans were forced to work on the fertile lands taken over by Portuguese settlers. African peasants mainly produced cash crops designated for sale in the markets of the colonial metropole (the center, i.e. Portugal). Major cash crops included cotton, cashews, and rice. The little industrial development that did occur throughout the 1950s and early 1960s was based primarily on British and South African capital.

In 1975, a coup in Portugal led to the overthrow of the fascist dictatorship that governed the nation, and thus an end to the colonial wars that raged in the various Portuguese African colonies since the early 1960s. Mozambique became an independent nation and the Frente de Libertacao de Mocambique (FRELIMO), the socialist guerrilla organization that had fought the colonial war against Portugal, assumed power. Over the next several years, FRELIMO pursued numerous socialist policies, including nationalization of land and large industries, centralized planning, and heavy funding for the educational and health sectors. At the same time, the government encouraged the large network of cantinas (tiny shops), which were owned by Portuguese settlers, to remain in the hands of the private sector . The exodus (mass departure) of the Portuguese following independence facilitated the takeover of the cantinas by Mozambicans. Unfortunately, the exodus, which totaled 250,000 Portuguese, also led to a huge loss of professionals, productive machinery, and skilled workers.

By the early 1980s, Mozambique became what Joseph Hanlon—author of Peace Without Profit: How the IMF Blocks Rebuilding in Mozambique —called a "Cold War battlefield." The term refers to the situation in which socialist Mozambique was forced to fight a lengthy civil war against a counterinsurgency movement of opportunistic Mozambicans named RENAMO, funded and directed by the neighboring capitalist economies of South Africa and Zimbabwe. (The cold war was defined by animosity between capitalist and socialist world powers, and though there was never an outright military conflict between the former and the latter, each respectively funded counterinsurgency movements against governments they disfavored.) The racist governments of South Africa and Zimbabwe feared that a successfully ruled African socialist system might send a message of revolution and self-rule to blacks in contemporaneous white-ruled African countries, such as their own. Under the socialist paranoia of the Reagan administration, the United States also provided support to RENAMO, which sustained a brutal civil war against FRELIMO until a Peace Accord was signed in October 1992.

According to Hans Abrahamsson and Anders Nilsson, authors of Mozambique The Troubled Transition: From Socialist Construction to Free Market Capitalism , RENAMO's methods of recruiting soldiers consisted mainly of coercing peasants to join their forces through threats, torture, and killing. RENAMO's war against the government led to the death of more than 1 million Mozambicans, not to mention a total loss of the economic and social gains that had been achieved in the late 1970s. In 1989, UNICEF estimated that the country's GDP was only half of what it would have been without the war.

The political pressure of the ideologically charged civil war, in conjunction with the excruciating need for aid and funds to finance imports, compelled FRELIMO to negotiate its first structural adjustment package (SAP) with the World Bank and the International Monetary Fund (IMF) in 1986 (commonly referred to as the Bretton Woods Institutions or International Financial Institutions—IFIs). The series of SAPs that followed thereafter, required privatization of major industries, less government spending, deregulation of the economy, and trade liberalization . The SAPs, therefore, have essentially focused on the implementation of an unfettered free market economy.

Today, the economy of Mozambique continues to be dominated by agriculture. Major exports include prawns, cotton, cashew nuts, sugar, citrus, copra and coconuts, and timber. Export partners, in turn, include Spain, South Africa, Portugal, the United States, Japan, Malawi, India, and Zimbabwe. Imports, such as farm equipment and transport equipment, are capital goods that are worth more than agricultural products, hence Mozambique's large trade deficit . The country also imports food, clothing, and petroleum products. Import partners include South Africa, Zimbabwe, Saudi Arabia, Portugal, the United States, Japan, and India. In the past several years, the value of imports outweighed the value of exports by 5 to 1 or more—a factor that obliges Mozambique to depend heavily on foreign aid and loans by foreign commercial banks and the Bretton Woods Institutions (BWIs). In 1995 alone, Mozambique received $1.115 billion in aid. In 1999, the total external debt stood at $4.8 billion. Fortunately, in the same year significant economic recovery did occur, as the real GDP growth rate reached 10 percent.