NS4301 Summer 2015

Mozambique Economy

Overview

• Robert Looney, “Mozambique’s Moment,” Foreign Policy, September 18, 2014

• Mozambique going through a good period

• Growing economy

• Freshly signed peace agreement between Renamo and Frelimo – Renamo wanting a greater say in the government

• Since return to peace in 1992 following bloody fight for independence and long civil war economy has been one of world’s most rapidly expanding

• Between 1993 and 2000 GDP averaged 5.7%, speeding up to 6.4% between 2001 and 2010 with rates

• Recent up-tick in violence did not hurt growth with

• 7.4% (2011), 7.1% (2012), 7.4(2013), and 1.3% (2014).

2

GDP Growth

3

Basic Statistics

4

Sector Shares (% GDP)

5

Public Finances (% GDP)

6

External Accounts (% GDP)

7

External Debt (% GDP)

8

Economic Issues

• Currently country looking at a future resource bonanza from major coal and offshore natural gas discoveries – worth billions of dollars

• If spent properly could boost majority of Mozambique’s population out of poverty

• Unfortunately record in Africa is often increased inequality, instability and conflict rather than a peaceful transition to prosperty

• Whether Mozambique will be an exception depends in part on willingness of ruling party to maintain peace by allowing opposition political leaders to share in the wealth

• Even greater extent it depends on what takes plce in the country’s long neglected agricultural sector

9

Poverty I

• Despite Mozambique’s impressive growth record, majority of population remains rural and poor.

• Mozambique has 25.8 million people, 70% who live in countryside and depend on subsistence agriculture

• Mozambique’s per capita income averaged just $693 from 2009-2013

• Ranked below Afghanistan ($688), Bangladesh ($750), and Haiti ($776)

• Mozambique made significant progress in reducing poverty for several years following the civil war.

• Poverty rate fell from 69 percent in 1996-97 to 54% in 2003 – largely as a result of increased agricultural incomes and improved access to education.

• Unfortunately progress has slowed thereafter.

10

Poverty II• By 2008 still more than half the population living below

the poverty line -- household survey data

• Poverty concentrated in rural areas and the central and northern regions of the county

• Poverty reduction programs most successful in already relatively affluent south and around urban centers, especially Maputo

• World Bank data 2008 show a wide disparity in distribution of income.

• The poorest 60% of Mozambique’s population had access less than about 30% of the country’s income

• Richest 10% had over 36%

• The UNDP ranked Mozambique 184th out of 187 countries on its Human Development Index below Haiti, Afghanistan and Central African Republic

11

Food Security

• Despite rapid growth, Mozambique’s low food security – the capacity of its people to access adequate sources of nutrition – has deteriorated in recent years.

• EIU Index of Food Security – measures

• Food affordability

• Availability and

• Quality and safety

• Ranked Mozambique 90th out of 109 countries in 2012

• By 2014 the country was ranked 101st

• Inability of Mozambique’s agricultural sector to meet demands of population apparent in September 2010 when increases in food prices triggered riots in capital

12

Agricultural Strategy I

• Aware of country’s food problems the government the government had begun (early 2000s) an agricultural strategy that relies on large-scale farming to expand output and lower prices.

• Since government owns all the land in Mozambique

• Able to grant exclusive rights to large parcels for 50 to 100 years at very favorable terms

• Little transparency in deals

• Theory behind deals straightforward

• Country has abundant land but little capital or know-how to develop it

• Companies need land and can provide the necessary capital and skills

• Result should be win-win – development on commercial terms.

13

Agricultural Strategy II

• In practice approach has been met with strong local opposition

• ProSAVANA project

• Jointly funded by governments of Mozambique and Japan with cooperation and assistance from Brazil

• Idea to introduce large scale monocrop farming in the Nacala Corridor region

• Modeled on an earlier Japanese/Brazilian soybean farming venture in the savannah region of Brazil

• Many Nacala Corridor groups question the untried transfer of foreign cropping methods to a new environment

• Contend that the program is a blatant land grab that will displace local peasant farmers 14

Agricultural Strategy III

• Residents claim

• Little transparency in awarding or planning project

• Local farmers had no input

• This is a new version of colonialism that threatens to transfom them into rural laborers for giant agribusinesses – jeoparadixzes their basic human rights

• Something to the complaints:

• Previous agribusiness projects established without consolation have failed to make good on promises to farmers they displaced

• There is an alternative

• African Progress Panel (APP) has developed a model for Africa

15

Agricultural Strategy III• Focuses on giving smallholders a greater role in managing

local farms• Argues most agricultural technology is scale invariant – as

efficient on small farms as on large• Therefore large agribusinesses not inherently more efficient• Approach would give millions of peasant farms up to 5

hectares each• Making the most of available land• Peasants would farm the land on their own terms and for

their own profit• Initial support of subsidized inputs such as mechanical

ploughs and assured markets• Government’s new found revenue sources from coal and

natural gas would provide funding

16

Assessment

• Smallholder approach would not only increase food security • Would contribute to social, political and economic stability

by increasing overall employment and enabling the survival of rural towns and villages.

• Risks associated with current agribusiness strategy high and benefits problematic

• Mozambique food insecurity, widespread poverty and increasing rural unemployment make for frictions when contrasted with highly concentrated pockets of wealth derived from mining, natural gas and foreign agribusinesses

• Current strategy is facilitating rent capture by elites – bound to be a source of future conflict.

17