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Economy and business in Mozambique

Intrinsic poverty and little economic development are striking features of Mozambique's economy and business. According to COUNTRYAAH, the country scores poorly on most indicators of human development, such as education, health and gross domestic product per capita, and the UNDP has long ranked Mozambique among the ten least developed countries in the world. In terms of gross domestic product, the economy in 2018 was about half of Iceland, even though Mozambique had eight times as many people. The country's economy is best understood in the context of the outside world, as it has been an integral part of the regional and global trade system for the past few hundred years.

Business of Mozambique

Only in the last hundred years has the country undergone a series of major political upheavals and instability, and associated political-ideological projects, all of which suddenly required economic reorientation. Nevertheless, the country's economy and business have fallen back to some persistent characteristics and patterns.

Major upheavals and structural weaknesses

Throughout much of the 20th century, the Portuguese colonial power in Mozambique promoted economic development to serve the white, Portuguese population and capital owners in Europe. During this period, both men and women were exposed to the colonial power's extensive use of forced labor, called shibalo - a practice that first came to an end in the 1960s. After independence in 1975, the government had ambitions for rapid economic development of both industry and primary industries with a state-controlled model (socialist planning economy), but this was unsuccessful. The 1980s brought war and economic collapse, followed by a period in the 1990s with dependence on foreign aid donors., rapid privatization and an economic policy guided by ideological neoliberalism. Even the considerable economic growth following the commodity boom that created great optimism in the 2000s had to give way from around 2015 to debt crisis and general pessimism.

At the end of the colonial era, in the 1960s, Mozambique had one of the more industrialized economies of southern Africa and strategic transport infrastructure, such as three of East Africa's most important ports, 3100 km of railway and a large network of airports - and not least, Africa's Cahora Bassa's second largest hydropower plant was under construction. Large plantations and fisheries produced food. In the 1950s and 1960s, tourism was also a significant factor.

Nevertheless, the majority of Mozambicans were and are not directly involved in the industrial economy. According to the country's statistics bureau, only eight percent of the workforce had formal employment (2006), half of which was in the capital. Still, most of the population, especially women, are engaged in small-scale agriculture - preferably just a few land patches that are enough to feed a small number of family members, where the soil is cultivated with a pick. Others, especially men, in addition to trade in any agricultural surplus, are the products of some hunting and fishing. Many men also work as labor migrants in South Africa, as Mozambicans have done on a large scale since the 19th century. In the cities, the majority run retail or have very poorly paid and insecure jobs in the trade and services sector. A very small middle class in the cities has jobs in the public sector or in the service and finance sector.

Perhaps the most enduring and structural weakness of the Mozambican economy is that the vast majority of the country's modern sector has been driven by and for foreign interests. Although their nationality has changed over time, the result is similar for the Mozambican economy. Foreign capital interests have financed virtually all investments in the processing industry, the agricultural industry, tourism and services, the financial sector, transport and infrastructure. Another pattern is that since most Mozambicans are so poor, the domestic market in Mozambique is so small that investments are usually directed towards production for foreign needs. The few Mozambicans who started accumulating capital from the 1990s have shown little willingness to invest in local development, so all major capital investment must still come from foreign powers. High Corruption in the state and business has probably hindered economic development since the 1990s.

The legacy of the colonial era and the civil war

The basis for this pattern was laid during the colonial period, where the Portuguese colonial authorities did little to anchor the modern economy in the local people's knowledge and opportunities for their own acquisition. During the colonial settler period from the late 1800s to 1975, the economy was geared toward serving the colonial lords interests in Lisbon, London and Johannesburg, and for the local white elite in the cities of Mozambique.

After independence in 1975, over one hundred thousand Portuguese traveled from Mozambique and brought with them capital, technical knowledge and market relations. Immediately after, Frelimo attempted to embark on a socialist course and implement a sudden transformation to a state-directed economy, such as the nationalization of all housing stock, banking, and industry, as well as state-organized procurement monopolies and transport. This large-scale experiment was unsuccessful. In the 1970s and 1980s the protracted civil war raged resulting in devastation and many lost investments. The ravages of the war were compounded by a prolonged drought, which made the living conditions in Mozambique at the 1991 peace settlement disastrous: Most people were literally demolished, industrial production had stalled, agriculture was not producing and the important transport years were cut.

From aid dependency to raw material boom

After the peace agreement in 1992, the number of donors of development assistance and aid organizations poured into Mozambique. This has characterized the economy, as aid in the 1990s made up around 40 per cent of gross national income, and around 20 per cent in the period after (15 per cent in 2016). In the 2000s, aid paid over half of the central government's spending in almost all years, but this fell to 36 percent in 2015. Mozambique has therefore been one of the most aid-dependent countries in the world. The very high number of donors - from large international funds (including the Bill Gates Foundation), so-called multilateral donors (the World Bank, the African Bank), bilateral donors (where the US,The United Kingdom, Switzerland and Sweden have been among the largest), to private aid organizations - created challenges. The coordination of so many aid initiatives, people and money, as well as thousands of projects, occupied a significant part of the authorities' post-war capacities. Unforeseen side effects of aid may have contributed negatively to economic development, such as the very low tax input and " brain drain " of educated Mozambicans to aid organizations.

The political crisis of recent years, and lack of trust between donors and the government due to several major corruption scandals, have led to a sharp decline in aid. Extensive drug smuggling is also a negative feature of the economy, and some researchers claim that heroin exports corresponded to the country's second-largest export revenue after 2010.

Around 2000, it became clear that Mozambique had large deposits of natural resources that could be exported as raw materials, especially in natural gas, coal, tropical wood, gems, gold, as well as useful rocks and soils. Subsequent investments from multinational companies in the extractive industry contributed strongly to Mozambique's economy having among the fastest growth rates in the world for almost two decades - over seven percent annually on average up to 2014. Among the foremost examples of the massive investments in commodity exports was Brazilian company Vales investments in coal in Tete Province, with associated rail development. In Inhambane province, gas is extracted onshore, with exports since 2004, when a gas pipeline to South Africa was completed. Mozambique also has large hydropower resources, most notably the giant Cahora-Bassa dam, where most of the power is exported to South Africa.

The discovery of Africa's largest offshore gas field in northern Mozambique in 2010 affected Mozambique more than any other natural resource. For some years, it generated huge expectations of economic growth, including when the International Monetary Fund estimated that Mozambique could count on investments from the gas industry in the order of $ 100 billion, and five times as high revenue over a 30-year period.

But by 2019, gas production had not yet begun. On the other hand, the authorities - in part because of expectations of large revenues - had heavily repaid the country. Mozambique went from having debt relief under the HIPC initiative in 2005 to having Africa's highest debt burden relative to gross domestic product ten years later. The gas wealth, therefore, has yet to benefit tangible benefits for most Mozambicans.

Norwegian assistance to Mozambique

From its inception in 1977 to 2018, Norway's total assistance to Mozambique probably reached at least NOK 15 billion. According to Norad, annual official assistance from Norway to Mozambique was NOK 327 million a year between 2012 and 2017, with emphasis on economic development and trade, followed by environmental and energy and assistance to governance.

Agriculture and primary industries

Up to 80 percent of the population is likely to have farming and keeping small livestock (goats, chickens and pigs) among their most important activities for subsistence, and many have it as the only one. Above all, corn, but also yucca, sweet potatoes, rice, beans and a variety of vegetables form the basis of the family sector's production. Cattle farming is important in the southern parts of the country.

There may be "overpopulation" blamed on poverty in Africa, but this can hardly be said to be the case in Mozambique. The country has considerable untapped agricultural potential: it has around 36 million hectares of arable land, of which only 5 million is cultivated, of which only about a thousand are irrigated. Most of the irrigation takes place on the relatively many plantations in the central and northern parts of the country.

During the colonial period, agriculture included a commercial sector with around 3,000 large farms and European-owned plantations with export-oriented production of sugar, cotton, coconut, cashew, tobacco, hemp, coffee and tea. One of the major plantation owners in Mozambique was Norwegian Christian Thams, the founder of Orkla.

After independence, the plantations were nationalized and tried to continue, but much of the export-oriented production stalled because of war, mismanagement and population reluctance. Subsequent private investments in the plantation sector have also faced major challenges. An example is the giant banana plantation Matanuska in Nampula province of 30 km2, where among other Norwegian Norfund invested NOK 175 million: After major investments and a few years of operation, the entire production was shut down due to disease outbreaks on the banana plants.

By contrast, agricultural production in the family sector from the 1990s picked up significantly and contributed to strong economic growth in the 2000s. More land could again be cultivated as peace took root, hundreds of thousands of refugees returned to their land, mines were cleared and the rain returned after the drought period of the previous decade.

Some forestry is found around the Beira corridor and in the northern provinces. The Norwegian company Green Resources has a license in the 155 km2 forest in the northern Niassa province. In the 2000s, there have been very controversial issues surrounding illegal forest management. In particular, it is claimed that Chinese operators, probably in association with corrupt Mozambican politicians, have exported large quantities of tropical timber without paying taxes or leaving other values ​​in Mozambique.

The fisheries have large resources along the long coast, but the fishing industry is relatively poorly developed. Many coastal people feed on small-scale fish using simple technology and for sale in the local fresh produce market. In particular, the country's giant shrimp (often 15-20 cm in size) have been important export goods, and in the 1990s accounted for half of the country's export value before mineral extraction increased in the 2000s. The shrimp have also become famous symbol of the Mozambican cuisine.

Transport and Communications

Like many others in Mozambique, the transport network was expanded to adapt to the needs of the colonial economies and to serve trade to and from neighboring countries. This was always an important source of revenue for Mozambique. The war's destruction of the central road and rail network has now largely been rectified and further developed, but a lack of good local roads makes many areas nonetheless difficult to access.

Only one main road, no railroad, links the long country between the north and the south. Just as the east-west rivers are obstacles to north-south transport, the railway lines are also built in an east-west direction. Rather than linking the economy together, they therefore create different zones. Economic development in Mozambique therefore tends, as in the colonial era, to take place in regional zones or "corridors" along the railways, such as the Beira corridor and the Nacala corridor, named after the respective port cities.

Mozambique's airline LAM, on the other hand, despite its chronically weak economy and operating problems, has managed to tie the country together through its 16 airports, three of which are international.

The ports of Mozambique, given the strategic location in relation to the coastal neighboring countries and parts of South Africa, have always contributed with revenue to the state and a few hundred jobs. The deep water port in Maputo, with an annex in Matola, is one of Africa's largest. Other important ports can be found in Beira, Nacala and Quelimane.

Industry

Mozambique has little developed industry. The largest industrial enterprise is the large Mozal smelting plant outside Maputo, which opened in the year 2000 and which produces with a capacity of 250,000 tonnes a year. It is owned and operated by foreign companies. The model is based on the use of electricity from Cahora Bassa, and the use of the port facility in Maputo for import of bauxite and export of aluminum. Already in 2003, Mozal exports accounted for 55% of the country's total export value, but critics claim that besides a few hundred jobs, the smelter generates little tax revenue and other revenue for Mozambique. The country also has some industry in cement, cotton, and simple food processing.

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