Mozambique has been a multi-party democracy since 1990. Since the end of the civil war in 1992, the country has been one of the world’s fastest growing economies, with foreign investors attracted by untapped oil and gas, coal, and titanium reserves.
After recovering from severe floods and droughts in the early 2000s, Mozambique’s economy has performed strongly, with real GDP growth above 7% for over a decade. As a result of low exports and a decrease in public expenditure, due to ODA suspension and mounting public debt, as well as a decrease in foreign direct investment (-21% in 2015), GDP growth has decreased since 2015. Real GDP growth was an estimated 3.27% in 2018, a dramatic decline from the average of 7% during 2004– 15. The decline was due to decreased public investment and a 23% decrease in foreign direct investment in 2015–17. Recently, Tropical Cyclone (TC) Idai hit the central region of Mozambique and TC Kenneth hit the northern province of Cabo Delgado in March and April 2019 respectively decelerating growth. This, however, made way for aid response from the IMF which approved USD 118 million for emergency assistance under the Rapid Credit Facility (RCF).
Annual inflation dropped down to low single digits, 4.7% at the end of 2018 as a result of tight monetary policy and lower food price increases. It is however forecasted to increase to about 6% in 2020, while growth is projected to be 3.5% in 2019 and around 4.0% in 2020. This will be driven by agriculture, which is continuing to recover from the 2015–16 regional drought, and extractive industries, with the export of coal continuing to expand. There are also prospects for increased foreign direct investment in gas-related megaprojects in the Rovuma Basin in 2019. Average Inflation Rate as at May 2018 was at 3.26% while interest rates in local currency which was as high as 30% in 2016 are beginning to see a downwards movement. International reserves are expected to remain at around 7 months of non-megaproject imports in 2018–19.
As in previous years, the main drivers of growth were public expenditure and foreign direct investment, mainly in construction, power, business services, transport and communications, the financial sector and extractive industries. Poverty remains widespread, with more than 50% of Mozambicans living on less than USD 1 per day. With this in mind, the government has completely revised the legal and fiscal framework for the mining and hydrocarbon sectors, with a view to increasing revenues and enlarging domestic participation.
The lingering, low-intensity armed conflict between the government and the armed faction of the Resistência Nacional Moçambicana (RENAMO) had initially ended in a peace agreement in August 2014. Peaceful legislative and presidential elections were held in October of that year, after which Frente de Liberação de Moçambique (FRELIMO) emerged as the strongest party and its candidate Filipe Nyusi became President. Even though there are occasional cases of violence, the announcement of the new cabinet in January 2017 indicated a break with the former regime. Nyusi brought into his cabinet some FRELIMO cadres which had last served as ministers in former regime to foster peace and growth. He however brought into his administration more technocrats and fewer party cadres. In August 2019, a new peace accord was signed, ushering Mozambique into a reconciliation phase.