Mozambique: Down but not beaten

Still reeling from a 2016 debt scandal that crippled its economy, the African nation’s rebuilding efforts have again hit a roadblock.
Mozambique
17 October 2019

The new suspension bridge over the Bay of Maputo may be a sight to behold, but it also marks a striking contrast with the dusty, unpaved roads across the country.

Stretching more than three kilometers, it is the longest suspension bridge in Africa, forming part of a new road that cuts travel time between Maputo and Kosi Bay in neighboring South Africa from six hours to 90 minutes.

Mozambique has some 30,500 kilometers of highway roads, but only about 20 percent of them are paved, with the rest poorly maintained, and sometimes even impassable in adverse weather conditions.

The situation was dealt a further blow when two cyclones made landfall in the country earlier this year, taking hundreds of lives and homes, and leaving roads washed out. Mozambique continues to reel from the impact of the devastation.

For the locals, the roads — paved or not — are essential to their livelihoods. They rely heavily on roads to transport fresh produce within the country, where agriculture is the primary driver of the economy.

Once hailed as the “Qatar of Africa”

In 2018, DHL’s Global Connectedness Index identified the country as one of the economies with international flows of goods, capital, information, and people exceeding expectations.

Even though the African nation of about 30 million, once ranked among the world’s 10 fastest-growing economies, is still coping with the aftermath of a US$2 billion (€1.75 billion) debt scandal, it is slowly picking itself up.

“The foreign direct investment in the country’s key industrial sectors is expected to spur growth and bring about new opportunities in the future. We are confident that Mozambique’s economy will get back on track in the next five to 10 years,” said Hanifo Ismail, Country Manager, DHL Global Forwarding Mozambique.

The aftermath of Cyclone Idai in Mozambique
The aftermath of Cyclone Idai in Mozambique

Mozambique was not always mired in hard times. In fact, after the 15-year Mozambican Civil War in 1992, Mozambique was like a country reborn.

The government rolled out bold macroeconomic reforms which tapped on the country’s abundant reserves of mineral resources and natural gas to build a market economy and reduce its dependence on the agricultural sector

The move drew an influx of foreign investors, who were ready to finance the development of the country’s core infrastructure and energy processing plants.

Mozambique’s growth also paid dividends for its people. Between 1996 and 2003, the number of citizens living below the poverty line dropped from 69 percent to 54 percent.

Locals selling vegetables in the fresh market at Maputo, Mozambique
Locals selling vegetables in the fresh market at Maputo, Mozambique

In 2012, Mozambique had the perfect opportunity to make it big in the energy sector when an estimated 20 billion barrels of natural gas were discovered in the Rovuma basin.

It was even hailed as the “Qatar of Africa”. That sense of optimism proved to be short-lived.

Trouble brewing

The great oil crash of 2014 sent global commodity prices plummeting overnight, while conflicts between government forces and guerrillas forced investors to withdraw their funds.

The fatal blow to the country’s economy came in April 2016, when news broke that its leaders had acquired secret loans of up to US$2 billion from Credit Suisse and Russian lender VTB.

All the funds were said to have been channeled into three state companies under the ruse of purchasing naval and fishing equipment. Though illegal, the fact that the government backed the transaction meant it was responsible for paying off the US$2 billion debt, of which more than a quarter remains unaccounted for.

As a result, Mozambique’s public debt rose to a whopping 112 percent of its GDP by the end of 2016. “The scandal affected investments in the country, and led to a sharp increase in the cost of living,” shared Ismail.

According to a World Bank report, the Mozambican metical plunged by almost 42 percent against the US dollar within the first 10 months of 2016. This, in turn, sparked inflation of food prices, causing widespread panic among Mozambicans.

Road to recovery

Since the fallout from the debt scandal and the damage from the cyclones, Mozambique has been focused on rebuilding the country.

It continues to service its debts while rolling out initiatives to revitalize its economy, starting with the roads.

“In the wake of the cyclones, the road to Beira was inaccessible due to the flooding around 100 kilometers away. Communication was down, and import and export operations were put on hold,” said Ismail.
“In the wake of the cyclones, the road to Beira was inaccessible due to the flooding around 100 kilometers away. Communication was down, and import and export operations were put on hold,” said Ismail.

For the government, it is clear that infrastructure will play a vital role in allowing various industries, such as agriculture and tourism, to tap its vast natural resources. The 2018 unveiling of the new road linking Maputo to Kosi Bay was a testament to this endeavor.

In addition, the Maputo Port Development Company plans to invest US$750 million to further develop the Port of Maputo, Mozambique’s largest port.

This will allow the facility to handle 48 million tons of iron-chromium, coal, vehicles, and fruit among other goods by 2033, which will help boost the Mozambican economy by transforming the country as a major port in the African region.

Recognizing the country’s efforts to get back on its feet, the African Development Bank has arranged for a US$300 million loan to kickstart the US$5 billion Nacala corridor rail and port project in Mozambique and Malawi. The project aims to connect the region and boost trade in coal and other commodities.

The World Bank in May last year also approved a US$150 million grant in support of the Mozambican government’s project to enhance road access in the provinces of Zambezia and Nampula, where most of the country’s rural poor live.

With the economy showing signs of revival, hope is on the horizon.

The International Monetary Fund, which previously suspended aid activities to Mozambique, has also predicted that the country’s economy could grow between 4 and 4.7 percent in 2019, well above the previous forecast of 3.5 percent.

It may be a long road to recovery, but Mozambique has set its sights firmly on getting back on track.

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