Facing the Development Challenge in Mozambique

Abstract

Following Mozambique’s economic collapse in 1986, the country began a wide-ranging process of reform, with the support of the international community. The diagnosis was of an economy that failed to maintain monetary control, consumed beyond its means, focused production excessively on nontraded goods, and relied on inefficient and inflexible microeconomic structures. Nevertheless, Mozambique was also at war. The pace of stabilization and structural adjustment quickened after 1992, when, concurrent with the demise of apartheid, civil strife finally came to an end. After more than 10 years of adjustment, the reform program has now been essentially implemented. Yet, this does not imply, as shown in this study, that sufficient conditions for sustained economic development are in place. Mozambique remains very poor, and even under highly optimistic assumptions about the future, the development process is set to last for decades. This report attempts to respond to some of the basic development challenges facing Mozambique and to provide both qualitative and quantitative insights for policymaking in the years to come. Throughout, the issues addressed are approached from an economy wide perspective.

This study forms a part of the multicountry research initiative, Macroeconomic Reforms and Regional Integration in Southern Africa. This initiative covers six countries in the region and pays particular attention to the evaluation of the merits of alternative development strategies. The choice and design of an appropriate development strategy is by no means immediately evident for any developing country. However, for a country with abundant arable land and scarce human and physical capital, such as Mozambique, the role of agriculture in development is particularly interesting. In keeping with the focus on agriculture, a social accounting matrix (SAM) for 1995, with significant agricultural sector detail, was constructed as part of this study. The SAM contains 40 activities, including 13 agricultural and 2 food-processing activities, 3 factors of production, and 2 households (urban and rural). It captures two innovative but fundamental features of the Mozambican economy: high marketing costs for domestic, imported, and exported goods; and the significant prevalence of home consumption, particularly for rural households