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Mozambique: Mozambique Economy Profile



In 2013 real GDP posted robust 7% increase, although lower than expected due to severe floods early in the year. The progressive increase in coal production and the implementation of large infrastructure projects, coupled with budgetary expansion, are expected to continue to drive increase, projected at 8.5% in 2014 and 8.2% in 2015.


  • The political situation has deteriorated, largely affected by low-intensity confrontations between government and opposition, while the recent deterioration of public financial management and economic governance are of increasing concern.
  • The capital-intensive nature of Mozambique\'s increase has as from presently on created limited jobs and has had a less-than-desirable impact on poverty reduction. Mozambique remains one of the least developed nations in the world.


Mozambique\'s economy remained one of the majority dynamic on the continent in 2013, with a 7% rate of real gross domestic product (GDP) increase, in spite of the major flooding which occurred during the initial quarter and the politico-military low-intensity confrontations between government and the opposition movement. The major drivers of increase are foreign direct investment (FDI), focused mostly on the extractive sector, and increasing public spending. The fastest growing sectors in 2013 were the extractive sector, propelled by a boost in coal exports, and the financial sector fuelled by credit expansion and increased gain, mostly centred on urban areas. Other dynamic sectors are construction, services, and transport and communication, broadly correlated with infrastructure development and very large-scale projects, known in Mozambique as mega-projects.

The agriculture sector, employing 70% of the people, lacks the same economic dynamism, although it is growing at above 4%. Assuming a stable political environment, prospects are positive for 2014 and 2015, with increase estimate to remain above 8%, supported by increased coal production, continued public investment and the estimate start of the preparatory work for the multi-billion dollar liquefied natural gas (LNG) plant.

The Mozambican economy presents little structural transformation, relying mostly on mega-projects in the aluminium, extractive industries and the energy sectors. Its capital intensive nature does not generate enough jobs to provide sufficient opportunities for the fast growing young people. Fiscal revenues cover little additional than 65% of the annual budget, while mega-projects benefit from generous fiscal incentives. The weak human capital and the country\'s deficient infrastructure seriously cripple economic and social development. Increasing public spending on infrastructure and fee increases contributed to the widening fiscal deficit, while the narrow tax base limits revenue collection increase. At the same time, external aid is declining.

The rise in external deficit levels to fund the public investment programme, particularly from non-concessional borrowing, increases the request that public investments generate positive economic returns. The misuse of deficit to fund poorly performing projects will result in medium- to long-term unbalances.

It is crucial that political stability is maintained so that the country continues to attract FDI that enables infrastructure and human development. Mozambique\'s current residual role in world price chains (GVCs), mostly limited to the aluminium smelter plant of Mozal, could be transformed by the development of specific industrial clusters related to natural gas and energy. Other sectors, such as the agriculture and light industries, may profit from an enhanced connection with the regional and world markets brought about by these anchor industries. Mozambique has two key opportunities in 2014 to cement its stability and next increase prospects. Initial is the execution of smooth and orderly presidential elections in October, and second is to attain the final investment decision on the LNG plant. However, the military and political situation is bound to remain uncertain and tense throughout 2014.

Mozambique Economy Profile ,

Mozambique Economy Profile ,

Mozambique Economy Profile ,

Mozambique is one of the rising economies on the African continent. Despite having one of the lowest human development indexes in the world (ranked 184th out of 187 nations in the United Nations Development Programme Human Development Index), it has completed an average annual GDP increase rate of 7.2% during the last decade. It has as well entered the group of emerging resource-rich nations, making international headlines for sizeable investments in coal, and in 2012, by confirming its discoveries of large natural gas reserves. The country’s geographic location as a gateway to the Indian Ocean, and to some of the major energy-intensive world economies, continues to attract major international investors, even though development occurs at a slower pace.

Large-scale projects, mostly financed by foreign capital, dominate the economy. These projects – referred to as megaprojects in Mozambique – are concentrated in the extractive industries (mainly aluminium) and the energy sectors. Other drivers of increase include construction, financial services and transport and communication, which are mostly correlated with mega-project development. Agriculture, which accounts for nearly 80% of employment, presents relatively modest increase rates: 3.4% in 2012, and an estimated 3.7% in 2013.

The Mozal aluminium smelter, the initial megaproject with foreign direct investment (FDI) of USD 2 billion, accounts for about 40% of the country’s exports. However, with the smelter currently at maximum productive capacity, aluminium may be surpassed quickly by coal as the top export commodity. The two coal mining megaprojects from Vale and Rio Tinto spearhead coal extraction with a combined investment of over USD 10 billion. The initial full year of coal production in 2012, yielded 5 million tons and USD 196.4 million in exports. Production in 2013 is projected to expand by 24%, with the increased productivity from the 2 megaprojects, but as well from other concessions. Besides Vale and Rio Tinto, other major coal companies are present in Tete province, inclunding: Beacon Hill Resources and Ncondezi Coal Company from the United Kingdom; JSPL and Tata Steel Ltd from India; Eta Star from Dubai; Nippon Steel from Japan; and the recent entrant, Anglo-American. In total, the government has granted 1 600 mining licenses, half of these for coal. In 2012, the government launched an auction of 148 mining licenses in the new promising Niassa coal basin; although only open to local companies. Production of other minerals is as well expanding, namely tantalite, limonite, zircon and tourmalines. The 28 000 tons of iron ore exported to China in 2012, by Indian company Damodar Ferro, mark Mozambique’s entrance into the world iron market. However, the deficient infrastructure network is curtailing productions. For example, Tete province is linked to the Beira seaport but only via a single rail line – the Sena line. Although the line transport capacity is being upgraded from 3 million tonnes per time(t/y) to 6.5 million t/y, the estimated production capacity of the combined coal projects in the Tete region at their maturity stage is 100 million t/y.

The government has an ambitious plan for a complete overhaul and expansion of the country’s infrastructure. A USD 2 billion tender was launched for the construction of a new seaport at Macuse, jointly with 525 kilometres of new rail line linking it to Tete. The Nacala seaport, under expansion, will as well be linked to Tete by two new rail lines. One line will run entirely within Mozambique, and an extra will run through Malawi to reach Nacala. In total, the various rail and port projects in the pipeline are expected to raise the coal export capacity to additional than 120 million t/y, at an estimated total cost of USD 12 billion. The road sector will see further expansion in 2013. National road coverage will be expanded by 900 kilometres, inclunding the 2 new projects in Maputo, the Ring Road and the Catembe Bridge with a connection to the South African border. Total cost will be USD 982 million, provided by a loan from the Chinese government.

Investments in the power sector are expected to increase access to electricity from 20.7% of the people in 2012 to 24.1% in 2013. A 107 megawatt (MW) temporary gas-fired power station is under construction by Aggreko (UK), the initial independent power producer. This plant will operate from 2012 to 2014, at a total cost of USD 250 million, inclunding fuel, and will supply both Mozambique and South Africa. The construction of 2 other gas-fired power stations in Gaza and Maputo, using gas from the Pande fields, was approved for a total cost of USD 345 million. The major coal producers are as well considering building thermal power stations, which will be fuelled by the abundant thermal coal resources. However, these projects will only be viable if the construction of the STE (formerly CESUL) transmission project is completed. It has been delayed due to difficulties with the arrangement, specifically a USD 5 billion financial closure. In parallel, the number of consumers connected to off-grid renewable energy should expand in 2013 by about 17% to reach 3.5 million.

Two combined biofuel and agricultural (sugar and bio-fertilizers) projects are scheduled for 2013. The projects, in Massingir and in Caia, represent a total combined investment of USD 953 million. Increase in agriculture will be further enhanced by a maize and rice project of USD 250 million and a livestock project of USD 50 million, both by Chinese companies.

The Mozambican government acquired, in 2012, a 49.5% stake of Banco Nacional de Investimento (BNI), owned by the Portuguese national bank, providing it full control of the bank. The government has declared its willingness to transform it into a development bank that will invest in agriculture and infrastructure. The bank will as well provide appropriate financing to small- and medium-sized enterprises (SMEs). In 2012, the Appropriate Economic Zone of the Nacala Corridor region attracted USD 1.2 billion worth of private sector projects.

Mozambique’s offshore fields may hold as much as 250 tcf of gas, estimated to be enough to meet world consumption for additional than two years. ENI and Anadarko, concessionaires of the major blocks with a combined 150 tcf of proved reserves, signed an agreement for the co-ordinated development of the common reservoirs. They will as well jointly plan and construct an onshore, liquefied natural gas (LNG) facility near Palma, in Cabo Delgado province. The two companies were awarded a front-end engineering and design arrangement for the initial project phase, which will consist of four trains. Each train will cost between USD 4-5 billion and will be capable of producing 5 million metric tons per year of LNG, culminating in 20 million metric tons per year for a total budget of USD 20 billion. The initial LNG should be shipped in 2018.

Macroeconomic Policy

Fiscal Policy

The major fiscal challenge facing Mozambique is the balancing of the expansion of the social safety net with the infrastructure investment programmes, within a context of decreasing external aid resources and limited progression of domestic revenue collection. External aid resources will decrease from 40% in 2012 to 32.8% in 2013. The Netherlands and Belgium have declared they will no longer provide budget support from 2013 onward. This decrease in foreign aid has been partially offset by domestic revenue collection, which grew from 15.6% in 2009 to 19.4% of GDP in 2012. This was completed mostly through efficiency gains on tax collection. However, in 2013 revenues should decrease slightly to 19.23% because the collection of the price-added tax (VAT) is projected to decrease by 3.2% to 8.3% of GDP, as the limited fiscal base curtails continued fiscal evolution. The government plans to modernise further the tax government system with the implementation of a single taxpayer database and the introduction of an electronic tax system (e-tax).

The fiscal deficit in 2012 increased to 8.2% of GDP from 4.3% in 2011, due in large part to higher capital spending. It is estimated that the deficit will further rise to 9.2% of GDP in 2013 and reach 9.5% in 2014, before levelling off. The anticipated boost from extractive industries revenue will only occur in the medium-term horizon, as the megaprojects from coal are still at the initial production phase. Total tax revenue from extractive industries remains at 5% of GDP. Nonetheless, the 2013 budget foresees the earmarking of 2.75% of revenues from production taxes on mining and gas activities to be allocated to the local communities.

The government approved, in 2012, an Integrated Investment Programme to close the infrastructure gaps. Public capital spending is expected to continue to increase in 2013 and 2014. Spending in priority areas in support of the Poverty Reduction Action Plan (PARP 2011-2014) strategy will increase from 66.9% to 71.5% of in general spending, with allocations to social protection up to 0.3% of GDP, and possible additional World Bank funding for public works programmes.


Table 3: Public Finances (percentage of GDP)

  2009 2010 2011 2012 2013 2014
Total revenue and grants 27.1 29.5 30.1 28 27.5 26.8
Tax revenue 15.6 17.9 19.6 19.4 19.2 18.8
Oil revenue - - - - - -
Grants 9.5 9 7.8 6 5.8 5.4
Total expenditure and net lending (a) 32.6 33.4 34.4 36.2 36.7 36.3
Current expenditure 18 18.9 19.5 19.8 19.1 17.6
Excluding interest 17.5 18.1 18.5 18.6 17.9 17
Wages and salaries 8.9 9.2 9.8 9.8 9.2 8.7
Interest 0.5 0.8 1 1.2 1.2 0.6
Primary balance -5 -3.1 -3.3 -7.1 -8 -8.9
Overall balance -5.5 -3.9 -4.3 -8.2 -9.2 -9.5

Monetary Policy

The tight monetary policy implemented by the Bank of Mozambique (BoM) in 2010 and 2011 yielded positive and negative results: inflation decreased significantly from 16.6% in 2010 to 2.7% in 2012, however, credit stalled, reaching a meagre 3.5% in November 2011. Due to the negative impacts of the tight BoM monetary policy to the credit-starved real economy, the bank slashed lending rates by 35% and deposit facility rates by 50% in 2012. The 2013 rates presently stand at 9.5% for lending and 2.25% for deposits. The BoM as well decreased the reserve requirement ratio by 75 basis points to 8%.

Despite the successful management of inflation, there are indications of limited monetary policy transmission mechanisms. For example, cutting rates eased the money market, with the 3-month and 1-year treasury bills finishing the year at 3.38% and 3.63%, respectively; both down by additional than 70% and 60%, respectively. However, the 1-year average bank lending rate to the private sector reduced by just 200 basis points to 21.54%. Total credit increase to the private sector reversed the declining trend and expanded to a yearly accumulated rate of 11.3%, although still below the projected nominal GDP increase of 13.4%. The slow transmission of the monetary policy to produce the desired economic effects suggests that further reform of banking-sector competition is needed.

The decline in inflation was not due solely to the BoM monetary policy, but from lower-than-expected world food prices (particularly wheat and sugar), and stability of the Mozambique metical (MZN) against the South African rand (South Africa is the major source of non-fuel imports). Inflation kept its negative trend reaching the historical year-on-year low of 1.1% in August 2012. It has since again risen to finish the year at 2.7%. The late 2012 increase was fuelled, in part, by monetary expansion and a public transport administrative-tariff hike of nearly 40% in November, next a freeze of additional than 4 years. Utilities and fuel prices are set administratively and have been stable for several years. In 2013, it is expected to see additional increases in administrative prices, with the phasing out of subsidies. Despite the strong economic activity, core inflation continually decreased, standing at 0.6% at the end of 2012. With continued monetary expansion, progressive credit increase and robust economic activity, inflation should increase in 2013 and surpass the stated central bank medium-term target of 6% by 0.5%.

Economic Cooperation, Regional Integration & Trade

Available exports data from the initial half of 2012 shows an increase of 3.6% year-on-year, reaching USD 1.8543 billion, mainly driven by a 14.9% increase in mining megaprojects, which offset a drop in most other commodities. Coal became the second major export product, with exports of USD 196.4 million, second only to aluminium, which experienced a drop of 17%, to USD 579.6 million, due to price reductions in international markets. Exports of other sectors fell by 10.5%, particularly timber, shrimp and cashew nuts. Cotton and sugar were the exception, as favourable world export prices helped exports rise by 20.4% and 14.7%, respectively.

In general, the purchase of goods in international markets (i.e., imported goods) decreased by 2.6% to USD 2.54 billion, with consumer goods representing 28%. Notwithstanding the in general decrease, the import of capital goods increased by 61.7% to USD 593.8 million, mostly due to FDI in the mining sector. The in general goods import total by megaprojects increased to USD 973.5 million from USD 727.8 million in the same period of 2011. As a result, the current account deficit has continued to deteriorate over time, with a 54% increase year-on-time(1st semester), mainly due to increased hiring of specialised business services for mining and construction and a reduction of external grants inflow. Excluding the current account deficit due related to goods imports by megaprojects, in the same period the current account deficit widened by 28.2% to USD 989.1 million, representing 6.6% of GDP in 2012.

As has been the case for all of the 2000s, a significant share of total imports to Mozambique originates from the South African Development Community (SADC), in particular food and consumer goods from South Africa. In 2011, imports originating from Southern Africa were equivalent to 37% of total imports; up from 34.4% in 2010. The other significant sources of imports are the Netherlands (10%), China (6%), which has overtaken India (4.1%), followed by Portugal (4%) and Bahrain (4%).

Table 4: Current Account (% of GDP)

  2004 2009 2010 2011 2012 2013 2014
Trade balance -9.3 -13.3 -12.9 -8.5 -13.2 -8.4 -8
Exports of goods (f.o.b.) 26.4 22.3 25.4 24.8 21.4 24.7 24.3
Imports of goods (f.o.b.) 35.7 35.6 38.3 33.3 34.6 33.1 32.3
Services -4.7 -4.8 -5.5 -6.3 -10 -9.6 -8.8
Factor income -6 -2.6 -0.9 -1.5 -0.8 -0.6 -1.7
Current transfers 5.7 7.9 7.2 6.3 5.2 3 2.6
Current account balance -14.3 -12.7 -12.1 -10 -18.8 -15.5 -15.8

Figures for 2012 are estimates; for 2013 and later are projections.

Deficit Policy

The government’s ambitious public infrastructure investment programme will increasingly rely on external funding because of declining donor financing. Donor financing of public investment dropped to 6.4% in 2012 compared to 9.8% in 2011. It is expected to be 6.2% in 2013 and further decrease by 0.5% per year until 2016. As public deficit is mostly external, the evolution of public deficit indicators mimics that of external deficit. In turn, this limits the crowding out of local companies in the domestic credit market.

Public deficit increased by 2.8% to 48.1% of GDP in 2012. It is estimate to rise to 50.7% in 2013 and level off at 52.2% for the 2014-16 period. Until 2012, the government had resorted only to 16% of the non-concessional external borrowing (NCB) ceiling of USD 900 million agreed with the International Monetary Fund (IMF) under the Policy Support Instrument (PSI) programme. The signing of contracts for 3 new infrastructure projects during 2012, amounting to a total of USD 1.23 billion, led to a renegotiation with the IMF of the NCB ceiling to USD 1.5 billion, with a later request for an additional USD 100 million. The increased ceiling provided is based on the positive economic outlook, over the medium to long term, of booming investment and production in the extractive industries sector, which is expected to generate considerable fiscal revenues. The NCB ceiling should be explored fully by mid-2013, at the same time as investments should slow thereafter.

Given the revised macroeconomic framework, in its Deficit Sustainability Analysis the IMF considers Mozambique to present a low risk of deficit distress. The deficit service-to-export ratio indicator is expected to remain stable around 16.5%, but the weight of deficit service on revenue is expected to increase from 2.8%, registered in 2011, to 5.2% in 2013, progressively reaching 8.5% in 2016 before levelling off for the long-term. However, the scenario could be negatively affected by external shocks or delays in project implementation and development, which could postpone the boost in revenues into the medium to long term. A recent statement from the Jubilee Deficit Campaign calls attention to the increasing deficit levels; in a worst case scenario, deficit service could reach 10% of revenues in 2015-16, closing on the 12% registered in 1998 before Mozambique received several deficit relief initiatives, such as the Heavily Indebted Poor Nations (HIPC) Initiative.

Nonetheless, Mozambique is currently developing tools and new instruments to enhance deficit management and project-selection capacity, targeting projects that yield positive economic returns. A Project Co-ordination Committee was set in place, along with new project evaluation tools and manuals, despite still lagging in capacity and experience to ensure these measures are both sufficient and efficient. The new medium-term public deficit management strategy 2012-2014 was approved, and a domestic borrowing plan is being prepared in 2013.

Economic & Political Governance

Private Sector

Despite the strong macroeconomic dynamics and large influx of FDI, the country’s competitiveness is deteriorating progressively. For the third consecutive year, Mozambique dropped in the World Economic Forum Global Competitiveness Index from 131 in 2011 to 138 in 2013 out of 144 nations.

The country’s profile follows the pattern of factor-driven economies, with FDI focusing in extractive industries, while infrastructure, innovation and higher education and training are underdeveloped. In the World Bank Doing Business Index, Mozambique lost 7 places scoring 146 out of 185 nations, achieving the worst classification since it began to be ranked. In regional terms, Mozambique ranked only above Zimbabwe and the Democratic Republic of the Congo (DRC). Companies surveyed pinpointed access to financing and corruption as the two uppermost isolated problematic factors for doing business, followed by inadequate infrastructure, inefficient governmental bureaucracy and a poorly educated workforce. Registering property, despite improving five places, and resolving insolvency are as well both part of the worst performing indicators.

Inversely, trading across borders moved up a rank to 134. Mozambique completed its highest score of 49th place out of 185 in the category of “protecting investors”. The central bank has been targeting credit expansion, which is calculated to be over 12% in 2012, although consumption credit is growing faster crowding out the productive sector. The government has identified SME increase as a key strategic development need. As part of its efforts to stimulate SME increase, the government has drafted a law for the creation of private credit bureaus, which should facilitate access to credit.

A new strategy, specifically targeting the development of the business environment, is being prepared to be implemented in 2013: the EMAN II (Estratégia para a Melhoria do Ambiente de Negocios II). The major objectives of the strategy are to: i) promote SMEs; ii) relieve access to finance; iii) improve workforce training; iv) provide fiscal easing to SMEs; v) increase formalisation of the economy; vi) enhance SME productivity and competitiveness; and vii) improve the regulatory and business environment.

The success of the programme is critical for the country to achieve the desired economic diversification based on job creation and domestic entrepreneurship.

Financial Sector

The Mozambican financial sector is underdeveloped with approximately 90% of Mozambicans without an account with a formal financial institution. Formal credit is available to only an estimated 3% of the people. The 18 registered banks represent about 95% of total economy assets. In addition, the banking system lacks competition as 85% of the total financial sector’s assets are concentrated in the three major banks, all foreign owned, two of them owned by Portuguese banks and the third a South African bank.

Notwithstanding, the sector has showed resilience to the banking crisis in Europe. The banking system is sound and by September 2012, bank capital adequacy ratios averaged 19.1%, while the regulatory minimum is 8%. The Return on Equity (ROE) for the three major banks stands high at 35%, while non-performing loans decreased to less than 4% in 2012. Starting 1 January 2013, the banking regulations recommended in the Basel Accords I and II will be implemented, and the Basel III regulations are scheduled to be put in place in 2014. The microfinance institutions (MFI) sector continues to expand with 19 new institutions registered in 2012, bringing the total to 166. However, it is estimated that just 65 are active. Despite being systemically of low relevance, a lot of MFIs are present in the rural areas where access to finance is lower. In 2011, the initial service provider of micropayments through mobile phones was launched; there is a sole leasing and investment company.

The enactment, in 2010, of the revised Insurance Law, as well established the new insurance supervisory entity: the Institute of Insurance Supervision of Mozambique (ISSM). In 2011, the prudential regulations for the management of insurance contracts and the implementation of micro-insurance activities were approved. In 2013, the government plans to increase the actuarial capacity of the ISSM. The legislation and regulation of pension funds were enacted in 2009, and the initial private pension schemes are presently beginning to emerge, but the sector is dominated by the obligatory, national owned, pay-as-you-go (PAYGO) pension scheme.

Both government and corporate bonds are listed on the Mozambique Stock Exchange, although representing just 3% of GDP. The development of the domestic equity and deficit financing market is part of the objectives of the new Medium Term Deficit Management Strategy. The government is preparing the Mozambique Financial Sector Development Strategy 2012-21. The strategy aims to foster a sound, diverse, competitive and inclusive financial sector, with the objective to provide 35% of people with access to finance by 2021.

Public Sector Management, Institutions & Reform

Mozambique is making significant strides in public sector development. As part of the Policy and Decentralisation Strategy Document, adopted in September 2012, a wide range of institutional, legislative and policy reforms aimed at promoting decentralisation and citizens' participation in local governance were adopted. The introduction of alternative measures to imprisonment, particularly those which allow convicts to serve their sentences in liberty (through application of fines, community work, etc.), improved the legal framework in Mozambique. This is particularly significant given that Mozambican jails have been characterised as being overcrowded and squalid, and for holding people not charged with infractions (i.e. “inmates” held without charge, often for long periods). An extra significant development in the Mozambican justice sector was the inauguration of the Human Rights Commission, which is expected to alter positively its human rights record and the negativity surrounding the country in this regard. Mozambique has been heavily criticised by Amnesty International over its human rights record. Several Amnesty International reports have pointed to Mozambique as a country where a lot of human rights abuses, inclunding arbitrary arrests and detention occur deliberately and with impunity. The Commission is expected to play an significant role in improving human rights in Mozambique.

The issue of corruption has been a recurrent topic in media, parliament and civic dialogue. Mozambique remains part the poorest performers at the same time as it comes to corruption, ranking 123rd out of 174 in the 2012 Transparency International Corruption Perception Index. With its corruption perceptions score of just 31st place, it is just 1 point above the 30 mark of the lowest third of the nations ranked – the top rank in the 2012 Index is 90. A possibility to alter the reality and perception of corruption has begun, however. The parliament has initiated discussions to revise the penal code proposing significant measures to penalise corruption. A code of ethics for civil servants should be completed in 2013. There is an established Anti-Corruption Commission and some civil servants, inclunding high-ranking government officials, have been tried and convicted of corruption. Mozambique is currently under the peer review process of the UN Convention against Corruption.

Natural Resource Management & Environment

The effects of climate change are evident in Mozambique; manifested by threats of droughts and floods. This increases the vulnerability of rural livelihoods and threatens evolution made on poverty reduction. The government launched a Green Economy Roadmap to prepare the Green Increase Action Plan and feed into the National Integrated Development Strategy on issues of inclusive increase and environmental sustainability.

Mozambique was deemed Extractive Industries Transparency Initiative (EITI) compliant in October 2012. It published its third EITI reconciliation statement referring to 2010. This statement indicates a slight increase of government revenue from extractive industries, from just under USD 40 million (USD 15 million from mining and USD 25 million from hydrocarbons in 2009) to USD 44 million in 2010. The corporation tax and the personal gain tax paid by company employees account for 76% of all payments. The remaining revenue comes from royalties, surface taxes, environmental licences, the institutional capacity-building fund and the social-projects fund.

The extractive sector still contributes relatively little to government revenues because of the generous tax exemptions granted to projects that started before the 2007 revision of the mining law. The central feature of the fiscal regime is the combination of a production tax (coal 3%, gas 6%) and corporate gain tax (32%). Allegations that natural resource contracts still provide project-specific exemptions over-and-above the legislated framework are difficult to verify given the non-transparent nature of the contracts. For the short term, tax authorities’ capacity constraints, asymmetric data and lack of transparency may complicate securing an appropriate government share of profits.

Political Context

Mozambique will hold presidential elections in 2014 and municipal elections in October 2013. Traditionally, the Political Commission (PC) of the ruling party, its supreme decision-making body – the Frente de Libertação de Moçambique (FRELIMO or Frelimo Party), known as the Mozambique Liberation Front in English – chooses the presidential candidate. From presently on, former Prime Minister Aires Ali, tipped as the Frelimo Party’s most likely presidential candidate, failed to be elected by the PC at the Party’s 10th Congress in September 2012. Hence, President Guebuza was retained as the party leader. The constitution prohibits President Guebuza to run for a third consecutive term as president, however. In early October 2012, following the congress, the President restored Prime Minister Aires Ali with Alberto Vaquina, formerly the governor of coal-rich Tete province. The ministers of education, tourism, science and technology, and youth and sports were as well restored.

In 2012, the country celebrated 20 years of peace and stability. A round of equitable, orderly and peaceful local elections in Pemba, Quelimane and Cuamba, in which the opposition party, the Democratic Movement of Mozambique (MDM) won Quelimane, preceded this. With this victory, MDM controls two of the major municipalities (Beira and Quelimane) securing its place as a respectable political force in Mozambique.

Mozambique’s approval of a new electoral law should improve electoral oversight for the two upcoming elections. The package includes a bill governing the composition of the electoral authority and a bill on voter registration. Both bills are the response to criticisms of the handling of the 2009 elections by the previous electoral authority. From presently on, the major opposition party, the Mozambican National Resistance or Resistência Nacional Moçambicana (RENAMO) voted against the law.