Mozambique: options for multi-sector approaches to FDI

Photo © ILRI/ Flickr
Photo © ILRI/ Flickr

Historically, Mozambique has relied heavily on aid flows to finance post-war reconstruction. It is also Africa’s biggest recipient of overseas development assistance (ODA) – about 50% of government spending is financed from ODA. Post-war economic reconstruction efforts came mainly in the form of large projects focused on rebuilding the country’s infrastructure.

These projects were financed for the most part by foreign debt and equity, aided by multilateral and regional development banks. Large foreign direct investment (FDI) projects, therefore, became an important driver of economic growth, especially in the extractives industries and the supporting infrastructure sector. Investments in these sectors were aided by liberalisation and stable macroeconomic policies on the one hand and widespread donor support on the other. Notwithstanding this strong economic growth, Mozambique’s gross domestic product (GDP) per capita is below the low-income country average, and it ranks 180 out of 188 countries in the 2014 Human Development Index. The country’s economic growth showed positive momentum from the mid-1990s until the real impact of the sustained slump in commodity prices was felt, beginning in 2011. Public debt increased from 40% of GDP in 2011 to 56.8% in 2014.

The Mozambican government has recognised the importance of growth in agriculture and large-scale foreign investments have been seen in this sector, with hoped-for spillovers to local smallholder farmers. There is, however, an emerging argument for sharing the technology, expertise and access to resources (including land and water) that the extractive industries have enjoyed in Mozambique since the 1990s, to further develop the agriculture sector. It is possible to transform mineral resources into long-term sustainable developments, but this can only happen when these operations are embedded in secure and prosperous communities. Environmental impacts must be rigorously addressed and risk mitigation and management strategies diligently applied. Joint committees that include private company representatives, government agencies and the community should have continuous and robust engagements.

25 Aug 2016

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Research by
Series
SAIIA Occasional Paper No 237, October 2016
Region
Sub-Saharan Africa
Country
Mozambique
SAIIA Programme
Economic Diplomacy
Tags
Foreign Direct Investment (FDI), Investment

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