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Economic growth in Africa – Recent developments in Mozambique

The forecasts for global growth are gloomy, with the biggest threat coming from countries in the euro zone such as Greece and Spain. President Obama has warned that unless those problems are addressed, continued growth in the US economy is threatened and there is a likelihood of a global recession.
These pessimistic predictions for the advanced economies are in contrast to the apparent progress being made in the poorest part of the world – the African continent. According to forecasts from global accountants Ernst and Young, Africa’s GDP will grow by an
average 5% over the next decade. The faster growing economies, such as Ghana, Ethiopia and Uganda, will grow by over 7%. Foreign direct investment will be a major contributor to growth and it is forecast to reach $150 billion by 2015. One of the ironies of the
current situation is that while their former colonial powers are arguing about solutions to a debt crisis that has done huge damage to the European economies, some African states have been much more successful in carrying out structural reforms that have helped them to manage national debt and public finances. It is no wonder that these countries are not inclined to take instructions from the old colonial powers about how to manage their economies. One of the consequences of this situation is that a growing number of Portuguese have emigrated to Mozambique, once a colony of Portugal, in search of opportunities their own struggling economy cannot provide. There are 20,000 Portuguese living in Maputo, the Mozambican capital, including professionals such as lawyers, engineers and architects.

In the world economic growth league, Africa has moved from the lower echelons to the premier division. After a downturn in 2008, recovery from the global economic crisis has continued. Some of the fastest-growing economies in the world are in Africa. Seven in every 10 people in the region live in countries that have averaged economic growth rates in excess of 4 per cent for the past decade. From 2005 to 2009, Ethiopia recorded higher growth than China, and Uganda outperformed India. In 1996, there were 13 countries with inflation rates above 20 per cent; since the mid- 2000s, there have been no more than two. Much of this growth and rebound is due to improved policies.

Africa Progress Report 2012

There is plenty of evidence of increased wealth in Africa. It has 16 billionaires, the wealthiest of them being Nigerian cement tycoon Aliko Dangote with an estimated fortune of $10.1bn (£6.5bn). In all large African cities there are skyscrapers going up and signs of major construction everywhere.

‘Africa could be on the brink of an economic take-off, much like China was 30 years ago and India 20 years ago’.

World Bank global report 2011

Rapid economic growth in China and its insatiable demand for raw materials has probably been the most important factor and Chinese bilateral trade with Africa has increased tenfold in a decade, surpassing its bilateral trade with the US. There are an
estimated one million Chinese in Africa involved in a wide range of activities; trading, investing, building, labouring and running micro-businesses. The price for African natural resources has responded to increased demand and led to increased investment in mineral exploration. Chinese loans are funding many of the infrastructure projects but Brazilian and Australian companies have also invested heavily. The emphasis on ‘South to South’ investment is clear from the involvement of companies from Singapore, India and Vietnam in some major infrastructure projects.
The increased wealth in the African continent has led some economists to claim that there is a significant middle class in Africa that will itself be a factor in future economic
growth. Others argue that the increased wealth has made no significant impact on the vast majority of Africans. It is the distribution of the increased wealth that is most disputed by the economic ‘pessimists’ in Africa.

Rising slowly - an African middle class

As even a brief visit to any major African city confirms, retail sectors and higher-income housing markets are booming. According to the World Bank, economic growth 'is creating an emerging African middle class of hundreds of millions of consumers’. The African Development Bank claims that one-third of Africans are already middle class. Major consultancy firms like McKinsey and Accenture have also celebrated the rise of middle-class consumer markets in Africa.

Such conclusions are premature. After a decade of high growth, almost half of all Africans still live below the $1.25 a day poverty line. Another 30 per cent – 246 million people – live in the poverty grey area, on between $1.25 and $2.50 a day. Only four per cent of Africans have an income in excess of $10 a day. In other words, the vast majority of what commentators describe as Africa's middle class has either moved just across the

$1.25 threshold, or is living well within the gravitational pull of the poverty zone. Analytical work by the Brookings Institution provides another view. Using a range of

$10-$100 per day for membership of a ‘global middle class’, Brookings finds that Africa accounts for just two per cent of the world’s middle-class population, and one per cent of purchasing power.

Africa Progress Report 2012, Justice and Equity: Seizing Opportunities in Times of Global Change

The development history of Mozambique is described in World Development (pp31-33)
and it is one of those countries set to achieve high rates of growth (7.5% predicted for
2013), which will inevitably have a considerable social and environmental impact. This case study is an update of recent economic change in Mozambique.
It is clear that Mozambique’s rich natural resources make an important contribution to economic growth. Demand for minerals has made Mozambique one of the world’s 10 fastest-growing economies over the last decade. Its coal reserves were largely unused during the period of the civil war and it is only recently that foreign investment has meant that large-scale mining in the country has started again. A Brazilian company Vale
opened a mine (Moatize) outside the city of Tete in the northwest of the country in early

2012 which will soon be exporting one billion tones of a coal a year. The coalfield is the largest untapped source of coking coal (used in steel production) in the world. Coal exports are expected to increase by 22% in 2013 and contribute $2.3 billion in export earnings. Developing such a large coalfield in a remote part of the country has a predictably mixed impact.


Local people needed to be resettled and rehoused. When the mining company (Vale) failed to keep their promises, families demonstrated by blocking the road to the mine. The government responded with riot police and the road was reopened within 24 hours.

Other protests concerning the mine have been about greatly increased cost of food and housing for local people living near the mine.

Natural resources have positive and negative impacts. Rentals are suffering from coal mines bringing expats to the city. But it’s also driving the building of new housing. It will bring investment and income to the country and benefit small companies. For example, a catering company in Maputo got work in Tete, producing 14,000 meals a day.
Juan Pinheiro, Property Developer from Maputo

A construction boom is under way here, concrete proof of the economic revolution in Mozambique. The country, riven by civil war for 15 years, is poised to become the world’s biggest coal exporter within the next decade, while the recent discovery of two massive gas fields in its waters has turned the region into an energy hotspot, promising a £250bn bonanza.
David Smith, The Guardian, 28 March 2012 –‘Boom time for Mozambique, once the basket case of Africa’

Demand for minerals, such as coal, has made Mozambique one of the world’s 10 fastest- growing economies over the last decade according to a list published by The Economist
in 2011. The global demand for new sources of energy has encouraged exploration for oil and gas off the East African coast and Mozambique is set to derive large financial
benefits from the discovery of major reserves of natural gas.

Mozambique’s ambitions of becoming a major exporter of liquefied natural gas have been boosted by the announcement of another large find off its coast by a consortium led by Anadarko Petroleum of the US. The discovery could add up to 20 trillion cubic feet (Tcf) of recoverable gas to a resource base previously estimated at more than 30 trillion recoverable units.
Financial Times, 15 May 2012

‘We expect a significant increase (in GDP) in the range of 27.5% to come from the mining sector, while the manufacturing industry will grow by 3.6%.’
Aiuba Cuereneia, Mozambique’s Minister of Planning and Development

Increased global demand for traditional export commodities such as wood, sugar and tobacco has also helped increase the value of Mozambique’s exports. Manufacturing output is also likely to grow as Chinese companies look to move more production to countries like Mozambique because of increasing labour costs in China.
In a time of recession in the West, trade between China and many African states has grown at an average of over 30% a year. However, it is not only China that is investing heavily in Mozambique; India and Vietnam have also increased their presence. Vietnamese agricultural and defence advisors are assisting in Mozambique, and Singapore has been giving economic advice through a team of advisors for some years. Petrobras, a Brazilian energy company, has a major biofuel project running in Mozambique.
As well as the extraction of coal and natural gas there is another major energy project using the power of the Zambezi River. The Zambezi River is the fourth-largest river in Africa and at the moment electricity is generated by two major dams on the river. These are the Kariba Dam on the border between Zambia and Zimbabwe, which provides power to those two countries, and the Cabora-Bassa Dam in Mozambique, which provides
power to South Africa. China has given a $2 billion loan to the Mozambique government towards the cost of building another mega dam at Mphanda Nkuwa. The project appears likely to go ahead despite protests from local people and international organizations. The major criticisms focus on the displacement of local people and the environmental damage likely to result from building the dam. Since the Cabora-Bassa Dam was completed in
1973 the Zambezi delta has halved in size. The Mozambique government claims that it needs the power to ensure that industrial growth, such as a new aluminum smelter, can go ahead. The contract to build and operate the dam was signed in December 2010.

HMNK is a consortium consisting of three partners – the Brazilian company Camargo Correia, with 40% of the shares, the Mozambican group Insitec (40%), and the publicly owned Mozambican electricity company, EDM (20%).
The project is to build a run-of-the-river dam with an installed capacity of 1,500 megawatts in the first phase (four turbines of 375 megawatts each). The dam will be 700 metres long and 86 metres high, with 13 flood gates.
Mphanda Nkuwa is a narrow ravine, and the geological conditions are such that the lake formed behind the dam will be relatively small. The lake will cover 97 square kilometres– which compares with 2,700 square kilometres covered by the Cahora Bassa lake.

All Africa, 3 December 2010

The main reasons for Mozambique’s increased economic growth are obvious. It has rich natural resources and it has received increased inward investment from rapidly industrializing countries that need those resources. The political stability that it has enjoyed since the end of the civil war in 1995 has also been very important. There is no doubt that the people of Mozambique have an opportunity to achieve much greater prosperity than appeared possible a decade ago. However, the rapid growth is causing issues that will need to be resolved.
A persistent criticism of the Mozambique government, and other governments in Africa, has been the inequitable use of the wealth gained from its mineral resources. Despite 7% annual growth over the past 10 years, the expansion of Mozambique’s economy has done little to address the country’s lack of development. Half of the children in the country suffer from chronic malnutrition and four million children are predicted to be chronically malnourished in the next decade. Crop yields have remained stagnant in a country where
80% of the population are subsistence farmers.

Despite Mozambique’s recent economic growth many people in the country remain dependent on international aid. Of the 1.6 million people living with HIV, about 430,000 are in urgent need of life-extending antiretroviral (ARV) treatment.
Along with HIV, tuberculosis (TB) presents a serious public health concern, and up to 60% of TB patients are also infected with HIV. For the majority of Mozambicans, access to healthcare remains very limited and the frail healthcare system struggles with the high number of people infected by both HIV and TB.

Médecins Sans Frontières, 2012

The way that wealth gained from economic growth is used to help the general population of Mozambique will eventually be the true measure of successful development. Neoliberal believers in trickle-down theory have no successful examples to point to in world development and the Mozambique government will have to take a much more active and enlightened role to achieve a more even and equitable distribution of wealth within the country. There are many people who believe that the skills and resources available to multinational companies give them a big advantage in negotiations with the government.
Carlos Nunes Castel Branco is Mozambique’s most prominent economist. He claims that only 3%-5% of profits from FDI are reinvested within the country, largely because of tax breaks that leave many foreign companies without a tax bill for their first 15 years of operation in the country. As far as he is concerned it would be very helpful if foreign investors had to sign the Extractive Industries Transparency Initiative, which would let Africans see what foreign companies pay for licences to exploit natural resources.

There is a lack of transparency in these deals. They're making deals for generations to come and I have no idea about them. The lack of transparency is a major flaw.The people in power are negotiating on their own behalf. We might end up with 50 billionaires who own private planes and the rest of the population impoverished. That is our biggest fear.
Erik Charas, director of The Truth, Mozambique's biggest circulation newspaper.

Websites and news articles that may be of interest:

Article by Nick Thorne in The Independent, 20 November 2011, ‘This could be Africa’s decade, but not if it relies on aid’

Blog from ACET (African Centre for Economic Transformation), ‘Will Africa’s continuous rise lead to economic transformation’? Includes link to another article from The Economist

Article from The Economist about optimism for growth in Africa ‘Africa rising’ 3 December 2011

Article by David Smith in The Guardian about the rise of the middle class in Africa
‘Middle class helps Africa to avoid past pitfalls’ 28 March 2012

Article in Economy Watch (a business website) by David Tham, highlighting rapid growth in Africa compared to previous colonial powers. Has links to other relevant information.

A recent article in Christian Science Monitor about the new coal mine at Moatize and some of the problems it has encountered, 27 April 2012

Another useful article by David Smith in The Guardian describing the growth of the economy in Mozambique and questioning who will gain from it. ‘Boom time for Mozambique, once the basket case of Africa’ 28 March 2012