III. ECONOMIC TRENDS AND OUTLOOK WHILE THE PEACE ACCORD SIGNED IN OCTOBER 1992 ENDING OVER 16 YEARS OF CIVIL WAR HAS BROUGHT NEW LIFE TO THE MOZAMBICAN ECONOMY, THERE IS STILL HEAVY DEPENDENCE ON INTERNATIONAL DEVELOPMENT ASSISTANCE. THE MOZAMBIQUE GOVERNMENT HAS HELD TO A STRICT STRUCTURAL ADJUSTMENT PROGRAM DEVELOPED IN COOPERATION WITH THE WORLD BANK. AFTER A ONE PERCENT DROP IN GDP IN THE DROUGHT YEAR OF 1992, THE MOZAMBIQUE ECONOMY REGISTERED ABOUT A FIVE PERCENT GROWTH RATE IN 1993. SIMILAR RATES OF GROWTH ARE ANTICIPATED OVER THE COMING YEARS. CONTINUED AID FLOWS, SUCCESSFUL COMPLETION OF ELECTIONS IN OCTOBER 1994, A RECOVERING AGRICULTURE SECTOR, FURTHER PROGRESS IN THE PRIVATIZATION OF PARASTATALS AND ANTICIPATED INCREASES IN DIRECT FOREIGN INVESTMENT WOULD ALL POINT TO A BRIGHTER ECONOMIC FUTURE FOR MOZAMBIQUE. YET EVEN IF THESE FACTORS PLAY OUT FAVORABLY, MOZAMBIQUE WILL STILL REMAIN AN AID-DEPENDENT COUNTRY FOR YEARS TO COME. POSITIVE TRENDS MUST BE WEIGHED AGAINST REPORTS OF GROWING CORRUPTION AT ALL LEVELS AND A LINGERING TENDENCY TOWARD GOVERNMENT INTERFERENCE IN THE ECONOMY. SIGNIFICANT REDUCTIONS IN FOREIGN ASSISTANCE OR THE FAILURE OF THE GOVERNMENT TO CONTINUE WITH STRUCTURAL REFORMS IN THE ECONOMY WOULD SEVERELY HAMPER THE COUNTRY'S EMERGENCE FROM ITS CURRENT IMPOVERISHED STATE. PRINCIPAL GROWTH SECTORS AGRICULTURE: AGRICULTURE IS ESTIMATED TO MAKE UP 70-80 PERCENT OF THE MOZAMBICAN ECONOMY. IN 1993, GROWTH IN THIS SECTOR WAS OVER 10 PERCENT AND CONTINUED GROWTH IS ANTICIPATED FOR 1994 AND 1995. MOST AGRICULTURAL PRODUCTION IN MOZAMBIQUE CONSISTS OF SUBSISTENCE FARMING, THOUGH COMMERCIAL FARMING VENTURES ARE RESPONSIBLE FOR MANY EXPORT CROPS. PRINCIPAL CROPS ARE COTTON, CASHEW NUTS, COPRA, SISAL, RICE, AND MAIZE, WITH CASHEW, COTTON, AND SUGAR BEING THE MAJOR EXPORT CROPS. MINING: MOZAMBIQUE POSSESSES SUBSTANTIAL MINING ASSETS WHICH HAVE BEEN UNDERDEVELOPED DUE TO SECURITY PROBLEMS IN MUCH OF THE COUNTRYSIDE. TETE PROVINCE'S MOATIZE COAL RESERVES CONTAIN AT LEAST 6 BILLION TONS WHICH ARE UNTAPPED DUE TO WAR-RELATED DAMAGE TO THE RAIL LINE USED TO MOVE THE COAL TO PORT. (BRAZILIAN AND SOUTH AFRICAN FIRMS ARE EXPLORING THIS FIELD AT PRESENT.) TETE ALSO BOASTS 100 MILLION TONS OF HIGH QUALITY IRON ORE. ZAMBEZIA HAS LARGE DEPOSITS OF PEGAMITE AND PROBABLY THE WORLD'S LARGEST RESERVE OF TANTALITE, A MINERAL USED IN THE ELECTRONICS INDUSTRY AND SPECIAL STEELS. OTHER MINERAL RESOURCES INCLUDE GRAPHITE, TITANIUM, BAUXITE, MARBLE, BENTONITE, GOLD, AND TIN. TOURISM: MOZAMBIQUE'S BEAUTIFUL BEACHES WERE PREVIOUSLY A POPULAR ATTRACTION FOR SOUTH AFRICANS AND CITIZENS OF OTHER NEIGHBORING LAND-LOCKED COUNTRIES. MOZAMBIQUE REGISTERED 300,000 VISITORS IN 1973, BUT ONLY 35,000 IN 1992. AS FURTHER INVESTMENT IS MADE IN REFURBISHING HOTELS AND IMPROVING HIGHWAYS TO THE COUNTRY'S BORDERS, TOURISM SHOULD EXPERIENCE STRONG GROWTH. TRANSPORTATION: MOZAMBIQUE IS A NATURAL TRANSPORTATION CORRIDOR FOR MANY SOUTHERN AFRICAN NATIONS, THOUGH INFRASTRUCTURE INADEQUACIES AND OPERATIONAL INEFFICIENCIES DRAMATICALLY REDUCE THE UTILIZATION OF MOZAMBICAN PORTS, RAILWAYS, AND HIGHWAYS. FOREIGN DONORS CONTINUE TO INVEST SIGNIFICANT SUMS IN TRANSPORTATION INFRASTRUCTURE. DOMESTIC TRUCKING AND PASSENGER SERVICES ARE GROWING RAPIDLY AS MORE OF THE COUNTRY BECOMES ACCESSIBLE BY ROAD. GOVERNMENT ROLE IN ECONOMY FOLLOWING INDEPENDENCE IN 1975, THE MOZAMBIQUE GOVERNMENT ADOPTED A MARXIST ECONOMIC SYSTEM. THE GOVERNMENT ABANDONED THIS APPROACH IN 1987 AND DECLARED ITS INTENTION TO MOVE TOWARDS A MARKET-BASED ECONOMY WITH THE ASSISTANCE OF THE WORLD BANK AND THE IMF. THIS TRANSFORMATION HAS MOVED ONLY SLOWLY HOWEVER. THE PRIVATE SECTOR IS GROWING BUT REMAINS SMALL DUE TO THE LACK OF PRIVATE CAPITAL AND DOMESTIC CREDIT. SOME ESTIMATE THAT THE GOVERNMENT STILL ACCOUNTS FOR 70 PERCENT OF THE FORMAL ECONOMIC SECTOR, THOUGH THE INFORMAL SECTOR REPRESENTS A GROWING SHARE OF THE OVERALL ECONOMY. THE GOVERNMENT'S PRIVATIZATION PROGRAM HAS SOLD ABOUT 270 MOSTLY SMALL AND MEDIUM SIZE COMPANIES, WITH THE LARGER PARASTATALS SCHEDULED FOR SALE WITHIN THE NEXT TWO TO THREE YEARS. THE SUCCESSFUL PRIVATIZATION OF THESE LARGER FIRMS WILL FURTHER REDUCE THE ROLE OF THE GOVERNMENT IN THE ECONOMY. BALANCE OF PAYMENTS SITUATION MOZAMBIQUE HAS A LARGE TRADE DEFICIT DUE TO ITS CONTINUED LARGE DEPENDENCE ON FOOD AID, A DILAPIDATED INDUSTRIAL SECTOR, AND ITS WEAK EXPORT PERFORMANCE. MERCHANDISE IMPORTS IN 1993 WERE USD 908 MILLION COMPARED WITH EXPORTS OF ONLY USD 145 MILLION. THE RESULTING TRADE GAP IS COVERED LARGELY BY FOREIGN AID AND REMITTANCES FROM ABROAD (MOSTLY BY MOZAMBICANS WORKING IN SOUTH AFRICAN MINES). THE LARGE TRADE DEFICIT MAKES HARD CURRENCY SCARCE, THUS IT IS OFTEN DIFFICULT FOR IMPORTERS TO OBTAIN U.S. DOLLAR LETTERS OF CREDIT THROUGH THE OFFICIAL BANKING SYSTEM. MANY TRADERS UTILIZE THE LEGAL SECONDARY EXCHANGE MARKET OR THE EXTRA-LEGAL PARALLEL MARKET TO ACCESS HARD CURRENCY FOR TRADING PURPOSES. TRADE AND INVESTMENT BARRIERS CUSTOMS DUTIES ON IMPORTED PRODUCTS ARE HIGH AND NOT EVENLY APPLIED. DUE TO CONTINUED CORRUPTION WITHIN THE GOVERNMENT'S CUSTOMS SERVICE AND THE TROUBLES ASSOCIATED WITH PATROLLING MOZAMBIQUE'S EXTENSIVE BORDER, MANY PRODUCTS ENTER MOZAMBIQUE WITHOUT PAYING CUSTOMS DUTIES. SOME ESTIMATE THAT OVER 70 PERCENT OF IMPORTED CONSUMER GOODS ENTER THE COUNTRY OUTSIDE THE PARAMETERS OF THE LAW, WHICH IS ITSELF A TRADE BARRIER WHEN CUSTOMS DUTIES CAN BE OVER 100 PERCENT ON CERTAIN LUXURY GOODS. LABOR FORCE MOZAMBIQUE'S LABOR FORCE IS LARGELY UNSKILLED. COMPETITION FOR THE SMALL POOL OF MOZAMBICAN PROFESSIONALS WHO COMMAND RELATIVELY HIGH SALARIES IS FIERCE AND RECRUITMENT DIFFICULT. FOREIGN "TECHNICAL ADVISORS" ARE FOUND THROUGHOUT THE MOZAMBICAN GOVERNMENT SUPPORTED BY FOREIGN DONORS. IN THE PRIVATE SECTOR, COMPANIES ARE GENERALLY RUN BY THE OWNER/PRESIDENT WHO PASSES LITTLE RESPONSIBILITY DOWN TO MANAGERS. MAJOR TRADE COMPETITORS SOUTH AFRICA, BY VIRTUE OF ITS GEOGRAPHIC POSITION AND ECONOMIC STRENGTH, IS MOZAMBIQUE'S PRINCIPLE SOURCE FOR MANY IMPORTS. PORTUGUESE COMPANIES ALSO MAINTAIN A STRONG PRESENCE DUE TO THEIR HISTORIC AND LINGUISTIC TIES. BECAUSE THE MAJORITY OF TRADERS IN MOZAMBIQUE ARE OF INDIAN DESCENT, A SUBSTANTIAL TRADING RELATIONSHIP IS MAINTAINED WITH COUNTRIES OF THE SUB-CONTINENT. SEVERAL LARGE EUROPEAN FIRMS, PARTICULARLY NORDIC ONES, HAVE HAD LONG RELATIONSHIPS WITH MOZAMBICAN AGENTS. INFRASTRUCTURE SITUATION RE: GOODS/SERVICE DISTRIBUTION MOZAMBIQUE'S RAIL AND ROAD SYSTEM WAS LARGELY DEBILITATED BY THE CIVIL WAR BUT IS CURRENTLY BEING RECONSTRUCTED. THE WIDESPREAD USE OF LANDMINES DURING THE WAR OBSTRUCTED EFFORTS TO REOPEN MANY ROADS UNTIL COMPLETION OF DEMINING OPERATIONS CURRENTLY UNDERWAY. FOR HISTORICAL REASONS, TRANSPORTATION NETWORKS CRISS-CROSS THE COUNTRY EAST-WEST, WHILE TRANSPORTATION NORTH-SOUTH IS LARGELY RESTRICTED TO COASTAL SHIPPING SERVICES. NATIONWIDE DISTRIBUTION REMAINS A CRITICAL LOGISTICS PROBLEM, THOUGH AT LEAST 80 PERCENT OF THE CONSUMPTION OF IMPORTED GOODS OCCURS WITHIN THE THREE PRINCIPAL CITIES OF MAPUTO, BEIRA, AND NAMPULA. (MAPUTO AND BEIRA HAVE THEIR OWN PORTS WHILE NAMPULA USES THE PORT OF NACALA). WHEN NOMINATING AGENTS IN MOZAMBIQUE, IT IS IMPORTANT TO ASSESS THEIR ABILITY TO DISTRIBUTE IN THESE THREE REGIONS. MAJOR INFRASTRUCTURE PROJECTS UNDERWAY THE WORLD BANK, AFRICAN DEVELOPMENT BANK (ADB), AND BILATERAL DONORS FINANCE MOST INFRASTRUCTURE PROJECTS IN MOZAMBIQUE. RESTORING THE COUNTRY'S TRANSPORTATION NETWORK IS TOP PRIORITY, WITH MAJOR INVESTMENTS IN ROADS, RAILWAYS, AND PORTS. LARGE ONGOING PROJECTS INCLUDE THE WORLD BANK'S ROAD AND COASTAL SHIPPING-II (USD 800 MILLION), AND MAPUTO CORRIDOR REVITALIZATION PROJECT (USD 10.5 MILLION WITH MORE TO COME). THE ADB RECENTLY APPROVED THE MASSINGIR DAM REHABILITATION PROJECT (USD 80 MILLION). PORTUGAL, SOUTH AFRICA, AND NORWAY ARE FUNDING THE REBUILDING OF TRANSMISSION LINES FROM CAHORA BASSA DAM IN NORTHWEST MOZAMBIQUE TO SOUTH AFRICA (USD 125 MILLION) AND A SIMILAR PROJECT IS PLANNED TO LINK UP WITH ZIMBABWE. THE GOVERNMENT IS ALSO INTERESTED IN LOCATING FINANCING AND INVESTORS TO BUILD A USD 700 MILLION NATURAL GAS PIPELINE FROM THE PANDE GAS FIELDS IN CENTRAL MOZAMBIQUE TO SOUTH AFRICA. FOR UP-TO-DATE INFORMATION ON COMMERCIAL OPPORTUNITIES RELATED TO WORLD BANK AND ADB PROJECTS, PLEASE CONSULT THE U.S. DEPARTMENT OF COMMERCE'S NATIONAL TRADE DATA BANK, THE SENIOR COMMERCIAL OFFICER AT THE U.S. EMBASSY IN ABIDJAN, IVORY COAST (WHO FOLLOWS MAJOR PROJECTS IN SUB-SAHARAN AFRICA), OR THE COMMERCIAL SECTION AT THE U.S. EMBASSY IN MAPUTO.