Republic of Mozambique
Poverty Reduction Strategy Paper: Annual Progress Report: Review of the Economic and Social Plan for 2007

This Annual Progress Report reviews the Poverty Reduction Strategy Paper and Economic and Social Plan for 2007 for Mozambique. The report presents the new simplified structure adopted in the Review of the First Half of 2007. In the international context, the evolution of the international economy is presented, which allows a visualization of the international economic conditions in which the country has implemented its economic and social policy. The activities of the environment and the science and technology sectors are also described.

Abstract

This Annual Progress Report reviews the Poverty Reduction Strategy Paper and Economic and Social Plan for 2007 for Mozambique. The report presents the new simplified structure adopted in the Review of the First Half of 2007. In the international context, the evolution of the international economy is presented, which allows a visualization of the international economic conditions in which the country has implemented its economic and social policy. The activities of the environment and the science and technology sectors are also described.

I. INTRODUCTORY NOTE

This Review of the Economic and Social Plan for 2007 is an evaluation of the implementation of the Five-Year Government Programme for 2005-2009, in its third year of execution.

The document presents the new simplified structure adopted in the Review of the First Half of 2007, and aims at adjusting the Review of the Economic and Social Plan as main monitoring and evaluation instrument of Government action. It consists of 4 big chapters: International Context, National Socio-Economic and Demographic Context, Main Lines of Development by Pillar, and Public Finance.

In the international context the evolution of the international economy is presented, which allows a visualization of the international economic conditions in which the country has implemented its economic and social policy; in the national socio-economic and demographic context the socio-economic and demographic situation of the country is presented; in the chapter on the main lines of development by pillar the main political measures and activities implemented by the various sectors are presented, including those of a cross-cutting nature.

The cross-cutting issues have a multi-sector dimension and impact, thus going beyond sector level. The evaluation of the activities performed in this area is made in a single chapter, to achieve a better impact visualization. On this basis, the activities of the environment and the science and technology sectors are described in this chapter, in which the activities implemented by the other sectors are equally integrated.

In the chapter on public finance the budget policy is presented, as well as the envelope of resources and their appropriation with a view to the accomplishment of the activities foreseen in the Economic and Social Plan for 2007.

In annex, the strategic PARPA II matrix is presented.

This review evaluates real economic performance with 1996 as base year, considering that the rebasing process of the statistical series to the new 2003 base year is still in progress. Thus, there may be discrepancies of the results here presented compared to those that will be presented by the National Statistics Institute, after the verification of the final results from this new base year.

II. INTERNATIONAL CONTEXT

Initially, the estimate for overall economic growth in 2007was 4.7%. In the second half of 2007, this estimate was revised upwards to 4.9% in view of the first half year’s performance.

Various economic publications of specialized bodies in the whole world have emphasized the continuation of good global economic performance in the last few years. The IMF (International Monetary Fund), in its April 2007 World Economic Outlook, forecasted an overall GDP growth of 4.9% in 2007.

The information available for the first half of 2007 shows that in spite of the financial market turbulence, the world economy has grown considerably, with a growth of more than 5%. This positive economic performance was basically due to the strong growth occurred in the emerging markets, especially in China, Russia and India.

The IMF points out, however, that the risks related to the financial crisis and the inflationary pressures resulting from the petroleum price volatility have had a negative influence on world economic performance in the course of the second half of 2007. In this context, and according to the IMF, in 2007 the world economy grew by about 5.2%, 0.2 percentage points less than in 2006.

With respect to the unemployment rate, the preliminary IMF estimates indicate a slight decrease in 2007 for the advanced economies (5.3%), 0.3 percentage points less than in 2006. By country, it is estimated that in 2007 France had the highest unemployment rate in the euro zone, about 8.6%, followed by Greece (8.5%) and Spain (8.1%). The IMF estimates that in 2007 the unemployment rate in the Netherlands (3.2%) and in Austria (4.3%) should be the lowest in the euro zone, similar to the situation of the two previous years.

The monetary policy aimed at the containment of short-term inflationary pressures limited the performance of the main world economies’ Central Banks. The monetary policy, unrestricted by inflation-related targets, has contributed significantly to the consolidation of a favourable macroeconomic environment on more distant horizons.

The price of crude attained the historical maximum of about $ 100 per barrel, following the imposition of new sanctions by the USA to Iran (the fourth largest petroleum exporter of the world) and an attack on a Nigerian oil rig, reducing production by 50,000 barrels per day.

Another significant event in 2007 was the financial turbulence occurred in February and March, on account of the Shanghai Stock Exchange crash and the uncertainties relative to the deceleration speed of the North American economy. The Shanghai crisis hit the Asian markets, spread over Europe and reached the North American and the emerging markets. On top of this came the statement of an ex-FED President, pointing out that the North American economy was running the risk of recession.

Among the main risks for global economic performance stand out the following:

  • The deceleration of the American economy in view of the housing market behaviour;

  • The great financial market volatility, which decreased investment in this area; and

  • The inflationary process caused above all by the sudden increase of petroleum prices.

The productivity gains that have sustained good recent economic performance were compromised in 2007 due to:

  • the aging of the population and the anti-globalisation movements;

  • rapid economic growth of some emerging countries with environmental consequences.

UNITED STATES OF AMERICA

Preliminary estimates indicate a 2007 growth for the United States of America in the order of 1.9%, which is a slow-down compared to the previous year, when GDP increased by 2.9%.

The crisis in the North American financial market influenced the nonfulfilment of the targets initially set for 2007. This crisis had a strong impact on the World Financial Market, with the historical minimum of $ 1,4393 against the euro and a devaluation of the dollar against a basket of main world exchange rates due to the interest rate cutbacks on the part of the North American Federal Reserve.

Performance on the North American housing market increased the preoccupations as to a sudden decline of the North American economy, with reflexes on the world economy.

In October the North American consumers’ confidence indicator (University of Michigan) fell more than expected to last year’s lowest level, due to preoccupations with the fall of the housing market, which shook the perspectives regarding the country’s economic growth.

EURO ZONE

In the Euro Zone there was a deceleration of growth due to the implementation of public expenditure containment measures and the correction of a few imbalances in the region. GDP growth in 2007 is estimated at 2.5%. We recall that in 2006 the Euro Zone economy enjoyed a growth of 2.8%.

The appreciation of the Euro against the North American dollar was a hindrance to the development of foreign trade in the Euro Zone, mainly regarding trading relations with the United States of America.

JAPAN

According to recent estimates in 2007 the Japanese economy grew by 2.0%, after an already moderate growth in 2006 (2.2%).

CHINA

The economic performance shown by China also deserves attention, as in the last few years it has enjoyed annual growth rates of over 10%. Indeed, GDP in this Asian country increased by 10.4% and 11.1% in 2005 and 2006, respectively. Recent IMF estimates indicate a continuation of the growth grate in 2007, in the order of 11.5%.

AFRICA

The year 2007 was important for Africa. The continent continues having one of the highest sustainable growth rates. GDP growth in Sub-Saharan Africa was strong with the lowest inflation rate of the last 30 years.

An average real growth rate of 6% and a one-digit inflation rate characterize the improvement of the African countries’ performance. These targets result from the improvement of policies and structural reform.

III. NATIONAL SOCIO-ECONOMIC AND DEMOGRAPHIC CONTEXT

III.1 EVALUATION OF THE MILLENNIUM DEVELOPMENT OBJECTIVES

The commitment assumed in the Millennium Declaration, adopted in September 2000 at the Millennium Summit, defines 8 Millennium Development Goals (MDGs) related to 14 targets and 48 indicators to be reached until 2015. They emphasize issues relative to peace, security and development, as well as preoccupations related to the environment, human rights, democracy and good governance.

For the period in analysis, this review presents a summary of the situation of a few selected indicators and a few activities carried out for the accomplishment of the Millennium Development Goals, since the indicators are in general collected annually through the various sector reviews, while others are only verifiable at medium and long term.

1. Eradicate Extreme Poverty and Hunger

The main target of this goal is to reduce by half the proportion of people living in extreme poverty or who suffer from hunger.

The incidence of poverty in Mozambique went down from 70% in 1997 to 54% in 2003. The current challenge laid down in PARPA II is to reduce poverty to 45% in 2009. In spite of the significant progress in several areas, there remain enormous challenges to reduce absolute poverty and promote rapid sustainable and comprehensive economic growth, considered an essential aspect related to this and all other MDGs.

From 1996 to 2006 average economic growth amounted to 8%. In 2007 there was a 7.3% growth (target: 7%), in which the growth of agricultural production, the main source of income for the population, amounted to 7.8% (target: 12%).

In 2007, the production of cereals amounted to 2.2 million tons (target: 2.4 million tons) which means a growth of 3.4% compared to the previous 2005/06 campaign; The production of beans amounted to 367,000 tons (target: 392,000 tons), representing a growth of 0.6%. The production of cassava amounted to about 8.1 million tons (target: 8.2 million tons), representing an increase of 8.1% (target: 8.4%). The production of beef, pork and chickens attained a volume of 19,829.5 tons (target: 14.553 tons), representing a growth in the order of 41%.

In the scope of the reduction of the prevalence and impact of malnutrition and contrary to the plan, the implementation of the Nutritional Observation and Monitoring Posts (2007 target: 55% of the observation posts operational) did not start, due to the need to revise the proposed methodology. Concerning the creation of capacity for nutritional rehabilitation, in the last quarter of 2007……was realized. In the scope of the Nutritional Rehabilitation Programme (NRP), there is still a need to intensify training in the next few years, so as to cover all districts of the country for the improvement of NRP implementation and the respective monitoring that should be continuous to allow an accurate diagnosis of the current situation of the Programme in the country and evaluate its impact on child malnutrition rates.

2. Achieve Universal Primary Education

The target is to ensure that until 2015 all boys and girls complete a full course of primary schooling.

There is significant progress in the country regarding the expansion of education with significant increases of enrolment, of girls as well as boys. At EP1 level, the net enrolment rate increased from 44% to 88.3% in 1997 and 2006, respectively.

In the period in analysis, in terms of schooling coverage, the net schooling rate in Primary Education (EP1+EP2) was 94.1% (against 88% planned), with 90.9% for girls, well above the target of 67% defined for 2007. A total of 3,866,906 students were enrolled in EP1, corresponding to a growth of 7.5% compared to 2006. The gross enrolment rate increased from 52.5% in 2006 to 70.7% in 2007, exceeding the plan (67.3%) by 3.4%. In Second Level Primary Education, the number of students increased by 24.2% compared to 2006, i.e., an addition of more than 120 thousand students compared to the number enrolled in 2006.

3. Promote Gender Equality and Empower Women

The target is to reduce gender disparity in all levels of education by 2015, prioritising the primary and secondary levels.

In the scope of the efforts to sensitise people for greater access and retention of girls at school, work was done with School Councils, community leaders and influential people in the communities in 51 districts in which the percentage of girls in primary education was below 45%. In this sense, in the period in analysis the net schooling rate of 6-year old girls in Grade 1 was 70.0% in 2007, having exceeded the target by 3.0% (67% planned). The percentage of girls concluding EP2 in 2006 was 28.8%.

4. Reduce Child Mortality

The target defines the reduction by two thirds of the mortality rate among children under five, by 2015.

From 1997 to 2003, there was a reduction of under fives mortality from 147 to 125 per thousand live births.

In the scope of the improvement of newborn baby care, through the increase of visits, in 2007 the coverage rate of the first preventive visit of 0–11 months old babies was 100% (exceeding the 98% planned for 2007) and has remained stable from 2005 to 2007. The coverage for 0-4 year old children was 59.2% (against 74% planned).

In terms of vaccination coverage, with the exception of BCG, the rates decreased slightly compared to the same period of 2006 (the data refer to the first quarter), due to problems in the acquisition and distribution of vaccines, mainly for BCG and VAS, especially to the provinces. In BCG coverage (100%, against a forecast of 90%) there were no big changes in the last two years, which means that although the rate of institutional deliveries is not very high, most of the children are vaccinated. In 2007 there was a decrease of VAS coverage (93.7%) in the order of 7.6%, but this did not compromise the attainment of the 2007 target (75%). The same tendency occurred regarding DPT/Anti-Polio and HB (3rd), where coverage decreased from 100% in 2006 to 95% in 2007 (target 75%).

Regarding paediatric ARVT, the expansion is very slow, with only 6,320 children covered in 2007 (target 11,820 children < 15 years), representing 53% of the plan.

5. Improve Maternal Health

The target is to reduce by three quarters the maternal mortality rate, by 2015.

The intra-hospital maternal mortality rate has had an upward trend. From January to December 2007 the rate was 198/100,000 live births, against 191/100,000 live births in 2006. This increase may be justified by the fact that more women come to the Health Units due to the improvement of the services provided (BEOC). On the other hand, there has been an effort on the part of the providers to improve service and registration system quality.

In terms of the coverage of deliveries, performance was 51.9% (against 52% planned). It should be noted that the coverage of institutional deliveries is a weak point of sexual and reproductive health sector performance and remains a challenge to the sector. In this field the importance of the evaluation of the need for maternal and neonatal health should be reiterated, which among other findings may guide the strategy for the promotion of institutional deliveries.

6. Combat HIV/AIDS, malaria and other diseases

The target is to halt and begin to reverse the spread of HIV/AIDS, by 2015. Halt and begin to reverse the incidence of malaria and other major diseases, by 2015.

With a view to the reduction of the weight and impact of malaria, in 2007 the sector continued the vector control programme through intra-domiciliary spraying (PIDOM) (occurred in 45 districts, 1,537,825 houses were covered and 35% of the population protected, but the targets defined for 2007 were not achieved), larvae control (only Maputo City and Province have been carrying out more or less regular larvae control last year) and the distribution of long-duration mosquito nets (a total of 938,950) where there were no spraying activities. The new standards for handling cases of malaria (change of the 1st and 2nd lines of treatment) were prepared and submitted for approval. The expansion of the Rapid Diagnosis Tests (TDRs) was introduced and started and 2,000,000 tests were distributed.

In the scope of HIV/AIDS, the sector carried out several activities contributing to the strengthening of preventive measures, the expansion of ARVT and VTP. In the period in analysis, there was an increase of the number of ARVT centres in Niassa, Nampula and Gaza Provinces, and the sector now has 211 centres (a number that exceeds the PEN/AIDS target). On the other hand, the number of patients in ARVT also increased from 44,100 to 86,000 (an increase of 51%), but the annual target of 96,000 patients was not achieved. Of these, 6,320 (7.3%) are children representing an increase of 54% compared to 2006. The ATSs attended 383,301 users (60% of them female) from January to September 2007, against 297,623 in the same period of 2006, representing an increase of 28.8%.

In the scope of the reduction of the weight and impact of tuberculosis (TB), from January to September the cure rate was 82.0% against 78.9% in the same period of 2005, which shows a positive evolution in the order of 3.1%. This improvement is attributed to the implementation of the direct observation of treatment (DOT), which guarantees the regular taking of drugs and greater adherence to the treatment. The DOTs continue in expansion at all levels. Coverage of the institutional DOTs (real access to these services) increased to 76.6%.

7. Ensure Environmental Sustainability

The target is to integrate the principles of sustainable development into sector policies and programmes and reverse the loss of environmental resources

Reduce by half the proportion of people without sustainable access to safe drinking water, until 2015

In the last few years, there was significant progress in the approach of the environmental issue as being of a cross-cutting nature. In the period in analysis the Environmental Strategy for Sustainable Development (EADS) was approved as an important document for the orientation and preparation of action plans at sector level, ensuring the integration of the principles of sustainable development.

A total of 1,641 water points (target: 1,055) were also built, of which 182 wells (target: 48) and 1,459 drilled wells (target: 1,007), and 795 wells were rehabilitated (target: 805), which will benefit another 1,1218,000 people (target: 930,000 people), contributing to the increase of the coverage rate from 43.1 to 49.7%.

Regarding sanitation in the rural areas 11,352 improved latrines were built and accounted for, against the 2,000 latrines planned for 2007 at national level, benefiting 56,760 people. There was a significant overall growth of 8.2% in the period in analysis compared to the same period of the previous year.

8. Develop a Global Partnership for Development

The target is to develop an open trading and financial system, based on rules, predictable and non-discriminatory, including a commitment to good governance, development and poverty reduction.

In the scope of the activities of a bilateral and multilateral nature, the period in analysis was characterized by intense political-diplomatic activities, both at presidential, ministerial and technical level, including the accrediting of new ambassadors and/or high commissioners. We should also emphasize the effective participation of the country at international level, especially: the visit of the President of the Republic to Ghana and Ethiopia, where he participated in the celebrations of the 50th Anniversary of Ghana’s Independence and in the VIII Ordinary Conference of the African Union, in the meeting of the NEPAD Implementation Committee and in the Forum of Heads of State and Government of the African Peer Review Mechanism (APRM), respectively; to Tanzania where he participated in the Extraordinary Summit of the SADC Organ for Cooperation in the Areas of Policy, Defence and Security, with the objective to analyse the political and security situation in the region; to France, to participate in the work of the 24th Summit of Heads of State and Government of Africa and France; to Norway, Japan and Vietnam in official visits; and to South Africa to participate in the XVII World Economic Forum; visits in the scope of the PALOP-EC Cooperation, to Bissau, Luanda, Praia and Sao Tome for the alignment and strengthening of the PIR PALOP implementation mechanisms.

We should also emphasize the visit in July of His Excellency the President of the Republic to Washington DC to take part in the Compact signing ceremony, in the scope of the Millennium Challenge Account - MCA, at the value of 506.9 million dollar for the next five years, allotted to the financing of development programmes in the areas of Water and Sanitation, Roads and the Private Sector, in Cabo Delgado, Niassa, Nampula and Zambezia Provinces.

In the same period the country received in official visits the President of the People’s Republic of China and the President of Angola, with positive political and economic results for the implementation of the Government’s Five-year Plan and PARPA II, resulting in a strengthening of the bonds of friendship and cooperation, which was expressed in the signing of instruments in several areas and in a working visit. A visit of the President of Zimbabwe to Sofala Province, on the occasion of the signing of the Agreement on the Development of the Beira Corridor, between the two countries, as well as the inauguration of the fuel tanks for Zimbabwe.

Also in the sphere of cooperation and negotiation the Mozambique/Malawi, Mozambique/Cuba, Mozambique/China, Mozambique/Indonesia and Mozambique/Brazil Mixed Commissions took place

Following the diplomatic activity aimed at the mobilisation of resources to support poverty reduction and development programmes in Mozambique, we should point out the realization of the Joint Review 2007, which was aligned with the realization of the VI Development Observatory, at central level; Participation in the Seminary of the Eastern and Southern African countries about the implementation of the Paris Declaration and about foreign aid management systems.

The National Cooperation Policy project was concluded and filed with the Secretariat of the Council of Ministers.

Participation in the Workshop on: “The Dimensions of Poverty in the SADC Region” with the objective to share information and experiences between the various sectors of the Member States, about better common ways and strategies to be adopted in the region with a view to the eradication of poverty taking into account the Millennium Development Goals (MDGs) and the implementation of the Regional Indicative Strategic Development Plan of SADC (RISDP) and the creation of a Poverty Observatory in the SADC Region.

We should still mention the launching of the “ODAMOZ” cooperation data bank and the management and coordination process between MPD, MINEC and partners.

III.2 DEMOGRAPHIC IMPACT OF HIV-AIDS

According to the latest data about the demographic impact of HIV/AIDS in the country, the national prevalence rate remains high (16%) and with a tendency to stabilise. In the Central and Northern regions of the country prevalence tends to stabilise, when compared to the Southern region. The highest prevalence is in the Southern Region (21%), followed by the Central Region (18%). The Northern Region of the country continues having the lowest rate of prevalence (9%).

The III General Census of Population and Housing was taken, the preliminary results of which show that in 2007 Mozambique had a population of 20,530,714 inhabitants, of which 52.3% are females. Nampula and Zambezia Provinces continue the most populated ones of the country, with 4,076,642 and 3,832,339 inhabitants, respectively. Niassa Province, in spite of being one of the largest of the country, continues being the least inhabited. It should be noted that, according to the schedule of activities published by INE, the publication of the final results of the III General Census of Population and Housing is expected to be concluded in November 2009.

According to more current data to which we have access, the number of new cases of HIV/AIDS has doubled in the country, having increased from 30,332 (2006) to 62,633 HIV positive cases in 2007. The situation tends to be more serious in the Southern Region of the country, the provinces of which occupy top positions in terms of prevalence rates. The notified levels of the evolution of the endemic disease are quite preoccupying, taking into account the preventive activities that were performed during the period in analysis with a view to reduce the number of new cases of infection. (For more details see the HIV/AIDS combat and prevention activities in the chapter on cross-cutting issues).

In the scope of the integration of population factors into the development plans the terms of reference were prepared for the production of modules that will guide the integration of demographic variables into the plans.

In order to offer information, education and communication enabling women, men and adolescents to manage their reproductive and sexual life in conformity with their wishes, individual capacities and sense of civic and social responsibility, a study was prepared entitled: The youth and HIV/AIDS: Gender Differences in Mozambique. The methodology to estimate poverty using the Questionnaire of Basic Well-Being Indicators was also improved.

A study was done on women in the informal sector and the vulnerability to HIV/AIDS infection in the Beira Corridor. The production of the final report is in progress.

Similarly, basic studies were done in selected provinces for the expansion of the experience of the Population Programme in Zambezia. At this moment the selection of the province to benefit from the expansion is ongoing.

Similarly, the Terms of Reference were prepared for doing a study in Gaza Province on the analysis of the population concentration pattern and the location of basic social infrastructures. On the other hand, preparations were made for the celebration of the World Population Day, an act that took place on 11 July, with a motto focussing on safe maternity issues. Likewise, the Government participated in the preparation of the report on the State of the African Population in 2006.

In the scope of the reduction of morbidity caused by water-born diseases, an integrated approach of water supply, sanitation and hygiene promotion programmes, the National Sanitation Campaign was launched.

Regarding nationwide activities for the progressive increase of the population’s knowledge through the health and education services, awareness-raising activities aimed at parents and communities are ongoing, with a focus on the districts. Similarly, the national programme “a world without secrets”, a programme for HIV/AIDS prevention and combat, was implemented and evaluated in Tete, Zambezia and Cabo Delgado Provinces.

In the sphere of the promotion of sector and interdisciplinary coordination for the formulation and implementation of intervention programmes that correspond to the main national preoccupations regarding the population, the school health programme that is ongoing between the Ministry of Education and Culture and the Ministry of Health was reactivated. In this scope, the nutritional strategy for people living with HIV/AIDS was discussed.

III.3 MAIN OBJECTIVES OF THE ECONOMIC AND SOCIAL PLAN

The Economic and Social Plan for 2007 defined the following main objectives:

  • Achieve an economic growth of about 7.0%;

  • Contain the annual average inflation rate at 5.9%;

  • Reach a level of 2,292 million dollar of exports of goods, representing a growth of about 9.0%;

  • Reach a level of net international reserves that finance about 4 months of imports of goods and services;

  • Continue the creation of conditions that make investment in Mozambique attractive, safeguarding however a correct management of the environment;

  • Improve the number and quality of the public education, health, water and sanitation, road and energy services;

  • Continue the decentralization of the State Budget to the districts.

The Review of the Economic and Social Plan for 2007 indicates the following:

  • Growth of the Gross Domestic Product in the order of 7.3%;

  • An average inflation rate (CPI-Maputo) of 8.16%;

  • Exports of goods, reported until September, reached a value of about USD 1,843.6 million;

  • The balance of net international reserves amounted to USD 1,492 million, in other words, guaranteeing a coverage of 5 months of imports of goods and non-factor services;

  • The entry of Investments, measured by the total of Disbursed Private Loans and Direct Foreign Investment, reached until September a value of USD 677.6 million.

The results of the macroeconomic indicators show a positive performance of the country’s economy, in spite of the occurrence of natural disasters.

III.4 OVERALL PRODUCTION

The year 2007 was characterised by the occurrence of adverse climatic conditions, namely, floods, droughts, inundations, storms, cyclones, and extreme high tides, as well as the explosions of the Ammunition Depot in Maputo, causing the loss of lives of more than a hundred of our fellow-citizens, and the displacement of about half a million people and the destruction of public and private socio-economic infrastructures. This situation demanded additional efforts of the Government and other parties involved, with a view to the normalization of economic and social life.

In spite of these occurrences, economic and social activity was positive. As a matter of fact, in 2007 overall production increased by 7.8% compared to the levels recorded in 2006, thus exceeding the target of 7.2% laid down in the plan.

Large contributions to the overall performance were made by agriculture, livestock breeding and silviculture (8.6%), construction (9.9%), trade (9.0%), and transport and communications (20.4%).

Table 1:

Overall Production

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With the exception of fisheries, performance of all productive sectors was good.

III.5 MONETARY AND FOREIGN EXCHANGE SECTOR

Monetary and Financial Programme

The financial programme for 2007 determined as final Government targets a real GDP growth of 7.0% and an annual inflation rate of 6%. In agreement with these objectives laid down in the PES, on the monetary side the following indicators were attached to these targets:

Table 2:

Monetary and Financial Programme

Initial Monetary Programme - 2007

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In view of the evaluation of the performance of the economy in the first half of 2007, in October a revision of the initial targets of the monetary programme was done. The new figures are the ones given in the following table, which also presents the level of accomplishment, on the basis of existing preliminary data:

Table 3:

Monetary Execution

Execution of Monetary Programme (Revised) - 2007

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Of the information presented above we point out the following:

  • In December 2007 the balance of the Monetary Base amounted to 17,838 million meticais, corresponding to an expansion of 21.1%, against a target of 18.1%;

  • The constitution of Net International Reserves exceeded the target of USD 1,492 million by USD 192 million, guaranteeing about 5 months of coverage of total imports of goods and non-factor services, including the operations of large projects;

  • The net position of the State vis-à-vis the banking system (NCG) amounted to 1,324 million meticais (data of November), against 1,828 million meticais planned for December.

Evolution of the Main Monetary Aggregates

Monetary Base (MB)

Provisional information shows that at the end of December 2007, the value of this aggregate amounted to 17,838 million meticais, representing an annual growth of 21.1%, an increase of 434 million compared to the target. The behaviour of notes and coins in circulation explains to a great extent the non-accomplishment observed in the aggregate.

The large withdrawals of cash by the Commercial Banks from the Bank of Mozambique as precautionary measure to anticipate their clients’ demand for cash, which accelerates in this part of the year as a result of the Christmas and New Year celebrations, which in 2007 coincided with two four-day long weekends. In spite of the enormous effort and investment being done in the national payment system, mainly its technological infrastructure, electronic payments are still in an incipient phase and most of the public is very much inclined to use cash. This phenomenon had already occurred in June 2007, when the 25 June holiday coincided with a long weekend. The fact that the State did a substantial part of its expenditure towards the end of the year also contributed to the acceleration of notes and coins in circulation.

With a view to control the growth of the Monetary Base, the Bank of Mozambique carried out interventions in the interbank, monetary and foreign exchange markets which allowed the drainage of 10,493.21 million meticais, through the sale of USD 461.1 million in the course of the whole year 2007, of which 5,121.51 million were realized in the 2nd half of the year (USD 114.7 million). On the other hand, and in net terms, 2,711.65 million Treasury Bills were issued, of which 1,297.46 million in the second half of the year. In 2007, the sterilization of total liquidity carried out by the central bank amounted to 13,204.86 million meticais.

During the second half of the year the Bank of Mozambique did not change its intervention interest rates, namely those of the Standing Lending Facility (FPC), of 15.5%, and of the Standing Deposit Facility (FPD), of 10.5%, after the downward adjustment carried out in June 2007.

Net Credit to Government (CLG)

Preliminary November data reported show that the accumulated CLG flow in the banking system until November 2007, calculated as the difference between the credits granted to Government by the banking system and the Government deposits into the banking system, excluding the deposits consigned to special projects and those resulting from revenues of the concession of the Moatize charcoal exploitation licence to CVRD, represented a savings of about 1,324 million meticais

Net International Reserves (NIR)

Provisional information shows that the NIR balance at the end of December 2007 amounted to USD 1,492 million, equivalent to about 5 months of imports of goods and non-factor services by the gross reserves, including the large projects. The balance at the end of December corresponds to a constitution of USD 192 million above the target and USD 261 million higher compared to December 2006. This is basically due to the following factors:

On the receipts side:

  • External grants to support the balance of payments – USD 314.4 million;

  • External credits – USD 100.7 million

  • Miners’ income – USD 60.8 million;

  • Revenue of investment abroad – USD 79.8 million;

  • Receipts in favour of the State – USD 219.1 million;

  • Other receipts – USD 86.6 million.

On the outgoings side:

  • Sales made by the BM on the MCI – USD 423.0 million;

  • Payments ordered by the State – USD 90.2 million;

  • Payment of the external debt service – USD 49.9 million

  • Net bank transfers abroad – USD 24.5 million;

  • Net foreign exchange loss – USD 15.8 million.

  • Other outgoings – USD 33.8 million.

Total Payment Means (Monetary Mass)

Information available until November 2007 shows that the balance of the broadest monetary aggregate (M3, composed of notes and coins in circulation and total deposits in local and foreign currency) amounted to 65,330 million meticais, equivalent to an accumulated growth of 11,746.3 million meticais (21.9%) and an annual growth of 14,234 million (27.9%). Deposits in foreign currency increased by USD 280.2 million in the first 11 months of the year (5,920.3 million meticais), thus dominating the accumulated expansion of the M3 aggregate.

In the M2 aggregate, which includes notes and coins in circulation and the M3 components denominated only in meticais, in its turn, there was an accumulated increase of 5,826.1 million meticais (16.8%), and an annual expansion of 7,621.5 million meticais (23.1%).

The more accentuated increase of the deposits in foreign currency until November 2007 determined the increase of its weight in total deposits, having risen from 40.5% in December 2006 to 43.3% in November, representing however a slight reduction compared to the 43.8% weight observed last June.

Retail Interest Rates

In the retail market, the nominal average interest rates for a one-year maturity, after during the first half year having remained rather stable, showed a downward tendency in the second half, until November, in line with the movements occurred on the Interbank Money Market.

The average interest rate applied by the commercial banks to their clients for loans in local currency—one-year maturity—decreased to 21.4%, in November 2007, after 23.8% last June and 23.2% in December 2006, representing a decrease of 240 base points compared to June and of 180 base points compared to December 2006.

The evolutionary trend of the interest rates of passive operations is contrary to the active rates, taking into account that the average rate of the system for a one-year maturity increased to 12.8% in November, corresponding to an increase of 50 base points compared to last June and 40 points compared to the levels of December 2006.

With this movement of the interest rates, the spread between the interest rates of active and passive operations, which amounted to 10.8% in December 2006, decreased to 8.6% in November 2007.

Credit to the Economy

The balance of credit to the economy reported at the end of November 2007 amounted to 31,156.31 million meticais, which compared to December 2006 represents an increase of 3,758.2 million meticais (13.7%) and, compared to November 2006, an increase of 4,036.1 million meticais (14.9%).

Regarding the credit components, one observes a bigger change of credit denominated in meticais, since its weight in total credit increased from 68.0% in December 2006 to 73.1% in November 2007. Credit in foreign currency suffered an accumulated reduction of 4.2%.

A01ufig02

DISTRIBUTION OF CREDIT TO THE ECONOMY

Citation: IMF Staff Country Reports 2009, 116; 10.5089/9781451827361.002.A001

Regarding the distribution of credit by sector, at the end of November 2007 trade benefited from the largest slice, with 26.0% of the total balance, followed by industry with 16.0%, private consumption with 14%, agriculture with 10.4%, transport and communications with 7.1% and construction with 4.7%. It should be noted that in the period in analysis the weight of credit to the agricultural sector increased by 2.4 pp, compared to June 2007.

Exchange Rate

In 2007 the Metical enjoyed relative stability with a tendency to appreciate in relation to the American dollar and the South-African rand, compared to December 2006, together with the interventions carried out by the Government on the interbank foreign exchange market, the international tendency of a weakening American dollar. Indeed, on 31 December 2007 the foreign exchange rate in relation to the dollar amounted to 23.6 MT/USD, against 25.77 MT/USD on 31 December 2006. In December the average rate of the metical vis-à-vis the American dollar amounted to 24.2 MT/USD, against an average of 26.2 MT/USD in December 2006, as shown by the following table.

Table 4:

MT/USD Exchange Rate

FOREX MARKET QUOTATION OF METICAL AGAINST USD

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Graphically one can observe that compared to the same period of 2006, the tendency of the dollar was to appreciate, culminating with an accumulated appreciation of 7.6 % in December 2007.

A01ufig03

Accumulated MT/USD Exchange Rate Variation

Citation: IMF Staff Country Reports 2009, 116; 10.5089/9781451827361.002.A001

In December the MT/ZAR exchange rate was 3.54 MT/ZAR. Compared to the 3.72 MT/ZAR of December 2006, there was an accumulated appreciation of the metical of 4.9%.

Table 5:

MT/ZAR Exchange Rate

FOREX MARKET-METICAL AGAINST RAND

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A01ufig04

Accumulated MT/ZAR Exchange Rate Variation

Citation: IMF Staff Country Reports 2009, 116; 10.5089/9781451827361.002.A001

Policy Measures

With a view to increase transparency in the management of monetary policy in conformity with international practice in this field, the medium and long term Monetary Policy Strategy was launched and made available on the Bank of Mozambique’s Website, and in June the Monetary Policy Committee Regulation was amended. The Committee now publishes its deliberations after each session, thus increasing monetary policy’s transparency and communication.

In the course of the second half-year, the Monetary Policy Committee recommended that the interventions on the interbank markets should be intensified, with a view to control the Monetary Base to levels in agreement with the defined inflation objectives. This allowed a continued stability of the Metical, in a scenario of fully functioning market conditions and foreign exchange sales satisfying demand, resulting in an appreciation of the metical in relation to the dollar and to the rand of 8.3% and 5.6%, respectively. This factor allowed the mitigation of the increase of imported goods prices.

Within the strategy to expand financial services to the rural areas, the Bank of Mozambique published Notice 10/GBM/2007, of 25 May, establishing a special regime applicable to micro-finance banks and institutions intending to expand their activities to the rural areas, through the establishment of branches or other forms of representation, in addition to the approval of Notice 02/GGBM/2007, changing the Compulsory Reserves regime. Important provisions of this last measure are the reduction of the compulsory reserves coefficient from 11.51% to 10.15%, the inclusion of cash kept in branch offices located in rural areas in assets eligible to compulsory reserves constitution, and the enlargement of the base of incidence to all liabilities held by the credit institutions, excluding those deriving from other institutions’ appropriations on the MMI.

The response of the credit institutions and finance companies to the challenge of the enlargement of financial services to rural and peri-urban areas was quite positive. The establishment of 40 new commercial bank counters was authorized, thus enlarging the coverage of the banking network to 32 districts and increasing the network of ATMs, electronic payment posts (POS) and the number of bank accounts.

The Bank of Mozambique opened Branches in Tete, Pemba and Lichinga, thus enlarging its network to eight provinces of the country. Two new credit institutions (Banco terra and Moza Banco) were also authorized to operate on the market

In 2007, the Bank of Mozambique continued with the reforms of the financial system, through the publication of several normative documents, with a view to confer greater effectiveness to the national payment system, turn the interbank markets more operational and improve the companies’ financial reporting system through the introduction of the International Financial Reporting Standards (IFRS) for the entire banking system

III.6. INFLATION

An analysis, based on the aggregate index known as MABENA, of the evolution of inflation during the year 2007, shows an accumulated (annual) inflation of about 12.10%. This behaviour can be explained by the price increase trend in the course of almost all months of the year, particularly January (1.37%), February (1.38%), October (1.32%), November (1.90%) and December (3.19%).

In general, the reasons of inflation in 2007 subdivide into two groups of factors: external and domestic ones.

The external shocks, with impact on the increase of international commodity prices, namely petroleum and its derivatives, cereals and oleaginous products. As a matter of fact:

  • The international petroleum price, which at the end of December 2006 amounted to USD 53.8 per barrel, ended the year 2007 at the level of USD 90.84, representing an increase of about 67% - when in the assumptions underlying the definition of macroeconomic indicators for the PES 2007 an increase of only 3% was anticipated – with a very considerable impact on worldwide transport costs and from there on direct costs of production;

  • The average price of number 1 wheat, which in December 2006 amounted to USD 242 per ton, ended the year 2007 at the level of USD 435 per ton, representing an increase of 43%, com impact on the domestic prices of bread, pasta, animal feed and other derivatives. The price of number 2 wheat increased by 81%, from USD 229 to USD 415;

  • In December 2006 the average CIF price of current rice amounted to USD 317 per ton, having increased to USD 400 in December 2007;

  • The difficulties in the supply of horse mackerel on the part of Namibia, traditional source of this product for the Maputo City consumers, led to a shift of demand to more distant markets, namely Chile, Peru and New Zealand, which supply more expensive horse mackerel, with implications for domestic prices;

  • The escalation of the international prices of cereals and oleaginous products, mainly resulting from the supply crisis, coincided with the reduction of grants in goods on the part of the United States of America (wheat) and Japan (rice), which resulted in an increase of the commercial component of imports by the private sector, with implications for domestic prices;

  • The acceleration of the inflation in the Republic of South Africa, one of the main sources of imports of food products with an important weight in the CPI basket. As a matter of fact, in November consumer inflation in South Africa amounted to 8.4%, exceeding the top level of the 3-6% variation band stipulated as target for that country, while producer inflation amounted to 9.1%;

  • A particular aspect of the relatively high weight of the above-mentioned products in the CPI basket is that it brought about a change in its seasonal behaviour. Indeed, the customary reduction of prices observed between the months of January and March did not occur in 2007. Prices had a systematic upward trend during the whole year.

At domestic level:

  • In December there were a few difficulties in supplying the market with products such as chickens and eggs, due to adverse climatic conditions that affected chicken growth and a heat wave that led to the death of about 23,000 laying hens;

  • The lack of storage capacity for frozen products, such as horse mackerel and chickens, has also contributed to the depletion of their stocks at the end of the year, a time of high consumption, in which suppliers give priority to the large consumer markets;

  • The concentration of consumers’ expenses around the Christmas and New Year season favoured a speculative behaviour on the part of some traders.

  • The deficiencies of the trading circuits in Maputo City also played a role, particularly in December, resulting in a fictitious supply deficit, mainly at retail level, and in serious differences between wholesale and retail prices. Only in this way can the sharp increase of the retail price of tomatoes and potatoes be explained, even when supply was regular, resulting in unchanged wholesale prices.

Table 6:

MABENA CPI

PRICE INDEX - MABENA - BASE DEC 2004 = 100

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Data collected in December 2007 in Maputo, Beira and Nampula City show an increase of the overall price level in the order of 3.19%, compared to the previous month

The division of food and non-alcoholic beverages, with a positive monthly price variation of 5.13%, was the main contributor to the general level of price escalation occurred, by contributing to total monthly inflation with about 2.94 positive percentage points.

Price variations of tomatoes (28.4), horse mackerel (13.0%), coconuts (18.5%), live chickens (6.3%), cooking oil (7.0%), spaghetti (17.1%) and wheat bread (1.8%), contributed to the total monthly inflation of 2.17 positive percentage points.

In 2007 the division of food and non-alcoholic beverages imposed the general price escalation during the year, contributing to total accumulated inflation with about 8.99 positive percentage points.

A01ufig05

Inflation Rate

(Accumulated Variation)

Citation: IMF Staff Country Reports 2009, 116; 10.5089/9781451827361.002.A001

Data collected in Maputo City show the occurrence of an accumulated inflation of 10.26%. In the course of the month of December 2007 there was an increase of the general price level in the order of 2.77% compared to the previous month

The division of food and non-alcoholic beverages, with a positive monthly price variation of 4.88%, was the main contributor to the general level of price escalation occurred, by contributing to total monthly inflation with about 2.60 positive percentage points.

Table 7:

Maputo CPI

PRICE INDEX - MAPUTO - BASE DEC 2004 = 100

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It should be noted that the price evolution of the division of food and non-alcoholic beverages in the course of the year was identical to the evolution of the general price level, thus showing its relative importance for general price behaviour.

Price variations of tomatoes (19.8), live chickens (14.0%), coconuts (28.6%), horse mackerel (8.2%), spaghetti 23.6%), bread (2.3%) and rice (1.2%), contributed to the total monthly inflation of 1.97 positive percentage points.

Data collected in the course of the year 2007 show an accumulated (annual) inflation of about 10.26%. This behaviour is explained by the price escalation trend during almost every month of the year, especially in April (1.22%), November (1.88%) and December (2.77%).

A01ufig06

Inflation Rate

(Accumulated Variation)

Citation: IMF Staff Country Reports 2009, 116; 10.5089/9781451827361.002.A001

During the year 2007 the division of food and non-alcoholic beverages imposed the general price escalation, contributing to total accumulated inflation with about 7.59 positive percentage points.

The annual price variation of bread (23.7%), horse mackerel (40.5%), rice (12.2%), onions (39,8%), fresh, refrigerated or frozen fish (25.0%), firewood (27.1%) and Irish potatoes (33.5%), contributed to total accumulated inflation with 5.20 positive percentage points.

Taking the average 12-month price variation as reference, annual inflation in Maputo City was 8.16%, equivalent to 5.09 percentage points less than in the same period of 2006.

The average variation of the division of food and non-alcoholic beverages was in the order of 9.01%.

In Beira City, accumulated inflation reached 14.78%. In the course of the month of December 2007 there was an increase of the general price level of 4.81%.

The division of food and non-alcoholic beverages, with a positive monthly price variation of 7.66%, was the main contributor to the general price escalation level occurred, contributing to total monthly inflation with about 4.38 positive percentage points.

It should be noted that the price evolution of the division of food and non-alcoholic beverages in the course of the year was identical to the evolution of the general price level, thus showing its relative importance for general price behaviour.

The price variations of coconuts (55.8%), tomatoes (40.0%), cooking oil (6.95%), fresh, refrigerated or frozen goat’s meat (11.4%), chicken eggs (42.4%), fresh, refrigerated or frozen horse mackerel (5.2%), and rice (3.8%), contributed to total monthly inflation with 3.20 positive percentage points.

Table 8:

Beira CPI

PRICE INDEX - BEIRA-BASE DEC 2004 = 100

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Data collected in the course of the year 2007 show an accumulated (annual) inflation of about 14.78%. This behaviour is explained by the price escalation trend during almost every month of the year, especially in January (2.50%), February (2.33%), September (2.14%), November (2.55%) and December (4.81%).

A01ufig07

Inflation Rate

(Accumulated Variation)

Citation: IMF Staff Country Reports 2009, 116; 10.5089/9781451827361.002.A001

In 2007 the division of food and non-alcoholic beverages imposed the general price escalation during the year, contributing to total accumulated inflation with about 10.51 positive percentage points.

The annual price variations of coconuts (103.8%), wheat bread (50.0%), cooking oil (41.7%), suburban semi-collective passenger transport (Chapa) (23.8%), fresh, refrigerated or frozen horse mackerel (31.3%), paraffin (28.4%), and dried prawns (69.8%), contributed to total accumulated inflation with 8.0 positive percentage points.

Taking the average 12-month price variation as reference, annual inflation in Beira City was 10.8%, equivalent to 1.06 percentage points less than in the same period of 2006.

The average variation of the division of food and non-alcoholic beverages was in the order of 11.97%.

In Nampula City accumulated inflation amounted to 13.32%, with a December inflation of 2.65%.

The division of food and non-alcoholic beverages, with a monthly positive price variation of 3.68%, contributed to total monthly inflation with about 2.38 positive percentage points.

The price variations of fresh, refrigerated or frozen horse mackerel (21.6%), tomatoes (37.1%), onions (44.3%), groundnuts (10.8%), cooking oil (11.5%), wheat bread (3.2%) and paraffin (1.8%), contributed to the total monthly inflation of 2.69 positive percentage points.

Table 9:

Nampula CPI

PRICE INDEX - NAMPULA - BASE DEC 2004 = 100

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Data collected in the course of the year 2007 show an accumulated (annual) inflation of about 13.32%. The months of February, October and December had the highest levels of price escalation in the course of the year with 3.32%, 2.14% and 2.65% respectively.

A01ufig08

Inflation Rate

(Accumulated Variation)

Citation: IMF Staff Country Reports 2009, 116; 10.5089/9781451827361.002.A001

In 2007 the division of food and non-alcoholic beverages imposed the general price escalation during the year, contributing to total accumulated inflation with about 10.34 positive percentage points.

The annual price variation of horse mackerel (60.8%), maize flour (34.1%), coconuts (43.6%), dried cassava (42.4%), paraffin (28.4%), wheat bread (39.1%), and fresh, refrigerated or frozen prawns (80.6%), contributed to total accumulated inflation with 9.71 positive percentage points.

Taking the average 12-month price variation as reference, annual inflation in Nampula City was 9.72%, equivalent to 5.93 percentage points less than in the same period of 2006.

The average variation of the division of food and non-alcoholic beverages was in the order of 11.10%.

III.7. BALANCE OF PAYMENTS

The information available refers to September 2007.

Following the evolution of the balance of payments in the course of 2007, the PES 2007 targets were adjusted and replaced by those presented in the tables below.

The deficit of the partial goods account, accumulated until September 2007, amounted to about USD 400.9 million, corresponding to 67.2% of the programme for 2007 (USD 596.7 million), which results in a savings of USD 195.7 million.

Table 10:

Trade Balance

TRADE BALANCE - 10^6USD

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The revised programme for 2007 anticipated that Exports of goods until December of that year would attain USD 2,483.1 million as a result of the growth of large project exports of 5.5% and of exports of the remaining sectors of the economy of 1.2% compared to 2006. Until September 2007, the value of exports of goods was USD 1,846.6 million, in other words, 74.2% of what was planned for the whole year 2007.

Until September 2007, compared to same period of 2006, income from the export of goods increased by 4.1%, particularly the large project exports which grew by 12.5%, contrary to the remaining sectors of the economy, in which in aggregated terms exports decreased by 16.2%. Consequently, until September 2007, income of goods exported by the large projects and that of the remaining sectors of the economy REACHED 78.7% and 62.6%, respectively, OF what was planned until December of the same year.

Table 11:

Exports

EXPORTS-10^6 USD

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The main factors explaining the increase or reduction of exports per product until September 2007, compared to the same period of 2006, are the following:

  • Cashew kernels – a drop of 43.7%, to USD 6.3 million, due to the closure of three cashew nut processing factories in Nampula, occurred at the end of 2006;

  • Cotton – a growth of 20.2%, to USD 33.1 million, due to the increase of production in the 2005/2006 agricultural campaign, having attained about 123 thousand tons of cotton, 44 thousand tons more than in the previous campaign, together with the increase of the respective price on the international market by 6.6%;

  • Timber – a growth of 53.5%, to USD 27.0 million, due to the increase of the number of simple licences granted for timber exploitation, as a response to the increase of demand for precious wood of class 2, 3 and 4, which can legally be exported in logs, having China as preferential market;

  • Electric power – a growth of 35.5%, to USD 187.5 million, due to the increase of the exported volume by 8.5%. South Africa consumed 79.3% of total exported power (7,090.224.3 Megawatt in the period in analysis) and the remainder was for Zimbabwe;

  • Gas—a growth of 4.9%, to USD 85.3 million. Due to the increase of production to 86,969,427.95 GJ, 11% more in relation to the same period of 2006;

  • Aluminium ingots—a growth of 10%, to USD 1,139.0 million explained by the price increase of this product on the international market by about 7.3%;

  • Prawns – a reduction of 31.8%, to USD 54.1 million, due to the fall of the respective price on the international market.

  • Sugar – a reduction of 21%, to USD 49.4 million caused by the decrease of its price on the international free market by 36.7%, combined with the fact that in the same period of 2006 there had been large volumes of sugar in addition to the quotas on the part of USA and European markets.

  • Tobacco – a reduction of 45.7%, to USD 45.2 million due to the reduction of the exported volume of processed tobacco, as the processing company started, from the end of December 2006 onwards, to follow a processing schedule, which foresees an off-season stoppage in the 1st quarter and a restart in April of each year.

  • Cashew nuts – a reduction of about 54.6%, to USD 10.8 million resulting from the fall of the average price practiced on the international market and the increase of production in West Africa, the quality of which is considered better than that of Mozambique.

  • Re-export of fuels – a reduction of 20.6%, to USD 22.4 million. Zimbabwe, Zambia, Malawi and the Democratic Republic of Congo reduced the volume of purchases of fuels in Mozambique (32,492.7 metric tons until September 2007, against 41,036 metric tons in the same period of the previous year), as a consequence of the fuel price increase trend on the international market.

Regarding Imports, the revised programme for 2007 anticipated imports at the value of USD 3,079.8 million, until December (see table below). Provisional data of the Balance of Payments until September 2007 show that the value of imports of goods was USD 2,244.6 million, representing a level of execution of 72.9% in relation to the revised programme.

Table 12:

Imports

IMPORTS - 10^6 USD

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The main factors explaining the increase or reduction of imports in the period in analysis are:

  • Cereals – a reduction of 11.9%, to USD 123.9 million, since the production of cereals in the 2006/2007 campaign increased by 2.4% to 2.17 million metric tons compared to the previous campaign.

  • Cars – an increase of 10 base points, to USD 158.0 million, resulting from the accumulation of stocks occurred until the end of 2006.

  • Medicines – a growth of 14.2%, to USD 35.4 million, reflex of the increase of the quantities of the various drugs needed by the National Health System.

  • Sugar – a reduction of 70.1%, to about USD 900 thousand, due to the abundance of local sugar on the domestic market, with a stock at the end of the 3rd quarter of 2007 of 91,053 tons.

  • Fuels – an increase of 2.7%, to USD 287.9 million, resulting from the crude price increase trend on the international market, in spite of the reduction of the imported volume of diesel oil by 1.2%. It should be noted that 98% of the volume of imported fuels until September 2007 was composed of diesel oil (70%), petrol (16%) and Jet A-1 (11%).

  • Capital goods – a growth of 10 pb, to USD 303.4 million, particularly machinery and equipment for public works, building construction and similar works.

  • Large Projects – a growth of about 3%, to USD 537.2 million, due to the import of materials and equipment for the Pande/Temane Natural Gas Project.

Regarding the balance of services, the deficit of the partial services account until September 2007 amounts to 266.2 million USD, determined by the behaviour of the items of transport, travels, construction and business services, which suffered aggravations.

Table 13:

Balance of Services

BALANCE OF SERVICES - 10^6USD

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In 2007 the constitution of external assets in the form of direct investment abroad amounted to USD 0.1 million.

In terms of DFI in Mozambique we should mention the net receipt of funds of about USD 227.7 million, representing a turning in the position of the economy with respect to its external responsibilities, because in the same period of 2006 the tendency was a net reduction of liabilities.

Table 14:

Private Foreign Loans and Foreign Investment

PRIVATE FOREIGN LOANS AND FOREIGN INVESTMENT - 10^6 USD

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Direct foreign investment originated from 34 countries, particularly the USA, Switzerland, Mauritius, South Africa, United Kingdom, China, Portugal, Tanzania, Spain and Canada as the ten largest investors.

In general, from the table below one can infer that in September 2007 the deficit of the current account including grants amounted to USD 290.9 million (see the table below), representing about half (50.3%) the plan until December of the same year. This result was due to the fact that until September 2007 and compared to the same period of 2006 reductions occurred in the deficits of the goods (-4.0%) and services (-8.1%) accounts and an increase of current transfers by 18.3%, in spite of the deterioration of the revenue account by 28.2%.

Table 15:

Balance of Payments

Main Balance of Payments Accounts - 10^6 USD

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During the first 9 months of 2007 there was a net inflow of resources into the country in the form of current transfers in the order of USD 484.1 million, corresponding to about half (47.3%) the plan until December. The distribution was as follows:

  • USD 441.5 million for financing central administration activities, through the State Budget, particularly: (i) import support, (ii) emergency programmes, (iii) the import of medicines and (iv) special programmes; and

  • USD 42.5 million for other sectors of the economy. The total volume of funds received from abroad for other sectors was determined by the increase of income transfers on the part of Mozambican workers resident abroad and by inputs made into the accounts of a few NGOs operating in the country, in the scope of strengthening their financial positions.

The capital and financial account shows that capital transfers and net financial flows attained in September 2007 a value of USD 165.7 million, representing a level of execution of 20.7 % in relation to the plan for 2007, as a result of the inflow of capital in the order of USD 385.1 million and a net outflow of financial resources at the value of USD 219.4 million, which can mainly be explained by the deposits done by the commercial banks (USD 163.1 million) and by other sectors (USD 338.0 million).

The overall balance had a surplus of USD 24.0 million, corresponding to 6.5% of the plan for December, representing a financing capacity of the rest of the world to the same extent. As a result of the overall surplus recorded until September, there was a constitution of reserve assets on the part of the monetary authority of USD 168.8 million, most of which in the form of deposits in foreign currency.

For the financing of the external and budget imbalances, the country resorted once again to external financing sources to be able to materialize part of its investment programmes. In this scope, net loans contracted by the Mozambican economy until September 2007 amounted to USD 269.9 million.

Concerning Investment by sector, 186 projects were approved in 2007, involving a total investment of USD 7,532,175,811 and capable of creating 19,633 jobs.

The largest volumes of approved investment were in the sectors of Mineral Resources, Industry, Tourism and Hotels, Services and Agriculture and Agro-industries. Nampula, Tete, Maputo, Sofala and Gaza Provinces received in decreasing order the largest volumes of approved investment.

Table 16:

Approved investment by Sector

Approved Investment by Sector

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Regarding the provinces, 186 projects were approved, with a total investment of about 7,533 million USD, creating 19.633 new jobs. Provinces with a large number of approved projects were Maputo (77), followed by Inhambane (29), Gaza (17) and Manica (16).

Table 17:

Approved investment by Province

Approved Investment by Province

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IV. MAIN LINES OF DEVELOPMENT BY PILLAR

IV.1 ECONOMIC DEVELOPMENT

A. AGRICULTURE

AGRICULTURAL PRODUCTION, LIVESTOCK BREEDING AND FORESTRY

The 2006/07 agricultural campaign was characterized by late and irregular rains, which resulted in inundations. Large areas with a variety of crops were lost on the margins and affluents of the Zambezi River in Sofala, Zambezia, Tete and Manica Provinces. In the Northern Region, the rains were also excessive causing a few local inundations, mainly in Nampula (Moma and Malema Districts) and Cabo Delgado (Muidumbe, Macomia and Mueda Districts) Provinces.

The Southern Region of the country was characterized by irregular rains during the whole first growing season, resulting in a severe drought that affected above all maize production. The drought occurred in this part of the country assumed alarming proportions in terms of production and was considered the most serious one of the last few years, mainly in Maputo Province, where 55% of the total area sown was lost.

The agricultural campaign was also affected by cyclone Favio, which affected Inhambane, Sofala and Manica Provinces. In Inhambane Province the following districts were seriously affected: Vilanculos, Inhassoro, Govuro and Massinga. Affected districts in Sofala were Machanga and Chibabava, and in Manica Province Gondola and Sussundenga.

The impact of the cyclone on crops was mainly on maize that was already in an advanced stage of its vegetative cycle and was then knocked down, and also resulted in the flooding of fields on the margins of the Buzi and Dombe Rivers.

About 369 thousand ha (7% of the total planted area) with a variety of crops were lost, of which 203 thousand ha due to drought, 93 thousand ha due to inundations and about 73 thousand ha due to the cyclone, affecting about 309 thousand peasant families.

In the campaign in analysis the effect of pests and diseases was not significant. In Gaza Province, however, an area of about 508 ha is estimated to have been lost due to the armyworm.

Following the above-mentioned disastrous effects, which created an emergency situation, the Government, in coordination with its partners, prepared an immediate response plan aimed at boosting the second agricultural growing season, which benefited more than 97,000 families.

In spite of the adversities, agricultural production, livestock breeding and silviculture increased by about 8.6%.

Commercial agricultural production and the commercialisation of family produce, including auto-consumption, increased by 6.7%.

Table 18:

Agricultural Production

(Growth rates in %)

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The commercialisation of basic food products increased by 27.7%, contrary to the commercialisation of export products which suffered a decrease of 13.3% and of products for the agro-industry (a decrease of 0.6%).

Table 19:

Commercial Production and Family Sector Commercialisation

(Growth rates in %)

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There was a decrease of the commercialisation of cotton, due to climatic conditions. The unfavourable cotton production was related to the significant reduction of the number of cotton producers with a consequent reduction of planted areas, having attained 72,175 tons against 122,000 tons in the previous campaign. The lack of rains occurred in the critical flowering and cotton capsule filling period, which together with the cold made it impossible for the capsules to open, thus contributing to their decay.

For the 2006/2007 campaign, cashew nut sales amounted to 74,397 tons of nuts, representing a growth of 18.4% compared to the 2005/2006 campaign, which reached 62,821 tons. This product was commercialised at an average producer price of 6.50 MT/kg, having resulted in an income of 491 million MT for the families. It should be noted that the edafoclimatic conditions in the main cashew production area of the country (the northern provinces) and the price increase during the campaign contributed positively to the success of this campaign.

The production of sugar cane suffered a decrease of 1.6%, due to the poor distribution of the rains, a few periods of drought in areas where the sugar refineries are situated. These problems were aggravated by deficient irrigation to complement the rains, as well as by electric power problems, in this case in the Marromeu sugar refinery. These problems affected income.

The tea sector faced big constraints along its value chain, having resulted in low production levels and poor competitiveness at international level. For the 2006/07 campaign the production of tea leaves amounted to 17,671 tons, a growth of 10.4% compared to the previous campaign (16,000 tons).

The high levels of commercialisation of basic food products resulted basically from the growth occurred in the commercialisation of vegetables (87.0%).

The production of inputs for the agro-industry decreased by 0.6%, with a decrease occurred in the commercialisation of tobacco (1.3%). This decrease was due to a few constraints, mainly:

  • Weakness of the companies’ technical assistance rural extension networks.

  • Limited response capacity on the part of the tobacco promotion companies to assist the increasing number of peasants and small farmers.

  • Delays in making inputs available.

Data collected by the national early warning system show (see table below) that in the family sector there was a general increase of productivity for food crops, with the exception of beans, as the increase of production was superior to the expansion of cultivated areas. It should be noted that the levels of productivity were negatively influenced by the occurrence of natural disasters, which resulted in the loss of crops.

Table 20:

Agricultural Production of the Family Sector

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In this campaign a production of 2.2 million tons was achieved. The levels of family production led to an increase of the levels of commercialisation of food products, with the exception of beans, mainly for vegetables (136.9%) and onions (315.9%).

Table 21:

Commercialisation of the Family Sector

(Growth rates in %)

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