Mozambique, on the east coast of southern Africa, has averaged economic growth of nearly 8% per year for the past 10 years, albeit off a small base. But prime minister and minister of planning and finance Luisa Diogo is looking to the future, confident that growth can be sustained and even accelerated during the next 15 years.
Ms Diogo told The Banker that second-generation reforms would help the economy to expand by up to 10% per year, dismissing fears that year-end elections would derail reform impetus. Key to this would be further financial sector reform and judicial reform, aimed at improving the investment environment.
Reforms under way
Financial sector reforms are principally aimed at bolstering regulation and supervision, directing more resources to the central bank. The government withdrew from the banking system following a crisis in 2000 when Banco Comercial de Mozambique and Banco Austral, accounting for half the banking system, were declared insolvent.
The government also recognises the critical importance of an effective judicial system, both in terms of strengthening the business and investment environment – better enforcement of contracts, for instance – as well as effectively combating widespread corruption. Ms Diogo candidly admits present judicial processes are deficient.
Mozambique ended a bloody 18-year civil war in 1992, that began almost immediately post-independence and resulted in the deaths of more than a million people. When the government’s first five-year development plan was rolled out in 1994, Mozambique was one of the poorest countries in the world. The first generation of reforms were targeted at cementing the peace, stabilising the economy and deregulation. In the 10 years since then, the country attracted more than $6bn in foreign direct investment, mostly into minerals extraction and processing and the development of gas fields.
“The first generation of reforms was relatively easy. The minister of finance could sign a decree and it was done. The next set of reforms are far more complex and therefore more difficult,” says Ms Diogo.
Doubts remain
Despite impressive growth figures and the acclaim of creditors and donors, quietly spoken concerns persist. Will elections in December proceed freely and smoothly? Will ruling party Frelimo’s anointed successor to President Joaquim Chissano continue the reform agenda?
Ms Diogo believes the changes in Mozambique run deeper than the eye can see. There is a growing expectation for delivery. Civil society and the media are growing in strength and voice.
Unique in Africa, the government has set up a ‘poverty observatory’, a consultative forum in which it works closely with civil society and the private sector to assess development targets and hone strategy. Legally, lawmakers are obliged to consult widely before a bill can be tabled. The media monitors government performance and Ms Diogo admits that the media often detects government failings more quickly than government does. “We try to respond quickly,” she adds.
“Democracy in Mozambique is irreversible. People are increasingly accustomed to government delivering, and ministers are held to account. The election will proceed smoothly – opposition parties have agreed to the framework to ensure elections are free and fair,” she says.
Track record
Ms Diogo is adamant that the government’s track record should speak for itself. Up to 70% of the education network and 60% of the health network were destroyed during the civil war; four years later both were largely restored. The government has also cut red tape. In 2002, it took up to eight months to clear imports through customs; now it takes about 48 hours.
The capability and effectiveness of the state is improving. In 2000, government revenue amounted to 11% of GDP; it is now 14.7% of GDP and narrowing in on the target of 17%. Whereas in 1994, 70% of the budget was funded by donors, that figure is now 48%.
“Mozambique has a clear 25-year vision. We have never believed we need to reinvent the wheel but rather we should learn from the experience of other countries. As a result, we have spent 12 years persistently focusing on the priority areas, spending 65%-70% of the budget in areas like health, education and infrastructure,” says Ms Diogo.
The development challenge remains enormous but the recent elevation of Ms Diogo – an ardent reformer and firm favourite of external stakeholders – to prime minister is a telling sign of government attitude to reform.
