Mozambique looks to mega-projects in bid to recover growth

Mozambique, potentially one of Africa’s most promising economies, is on the path of economic recovery after grappling with multiple challenges that have seen growth plummet from the highs of a decade ago.

But the country’s growth prospects remain tethered to the ebb and flow of foreign direct investment (FDI) decisions made outside the country as a result of poor political management over at least a decade. The lingering effect of months of political unrest in the last months of 2024, which precipitated a slew of economic shocks, continues to undermine economic recovery.

After the election

The unrest followed the outcome of the October elections, which saw entrenched ruling party Frelimo claim victory for its presidential candidate Daniel Chapo, a result disputed by popular independent candidate, Venãncio Mondlane, who also claimed victory. Violence was unleashed across the country, much of it focused on the capital.

The border with South Africa, a key trading partner and port user, was closed for a week, disrupting exports. Almost half of South Africa’s chrome exports go through Maputo port, as well as other minerals and agricultural products. During this volatile period, a $700m import backlog built up.

Some hotels closed temporarily or scaled back as tourists stayed away and thousands of people cancelled bookings. However, a few companies in Maputo housed key staff in hotels to ensure they could get to work. Before the disorder subsided more than 4,000 people were reportedly arrested, 730 shot with live ammunition and 300 killed.

The impact on the economy was brutal. In the fourth quarter of 2024 it contracted by 4.9%, having recorded 3.7% growth in the previous quarter, according to the National Statistics Bureau. The unrest impacted full-year growth, which came in at just 1.8%, down from 5.4% in 2024. The election has thus been called the most expensive in Mozambique’s history.

The IMF projects growth of 2.5% for 2025, as economic activity picks up in the second half of the year. But with population growth of 2.7%, the country needs double-digit growth to move forward, said one economist.

For a decade or so up to 2014 the country was experiencing 7% to 8% growth. The decline effectively began that year as a result of a complex basket of issues, including disruption to trade and infrastructure after elections, falling coal prices, floods and other challenges.

The pace of decline ratcheted up from 2016, the year a scandal broke that showed secret borrowing of over $2bn that had been hidden from the public and from donors, many of whom cut ties with the country in the wake of the disclosures. The election violence in 2024 was, analysts said, a reflection of years of anger at perceived arrogant leadership and poor governance.

The country stabilised only in January 2025, after the new government was sworn in and Daniel Chapo, the first leader of Mozambique born after the end of the liberation struggle, selected a new cabinet, which included many new faces.

The scale of the challenge

With the scale of the challenges mounting, government has re-engaged with the IMF, which was in Maputo in August for preliminary talks on the economy. It urged the authorities to take decisive action to restore macroeconomic stability, put debt on a clear downward trajectory and improve the country’s growth prospects, while noting an increased interest in Mozambique by foreign investors from a broad range of sectors.

Despite efforts to manage the country’s debt it remains high, with public debt estimated to be just over 100% of GDP, up from 96.6% in 2024. The IMF has classified the country as still being at high risk of debt distress.

The government’s huge wage bill, which swallows up a hefty 73% of tax revenues, has also caught the attention of the IMF. Another 20% is used to service public debt, leaving less than 10% to invest in infrastructure, health and other essential services.

“This means that from a fiscal policy perspective, there is no space to support growth acceleration efforts. Growth is now heavily reliant on large projects in an FDI-driven model,” says the economist.

Mozambique is a young country: 43% of its people are under the age of 15. A large number of those between 20 and 25 are unemployed. The need for growth is pressing.

LNG mega-projects offer growth route

As new finance minister Carla Louveira tells us, the country is aiming to swiftly return to growth now that the political situation has stabilised.

Natural resources will be an obvious priority. TotalEnergies is bidding to restart the $20bn liquefied natural gas (LNG) project in the far north, suspended in 2021 due to insurgent attacks in Cabo Delgado Province, where it is situated.

The project is due to be Mozambique’s biggest once it is complete.

The state is already receiving revenues from the Coral South LNG project and is expected to see much more once the investment is paid off. The same applies to the TotalEnergies project.

Collectively, these projects are expected to generate billions in revenues for the cash-strapped government from royalties, taxes and profit sharing over the lifetime of the projects.

Chapo’s government is pushing long-delayed local content legislation to derive more benefits for Mozambicans from their gas resources. Multinational companies have, in the past, expressed concerns about not being able to manage supply chains and staffing in such a highly specialised industry. Skills gaps make it hard to meet employment quotas for qualified technical positions.

The legislation seeks to prioritise local people for jobs in extractive and strategic industries and in supply chains.

The government is pushing forward after a countrywide consultation period earlier this year, and plans to send the legislation to the Council of Ministers and to parliament before the end of 2025.

Smelter challenges

Problems at the country’s major aluminium smelter show the dangers of an overreliance on mega-projects. The Mozal aluminium smelter, established in 1998, is the biggest completed investment in the country since independence and produces more than 500,000 tonnes of aluminium per year, almost entirely for export.

But now it is due to be put on “care and maintenance” status in the wake of a dispute about power tariffs. The current owner, South32, earlier this year flagged a $372m impairment, saying it was preparing to mothball the energy-intensive facility if it cannot secure affordable power when its electricity supply agreement ends in 2026.

The plant’s closure would have a dramatic impact on the economy, heavily affecting export earnings, widening the trade deficit and worsening foreign exchange problems. More than 1,000 direct jobs would be affected as well as thousands more in the supply chain.

Mozal’s closure would also send a negative signal to other potential investors, especially in manufacturing and heavy industry, and reinforce perceptions that Mozambique lacks industrial diversification and is overly dependent on flagship projects at the expense of broad-based growth.

Tough choices necessary

As Mozambique wakes up to the raft of challenges it faces, serious choices need to be made, say economists. The government’s role in the economy has long been oversized, with corruption and mismanagement acting as a handbrake on growth.

Although the government has now institutionalised engagement with the private sector, the administration still needs to address the many issues companies experience in doing business, including slow and over-zealous bureaucratic requirements and processes.

Mozambican businesses – particularly small and medium enterprises – face a range of crippling challenges, including bad infrastructure, limited access to capital and stultifying bureaucracy.

While the LNG projects could prove transformative, the government also needs to diversify beyond extractive industries and build resilience through broad-based economic growth, while introducing local content expectations in a way that doesn’t put off investors. The drives to digitise the economy and improve the ease of doing business are already under way, as new ministers tackle the many issues that have been neglected by their predecessors.

But at the heart of everything is the issue of security. Even as the post-election violence has abated, security challenges continue in the north of the country, putting large projects critical to Mozambique’s future potentially at risk.

The country’s growth plans will to a large extent depend on ensuring security for citizens and foreign investors alike.