The World Bank Group in Mozambique, Fiscal Years 2008–21
Chapter 1 | Introduction and Country Context
This Country Program Evaluation assesses the development effectiveness of the World Bank Group’s support to Mozambique during fiscal years (FY)08–FY21. It assesses the extent to which the Bank Group’s support was relevant for addressing the country’s main development challenges and drivers of fragility and the evolution and adaptation of that support over time. The evaluation distills lessons from the Bank Group’s experience in Mozambique to inform future engagement.
The evaluation delves into four key themes of relevance to Mozambique’s pursuit of the Bank Group’s twin goals of poverty reduction and shared prosperity: (i) low agricultural productivity; (ii) unequal access to basic services; (iii) weak institutions and governance; and (iv) vulnerability to climate change and natural disasters. These four themes were identified in the Bank Group’s 2021 Systematic Country Diagnostic (SCD) as major constraints to Mozambique’s development (World Bank 2021j). This evaluation seeks to answer the following questions (see appendix C for the evaluation methodology):
- To what extent did the Bank Group support improvements in agricultural productivity and access to basic services across regions to foster poverty reduction and shared prosperity in Mozambique?
- To what extent did the Bank Group support improvements in governance in Mozambique?
- How successful has the Bank Group been in helping Mozambique build resilience to climate change?
Chapter 1 provides the country context in which the Bank Group provided its support. Chapter 2 describes the Bank Group’s strategy and its evolution and implementation over the evaluation period. Chapter 3 assesses the Bank Group’s support to enhance agricultural productivity. Chapter 4 looks at Bank Group support to improving access to basic services, and chapters 5 and 6, respectively, evaluate the Bank Group’s support for improving governance and enhancing climate resilience. Chapter 7 presents findings and lessons to inform future Bank Group support to Mozambique.
Country Context
After the end of the civil war in 1992, Mozambique experienced strong economic growth, which raised living standards and reduced poverty. Gross domestic product (GDP) expanded at an average annual rate of almost 8 percent between 1993 and 2013, making Mozambique one of the fastest-growing economies in Sub-Saharan Africa (figure 1.1, panel a). During that period, political and macroeconomic stability provided the foundation for robust growth led by a rebounding agricultural sector and significant donor support. The economic expansion boosted incomes and living standards. GDP per capita grew at an annual average of 4.8 percent. The poverty rate declined from 60.3 percent in 2002–03 to 48.4 percent in 2014–15 (figure 1.1, panel b).
Figure 1.1. Economic Growth and Poverty Reduction in Mozambique
Figure 1.1. Economic Growth and Poverty Reduction in Mozambique
Sources: a. World Development Indicators database; b. World Bank using Household Budget Survey (Inquérito ao Orçamento Familiar) 2002–03, 2008–09 and 2014–15. Latest available poverty data are from 2014–15.
Note: GDP = gross domestic product.
Despite impressive growth, poverty remained high in rural areas, with the labor force concentrated in subsistence agriculture. Starting in 2008, drivers of growth gradually shifted away from agriculture to the services and industry sectors (World Bank 2018c, 22; IFC 2020). One implication of this transition was that growth became less beneficial to poor people. Between 2008 and 2014, per capita consumption grew on average by 7 percent annually for the top 20 percent of households but by only 2.6 percent for the bottom 40 percent. Almost half of the population (46.3 percent) continued to live in poverty, with most of them (84.9 percent) living in rural areas (World Bank 2018d, vi). Smallholder farming, defined as cultivating an average of 1.1 hectares in 2020, was the primary source of income for 9 out of 10 rural households (World Bank 2020a).
Growth decelerated beginning in 2016 in the face of low commodity prices and a regional drought, and it was further eroded by the hidden debt crisis, natural disasters, and the COVID-19 pandemic. The discovery of large hidden debts (box 1.1) triggered a sharp currency depreciation and reduced financial inflows from investors and donors. The crisis also marked the end of an extensive public investment boom that had helped fuel growth (World Bank 2021j). In 2019, Mozambique suffered a series of tropical cyclones, which also negatively impacted the economy. The next year was the start of the COVID-19 pandemic. As a result of these events, growth decelerated sharply from 2016 onward and entered negative territory in 2020 for the first time in almost three decades.
Although not always formally classified as such, Mozambique is a fragile country. For most of the evaluation period, the country was not classified as fragile, despite being characterized by deep internal grievances, high levels of economic exclusion, and limited provision of basic services to the population. In FY18, Mozambique was formally classified as fragile. Fragility in Mozambique manifested itself in four arenas: (i) access to political power and economic opportunities; (ii) access to natural resources, including extractives; (iii) access to basic services; and (iv) access to justice and security (World Bank 2020g).
Box 1.1. Hidden Debt Crisis
In 2013, EMATUM, a state-owned fishing company, borrowed $850 million (equivalent to approximately 6 percent of the gross domestic product) from Credit Suisse and VTB Bank to finance a tuna fishing fleet. With the help of these and other banks, EMATUM securitized the loans, slicing them into smaller chunks and issuing them as unlisted securities with a sovereign guarantee (“tuna bonds”). In 2014 and 2015, EMATUM reported losses, implying that the government would need to assume the obligations. However, by 2016, Mozambique public finances were worsening rapidly because of falling commodity prices and insufficient agricultural harvests, and it was soon clear that the government was unable to assume the debt.
Against this backdrop, the government restructured the tuna bonds into a sovereign bond in April 2016. At the same time, it was discovered that between 2009 and 2014, Mozambique had contracted the equivalent of 10 percent of the gross domestic product ($1.4 billion) in nonconcessional debt by issuing guarantees to state-controlled companies and borrowing directly from bilateral lenders. The discovery of this previously undisclosed debt (which increased Mozambique’s external debt burden to 127 percent of the gross domestic product) led the International Monetary Fund, the World Bank, and bilateral donors to withhold financial support to Mozambique, a move that contributed to a budget crisis and an overall deterioration of the macroeconomic framework.
Source: Independent Evaluation Group, based on World Bank 2017b.
Violent conflict has characterized the political landscape. The end of hostilities between the Liberation Front of Mozambique (FRELIMO) and the Mozambican National Resistance (RENAMO) in 1992 began two decades of relative peace, which ended in 2013 when RENAMO took up arms again. After a series of temporary cease-fires, a new peace agreement was reached in 2019; soon after, however, a faction of RENAMO resumed attacks over alleged electoral irregularities. Since October 2017, members of a religious extremist group have carried out attacks in the coastal districts in the province of Cabo Delgado, displacing roughly 700,000 people.1 Violence has caused severe delays in gas production in Cabo Delgado, diminishing the prospects of gas as a catalyst for economic growth and increased government revenues.
The Bank Group classified Mozambique as a medium-intensity, conflict-affected country in FY21. Deaths due to conflict increased throughout the evaluation period (figure 1.2, panel a), especially after the start of the insurgency in Cabo Delgado in 2017. The Fragile States Index—which measures fragility by tracking various social, economic, political, and cohesion indicators and compares them with the state’s ability to manage those pressures—showed that Mozambique’s fragility worsened in 11 out of the 14 years covered by the index (figure 1.2, panel b).
Figure 1.2. Fragility Indicators in Mozambique
Figure 1.2. Fragility Indicators in Mozambique
Source: Armed Conflict Location and Event Data Project (https://acleddata.com/) and Uppsala Conflict Data Program (https://ucdp.uu.se/).
Note: ACLED = Armed Conflict Location and Event Data Project; UCDP = Uppsala Conflict Data Program.
The quality of governance and state institutions has worsened over time as the debt crisis unfolded and conflict intensified. The resumption of hostilities between FRELIMO and RENAMO, the hidden debt crisis in 2016, and the insurgency in Cabo Delgado contributed to a sharp deterioration in governance. Scores for all World Bank Country Policy and Institutional Assessment indicator clusters trended down during the evaluation period (figure 1.3, panel a). Worldwide Governance Indicators for Mozambique declined in the areas of control of corruption, government effectiveness, political stability and absence of violence, regulatory quality, rule of law, and voice and accountability (figure 1.3, panel b).2 Mozambique is now at the bottom of these indicators compared with regional peers in Sub-Saharan Africa.
Figure 1.3. Ratings of Governance Quality
Figure 1.3. Ratings of Governance Quality
Source: World Development Indicators and Worldwide Governance Indicators database.
Note: CPIA = Country Policy and Institutional Assessment.
Main Development Constraints
During the evaluation period, Mozambique faced four major development constraints and drivers of fragility and conflict. Based on interviews with relevant Bank Group staff and reviews of World Bank–supported strategies and analytical work, this Country Program Evaluation has identified four main development constraints over the evaluation period, all of which are also considered drivers of fragility and conflict: (i) low agricultural productivity; (ii) unequal access to basic services; (iii) weak institutions and governance; and (iv) vulnerability to climate change and natural disasters.3
Low Agricultural Productivity
Figure 1.4. Trend in Maize Yields in Mozambique Compared with Malawi and Tanzania
Figure 1.4. Trend in Maize Yields in Mozambique Compared with Malawi and Tanzania
Source: FAOSTAT database, available at https://www.fao.org/faostat/en/#home.
Note: mt/ha = metric tons per hectare.
Agriculture in Mozambique is characterized by low and stagnant productivity and a declining contribution to national wealth. In 2008, agriculture, forestry, and fisheries contributed about 30 percent to the GDP; by 2020, this contribution had declined to about 20 percent. Yields of the dominant maize crop were chronically low. Between 1998 and 2019, the yields were 52 and 62 percent of the average maize yields in Malawi and Tanzania, respectively (figure 1.4); crop-growing conditions in those countries are comparable to those in Mozambique. Long-term yields for rice and cotton show similar trends and shortfalls compared with Malawi and Tanzania.
Low agricultural productivity is a key driver of fragility in rural areas and a major driver of growing income inequalities between rural and urban populations. Between the early 2000s and 2014–15, the Gini coefficient increased from 0.47 to 0.56, making Mozambique one of the most unequal countries in the region. Growing inequality has heightened social tensions and fueled renewed violent conflict in recent years (World Bank 2020g).
Unequal Access to Basic Services
Inadequate access to basic services in remote rural areas undermines social cohesion and prevents shared prosperity (figure 1.5). The percentage of urban households with access to safe water and sanitation is 89.4 percent and 69.4 percent, respectively. The corresponding rates for rural households are 46.6 percent and 7.5 percent (World Bank 2018d, 18). Educational attainment and outcomes in the center and the north of the country are worse than in the south, with higher rates of absenteeism for both teachers and students, lower levels of numeracy and literacy, and higher rates of dropouts (World Bank 2020g, 26). Southern and urban households also enjoy better health care coverage and health outcomes than those in the center and the north. Infant and child mortality rates are highest in northern Mozambique and in rural areas nationwide, and the highest incidence of stunted growth of children is in three northern provinces (Cabo Delgado, Nampula, and Niassa; World Bank 2016c, 90).
Figure 1.5. Inequality of Income and Access to Basic Services across Districts in Mozambique
Figure 1.5. Inequality of Income and Access to Basic Services across Districts in Mozambique
Source: World Bank 2020k; World Bank estimates using Inquérito sobre Orçamento Familiar (IOF) for 2014–15
Note: The Basic Infrastructure Access Index is an aggregate ranking of an average household’s access to transport, distance to market, distance to primary schools, distance to a clinic, and access to electricity and clean water.
Weak Governance
Weak decentralization limits citizens’ voice and participation and contributes to the uneven presence of the state across the country. The transfer of power and resources from the central to subnational levels is limited and skewed in Mozambique, resulting in weak subnational capacity to perform government functions and disinterest in revenue collection (World Bank 2020g).
Public financial and debt management have fallen short of what is needed to promote the effective and efficient use of public resources. The hidden debt crisis brought to the surface concrete challenges concerning public financial and debt management and insufficient oversight of state-owned enterprises (SOEs). The corrosive impact of corruption and ineffective public institutions has diminished trust in the state, had negative implications for the quality of most public services, and contributed to inadequate development outcomes. Grievances generated by these shortcomings have contributed to conflict and fragility.
Governance of the extractives sectors is weak, undermining inclusion, transparency, and sustainable resource management. Mozambique has struggled to have inclusive, transparent, and sustainable management of its extractives industry. The discovery of gas deposits and the potential for Mozambique to become a major exporter of liquefied natural gas have raised the cost of weak governance. The lack of effective governance arrangements and institutions to promote inclusive and transparent management of extractives was a major driver of fragility and conflict.
Vulnerability to Climate Change
Mozambique’s vulnerability to climate change is high, and the severity, frequency, and cost of extreme weather events have increased. Mozambique faces multiple climate change–driven challenges, including rising sea levels, variable and uncertain rainfall, rising temperatures, and increased incidence of floods and droughts. The low-lying nature of the coastal zone has made Mozambique one of the most exposed countries to weather-related shocks in Sub-Saharan Africa. The 2021 Global Climate Risk Index ranked Mozambique first among countries affected by impacts of climate change, up from 58th place in 2006 (Eckstein, Kunzel, and Shafer 2021).4 In 2019, Cyclones Idai and Kenneth struck the country consecutively and resulted in nearly 700 deaths and the displacement of hundreds of thousands, resulting in approximately $3 billion in damages and losses (Mozambique 2019).
Extreme weather events have eroded Mozambique’s progress in poverty reduction (Mozambique 2019). The provinces that are most affected by disasters tend to have higher levels of poverty (World Bank 2020g). Floods, droughts, and cyclones led to crop failures that cut per capita food consumption of affected households by 25–30 percent and exacerbated underlying drivers of fragility such as inequality, institutional weakness, food insecurity, and mass displacement (Baez, Caruso, and Niu 2018; World Bank 2020g).
- As per the latest estimates from the United Nations Office for the Coordination of Humanitarian Affairs.
- The Worldwide Governance Indicators (WGI) are a research data set summarizing the views on the quality of governance provided by a large number of enterprises, citizen and expert survey respondents in industrial and developing countries. These data are gathered from a number of survey institutes, think tanks, nongovernmental organizations, international organizations, and private sector firms. The WGI do not reflect the official views of the World Bank, its Executive Directors, or the countries they represent. The WGI are not used by the World Bank Group to allocate resources.
- The 2021 update to the World Bank Group’s Systematic Country Diagnostic identified these as development constraints with a high potential for reducing fragility and conflict in the country (World Bank 2021j).
- The Global Climate Risk Index is a composite of four indicators of human and economic loss from an insurance industry database: fatalities (both absolute and as a share of the population) and economic losses (both absolute and as a share of gross domestic product).