metadata: authors: 0: author: Briceno-Garmendia,Cecilia M.
1: author: Dominguez Torres,Carolina
count: Mozambique
docna: 0: docna: Mozambique's infrastructure : a
            continental perspective
docty: Policy Research Working Paper
subtopic: Railways Transport,Ports & Waterways,Hydrology,Transport Services,Intelligent Transport Systems
teratopic: Transport,Infrastructure Economics and Finance,Water Supply and Sanitation,Energy
abstracts: cdata!: In the last 10 years, Mozambique's
            economy has grown steadily at an impressive rate of 7.7
            percent per year, driven by the service sector, light
            industry, and agriculture. This pace is expected to continue
            or even increase with the massive influx of already-planned
            investment on the order of $15-20 billion. Mozambique's
            infrastructure is well developed in some sectors, including
            its east-west transport infrastructure, power grid, and
            water and sanitation networks. But the nation still faces
            critical challenges in these and other areas, including
            developing north-south transport connections, properly
            managing the water system, and expanding hydroelectric
            generation to meet potential. Mozambique spent about $664
            million per year on infrastructure during the late 2000s,
            with as much as $204 million lost annually to
            inefficiencies. Comparing spending needs with existing
            spending and potential efficiency gains leaves an annual
            funding gap of $822 million per year. Mozambique could
            reduce inefficiency losses by positioning itself as a key
            power exporter. The country could reach infrastructure
            targets in 20 years through a combination of increased
            finance, improved efficiency, and cost-reducing innovations.
geo_reg_key: 517195,517191
repnme: repnme: Mozambique's infrastructure : a
            continental perspective
display_title: Mozambique's infrastructure : a
            continental perspective
listing_relative_url: /research/2011/11/15490375/mozambiques-infrastructure-continental-perspective
topicv3: Water m1326522 137,Transport m1326661 135,Ports m1327399 167,Railways m1327400 166,Traffic Management m1583399 4231
publishtoextweb_dt: 2011-11-01T00:00:00Z
historic_topic: Transport,Infrastructure Economics and Finance,Water Supply and Sanitation,Energy
no_of_pages: 62
author_keys: 0: author_key: 420925
1: author_key: 1063818
model_extractions: WPS5885 Policy Research Working Paper 5885 Mozambique’s Infrastructure A Continental Perspective _Carolina Domínguez-Torres Cecilia Briceño-Garmendia_ The World Bank Africa Region Sustainable Development Unit September 2011
Policy Research Working Paper 5885

# **Abstract**

In the last 10 years, Mozambique’s economy has grown steadily at an impressive rate of 7.7 percent per year, driven by the service sector, light industry, and agriculture. This pace is expected to continue or even increase with the massive influx of already-planned investment on the order of $15–20 billion.

Mozambique’s infrastructure is well developed in some sectors, including its east–west transport infrastructure, power grid, and water and sanitation networks. But the nation still faces critical challenges in these and other areas, including developing north–south transport connections, properly managing the water system, and expanding hydroelectric generation to meet potential.

Mozambique spent about $664 million per year on infrastructure during the late 2000s, with as much as $204 million lost annually to inefficiencies. Comparing spending needs with existing spending and potential efficiency gains leaves an annual funding gap of $822 million per year. Mozambique could reduce inefficiency losses by positioning itself as a key power exporter. The country could reach infrastructure targets in 20 years through a combination of increased finance, improved efficiency, and cost-reducing innovations.

This paper is a product of the Sustainable Development Unit, the Africa Region. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at cbricenogarmendi@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# Mozambique’s Infrastructure: A Continental Perspective

**_Carolina Dominguez-Torres and Cecilia Briceño-Garmendia_**
# **Acknowledgments**

This paper draws on contributions from sector specialists from the Africa Infrastructure Country Diagnostic team—notably, Dick Bullock on railways, Mike Mundy on ports, Heinrich Bofinger on air transport, Rupa Ranganathan on power, Carolina Dominguez on water and sanitation, Michael Minges and Rebecca Meyer on information and communication technologies, Alberto Nogales on roads, Nataliya Pushak on public expenditure, and Alvaro Federico Barra on spatial analysis.

The paper is based on data collected by local consultants and benefited greatly from feedback provided by colleagues in World Bank country teams—notably Luiz Claudio Tavares (acting country manager, water and sanitation), Boris Utria (sector leader and power), Luiz Claudio Tavares (water and sanitation), Jose Chembeze (roads and railways), Isabel Neto (ICT), Antonio Nucifora (macro), Rafael Saute (media and communications), and local consultants Manuel Ruas, Afua Sarkodie, and Naimo Jala. Arlete Comissario provided invaluable administrative and logistic support.

Preliminary results and emerging messages of this paper were discussed in a workshop in Maputo in November 2009. The workshop was hosted by Minister of Energy H.E. Salvador Namburete, Minister of Transport and Communications H.E. Paulo Zucula, and Minister of Public Works H.E. Felício Zacarias. The team is grateful for the insightful comments and recommendations of the workshop participants.
# Contents

|**List of figures**|**iii**|
|---|---|
|**List of tables**|**iv**|
|**Synopsis**|**1**|
|**The continental perspective**|**2**|
|**Why infrastructure matters**|**3**|
|**The state of Mozambique’s infrastructure**|**4**|
|Transport|8|
|Roads|10|
|Railways|13|
|Ports|16|
|Air transport|19|
|Water resources|22|
|Irrigation|23|
|Water supply and sanitation|26|
|Power|31|
|Information and communication technologies|36|
|**Financing Mozambique’s infrastructure**|**41**|
|How much more can be done within the existing resource envelope?|44|
|Annual funding gap|47|
|What else can be done?|47|
|**Bibliography**|**50**|
|General|50|
|Financing|50|
|Growth|50|
|Information and communication technologies|51|
|Irrigation|51|
|Power|52|
|Transport|52|
|Water supply and sanitation|53|

# List of figures

|Figure 1. Infrastructure’s contribution to economic growth: Benchmarking Mozambique against other Sub-Saharan natio<br>Figure 2. Mozambique’s population, income, and mineral resources are concentrated in the center and south|ns 4<br>6|
|---|---|
|Figure 3. Mozambique’s infrastructure networks align with population density and natural resource concentrations|7|
|Figure 4. Fuel levies compared in select Sub-Saharan African countries (U.S. cents per liter)|11|
|Figure 5. Main road network conditions in southern Sub-Saharan Africa|12|
|Figure 6. Preservation spending as a percentage of requirements in southern Sub-Saharan Africa (based on annual<br>average, 2003–07)|13|
|Figure 7. Evolution of seats and city pairs in Mozambique|21|
|Figure 8. Mozambique irrigation sector|23|
|Figure 9. Irrigation potential|25|
|Figure 10. Evolution of hidden costs in Mozambique’s water sector|29|
|Figure 11. Expansion of lowest-cost technologies in water and sanitation technologies at the national, urban, and rural<br>levels have kept pace with population growth|30|

iii
|Figure 12. Hidden costs of selected water utilities, as percentage of revenue|30|
|---|---|
|Figure 13. Hidden costs of Mozambique’s electrical utility in comparative perspective|33|
|Figure 14. Mozambique’s power potential under trade expansion and stagnation scenarios|34|
|Figure 15. Power tariffs and costs in Mozambique are among the lowest in Africa|35|
|Figure 16. Average revenue is below historical total power costs but above incremental costs<br>|36|
|Figure 17. Around 13 percent of Mozambique’s population could be reached by a GSM signal only under<br>a subsidy scheme|38|
|Figure 18. Telecommunications coverage in Mozambique|39|
|Figure 19. Mozambique’s Internet market, despite improvement, lags behind southern African peers|40|
|Figure 20. Mozambique’s infrastructure spending needs are substantial relative to GDP|42|
|Figure 21. Mozambique’s existing infrastructure spending is particularly high|43|
|Figure 22. Mozambique’s pattern of capital investment in infrastructure differs from that of comparator countries|44|
|Figure 23. Underpricing of power and water in Mozambique is relatively less burdensome|45|
|Figure 24. Consumption of infrastructure services in Mozambique varies by income quintile|46|
|Figure 25. Mozambique’s power and water utilities: The burden of inefficiency|46|
|Figure 26. Mozambique is capturing a significant amount of PPI but there is still room for improvement|49|

# List of tables

|Table 1. The achievements and challenges of Mozambique’s infrastructure sectors|8|
|---|---|
|Table 2. Trading across borders in southern African countries|9|
|Table 3. Mozambique’s road indicators benchmarked against Sub-Saharan African low- and middle-income countries|10|
|Table 4. Railway indicators for Mozambique and select other countries, 2000–05|15|
|Table 5. Cargo and passengers transported along Mozambique’s railways|16|
|Table 6. Traffic in Mozambique’s ports|17|
|Table 7. Cargo and containers handled in Mozambique’s ports|17|
|Table 8. Benchmarking of ports in Southern Africa|18|
|Table 9. Benchmarking air transport indicators for Mozambique and select other countries|20|
|Table 10. Mozambique’s irrigation potential|25|
|Table 11. Benchmarking water and sanitation indicators|27|
|Table 12. Evolution of operational indicators associated with Mozambique utilities|28|
|Table 13. Benchmarking Mozambique’s power indicators|31|
|Table 14. Performance of the electricity sector in southern African countries|32|
|Table 15. Evolution of hidden costs associated with EDM|32|
|Table 16. Benchmarking ICT indicators|37|
|Table 17. Mozambique’s mobile teledensity is among the lowest in southern Africa|38|
|Table 18. High international call charges driven both by technology and market power|40|
|Table 19. Illustrative investment targets for infrastructure in Mozambique|41|
|Table 20. Indicative infrastructure spending needs in Mozambique for 2006–15|42|
|Table 21. Financial flows to Mozambique’s infrastructure, average, 2001–06|43|
|Table 22. Potential gains from greater operational efficiency|45|
|Table 23. Funding gaps by sector|47|
|Table 24. Potential savings from adopting alternatives technologies in power, water, sanitation, and roads sectors|49|

iv
# Synopsis

In the last 15 years Mozambique’s economy has grown steadily at an impressive 7.7 percent per year, driven by the service sector, light industry, and agriculture. This growth rhythm of the economy is expected to be maintained or even increase with a massive influx of investment, already identified, on the order of $15 billion–$20 billion. These projects, presently under implementation or consideration, will be mostly undertaken by the private sector, and mostly associated with the exploitation of valuable natural resources, particularly coal. Mozambique is well endowed in natural resources.

In terms of geography, Mozambique enjoys a privileged and strategic location as the natural exit to most of its landlocked neighbors, in particular Zimbabwe, Zambia, and Malawi. The central transport infrastructure extends from the Port of Beira to Zimbabwe, and marginally to Malawi and Zambia. The southern transport network links the Port of Maputo to the northeastern part of South Africa, Swaziland, and Zimbabwe. These two ―transport clusters‖ are multimodal, mostly functional, and already attracting interest among private investors. Moreover, Mozambique is well endowed with hydropower potential; it is already a net exporter of electricity, and can expect to play a critical role in the power trade of the region through the development of its hydropower potential in the near future.

Transport infrastructure is developed transversally, west–east, connecting mining and agricultural clusters inside Mozambique and in neighboring countries to exit ports. The connectivity among population concentrations, as well as the quality of roads, along these transport corridors is relatively good. The railway system is functional and has been attracting private interest in recent years. The road network has seen a revamp in investment and rehabilitation, and a second-generation road fund has been set in place.

In terms of nontransport infrastructure, the provision of power supply is reliable and the national utility has a good—and improving—performance record. Access to improved water supply, reduction in the use of surface water, and reduction of open defecation has put Mozambique close to reaching the Millennium Development Goals (MDGs) in water and sanitation.

But Mozambique still faces critical infrastructure challenges. Perhaps the starkest lies in the transport sector. While some of the transport corridors are mostly functional in providing regional connectivity and connecting mining and key production centers to ports, Mozambique’s connectivity among urban and economic clusters is quite limited, lacking linkages that connect parallel corridors to each other. With the exception of the recently finalized north-south National Road N1, the country has no (or has very limited) connection among the several west-east corridors, and developing full connectivity would require sustained and enormous investments over decades, with the likely participation of the private sector and nontraditional financiers. Additionally, rural population accessibility to domestic (and eventually international) markets is an enormous challenge, and lags behind what is observed in the region. Finally, maintaining the rapidly expanding road and rail network is an enormous hurdle to overcome, institutionally and financially, as the size of the network seems to overshadow the capacity of the country to provide funds for its maintenance.
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE As for water resources, the country’s enormous potential has been only partially tapped. The main challenge is how to handle the wide range of conflicting water uses within an environmentally conscious framework. The current irrigation area can be expanded significantly with good economic returns. Management of national water resources should be done so as to increase the yield from existing and planned dams to augment water supply. Finally, Mozambique’s hydropower potential is substantial and can be expanded up to 13,000 megawatts (MW), mainly and mostly around the Zambezi watershed.

Addressing Mozambique’s public infrastructure needs will require sustained spending of more than $1.7 billion per year within the next decade, or the equivalent of 26 percent of the gross domestic product (GDP); this is among the highest in the southern region. This is based on achieving an illustrative set of infrastructure targets, and considers only public infrastructure needs without taking into account the private infrastructure needs of the concessions associated with coal, iron ore, and aluminum. Close to 70 percent of these needs are derived from capital needs, and the highest annual price tag is associated with the power sector.

When all sources of spending are taken into account, Mozambique spent an annual average of about $664 million on infrastructure during the late 2000s. That is equivalent to about 10 percent of its GDP, a relatively high share compared with other African countries, though still only about half of the share that the estimated needs would require. Around two-thirds of total infrastructure spending is investment. Transport absorbs the largest share of that spending and water, information and communication technology (ICT) and power represents similar level of spending. The public sector (through taxes and user fees) and official development assistance are the largest source of investment, followed distantly by private funds.

A total of $204 million is lost annually to inefficiencies, mainly because of the misalignment between tariffs and costs in the power and water-supply sectors. Only by pursuing an investment agenda that takes into account regional dynamics and positions Mozambique as a key power exporter is there potential for reducing marginal costs of power below the existing tariff and therefore eliminating this inefficiency.

Assessing spending needs against existing spending and potential efficiency gains leaves an annual funding gap of $822 million per year, or 12.5 percent of GDP, most of it associated with water and sanitation and power. Mozambique will likely need more than a decade to reach the illustrative infrastructure targets outlined in this report. Under business-as-usual assumptions for spending and efficiency, it would take over 50 years for the country to reach these goals. Yet with a combination of increased financing, improved efficiency, and cost-reducing innovations, it should be possible to reduce that time to 20 years.

# The continental perspective

The Africa Infrastructure Country Diagnostic (AICD) has gathered and analyzed extensive data on infrastructure in more than 40 Sub-Saharan countries, including Mozambique. The results have been presented in reports covering different areas of infrastructure—ICT, irrigation, power, transport, water and sanitation—and different policy areas, including investment needs, fiscal costs, and sector performance.

2
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE This report presents the key AICD findings for Mozambique, allowing the country’s infrastructure situation to be benchmarked against that of its African peers. Given that Mozambique a is poor but stable country, two sets of African benchmarks will be used to evaluate its situation: those for nonfragile lowincome countries (LICs) and those for middle-income countries (MICs). Detailed comparisons will also be made with immediate regional neighbors in the Economic Community of West African States (ECOWAS).

Several methodological issues should be borne in mind. First, because of the cross-country nature of data collection, a time lag is inevitable. The period covered by the AICD runs from 2001 to 2006. Most technical data presented are for 2006 (or the most recent year available), while financial data are typically averaged over the available period to smooth out the effect of short-term fluctuations. Second, to make comparisons across countries, we had to standardize the indicators and analysis so that everything was done on a consistent basis. This means that some of the indicators presented here may be slightly different from those that are routinely reported and discussed at the country level.

# Why infrastructure matters

During the past 15 years, Mozambique’s economic performance has been strong, at 7.7 percent annually. The country has also managed to make impressive strides in terms of poverty reduction. Between 1996– 97 and 2002–03, the poverty headcount index fell by 15 percentage points, the infant-and-under-five mortality rate decreased by 7 percentage points, and primary-school enrollment increased by 33 percentage points. These achievements have set Mozambique on track to attain 13 of the 21 MDG targets, including those linked to poverty, under-five mortality, maternal mortality, malaria, and an open trading and financial system (Government of Mozambique 2010).

Despite its impressive progress in both economic growth and poverty reduction, Mozambique remains one of the poorest countries in the world. Fifty-four percent of Mozambicans live below the poverty line, and access to basic infrastructure services—power, transport, water and sanitation, and telecom—are below regional averages. To maintain high rates of economic growth, reduce poverty, and make development sustainable, Mozambique needs to continue improving the provision of infrastructure services and conspicuously increasing the connectivity of people and markets.

Empirical studies linking infrastructure to economic growth underscore the importance of improving Mozambique’s infrastructure. Continentwide, during the period 2003–07, overall improvements in per capita growth rates in Africa have been estimated at 1.9 percentage points, of which about 1 point is attributable to better structural policies and 0.9 points to improved infrastructure. This contribution comes mainly from the ICT revolution, while deficient power infrastructure has held growth back (figure 1).

Looking ahead, if Mozambique could improve its infrastructure to the level of the MICs in the region, growth performance could be enhanced by as much as 2.6 percentage points per capita.

3
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MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE Power and ICT infrastructure networks follow population and concentrates at the nodes of the transport corridors. Greater density of power and ICT provision is thus found in the south-central and southern areas of the country (figure 3b, c).

The relevance of Mozambique in the regional context should not be overlooked. In terms of transport, the areas around Beira, Zambezi Valley, Nacala, and Limpopo—all covered by the railroad corridors— see their economic potential powered by complementarities with the economies of landlocked neighbors (Zimbabwe, Zambia, and Malawi) whose closest and natural ports are Beira, Maputo, and to a lesser extent Nacala. Over the past years, Mozambique has made a big effort to capitalize on these geographic advantages, integrating different transport modes within the country and with neighboring countries. The central and south railway lines depart from the Beira and Maputo ports, respectively, and connect with a network of primary and secondary roads that extend to Malawi, Zimbabwe, and South Africa. And the recent construction of a new terminal building in the Maputo Airport expended its passenger and cargo capacity.

The regional importance of Mozambique also extends to the power and ICT sectors. The country, already a net exporter of electricity and a member of the Southern Africa Power Pool (SAPP), still has huge untapped hydropower potential and the possibility of becoming a key player in the regional power market. In the realm of the ICT, Mozambique has developed a network of fiber optics connecting the country and its neighbors to the nearby South Atlantic 3 (SAT-3) submarine cable.

5
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MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE This report begins by reviewing the main achievements and challenges in each of Mozambique’s major infrastructure sectors, with the key findings summarized below (table 1). Thereafter, attention will turn to the problem of how to finance Mozambique’s outstanding infrastructure needs.

**Table 1. The achievements and challenges of Mozambique’s infrastructure sectors**

||**Achievements**|**Challenges**|
|---|---|---|
|**Roads**|High percentage of roads in good or fair<br>condition.<br>Second-generation road fund in place.|Aligning resource availability and funding options for road<br>maintenance with the extension of the network and the existing<br>traffic.<br>Improving rural connectivity and the quality of rural roads.|
|**Railways**|Attraction of the private sector into the operation<br>of major rail lines.<br>Recovering the operability of the Sena line.|Meeting increasing demand due to growing trade with<br>neighboring countries and significant increase in domestic coal<br>production.<br>Systematically maintaining the existing infrastructure.<br>Recovering the Machipanda line, taking care of the enormous<br>rehabilitation backlog.<br>Completing the Moatize-Nacala corridor, now missing 200 km.|
|**Ports**|Performance improved through public-private<br>partnerships (PPPs).|Guaranteeing that Beira port works at its fullest capacity.<br>Implementing a routine dredging practice.<br>Developing the Nacala port in a competitive fashion to be able<br>not only to handle the increased mineral production but also to<br>attract traffic now going to neighboring countries.|
|**Air transport**|Important growth of all market segments and<br>increase number of city pairs served.<br>Construction of new terminals in Maputo and<br>Nacala.|Getting safety regulations aligned with international practices<br>and standards.<br>Getting LAM (the Mozambican airline) out the EU blacklist.|
|**Water and sanitation**|Reduce reliance on surface water and practice<br>of open defection via expansion of wells,<br>boreholes, and traditional latrines.|Increasing the efficiency of water utilities.|
|**Irrigation**||Extending the equipped and managed irrigation area.<br>Extending the storage and flood infrastructure to diminish the<br>impacts of hydrological variability.|
|**Power**|Relatively good utility performance and service<br>quality.|Increasing access to energy and improving the financial<br>sustainability of the sector.<br>Taking advantage of the opportunities that power trade offers<br>to the country.|
|**ICT**|Liberalization of the mobile market.<br>Connection to the submarine cable.|Furthering development of the Internet-access market.|

_Source:_ Author’s own elaboration based on findings of this report. _Note:_ ICT = information and communication technology; EU = European Union.

# Transport

With an extremely privileged and strategic location, Mozambique is the natural exit to most of its landlocked neighbors, in particular Zimbabwe, Zambia, and Malawi. The central transport infrastructure extends from the Port of Beira to Zimbabwe, and marginally to Malawi and Zambia. The southern transport network links the Port of Maputo to the northeastern part of South Africa, Swaziland, and Zimbabwe. These two ―transport clusters‖ are multimodal, mostly functional, and already attract private investors for their management and expansion. Yet these corridors run essentially in parallel, without connections between them.

8
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE One of the corridors in the southern cluster is the Maputo Development Corridor. The Maputo Corridor connects Maputo with the South Africa’s Gauteng province, running through one of the most highly industrialized and productive regions of the Republic of South Africa. The corridor is considered by African policy makers one of the the most successful stories in Africa in terms of improved crosscountry trading. At the western end of the corridor are Johannesburg and Pretoria, and moving east toward Mozambique, the corridor passes through the areas of aluminum production close to Maputo and the industrial development of Motzal.

One of the most promising emerging corridors is that running from Moatize to Nacala via Malawi. Currently the railway part of the corridor is not complete. There are 200 km of rail missing just outside the Malawi border. Because Malawi enters as an indentation into the Mozambican territory, it imposes a disconnect between areas rich in natural resources and export points and internal markets (figure 3d). The implications for transport infrastructure are direct. By way of example, one of the main economic drivers for the development of the Moatize–Nacala railway is the potential for coal export from the Tete area. The port of Beira is insufficient to manage the 20–25 million tonnes of coal that can be produced, necessitating the completion and upgrading of this railway to connect to the other natural exit port at Nacala. The railway must pass through Malawi, as other routes, such as staying within the Mozambican border to circumvent Malawi, do not make economic sense. This creates the challenge of defining and relying on regional agreements and building regional infrastructure in coordination with Malawi.

On average, the combination of multimodal transport infrastructure and recently improved trade logistics is increasingly positioning Mozambique as one of the countries with the lowest costs of trading across borders. The cost of export and import in Mozambique are about 60 percent of the average costs in Sub-Saharan Africa, and the time required to export and import is around 70 percent of the Sub-Saharan average (table 2).

**Table 2. Trading across borders in southern African countries**

|Country|Documents to<br>export (number)|Time to export<br>(days)|Cost to export ($ per container)|Documents to<br>import (number)|Time to import<br>(days)|Cost to import<br>($ per<br>container)|
|---|---|---|---|---|---|---|
|Angola|11|65|2,250|8|59|3,240|
|Botswana|6|30|2,810|9|41|3,264|
|Lesotho|6|44|1,549|8|49|1,715|
|Madagascar|4|21|1,279|9|26|1,660|
|Malawi|11|41|1,713|10|51|2,570|
|Mauritius|5|14|737|6|14|689|
|Mozambique|7|23|1,100|10|30|1,475|
|Namibia|11|29|1,686|9|24|1,813|
|Swaziland|9|21|2,184|11|33|2,249|
|Zambia|6|53|2,664|9|64|3,335|
|Zimbabwe|7|53|3,280|9|73|5,101|
|Sub-Saharan Africa|8|34|1,942|9|39|2,365|

_Source:_ Doing Business 2009.

9
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

# Roads

Mozambique’s total road network length is 32,500 km as of 2008. The classified network, with about 22,500 km, consists of primary and secondary networks with less than 5,000 km each, and a tertiary network of about 12,700 km. The unclassified network is estimated to be around 6,700 km and the urban network 3,300 km. After failing attempts to rehabilitate the rapidly deteriorating parastatal vehicle fleet in the ’80s and following policy changes in the ’90s to shift from public to private provision of roadtransport services, the total vehicle fleet in 2007 is estimated to be 260,000 with a large share of older and poor-condition vehicles that generate high vehicle operating costs.

**Table 3. Mozambique’s road indicators benchmarked against Sub-Saharan African low- and middle-income countries**

|Indicator|Unit|Low-income,<br>nonfragile<br>countries|**Mozambique**|Middle-<br>income<br>countries|
|---|---|---|---|---|
|Classified road network density|km/1,000 km<sup>2</sup>of land area|88|**29**|278|
|Total road network density [a]|km/1,000 km<sup>2</sup>of land area|132|**37**|318|
|GIS rural accessibility|% of rural population within 2 km of all-season road|25|**24**|31|
|Main road network condition [b]|% in good or fair condition|72|**83**|86|
|Rural road network condition [c]|% in good or fair condition|53|**56**|65|
|Classified paved road traffic|AADT|1,131|**1,033**|2,451|
|Classified unpaved road traffic|AADT|57|**60**|107|
|Primary network overengineering|% of primary network paved with 300 AADT or less|30|**34**|18|
|Primary network underengineering|% of primary network unpaved with 300 AADT or<br>more|13|**7**|20|
|Perceived transport quality [d]|% firms identifying transport as major business<br>constraint|28|**23**|18|

_Source:_ AICD Road Sector Database of 40 Sub-Saharan African countries.

a. Total network includes the classified and estimates of unclassified and urban networks.

b. Main network for most countries is defined as a result of adding the primary and secondary networks.

c. Rural network is generally defined as the tertiary network and does not include the unclassified roads. d. Source _:_ World Bank—IFC Enterprise Surveys on 32 Sub-Saharan African countries. GIS = geographic information system; AADT = average annual daily traffic.

## **Achievements**

During the ’90s the government initiated several institutional reforms and projects to rehabilitate and maintain road infrastructure in selected priority districts and corridors, easing transportation bottlenecks. After overcoming major hurdles—such as insufficient investment in rehabilitation and maintenance, and lack of local human resources sufficient to properly carry out road projects—and reforming the institutional and policy environments, Mozambique managed to establish a large road-infrastructure base.

Mozambique passed several institutional reforms in the early 2000s. The reforms included the implementation institutional and financial regulations, the creation of an interministerial road commission to coordinate government efforts, the establishment of an autonomous, dedicated ―road fund‖, the simplification of the organizational structure of the national road agency (Administracao National de Estradas, or ANE), and the development of a policy to commercialize road-network management.

10
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MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

- _Nacala corridor._ Comprises the Nacala port and the Nacala railroad, which connects the Nacala port to Malawi’s Central East African Railway (CEAR). In January 2005 this corridor was conceded to Corridor do Desenvolvimento do Norte (CDN), a partnership between Caminos de Ferro de Moçambique and Sociedade de Desenvolvimento do Corredor do Nacala holding, for 15 years.

- _Beira corridor._ Includes Beira Port, the Machipanda from Beira to Harare, Zimbabwe, and the Sena Line connecting the port with the coal fields of Moatize. These two lines make up the Beira Railroad. The entire corridor was given in concession to the consortium formed by Rail India Technical and Economic Services (RITES) Ltd. and IRCON International in December 2004.

- _Maputo corridor._ Comprises the Port of Maputo, the Ressano Garcia line connecting Maputo to South Africa, the Limpopo line going from Maputo Port to Zimbabwe, and the Goba line connecting Maputo to Swazi Rail. These three lines are currently managed by Caminos de Ferro de Moçambique (CFM), a public holding, after the Ressano Garcia Railway concession signed with Sporneet and New Limpopo Bridge Project Investments was terminated in 2006 after three years of operation.

Over the period 2005–08, these railways were responsible for around two-thirds of cargo and one-third of passengers transported on Mozambican railways (table 5).

# **Achievements**

Productivity and efficiency of the rail lines in Mozambique are on par with its southern African peers, aside from South Africa. Mozambique’s locomotive, carriage, and wagon productivity are low, With the exception of the carriage productivity of the Nacala line. Mozambique’s rail freight tariffs are regionally competitive at an average of 5 cents/tonne-km (table 4).

The Mozambican railway system has rail lines of strategic importance for the region. The Maputo line is part of one of the most successful Spatial Development Initiatives (SDI) in Africa, the Maputo corridor. The Machipanda line is crucial for mobilizing cotton from Malawi and agricultural and mineral products from Zimbabwe. More recently, the rehabilitation of the Sena line connecting Moatize with the Beira port is providing capacity to mobilize 3 million tonnes per year in coal and general cargo— unlocking, at least for the coming couple of years, the possibility of Mozambique’s coal exports.

14
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

**Table 4. Railway indicators for Mozambique and select other countries, 2000–05**

||CFM (Angola)|BR (Botswana)|CEAR (Malawi)|**Nacala Railroad**<br>**(Mozambique)**|**Beira Railroad**<br>**(Mozambique)**|**Ressano Garcia Line**<br>**(Mozambique)**|Transnamib (Namibia)|Spoornet (South Africa)|RSZ (Zambia)|NRZ (Zimbabwe)|
|---|---|---|---|---|---|---|---|---|---|---|
|Concessioned (1)/ state run (0)<br>|0|0|0|**1**|**1**|**0**|0|0|1|0|
|Freight density (1,000 tonne-<br>km/km)|469|827|90|**270**|**663**|**364**|475|2,427|406|902|
|Passenger density (1,000<br>passenger-km/km)|—|—|38|**103**|**44**|**44**|33|60|92|166|
|Labor productivity (1,000 traffic<br>units peremployee)|580|722|131|**710**|**281**|**—**|484|3,308|502|390|
|Locomotive productivity<br>(million traffic units per<br>locomotive)|30|41|3|**25**|**13**|**—**|25|33|25|8|
|Carriage productivity (1,000<br>passenger-km per carriage)|4,046|2,391|1,176|**3,333**|**750**|**—**|—|—|3,286|—|
|Wagon productivity (1,000 net<br>tonne-km per wagon)|950|987|82|**260**|**476**|**—**|805|913|377|195|
|Freight yield (US cents/tonne-<br>km)|—|—|6|**5**|**3**|**3**|—|—|4|—|
|Passenger yield (US|||||||||||
|cents/passenger-km)|—|—|1|**0.9**|**0.5**|**1**|—|—|1|—|
|<br>_Source:_Bullock 2009. Derived fro<br>_Note:_* With 2.5 passenger-km eq<br>— =Not available.|m AICD r<br>uivalent t|ail operato<br>o 1 traffic|r databas<br>unit, 1 ton|e(www.infra<br>ne-km equiv|structureaf<br>alent to 1 t|rica.org/aic<br>raffic unit.|d/tools/data|).|||

# **Challenges**

Even though railways in Mozambique are an important means of transport, on average the cargo and passengers transported decreased between 2005 and 2008. Total passenger-kilometers decreased by 60 percent from 305 million passenger-kmin 2005 to 113 million passenger-km in 2008 (table 5) **.** The cargo transported in the Mozambican railways declined by 10 percent, from 763 million tonne-kilometers in 2005 to 694 million in 2008.

But these aggregates mask important differences in trends among cargo operators. Whereas cargo traffic on railways under CFM management increased around 10 percent between 2005 and 2008, the lines under concession experienced important declines. A substantial decline of 60 percent of cargo traffic was registered in the Beira Railway and a 10 percent drop in the Nacala Railway (table 5).

15
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

**Table 5. Cargo and passengers transported along Mozambique’s railways**

|**Type**|**Year**||<br>|**CFM**<br>||**Beira Railway**|**Nacala**<br>**Ril**|**Total**|
|---|---|---|---|---|---|---|---|---|
|||**Goba**|**R. Garcia**|**Limpopo**|**Subtotal**||**away**||
||2005|50|180|230|460|175|128|763|
|**Cargo transport**<br>**illi t**|2006|45|170|240|455|205|120|780|
|**(mon onne-**<br>**km)**|2007|40|177|237|454|157|127|738|
||2008|52|226|220|498|81|115|694|
||2005|n.a.|60|60|120|5|180|305|
|**Passenger**<br>**tt illi**|2006|n.a.|40|75|115|3|210|328|
|**ranspor (mon**<br>**passenger-km)**|2007|n.a.|16|21|37|3|66|106|
||2008|n.a.|24|23|47|2|64|113|

_Source:_ CFM 2006; 2008. n.a. = Not <u>applicable.</u> These trends might reflect the deterioration of rolling stock, which does not allow for the system to respond to increasing demand. This is particularly the case on the Machipanda line, which suffered years of neglect during which profits were seen at the expense of deferred maintenance, putting the line in need of a massive and urgent track rehabilitation as well as refurbishment and renovation of the stock.

Mozambican railways also need to improve wagon capacity to be able to respond to growing traffic demand from the hinterland. In the case of the lines managed by CFM, out of the 2,000 existing wagons only 600 are operating. But in 2009 CFM rolled out an ambitious plan to rehabilitate locomotives and 670 wagons. New wagons will add capacity to transport minerals and other cargo to and from the countries of the hinterland (Zimbabwe and Zambia predominantly). Meanwhile, ongoing investments on the Ressano Garcia Line, in particular the rehabilitation of the most critical sections, reduced the number of derailments per week from seven in 2006 to two in 2008.

The lines under concession have been only partially successful. The concessions were granted to promote the modernization of the systems and increase their performance; to attract the resources needed to finance investments in infrastructure, equipment, information technology, and maintenance; and to generate an additional source of returns for CFM and the government. But CFM has had to finance the rehabilitation of assets under concession, such as the Sena Line in 2008. Also, like in most African countries, the passenger services are highly unprofitable in Mozambique, with 85 percent of the costs being subsidized by CFM (CFM 2006). The development of passenger traffic along the Sena line is also seriously limited by the very small number of stations; additional stations that were to be added under the concession agreement have not been built.

# Ports

Six of Mozambique’s seven seaports are operating with the involvement of the private sector, which positions Mozambique as a country with a relatively high level of private sector involvement in the port system. In 1998 the management and operation of the general cargo and terminals of the Beira port was 16
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE conceded to the Dutch company Cornelder. In 2003 the ports of Maputo and Matola were conceded to a consortium that included the consortium Maputo Port Development Company (MPDC), formed by the UK’s Mersey Docks and Harbour Company, which secured a 15-year concession with a right to a 10-year extension. Then in 2005, the operation of the Nacala port was conceded to the RITES Ltd. and IRCON International consortium for a 15-year period as part of the concession of the Beira Corridor. The same year, Cornelder was awarded the concession for the Port of Quelimane. In all three of the latter projects, CFM has an equity stake of 49 percent, of which 16 percent is reserved for offloading government projects.

# **Achievements**

Between 1999 and 2008 Mozambique increased the use of its ports capacity. The amount of 20-foot equivalent units (TEUs) shipped daily grew 43 percent over this period, from 207 to 297 TEUs. From 1999 to 2008 the number of ships calling at the ports increased by around 16 percent, from 1,353 to 1,574. Similar growth was registered in the number of tonnes shipped per day, which increased from 2,280 in 1998 to 3,658 in 2008 (table 6).

In particular, Mozambique’s port demand rose strongly in the period 2005–08. In 2008, 11.64 million metric tonnes were handled compared to 9.98 in 2005, with the Port of Maputo representing around 65 percent of the market (table 7). The number of containers handled grew by 40 percent from 158,287 TEU in

**Table 6. Traffic in Mozambique’s ports**

|**Ships calling**<br>**on ports**|**Tonnes/ship/**<br>**day**|**TEUs/ship/**<br>**day**|
|---|---|---|
|1999<br>1,353|2,280|207|
|2008<br>1,574|3,658|297|
|Percent increase (%)<br>16|16|43|
|_Source:_CFM annual reports.<br>_Note:_TEU = 20-foot equivalent unit.|||

2005 to 225,419 in 2008. The market share of the Beira port over this period of time went up from 20 percent in 2005 to 38 in 2008, making it the port that handled the highest number of containers.

**Table 7. Cargo and containers handled in Mozambique’s ports**

||Total|Maputo|Beira|Nacala|Quelimane|Pemba|M.da Praia|
|---|---|---|---|---|---|---|---|
|Cargo handled (1,000 metric t|onnes)|||||||
|2005|9,982|6,360|2,428|878|244|63|10|
|2006|10,683|6,666|2,746|952|219|85|14|
|2007|11,079|6,858|2,915|1,108|86|97|16|
|2008|11,637|7,406|2,991|1,054|66|100|20|
|Containers handled (TEUs)||||||||
|2005|159,287|57,511|35,000|32,310|9,704|5,244|215|
|2006|171,216|65,390|34,965|34,184|8,753|7,976|645|
|2007|194,247|63,764|71,167|44,870|4,870|8,244|1,332|
|2008|225,419|74,792|85,716|49,770|4,172|9,295|1,674|
|_Source:_CFM 2006; 2009.<br>_Note:_TEU= 20-foot equivale|nt unit.|||||||

17
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE In terms of performance indicators, Maputo, Beira, and Nacala’s truck-processing time—between 4 and 6.8 days—compare well with other southern African ports (table 8). These ports also have average crane productivity of 10–11 containers or 7.5 to 11 tonnes per crane hour. Generally, for crane productivity, the most important factors are the presence of private operators, the usage of specialized container-handling equipment, and the overall size of terminal operations. The ports of Maputo, Beira, and Nacala have two of the three productivity factors: their concessionaires have adopted modern container gantries but the size of their operations is the lowest in the region. These ports handled only 164,000 TEUs in container in 2006, falling substantially short of their 200,000 TEU capacity. Container dwell time—between 20 and 22 days—is the highest in the region.

**Table 8. Benchmarking of ports in Southern Africa**

|**Country and port**|**M**<br>|**ozambiqu**<br>|**e**<br>|**Angola**<br>|**Madagascar**<br>|**Namibia**<br>**Walvis**|**South**<br>|**Africa**<br>**Cape**|
|---|---|---|---|---|---|---|---|---|
||**Maputo**|**Beira**|**Nacala**|**Luanda**|**Toamasina**|<br>**Bay**|**Durban**|<br>**Town**|
|Containers handled<br>(TEU/year)|44,000|50,000|70,000|377,208|92,529|71,456|690,895|1,899,065|
|**acity**<br>Container capacity<br>(TEU/year)|100,000|100,<br>000|100,000|400,000|500,000|100,000|950,000|1,450,000|
|**Cap**<br>General-cargo capacity<br>(tonnes/year)|1,200,000|500,000|1,000,000|4,000,000|2,750,000|2,000,000|1,100,000|—|
|Liquid-bulk-cargo capacity<br>(tonnes/year)|410,000|—|—|—|1,500,000|1,000,000|7,500,000|—|
|Container dwell time(days)|22|20|20|12|8|8|6|4|
|**ency**<br>Truck-processing time<br>(hours)|4|6.8|6.5|14|3.5|3|4.8|5|
|**Effici**<br>Crane productivity<br>(containers/hour)|11|10|—|6.5|—|—|18|15|
|Crane productivity<br>(tonnes/hour)|11|7.5|—|16|9|—|15|25|
|**arge**<br>Container cargo (ship to<br>gate, $/TEU)|155|125|138|320|—|110|258|258|
|**ng ch**<br>General cargo ($/tonne)|6|6.5|6-7|8.5|6|15|—|8.4|
|**ndli**<br>Drybulk($/tonne)|2-3|2.5|—|5|3|5|6.3|1.4|
|**Ha**<br>Liquid bulk ($/tonne)|0.5- 1.0|0.8|1|—|—|2|0.4|—|

_Source_ : AICD ports database (www.infrastructureafrica.org/aicd/tools/data. _Note_ : TEU = 20-foot equivalent unit. — = Not <u>available.</u> Handling fees in Mozambique are relatively low. As of 2006, the container cargo fare was in the range of $125–$155 per TEU, second lowest after the Walvis Bay port (Namibia). After the Cape Town port (South Africa), dry bulk handling charges in the Maputo and Beira ports are the lowest in the region (table 8).

There is widespread compliance with International Ship and Port Facility Security (ISPS) regulations in Mozambique. Generally, the ports run by private companies promote good security, as is demonstrated by the measures now in place at the Port of Maputo, which include increased electric fencing and gates, an increase in the number of land- and water-based security patrols, and the requirement for all international vessels to provide 96 hours’ notice of their arrival and to submit a pre-arrival data sheet.

18
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE Restructuring within CFM has led to improved performance. Starting in the mid-1990s the main reforms that have taken place are the separation of strategic, corporate, and regulatory functions from day-to-day commercial and operating functions; making the headquarters and the zonal units lean and thin; replacing traditional port and railway operation skills in the headquarters with specialized legal, financial, institutional, and corporate functions and skills; and increasing accountability through performance contracts between the government and CFM. The retrenchment of surplus staff from close to 20,000 employees in 1996 to 1,500 in 2008 and the increase in tonnes handled has led to impressive growth in staff productivity. By 2008 the staff productivity was 7 tonnes per employee, whereas in 1999 it was merely 1 tonne per employee. Since 2007 CFM has increased its net income and been able to pay dividends to the government.

## **Challenges**

Beira port’s restricted sea access significantly constrains its ability to capture more traffic. The port, which handled the most TEUs among Mozambican ports as of 2008 (table 7), faces permanent and high dredging and operating restrictions that in some cases limit access to only partially loaded ships.

Despite important progress in the modernization of Mozambique’s port systems, there is still a time lag between an increase in demand and the development of infrastructure projects to meet that demand. For instance, the facilities and equipment of Nacala port are in poor condition, but the port is in demand for cargo shipments from neighboring countries, in particular carbon exports from South Africa. Only once the port overcomes its infrastructure challenges can the country begin to attract more cargo transit from its neighbors, meeting demand.

Some aspects of performance also appear to be deficient. Compared to other ports in the region, container dwell time in Mozambican ports is the highest, at 20 to 22 days.

# Air transport

## **Achievements**

Air travel in Mozambique registered strong growth between 2001 and 2007. Over this period, the estimated seat capacity grew at an annual rate of 10 percent (figure 7a). International seat capacity almost doubled from 305,214 in 2001 to 582,836 seats in 2007, whereas availability of domestic seats increased by 70 percent—from 660,417 to 1,144,644—for the same years.

With about 1.8 million seats in 2007, the market is comparable to others in the region, except for South Africa. In particular, the size of the domestic market in Mozambique is at the level of Angola and ahead of Zambia and Zimbabwe (table 9). But the number of seats per capita is the lowest among southern African countries.

19
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

**Table 9. Benchmarking air transport indicators for Mozambique and select other countries**

|Country|Mozambique|Tanzania|Zambia|South Africa|Zimbabwe|Angola|
|---|---|---|---|---|---|---|
|Total seats (per year)|1,819,117|3,694,171|2,010,641|45,789,157|1,533,406|2,272,173|
|Domestic|1,144,644|1,871,255|437,658|31,767,537|237,835|1,199,016|
|International travel within Africa|582,836|1,237,153|1,459,766|6,314,557|1,109,986|484,179|
|Intercontinental travel|91,637|585,763|113,217|7,707,063|185,585|588,978|
|Per capita seats|0.087|0.093|0.168|0.954|0.118|0.134|
|Herfindahl-Hirschmann Index—air<br>transport market (%)|31.5|9.8|17.5|16.7|30.2|33.3|
|Percent of seat-km in newer aircraft|57|79.3|63.8|83.8|71.4|59.7|
|Percent of seat-km in medium or<br>smaller aircraft|56.7|48.6|62.8|32.8|42.7|13.9|
|Percent of carriers passing<br>IATA/IOSA audit|100|33|0|33.3|0|0|
|FAA/IASA audit status|No Audit|No Audit|No Audit|Passed|Failed|No audit|

_Source:_ Bofinger 2009. Derived from AICD national database (www.infrastructureafrica.org/aicd/tools/data). _Note:_ All data as of 2007 are based on estimations and computations of scheduled advertised seats, as published by the Diio SRS Analyzer. This captures 98 percent of worldwide traffic, but a percentage of African traffic is not captured by the data. The Herfindhal-Hirschmann Index (HHI) is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. A HHI of 100 indicates the market is a monopoly; the lower the HHI, the more diluted the market power exerted by one company/agent. FAA = U.S. Federal Aviation Administration; IASA = International Aviation Safety Assessment; IATA = International Air Transport <u>Association; IOSA = IATA International Safety Audit.</u> The number of city pairs served by airlines in Mozambique, both domestically and internationally, increased between 2001 and 2007, against the declining African trend. The greatest increase was reported in international city pairs, which increased from 10 in 2001 to 31 in 2007. Domestic city pairs rose from 22 to 30 over the same period (figure 7b).

In terms of airport facilities, nontraditional financiers are increasingly playing a role. The construction of a new terminal building in Maputo has been recently finalized, involving Chinese investment of around $75 million, as well as the expansion of an existing military airport in Nacala into a commercial airport, financed by Brazil.

# **Challenges**

Despite the growth in the sector, Mozambique’s air industry still faces major challenges, including a decline in competition following the death of a private carrier, the national flag carrier’s financial troubles, performance at the Maputo airport, and compliance with safety standards.

Competition in the Mozambican air market declined after the exit of Air Corridor. The overall Herfindahl-Hirschmann Index, at 31.5, is the highest in the region after Angola (table 9). Between 2005 and 2007, Air Corridor, a privately held operator, provided a high percentage of domestic capacity despite the fact that aircraft were grounded due to repairs and maintenance. In 2008 the airline went out of business, removing around 40 percent of the domestic seat capacity. After Air Corridor’s collapse the 20
<!-- Start of picture text --> 2000000<br>1800000<br>1600000<br>z 1400000<br>® 1200000<br>—<br>> 1000000<br>3<br>E 800000<br>=<br>600000<br>400000<br>200000<br>0<br>B Total 2001 2004 2007<br>Dinternational<br>@lntercontinental excluding flights between NA and SSA<br>.<br>Domestic<br><!-- End of picture text --> <!-- Start of picture text --> 70<br>60<br>50<br>wn<br>= 40<br>a<br>=<br>© 30<br>20<br>19<br>0<br>2001 2004 2007<br>B Total © International<br>@\|ntercontinental @ Domestic<br><!-- End of picture text -->
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

# Water resources

Mozambique is relatively well endowed with water compared to countries occupying similar climatic zones. Mozambique has 104 main river basins, the Zambezi and Rovuma rivers being some of the most important given that their catchment areas are more than 100,000 km<sup>2</sup> . The renewable water resource per capita is estimated at about 12,000 cubic meters per year (including the cross border flows), well above the Sub-Saharan African average of 7,000 cubic meters per year.

Mozambique’s water vulnerability is defined by its high dependence on hydrological resources shared with other countries and by its high hydrological variability. The total runoff is estimated at 216 km<sup>3</sup> /year, of which 116 km<sup>3</sup> /year (or 53 percent) is generated outside the country, leaving Mozambique affected by upstream abstraction. The Zambezi River Basin represents around 40 km<sup>3</sup> /year and is shared by eight countries. The major rivers in the south of the country (Maputo, Umbeluzi, Inkomati, Limpopo, and Save) originate in neighboring countries. Cyclical droughts and floods, compounded by events such as the Niño and Niña phenomena, lead to variable river floods. The limited storage capacity and the lack of flood control infrastructure add to the problem.

The high water vulnerability has important impact on economic performance and the poor. It is estimated that around 1.1 percent of the GDP is lost in Mozambique because of droughts and floods. Around 70 percent of the population relies upon subsistence agriculture, and one-third of the population is estimated to be chronically food-insecure.

The increasing water demand for different uses puts more pressure on the country’s water resources. By 2015 domestic water demand is expected to increase 35–45 percent from 2003 consumption levels. Large industry demand will increase 60 and 70 percent in the central and southern sections of the countries, respectively. Planned irrigation expansion will increase water withdrawals. Any likely additional hydropower production will require more water. Addressing these concerns will require both further investments in water storage and a suitable institutional and policy framework for handling conflicting water demands.

Mozambique needs to invest in its water-resources infrastructure. In the southern part of the country, further development of the Incomati and Umbeluzi basins is required to face the increasing water demand from the greater Maputo area. The country will benefit greatly from tapping the irrigation potential of the Zambezi basin. Small-scale community-based irrigation projects to support smallholder irrigation are central, in particular in northern Mozambique.

Given the wide range of conflicting uses (hydropower, water supply, irrigation, environment), it is essential to have a clearly defined basis for allocating water rights among sectors so as to maximize their development impact. In order to move ahead with important investments in water storage, Mozambique also needs to make further progress with integrated river basin planning and investment. Beyond largescale storage investments, the development of small-scale irrigation projects would do much to alleviate rural poverty and enhance the resilience of rural livelihoods.

22
<!-- Start of picture text --> \ TANZANIA >,<br>MYNun wacawleegrPSBier Tste WFcach<br>Ky i hoe<br>1A (Ta . Gece:Te a Tog<br>oe * y, - wee<br>* “Gis 4 4<br>ZIMBABWE + fala -<br>VeeU . a_Inhambane.<br>L AFRICA Map hpi<br>- fgopllate de Maputo<br>sho th<br><!-- End of picture text --> <!-- Start of picture text --> Current Irrigation (% Area)<br><1% @)1%-5% @ - 5%<br>(J Dams<br><!-- End of picture text --> <!-- Start of picture text --> \ | Ys,<br>a nk oot 30%<br>“ } \¢ - ep i i<br>AL Ra, \<br>eeae \ a ]<br>ay i ot c"<br>( be<br>4, a<br>ae.xt | 7 a#<br>¢<br>XM f fi<br>‘<br><!-- End of picture text -->

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MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE output of Sub-Saharan Africa (at 24.5 percent). An additional 2.4 percent of the cultivated area was water managed. Between 1973 and 2003 the irrigated area grew 4.4 percent annually.

Most of the current irrigation is done by the family sector (95 percent of the total) and it is estimated that around 80 percent of the Mozambican labor force is involved in agriculture. The agricultural value added per worker, at $157, is well below the Sub-Saharan African average of $575.

But Mozambique’s agriculture sector is growing 9 percent per year on average, three times the annual growth registered in Sub-Saharan Africa. The country’s current irrigated area could be increased substantially with good economic returns. Simulations suggest that with a threshold internal rate of return (IRR) of 6 percent it would already be economically viable to develop a further 502,184 hectares (ha) of land for irrigation, from which around 70 percent would be developed through large-scale projects (table 10). If the threshold IRR were raised to 12 percent, the economically viable area for new irrigation projects shrinks to 96,399 hectares for a total irrigated area of 136,462 irrigated hectares, mostly developed through small-scale irrigation projects (87 percent). The required investment for attaining this expansion is $459 million. This area with irrigation potential is concentrated around the Limpopo River in the south, the mining belt area of the Zambezi River in the center, and the Lurio River in the north (figure 8b).

Water for irrigation can be collected in two ways: through large, dam-based schemes, or through small projects based on the collection of run-off from rainfall. The investment costs of large-scale irrigation development reflect only irrigation-specific infrastructure, such as distribution canals and onfarm system development. The potential for small-scale irrigation is assessed not only on the basis of agroecological conditions, but also in terms of market access, since irrigation is typically viable only if the increased yields can be readily marketed. The unit cost for large-scale projects is set at $3,000/hectare and for small-scale projects at $2,000/hectare.

At the regional level and without taking into account the potential benefits coming from the Beira Agricultural Growth Corridor (box 1), Mozambique stands as the country with the largest potential area increase for small-scale projects and an attractive rate of return comparable with its regional peers (figure 9a), using an IRR cutoff of 12 percent. But Mozambique’s ability to extend its potential irrigated area using large-scale schemes is low compared to the potential for Botswana, South Africa, and Zimbabwe (figure 9b).

The absence of adequate irrigation infrastructure, combined with poor grid-connected electricity and low accessibility in rural areas to all-weather feeder roads, has been identified as one of the constraints that prevent successful development of commercial agriculture in the Beira corridor (box 1).

24
<!-- Start of picture text --> 30 90<br>25<br>= -—ae 1O 0<br>520 60<br>o 2<br>‘S 50 ©<br>co 15 =oc<br>< °F<br>E <<br>= 10 30<br>20<br>5 a | | | :<br>0. e 0<br>&AOew &.NYoeAs seRS& &g Sa> .rs@<br>G39 Area increase (thousand ha) —*==Intemal Rate of Return (%)<br><!-- End of picture text -->

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MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

## **Box 1. Beira Agricultural Growth Corridor**

The Beira Agricultural Growth Corridor (BAGC) initiative, regional in scope, is a partnership between the Government of Mozambique, the private sector, and the international community that aims to stimulate a major increase in agricultural production in the Beira corridor and improve the productivity and incomes of smallholders. A focus on ―agricultural growth corridors‖ offers an opportunity for countries to fast-track the development of their agricultural sectors by building on existing infrastructure networks and encouraging beneficial clusters of agricultural businesses to develop.

The Beira corridor has the potential to become a major new agricultural producing and processing region over the next twenty years. Not less than 190,000 hectares of land could be put under irrigation and produce world-class yields, with crops sold profitably in domestic, regional and international markets. Investments in commercial agriculture would generate major direct and indirect benefits for smallholder farmers and the rural community generally.

_<u>Source:</u>_ <u>Adapted from InfraCo (2010).</u>

# Water supply and sanitation

## **Achievements**

Mozambique has made important progress in reducing its population’s reliance on surface water and open defecation. Reliance on surface water declined from 27 percent in 1997 to 16 percent in 2008, a level comparable to that of an average MIC in Sub-Saharan Africa. In 2008, 40 percent of the population practiced open defecation compared to 62 percent in 1997. Even though the improvement has been significant, the percentage of population practicing open defecation is still high, at almost three times the level of MICs (table 11).

Mozambique has managed to move its population up the water and sanitation ladder by means of extending low-cost technologies such as wells, boreholes, and traditional latrines. Access to wells and boreholes increased from 47 percent in 1997 to 59 percent in 2008. But only about 40 percent of these wells can be characterized as safe by the Joint Monitoring Program (JMP). The use of traditional latrines increased from 23 percent to 43 percent between 1997 and 2008 (table 11). These results imply that Mozambique has managed to provide improved water and made progress in access to improved sanitation, albeit slowly. Access to improved water increased from around 30 percent in 1997 to 50 percent in 2008. At this pace, the MDG of 70 percent sustainable coverage in urban areas will likely be met. Access to improved sanitation was raised from a 14 percent share to 21 percent of the population, which represents a 45 percent increase, but the country is off-track for meeting the sanitation MDG.

Mozambique introduced a policy of delegated management frameworks for its water utilities, whereby assets are owned by the government and operations are managed by independent operators. In 1999 the government awarded a contract to manage the water supply systems of the cities of Maputo, Matola, Beira, Dondo, Quelimane, Nampula, and Pemba to a then-consortium comprising SAUR, Aguas de Portugal, and the Mozambican Government. Later on, operations in Maputo became managed by Aguas de Portugal and in Beira, Quelimane, Nampula, and Pemba by FIPAG (Fundo de Investimentos e Patriônio de Abastecimento de Água, Water Assets and Investment Fund).

26
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

# **Box 2. Understanding the differences between JMP and government data**

The AICD uses the Joint Monitoring Program (JMP) coverage statistics as the main source of access data on water supply and sanitation, and proceeds under a standardized methodology to allow cross-country comparisons. These data might differ from those reported by governments. Whereas the JMP data are based on household surveys and therefore reported by users of the services, the government data are based on utility reports. This implies that there is a time lag between output data (provider) and outcome data (users). Other underlying factors explaining potential differences are the definition of what technologies constitute improved access to water supply and sanitation, and the JMP’s use of several household surveys vis-à-vis the use of a single data point by several governments. Therefore, the conclusion on progress toward the MDGs might differ according to the data source used.

_<u>Source:</u>_ Adapted from AMCOW (2010).

**Table 11. Benchmarking water and sanitation indicators**

||Unit|Low-income<br>countries||**Mozambique**||Middle-<br>income<br>countries|
|---|---|---|---|---|---|---|
|||**Mid-2000s**|**1997**|**2003**|**2008**|**Mid-2000s**|
|Access to piped water|% pop|10.5|7.0|8.0|8.7|52.1|
|Access to standposts|% pop|16.2|19.0|20.6|16.7|18.9|
|Access to wells/boreholes|% pop|38.3|47.0|54.7|59.0|6.0|
|Access to septic tanks|% pop|4.9|4.4|2.6|5.5|40.8|
|Access to improved latrines|% pop|9.9|10.0|14.2|15.5|1.4|
|Access to traditional latrines|% pop|50.1|23.4|31.5|38.3|30.4|
|Open defecation|% pop|40.3|61.5|51.7|40.1|14.3|
||||**2002**|**2006**|**2009**||
|Domestic water consumption|liter/capita/day|72.4|33.3|37.0|—|165.9|
|Revenue collection|% sales|92.7|61|71|90|100.0|
|Distribution losses|% production|34.3|55|56|45|26.8|
|Cost recovery|% total costs|56|35|32|57|81|
|Operating cost recovery|% operating costs|65|65|51|88|145|
|Labor costs|connections per<br>employee|159|104|137|—|369|
|Total hidden costs as % of revenue|%|163|294|225|113|140|
|||**Mo**|**zambique**|Coun|tries with|Other|
|||||scar|e water|developing|
|||**Mid-2000s**|**Late 20**|<br>res<br>**00s**|<br>ources|<br>regions|
|Residential tariff|U.S. cents per m3|3|2|**64**|60.26|3.0–60.0|

_Source:_ Demographic and Health Survey and AICD water and sanitation utilities database (www.infrastructureafrica.org/aicd/tools/data). Access figures from DHS surveys (1997 and 2003) and MICS Survey (2008).

Utilities figures are the weighted average by water production of the following utilities: Beira, Maputo, Nampula, Pemba, and Quilimane. — = Not available.

Mozambique’s reforms of the water and sanitation sector attracted about $350 million in investments between 2007 and 2008. This has allowed for enhancing the level of service in cities served by the holding company. Hours of supply increased from 11 to 16 on average between 2002 and 2006, which has led to an increase in the domestic water consumption from 33.3 to 37 liters per capita in the same 27
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE period (table 11). The increase in the total number of connections compounded with the reductions of staff allowed for an increase in the number of connections per employee from 104 in 2002 to 137 in 2006.

The creation of the water authority (CRA) in 1998 and subsequent delegation of the management and operation of water utilities to private investors resulted in performance improvements. Collection ratios increased from 61 percent of the bills in 2002 to 90 percent in 2009. The government set a cost-recovery policy requiring urban utilities to achieve full cost recovery. Systematic adjustments have been carried out since, so that between 2002 and 2009 the overall gap between the average effective tariff and the average total costs declined (table 12). An important difference still remains, however: in 2009 the average total cost was reported at 1.13 per m<sup>3</sup> and the average effective tariff at 0.64 per m<sup>3</sup> . The absence of costrecovery tariffs has led to underinvestment and delays on asset maintenance, which in turn translate into high system losses. Despite the decline in the level of nonrevenue water, as of 2009 it still represented 45 percent of production, more than twice the level of a well-performing utility.

**Table 12. Evolution of operational indicators associated with Mozambique utilities**

||Water<br>delivered|System losses|Collection ratio|Average total<br>cost|Average<br>effective tariff|Total hidden<br>costs*|Total hidden<br>costs|
|---|---|---|---|---|---|---|---|
||(million<br>m<sup>3</sup>/year)|(%)|(%)|($/m<sup>3</sup>)|($/m<sup>3</sup>)|($ million/year)|(% revenues )|
|2002|68|55|61|0.86|0.30|32|294|
|2003|75|59|68|1.04|0.31|39|306|
|2004|81|53|45|0.94|0.32|45|203|
|2005|85|60|78|1.08|0.33|45|232|
|2006|85|56|71|1.08|0.35|49|225|
|2007|84|54|81|1.14|0.39|49|185|
|2008|87|49|90|1.14|0.52|47|144|
|2009|91|45|90|1.13|0.64|44|113|

_Source:_ Derived from Briceño-Garmendia, Smits, and Foster (2009). _Note:_ Water delivered (million m<sup>3</sup> /year) and total hidden costs ($/year) are reported as the sum of the Beira, Maputo, Nampula, Pemba, and Quilimane utilities. The other indicators reported in the table are weighted averages.

Progress on performance and the adjustment of tariffs have resulted in drastically decreasing hidden costs due to inefficiencies (box 3). In 2002 the mispricing of water services, distributional losses, and—to a lesser extent—collection inefficiencies accounted for almost 300 percent of the revenues on average (figure 10). In 2009 hidden costs represented about 110 percent of the revenues. Underpricing continues to be the main driver of hidden costs, with a contribution of around 50 percent, which is reflected in low operating and total cost-recovery ratios (see table 11).

# **Challenges**

Despite the reforms in the urban water and sanitation sector, progress on increasing access to the safest forms of water supply and sanitation has been slow. In 2008 only 9 percent of the population used piped water, just above 1997 levels of 7 percent. On average, only 0.55 percent of the population gained access each year between 2003 and 2006 (figure 11a). Access to standposts decreased from 19 percent in 1997 to 17 percent in 2008. . Between 1997 and 2008 access to septic tanks increased just 1.1 points, from 4.4 28
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MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

# Power

## **Achievements**

Mozambique’s energy supply is relatively reliable compared to its African peers. According to the Enterprise Survey for 2007, firms’ value lost due to power outages in Mozambique was 2.4 percent of sales, less than half the value lost in other LICs and close to the level of MICs. In Mozambique there were 37 days when power outages occurred, vis-à-vis 70 and 124 days in middle- and low-income countries respectively, but the duration of power outages in Mozambique (4.2 hours) was above the level of most of neighboring countries. Around 11 percent of the energy consumed by firms in Mozambique was generated in-house, a level comparable to that of MICs and half that of other LICs (table 13). The delay in obtaining an electric connection (13 days) was one-third of the regional average (42 days). Due to the relativity good quality of energy supply, the percentage of firms identifying energy as a major constraint in Mozambique was below the Sub-Saharan average (table 14).

**Table 13. Benchmarking Mozambique’s power indicators**

||**Unit**|**Low-income,**<br>**nonfragile**<br>**country**||**Mozambique**|**Middle-**<br>**income**<br>**country**|
|---|---|---|---|---|---|
||||**1997**|**2003**<br>**2006–07**||
|National access to electricity|% population|32.8|6.6|8.1<br>9.4|49.5|
|Urban access to electricity|% population|72.8|25.8|25<br>26|74.4|
|Rural access to electricity|% population|12.7|2.1|1.1<br>1.7|26.3|
|Installed power generation capacity|MW/million people|20||98<br>—|799|
|Power consumption (residential)|kWh/capita|107||26<br>29 [1]|4,479|
|Power outages|Day/year|124.5||—<br>37.2|70.6|
|Firms’ reliance on own generator|% consumption|21||—<br>10.8|11|
|Firms’ value lost due to power outages|% sales|6||—<br>2.4|2|
|Delay in obtaining an electrical connection|Days|41||—<br>12.7|12|
|Collection ratio|% billings|93||100<br>100|100|
|System losses|% production|24||25<br>26|20|
|Cost-recovery ratio|% total cost|89||71.3<br>85.8|85|
|Total hidden costs as % of revenue|%|88.4||—<br>38|140.6|
|Effective power tariffs (US cents/kWh)|**Mozambique**|Predomina<br>hydrogener|ntly<br>ation|Predominantly thermal<br>generation|Other<br>developing<br>regions|
|Residential at 100 kWh/month|6.8|10.7||15.7||
|Commercial at 900 kWh/month|8.0|12.9||19.0|5.0 – 10.0|
|Industrial at 100 kVA|6.5|9.3||13.0||

_Source:_ Eberhard and others 2009; derived from AICD electricity database (www.infrastructureafrica.org/aicd/tools/data). Other sources include: access data coming from Demographic and Health Surveys 1997 and 2003; utility data from AICD electricity database (www.infrastructureafrica.org/aicd/tools/data). Data referring to outages is coming from the 2007 Enterprise Survey. _Note:_ [1] The total consumption was 474 kWh: 29 kWh domestic, 396 industry, and 48 other. — = Not available.

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MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

**Table 14. Performance of the electricity sector in southern African countries**

|**Country**|Botswana<br>(2006)|Lesotho<br>(2009)|Madagascar<br>(2009)|Malawi (2006)|Mauritius<br>(2009)|**Mozambique**<br>**(2007)**|Namibia<br>(2006)|South Africa<br>(2007)|Zambia (2007)|Average|
|---|---|---|---|---|---|---|---|---|---|---|
|Number of power outages in a typical<br>month|1.7|7.2|13.7|6.4|3.6|3.1|1.7|2.2|4.2|4.9|
|Average duration outages(hours)|2.5|5.5|2.3|2.3|3.2|4.3|2.7|4.5|2.9|3.4|
|Lost due to outages(%of sales)|1.4|6.7|7.7|22.6|2.2|2.4|0.7|1.6|3.7|5.4|
|Percentage of firms owning or sharing<br>generator|16|31|29|49|24|13|13|18|14|23|
|Percentage of electricityfromgenerator|18|..|19|3|3|11|6|11|19|11.3|
|Delay in obtaining an electrical<br>connection(days)|25|14|92|98|19|13|9|16|97|42.6|
|Percentage of firms identifying<br>electricityas a major constraint|7|44|55|60|43|25|6|21|12|30.3|

Source: Enterprise Survey database (www.enterprisesurveys.org). _Note:_ Year of the survey is in parentheses.

The comparatively high quality of the power supply reflects the relatively good performance of Electricidade de Moçambique (EDM), the publicly owned electricity utility of for Mozambique. EDM’s collection ratio, at 100 percent of billings, is above the average of other LICs (93 percent) and at the level of other African MICs. The recovery of operational and capital costs increased from 71 percent in 2003 to almost 86 percent in 2006, close to the level of other LICs. Improvements in cost-recovery ratios led to lower hidden costs; for 2005, 2006 and 2008—when the average effective tariff covered more than 80 percent of the total costs—the share of underpricing in total hidden costs was the lowest (figure 13a). Over time system losses deteriorated from 25 percent in 2005 to 27 percent in 2009, above the international benchmark of 10 percent for a well-run energy utility.

**Table 15. Evolution of hidden costs associated with EDM**

||Volume of<br>electricity<br>produced /<br>purchased<br>(GWh/year)|System<br>losses<br>(%)|Collection<br>ratio<br>(%)|Average total<br>cost<br>($/kWh)|Average<br>effective tariff<br>($/kWh)|Total hidden<br>costs<br>($ million<br>/year)|Total hidden<br>costs<br>(% revenues)|
|---|---|---|---|---|---|---|---|
|2005|173|25|100|0.09|0.07|41|41|
|2006|224|26|98|0.10|0.08|44|44|
|2007|216|26|100|0.10|0.07|66|57|
|2008|341|26|100|0.11|0.09|55|37|
|2009|375|27|100|0.11|0.08|84|44|

_Source:_ Derived from Briceño-Garmendia, Smits, and Foster (2009). _Note:_ GWh = gigawatt-hour.

Even putting together underpricing, distributional losses, and collection inefficiencies, EDM turns out to have one of the lowest hidden costs among southern African countries (figure 13b). Hidden costs represent about 44 percent of the EDM’s revenues, almost half of those in Zambia and Botswana, and one-fourth of those in Malawi.

32
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MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE grew from 14 percent in 2000 to over 80 percent in 2008,<sup>3</sup> taking Mozambique above the level of countries in the same income group. Mobile telephone penetration has gone up from less than 1 percent in 2000 to over 20 percent in 2008 compared to just 0.4 percent for fixed-telephone penetration in 2008. Mobile growth between 2005 and 2008 was around 40 percent a year, about the same as the Sub-Saharan average (table 16).

**Table 16. Benchmarking ICT indicators**

||**Low-income country**|**M**|**ozambiqu**|**e**<br>**Sub-Saharan Africa**|
|---|---|---|---|---|
||Unit<br>**2008**|**2000**|**2005**|**2008**<br>**2008**|
|GSM coverage|% population under<br>signal<br>56|14|70|83<br>56|
|International bandwidth|bits/person<br>24|0.2|1.9|14<br>34|
|Internet|users/100 people<br>4.6|0.1|0.5|3.6<br>6.5|
|Landline|subscribers/100 people<br>4.6|0.5|0.4|0.4<br>1.5|
|Mobile phone|subscribers/100 people<br>28.5|0.3|8.4|22.1<br>33.3|
||**Low-income country**|**M**|**ozambiqu**|**e**<br>**Middle-income country**|
|_US dollars_|**2008**|**2005**|**2008**|**2010**<br>**2008**|
|Price of monthly mobile ba|sket<br>10|10.7|10.9|9.8<br>11.8|
|Price of monthly fixed-line|basket<br>9|15.4|14.7|13.2<br>11.6|
|Price of 20-hour Internet pa|ckage<br>—|32.9|26.7|24<br>—|
|Price of monthly fixed broa|dband<br>102.4||99|63<br>100.1|
|Price of a call to the United|States per minute<br>—|0.4|0.4|0.3<br>0.8|
|Price of an inter-Africa call|per minute<br>—||0.5|0.5<br>1|

_Source:_ AICD 2006. GSM = global system for mobile communications. — = Not available.

The development of the mobile market has been part of the Mozambican government’s institutional reforms that include the inception of a sector policy, the establishment of a regulatory body (the National Communications Institute of Mozambique, or INCM), the creation of a universal service fund, and the progressive liberalization of the telecommunications market, including the ending of exclusivity for the incumbent Telecomunicações de Moçambique.

# **Challenges**

Despite improvements in the mobile market, in 2008 Mozambique’s penetration was the third-lowest in southern Africa (table 17). The expected launch of a third mobile operator (three companies were shortlisted in July 2010 following a tender) should help to extend coverage, lower prices, and increase penetration. Remaining coverage gaps could be met through the universal service fund.

In the case of mobile telephony, much of the population—up to 87 percent—could be reached on a commercially viable basis, according to AICD estimates (figure 17). This result is based on the assumption that 4 percent of local income in each area could be captured as revenue for voice telephony

> 3 At the end of 2008, the network of the incumbent mobile operator covered 83 percent of the population and 60 percent of the national territory (see Mcel 2009; _Relatório Anual_ 2008).

37
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MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE While Mozambique has made progress in its reform of the ICT sector, there is still unfinished business. Although the incumbent’s exclusivity has ended, so far no additional fixed-line operators have been licensed. Furthermore, both the incumbent fixed and mobile operator remain fully state-owned, inhibiting private sector investment in the sector. Administration of the universal service fund could be enhanced, particularly to target the remaining areas of the country without mobile coverage.

# Financing Mozambique’s infrastructure

To meet its most pressing infrastructure needs and catch up with developing countries in other parts of the world, Mozambique needs to expand its infrastructure assets in key areas (table 19). The targets outlined below are purely illustrative, but they represent a level of aspiration that is not unreasonable. Developed in a standardized way across African countries, they allow for cross-country comparisons of the affordability of meeting the targets, which can be modified or delayed as needed to achieve financial balance.

**Table 19. Illustrative investment targets for infrastructure in Mozambique**

||**Economic target**|**Social target**|
|---|---|---|
|ICT|Fiber-optic links to neighboring capitals.|Universal access to GSM signal and public broadband<br>facilities.|
|Irrigation|Increase irrigated area by 96,399 hectares [1].||
|Power|1,400 MW interconnectors.<br>3,248 MW in hydrogeneration capacity [2].|Electricity coverage of 19.3% (41% urban and 5.2% rural).|
|Transport|Regional connectivity by good-quality 2-lane paved road.<br>National connectivity by good-quality 1-lane paved road.|Provide rural road access to 26.5 percent of the highest-<br>value agricultural land, and urban road access within 500<br>meters.|
|WSS||Achieve Millennium Development Goals and clear the<br>sectors’ rehabilitation backlog|

_Source:_ Mayer and others 2009 ; Rosnes and Vennemo 2009; Carruthers, Krishnamani, and Murray 2009; You and others 2009. _Note:_ WSS = water supply and sanitation; ICT = information and communication technology; GSM = global system for mobile communications. [1] Assuming trade stagnation scenario. Therefore, the power needs considered in this chapter are expected to be higher under a power trade scenario.

[2] Assuming an internal rate of return of 12 percent. n.a. = Not applicable.

Meeting these illustrative infrastructure targets for Mozambique would cost $1.7 billion per year through 2015. Capital expenditure would account for around 69 percent of this requirement. The highest annual price tag is associated with the power sectors, requiring on the order of $685 million. Transport and water supply and sanitation sectors are also in need of significant funding of around $395 and $370 million per year, respectively. Around $156 million is needed for the ICT sector. The irrigation sector would require about $84 million annually over the next decade. Water sector spending is associated with sustaining MDG targets for water and sanitation, while power sector spending is associated with

> broadband network. See: www.mcel.co.mz/content/view/13/633/lang,pt_PT/. The monthly price of an unlimited 3G broadband subscription is MT 2,400 compared to MT 3,650 for a 2 Mbps (capped at 21 GB of use) ADSL subscription. See: www.mcel.co.mz/content/view/13/633/lang,pt_PT/ and <u>www.tdm.mz/portdm/tarifas/b_larga/b_larga.htm [Accessed 20 August 2010]</u>

41
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MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

# Annual funding gap

Mozambique’s infrastructure funding gap amounts to $822 million per year, or about 12.5 percent of GDP. About 60 percent of the gap is found in the power sector, where the annual shortfall of 19 percent of the population without access is $486 million (table 23). Another significant part of the gap is found in the water and sanitation sector, where an additional $219 million is needed to meet the MDGs. Additional funds are also required in the irrigation, transport, and ICT sectors.

## **Table 23. Funding gaps by sector**

$ million per year

||**ICT**|**Irrigation**|**Power**|**Transport**|**WSS**|**Total**|
|---|---|---|---|---|---|---|
|Needs|(156)|(84)|(685)|(395)|(370)|(1,690)|
|Spending traced to needs|122|14|127|296|103|662|
|Within sector reallocation|2|0|0|0|0|2|
|Potential efficiency gains|26|1|72|56|48|204|
|**(GAP) or surplus**|**(6)**|**(69)**|**(486)**|**(42)**|**(219)**|**(822)**|

_Source:_ Derived from Foster and Briceño-Garmendia (2009).

_Note:_ Potential overspending across sectors is not included in the calculation of the funding gap, because it cannot be assumed that it would be applied toward other infrastructure sectors.

* traced to needs.

— = Not available.

# What else can be done?

The most obvious way to address the funding gap is by raising additional financing. In the case of Mozambique, there may be realistic prospects for increasing the flow of resources to infrastructure, both from the public and private sectors.

Private participation in infrastructure (PPI) commitments to Mozambique varied a lot over time; the country attracted more private financing into infrastructure then most other African countries on average, but there is significant room for improvement (figures 26a and 26b). On average over 2002–07, Mozambique has captured private investment commitments worth around 1.4 percent of GDP. Notably, transport absorbed more than half of this, unlike in most other Sub-Saharan African countries in the same period, where the bulk of PPI went to the telecommunications sector. Only a few other African countries have done better capturing PPI resources for infrastructure (if PPI flows to the natural gas sector are excluded). Countries such as the Democratic Republic of Congo, Liberia, Nigeria, Uganda, Kenya, and Senegal have all captured between 1.8 and 2.5 percent of GDP, while the most successful country in this regard—Guinea-Bissau—has captured in excess of 3.0 percent of GDP.

But even if additional finance is hard to secure, there is still much that Mozambique can do to reduce the infrastructure funding gap based on its own policy choices, and in particular the technology choices it makes to meet its infrastructure targets. The single-largest measure that Mozambique could take to reduce its infrastructure spending needs would be to improve its transport infrastructure. Adopting appropriate technologies for the surfacing of paved roads could produce savings of $124 million in annual investment requirements. Another $58 million a year could be saved by adopting lower-cost technologies to meet the MDGs, placing greater emphasis on stand posts, boreholes, and improved latrines. If all these policy 47
MOZAMBIQUE’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE measures were adopted, Mozambique could save $184 million a year, thereby bringing its infrastructure funding gap down to $640 million a year (table 24).

Finally, if all else fails, it may be necessary to extend the time horizon for meeting the infrastructure targets beyond the illustrative 10-year period considered here. Simulations suggest that even if Mozambique were unable to raise additional financing, if inefficiencies can be addressed, the identified infrastructure targets could be achieved within a 20-year horizon. Without stemming inefficiencies, however the existing resource envelope would not suffice to meet infrastructure targets in the medium term.

Within the overall funding envelope, it will be very important to carefully prioritize infrastructure investments. Given the magnitude of the country’s funding gap, it will not be feasible to resolve all pending infrastructure issues at once—hence the need to identify priorities. The foregoing analysis of achievements and challenges suggests the importance of prioritizing key infrastructure interventions for the economy, such as improving water supply and access to improved water and sanitation, and expanding power-generation capacity.

48
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