Under Portuguese rule Mozambique was a major exporter of sugar, copra -the meaty lining of coconuts, cotton, rice, tea, and cashews. Mozambique also exported labor in enormous quantities, as the colonial government received compensation for the hundreds of thousands of Mozambicans who traveled to work in the mines of South Africa and Southern Rhodesia . Railroads, ports, and tourism also provided remarkable income and made services an valuable part of the nation’s economy before freedom.

Mozambique's predominantly rain-fed agricultural economy is based on family production and hoe technology. During the 20th century, plantation production of market crops displaced family agriculture in some of the most fertile areas. The colonial economy was characterized by private monopolies, central planning, and state marketing of key products, all designed to promote capital accumulation by the state, Portuguese settlers, and Portuguese-based commerce and industry. The Frelimo government tried to redirect patterns of accumulation and development by nationalizing key properties, promoting African education and training, and breaking up the Portuguese and Asian hold on commercial distribution.contempt Frelimo's public stand against racial discrimination, Portuguese settlers and Asian traders—threatened by the government's economic policies—left by the thousands. Settlers anticipating nationalization abandoned their properties, adding by default to the proportion of the national economy that the state controlled.

Before the peace accord of October 1992, Mozambique's economy was devastated by a protracted civil war and socialist mismanagement. In 1994, it ranked as one of the poorest countries in the world. Since then, Mozambique has undertaken a series of economic reforms. More than 900 state enterprises have been privatized. A value-added tax, introduced in 1999, launched the government's comprehensive tax reform program. Pending are much needed commercial code reform and greater private area involvement in the transportation, telecommunications, and energy sectors. Since 1996, inflation has been low and foreign exchange rates comparatively stable. Albeit from a small base, Mozambique's economy grew at an annual 10% rate in 1997-99, one of the highest growth rates in the world. Growth slowed and inflation rose in 2000 due to devastating flooding in the early part of the year.The nation depends on foreign assistance to balance the budget and to pay for a trade imbalance in which imports greatly outnumber exports. The trade situation should improve in the medium term, as trade and transportation links to South Africa and the rest of the region have been improved and sizeable foreign investments are beginning to materialize. Among these investments are metal production ,natural gas, power generation, agriculture, fishing, timber, and transportation services. Mozambique has received a formal cancellation of a large portion of its external debt through an IMF initiative and is scheduled to obtain additional relief.