The head of the EU delegation in Mozambique, Glauco Calzuola said, however, the government had achieved good results in macro-economic stability and public finance management.

"HIV and AIDS is a big problem, despite the fact that the government is fully aware about this, while corruption is a problem that the government is trying to face with strong support from the international community and they are well aware that this can be an obstacle to development and growth," Calzuola said in an interview, adding that bureaucracy was also a problem.

Mozambique's Health Ministry says at least 16 percent of the country's economically active population aged between 14 and 29 is living with AIDS or has the HIV virus. At least 500 people are infected with the disease daily.

"While recognising the government's efforts to fight corruption and AIDS, we encourage them (the government) to redouble those efforts," he said.

Mozambique's growth is largely driven by foreign aid, while the local economy has been slow to develop, especially small and medium-sized firms that struggle to secure financing.

The government has forecast 8 percent growth for 2008 which the World Bank, the country's largest donor, said was realistic, damaging floods and cyclones that hit the country earlier this year, destroying infrastructure.

Mozambique's economy has been boosted by growing foreign investment, tourism and a more stable agricultural sector.

"There is lot be done with regards to (the) business environment, the government needs to improve this and they must put up strategies of how to attract internal and foreign investments in Mozambique other than mega projects which largely contribute to growth, but which is not felt by ordinary people", Calzuola said.

"The government needs medium and small-scale enterprises to help the mushrooming of diversified business because there is political stability which is very important for growth,"