Indian firms Rites and Ircon have won a $175m (£98m) contract to revamp Mozambique's railways, reports say.
The companies will provide $55m towards the cost of the project while the World Bank will issue a loan of $120m, Mozambique's transport ministry says.
The India firms will rebuild the link from Mozambique's second port of Beira to neighbouring Zimbabwe and the north-west of the country.
Mozambique's government has made improving infrastructure a priority.
In particular, the authorities are trying to improve links to the ports of Maputo, Beira and Nacala, which handle trade between Mozambique and neighbouring South Africa, Zimbabwe, Malawi and Zambia.
"It is a project that fits into the battle against poverty," said Mozambique Transport and Communications Minister Tomaz Salomao.
The contact with the Indian firms will run for 25 years, he said.
It is hoped rehabilitation of the rail routes will lead to growth in the Zambaze Valley which has reserves of wood, cotton and coal.
Mozambique's Mineral Resources and Energy Minister Castigo Langa said he hoped an improved rail network would attract foreign investment in the country's coal industry.