Business Environment Reform in Mozambique

Peter Wilson and Katja Silva-Leander of BERF recently visited Mozambique to hold consultations with stakeholders in Maputo to shape detailed assignments in support of DFID Mozambique’s approach to poverty reduction through entrepreneurship and job creation programmes.  The visit will be followed up by a number of discrete BERF assignments.  This update provides some perspectives on the issues facing Mozambique and how BERF can help. 

The scoping mission focused on constraints to doing business and reforms to the business environment. Stakeholders emphasised the proliferation of regulations and the uncertainties created by frequent changes in sectoral business environments e.g. Mozambique produces good quality cotton but there are conflicting subsidies and tariffs so exporting is particularly difficult.

Mozambique’s historical legacy

Whilst still a very poor country, since civil war ended in the 1990s Mozambique has achieved rapid economic growth, averaging around 7% from 2010 to 2014. Much of the growth has come from mining, however, which has created few new jobs for the 26 million population. The majority of Mozambique’s workforce is dependent on low-productivity agriculture (80% of employment).  There has been limited transformation of the economy through for example agricultural processing and light manufacturing – manufacturing’s share of Gross Domestic Product has stalled at around 18%. Most formal sector jobs are in private and public services (51%). The poorest people, especially rural households have not seen the benefits of rapid economic growth which has been most in evidence in the main cities.  Recently, hostilities between the two main political groups (Frelimo and Renamo) have resurfaced , which is  leading to a delay in inward investment.

The jobs challenge

Labour market interventions need to address the demoagraphic challenges of a rapidly expanding labour force.  The working-age population will expand rapidly over the next few decades.  The labour force could rise from 15 million (2015) to 36 million in 2050 – some 500,000 new workers are expected to enter the labour market each year. Without economic opportunities, there is a fear of further conflict. Creating jobs is therefore a  key priority for the Government – Mozambique needs to run just to keep up.

Already about 350,000 young people join the labour market every year.    Most can only find marginal jobs in the informal economy. Women are particularly disadvantaged. Mozambique’s basic education levels are amongst the lowest in the world.   New technical training regulations offer opportunities to support systemic change in labour markets, but by themselves will not achieve transformation.

DFID’s approach to growth and job creation.

DFID Mozambique’s Growth, Resilience and Rural Development Team have set out their approach to poverty reduction through youth entrepreneurship and job creation programmes in key sectors, working closely with the World Bank’s Let’s Work Partnership Programme and other Development Partners. The Bank has identified interventions in three value chains (agriculture, forestry and construction) demonstrating high job creation potential focusing on the poorest 40% of the population; and local development partners have focused on youth entrepreneurship as an important source of sustainable employment for young people. In agriculture, the legal, tax and regulatory environment for Small and Medium Enterprises is especially tough; and there are particular constraints to doing business for young entrepreneurs in Mozambique.

Scoping BERF support

Our recommendations include a full national diagnostic of the business environment. A programme of reforms is proposed with particular attention to constraints limiting the effectiveness of

  1. the World Bank’s three value chains,

  2. young entrepreneurs creating their own jobs and jobs for others, and

  3. new entrants into the renewable energy sector.

The effectiveness business membership organisations representing Small and Medium Enterpriss and youth entrepreneurs depends on their ability to reach out to and communicate with their widely dispersed memberships. It is recommended that BERF assist them to design and implement innovative engagement mechanisms to support these stakeholders in their day-to-day contact with members.