DFID Mozambique commissioned BERF to undertake a scoping assessment comprising:
- An economy-wide diagnostic analysis and assessment of the business environment identifying key constraints, mapping reforms (existing and planned) and what has worked or not worked to date; and
- Opportunities for Business Environment Reform in target sectors.
The main goal of this scoping assessment is to identify where gaps exist for DFID Economic Governance Programming to address key Business Environment constraints and make recommendations, prioritised according to their impact and propensity of Government of Mozambique ministries and agencies to plan and implement reforms. Key considerations include:
- A difficult business environment. The Doing Business 2017 shows that Mozambique ranks at 137, worsening from 2016.
- A difficult political environment. An agreement for peace still needs to be put in place between the government and Renamo, the opposition party.
- A difficult fiscal and macroeconomic environment. The emergence of $2 billion USD of hidden/illicit external debt has created a financial crisis in terms of the country’s budget. Together with declining commodity prices and natural disasters, this has increased inflation (24% by December 2016) and depreciation of the currency, and reduced economic growth, down from an average of 7.5% per annum over the past 25 years (1991-2016) to an estimated rate of 3.8% in 2016, recovering only slightly to around 4-5% in 2017.
Budget efficiency is problematic. Spending could be a lot more efficient if better targeted and linked to specific objectives. State-owned enterprises have been a drain on the limited budget resources. The government intends to restructure the State Owned Enterprise sector to reduce dependence on the budget, and focus it better on delivery of public goods. The private sector claims that many State Owned Etnerprises are competing on unfair terms with them.
Key factors relating to the Business Environment are as follows:
- Public-private dialogue exists but is not well focused. Three matrices of actions to improve Business Environment in Mozambique have been produced by the government and will form part of policy reform activities for 2018. None of them is reflected in the Economic and Social Plan meaning that they have little likelihood of implementation. There is a huge agenda for streamlining, simplification and getting institutions to take decisions.
- Registration process are cumbersome. The one-stop-shops are not yet functioning in an integrated manner. Implementation is not consistent and unique among the 18 different offices due to a missing implementation policy.
- There are no separate provisions for defining micro enterprises, in terms of registration and tax. These micro enterprises are unable to formalise and participate in market opportunities. Appropriate regulation could facilitate the formalisation of significant numbers of urban and peri-urban micro companies and providers.
- Imports are supposed to go through a new registration system. The old system is still in place, as well as manual registration, which creates opportunities for corruption and delays.
- Slow implementation of laws and regulations. The insolvency and Credit Bureau laws were passed a year ago but close to nothing has happened to implement them. These legal reforms could have a significant impact on the Business Environment.
Summary of recommendations
The recommendations take into account the current political and macroeconomic environments, as well as willingness to pursue reforms. The options have an inherently high risk, which can be mitigated through targeting short-term actions and impacts. This allows DFID to change its strategy if things in Mozambique change for the worse, or there is insufficient Government support to produce the expected results. The proposal targets those policies or reforms that can reasonably be assumed to have a positive impact on the current environment. The Government and the President are trying to push for reform, but the team judges that the current political environment is not conducive to engaging immediately in medium to long-term activities. The political environment may change in a few months and new options may arise.
- Support the Ministry of Industry and Commerce coordinating the Business Environment Reform. Assist the Ministry of Industry and Commerce to streamline the Business Environment matrices into one single matrix, focus the matrix on five to six actions that can be achieved rapidly and define a clear roadmap. Send monthly decision papers and reports to the President and Prime-Minister’s Offices for decision and pressure, and create momentum for reform.
- Assist Ministry of Industry and Commerce to streamline business registration. Map business registration, fully integrate the one stop shop system and ensure consistent implementation at every office. Make rules fully public and disseminated.
- Assist Ministry of Economy and Finance and Ministry of Industry and Commerce to fully implement the new import registration system. It is imperative that imports go through this system. This encompasses a map of impediments and decisions to fix the obstacles and to terminate manual registration.
- Provide assistance through the World Bank to identify the value-chain for chicken production and pigeon pea production in Mozambique. The Government anticipates that these studies will produce a clear roadmap to enable the rapid expansion of production of these products, creating employment for more than a million people.
- Assist macroeconomic management and public finance management, mostly through the World Bank. Macroeconomic stability and management is critical in Mozambique. The World Bank should continue to receive funds from DFID for this as well as potential provision of DFID expertise in the Ministry of Economy and Finance research department to enhance their analytical capacities and increase quality of proposed decisions.
- Assist the Ministry of Economy and Finance to prepare and implement a state-owned-enterprises strategy. DFID could provide expertise to the Ministry to prepare a strategy and roadmap for the restructuring, privatisation and termination of State Owned Enterprises.
- Support the establishment of an insolvency agency. DFID could provide expertise to ensure that insolvency regulations are established, as well as support creating an insolvency agency in the country. This would enable the preparation of statutes, and define the main deliverables, staff profiles and a roadmap to create and put to work such an agency.
- Sponsor Business breakfasts and conferences. These are critical to create an environment for dialogue on Business Environment Reform and policy decisions involving the main stakeholders. This will assist the Business Environment Reform to gain momentum.