Mozambique's Five Year Plan: Implications for the Business Environment. Note 1

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1 SPEED Support Program for Economic and Enterprise Development Mozambique's Five Year Plan: Implications for the Business Environment Note 1 1. BACKGROUND On the 14th of April 2015 the Mozambican government s five year plan was passed into law under Resolution 12/2015. The five year plan is based on the manifesto of the party elected to lead the country, in this case FRELIMO, and also incorporates actions which will guide the government during its mandate. It is intended to be a high-level vision statement rather than a specific action plan, specifics being found in the strategy documents and work plans of the individual ministries. The plan (hereafter PQG, the Portuguese acronym for Plano Quinquenal do Governo) is therefore designed to orient the government and other stakeholders. As such it should be treated as one of the bases for justification of work undertaken and where possible activities which involve the government should be specifically linked to actions in the PQG, which will help to give them relevance and indicate to government stakeholders how a specific reform or activity will move the government towards achieving its stated objectives. 2. THE PQG The PQG focuses on inclusive growth. For the first time it includes indicators against which the government is to be measured after five years. However these indicators range from the very general (100% telephone penetration) to the very specific (600 sporting medals won) and are less likely to be helpful as monitoring tools than indicators contained in strategic plans of specific sectors. In general the indicators are disappointingly unambitious, aiming for example to increase from 6% to 12% literacy in children completing third grade, and creating jobs for less than 10% of those entering the job market each year through a combination of public and private sector employment. In general there is a lack of correlation between the overall goals and priorities of the plan (see below) and the indictors set. For example the priorities of development of human capital and employment creation are not reflected in the low literacy and employment indicators. The plan establishes five priorities and three pillars as follows: 1 Carrie Davies, Senior Trade Policy Advisor 2

2 Five Priorities: - Consolidation of national unity, peace and sovereignty - Development of human and social capital - Promotion of employment, productivity and competitiveness - Development of economic and social infrastructure - Sustainable and transparent management of natural resources and the environment Three Supporting Pillars: - Guarantee of democratic rule of law, good governance and decentralization - Promotion of a balanced and sustainable macroeconomic framework - Strengthening international cooperation These priorities and pillars are then broken down by area of ministerial responsibility, often with a number of overlaps. However it is these priorities and pillars which will guide the government s actions over the coming years. 3. RELEVANT AREAS FOR SPEED There follows a brief summary of the PQG. This is not intended as a comprehensive analysis but merely to highlight a number of potential concerns and also areas where the document touches on SPEED s work. Paragraph numbers referring to the PQG are included in parentheses. i. Agriculture, Food Security and Land Throughout the document there is a strong focus on the role of agriculture as a fundamental component of development and of industrialization. However specific actions seem to be lacking. For example the PQG indicates the government plans to promote increased productivity in the family sector (40-a) but it is not clear how this would be done. In addition there is a fundamental misconception of what food security means, throughout the document it is taken to mean ensuring that each family produces enough for itself (40-h, 40-s). The government intends to create financing facilities for the family sector, with special conditions, suggesting subsidization, which suggests an increased state role in this area (40-b, 40-k, 40-t and u). The government aims to promote the expansion of the supply of strategic seeds (40-e) which may also suggest ongoing state involvement here. There is little or no mention of other inputs such as fertilizer. There is to be general honing of the agriculture sector legislation (40-q), land mapping (40-r, 65), territorial planning (65-i) and generally improved access to DUATS (65). ii. Trade and Industry There is no specific section on trade or regional integration in the PQG. Relevant issues are spread throughout the document, but mainly found under priorities 3 and 4. There is no clear vision as regards regional trade and integration. 3

3 The PQG evinces a general desire to improve the business environment and increase exports in a number of places but there is no clear indication of how this will be done. One stated objective is to modernize the economy and industrialize oriented towards exports, with specific actions including promoting exports, diversification, carrying out trade fairs, strengthening SMEs who export, developing infrastructure for trade fairs, improving certification procedures, implementing SADC instruments, stimulating manufacturing to increase value addition, promoting the establishment of logistics bases to facilitate exports, establishing measures to protect emerging national industry, promoting free trade zones and special economic zones, and consolidating the program of national science and technology parks (41). However it is unclear how a number of these actions will in fact have the desired effect particularly when the sections dealing with business environment reform (see below) are so limited in scope. Industrialization is seen as key to development (7). The expected contribution of industry to GDP by the end of five years is expected to rise from 11 to 21%. There is a focus on export oriented industry, but mechanisms proposed (trade fairs and exhibition infrastructure for example (42-a and d)) show a fundamental lack of appreciation of existing barriers to exports. The plan aims to stimulate value added industry, but there is no indication of how (42-g). For example it focuses on the need to increase production to generate excess for export, it does not see export-oriented business as an option, but instead sees exports as an addition to increased production in the agriculture sector (38). The promotion of logistics bases for export suggests that the TEEN model may be considered successful and replicable (42-i). Protection for national industry is also included (40-k). There is no clear link between aspects of the PQG such as regional integration and increased protection measures, or the relationship between infrastructure, the business environment and agricultural and industrial development. The PQG indicates an intention to increasingly formalize the economy however this appears to involve government intervention for example in consolidating the retail sector and gradually converting the informal sector into a structured network (45-i) and consolidating and expanding the wholesale and retail markets for national goods (45-k). The PQG indicates the intent to ensure that exchange rate fluctuations are beneficial to exporters (95-c) which suggests significant state intervention in money markets as does 93-h which states that the government will intervene in the exchange market to ensure exchange rate stability. More positive is the focus on expansion of alternative payment methods (95-d and e). iii. Business Environment Improved competitiveness is seen as important (2), though it is not clear how this will be achieved. A more attractive business environment for national and foreign investment is also seen as important (17). There should be overall simplification and improvement in public service delivery (78-d). Section 79 deals with business environment improvement indicating that the actions to be undertaken will involve the simplification of procedures to improve competitiveness, ensuring that Mozambique achieves a leading position as a reformer in the Doing Business rankings, elimination 4

4 of barriers for new market entrants, reducing the time for issuing DUATs, implementing the e- BAU system and improving public-private dialogue. The aim is to reduce the number of days for licensing a business from 10 to 6 and the number of procedures for opening a company from 9 to 5 (Table 5). Section 93-n specifically indicates that the VAT reimbursement system will be improved. However no significant reforms are proposed so it is unclear how Mozambique s rankings would be significantly improved by an approach which suggests tweaks rather than radical reform. iv. Infrastructure The role of infrastructure in development is recognized and public-private partnerships are to be sought (26-s). Infrastructure improvements are seen as linked to productivity (39). Improved IT infrastructure and communications are recognized as being important for development (33-ee). Mention is made of the need to improve road infrastructure and maritime transport, but there is no indication of plans for further moves towards open skies (35 m-p). While there is detail about which roads should be upgraded or constructed in Section 48 there is no specific indication about whether the focus will be on rural roads, or on corridors, or driven by trade or other factors. The government plans to increase access to and quality of electricity (50-a, 51) however the proposal is based on both state investment and public-private partnerships which are unlikely to succeed unless there is significant reform in the sector as regards off-take arrangements and reduction in subsidized costs of power. v. Tourism Tourism is rarely mentioned in the document, though domestic tourism is to be promoted as an instrument for social cohesion (26-n) and is seen as being something which should be focused at community level (45-o).The only indicator related to tourism directly is the increase from 3 to 7 of the number of community tourism investments (Table 4). vi. Employment The creation of employment underpins the development objectives of the PQG but it remains unclear how employment will be created and the actual indicators are very modest in this respect (6, Table 1) with less than 10% of those coming into the job market being employed over the five year period. While the report recognizes the need to improve the quality of basic education, life skills, adult education and professional training (33) there is no clear link between these aspects and job creation. There is a welcome inclusion of the concept of improving labor market data (43-n) and of promoting international forms of professional and vocational certification (43-l) as well as promoting alternative dispute resolution mechanisms for labor disputes (43-p). However there is no indication of actions which would make employment more flexible and responsive to economic changes. 5

5 vii. Role of the State The document includes many references to the need to incentivize national business and to provide other incentives. Indeed the word incentivar is one of the most frequently used in the document. Overall the PQG appears to indicate the intention for greater state and government involvement in the economy. In addition specific actions such as the development of state run agricultural equipment centers enhance this perception (40-i), as does the plan to increase the capacity of state-owned grain silos (Table 2, 58-c) and to build agri-food logistics centers on the main transport corridors (58-d). viii. Public Participation and Dialogue Throughout the document the PQG refers to the importance of dialogue and the need for the government to discuss policies, reforms and legislation with stakeholders prior as well as after implementation (12, 24, 26, 43, 84) suggesting potential openness to the public participation legislation, and also indicating a commitment to the reformed public-private dialogue mechanism. ix. Local Content There are references to local content throughout the document (38-iv,) but it is unclear what the government understands the term to mean. For example in 28-iv the PQG reads promote the value chain for national primary products to ensure integration of local content. 4. CONCLUSIONS Overall the PQG is a confusing blend of highly specific and very general objectives and actions aimed to meet those indicators. There is a general lack of cohesion which results from an apparent lack of a clear vision about where the government wants Mozambique to be in five years time. Without a guiding vision actions appear ad-hoc and often seem not to address the specific problems they are intended to resolve. The objectives indicate a desire to improve the country s competitiveness, transform agriculture and industrialize, all of which are laudable goals. However there appears to be a lack of understanding or recognition of the problems that have so far resulted in lack of competitiveness and industrialization. As a result the measures proposed are likely to fall short of the objectives. This is particularly true of the theme of government intervention and state involvement in the economy which pervades the PQG. Rather than seeking to undertake the major reforms required and reducing the state s role, instead the PQG proposes minor tweaks which risk being uncoordinated across ministries, and which will result in greater centralization and control, rather than following free market principles. That being said it will be important for SPEED to recognize these constraints and seek to achieve its goals while taking the PQG into account by using the positive points such as increased options for dialogue and public participation and proposed improvements in land legislation as leverage to build relationships which can be used to discuss other approaches which may more effectively support the government in achieving its stated objectives. 6