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«Industrial Policy in Mozambique Matthias Krause Friedrich Kaufmann Industrial policy in Mozambique Matthias Krause Friedrich Kaufmann Bonn 2011 ...»

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In 1999, Cramer described the GOM’s position on industrial policy as follows: “In Mozambique, all the evidence suggests that the state is in disarray, confused by a half-hearted ideological transformation and by being pulled constantly in different directions by donor interests (…), and lacks the capacity or will to produce a coherent and emphatic analysis and policy package for industrial sectors …” (Cramer 1999, 1263). Although there has been some progress since then, we still assess the GOM’s overall attitude towards industrial policy as being reactive to the interests of big investors and donors, rather than proactive or strategic. We base this assessment on our observation that the policy measures and projects that are enacted and implemented are those backed by investors’ coherent and clearly articulated interests (an investment-promotion law and mega projects in the energy and mining sector) or donors (liberalisation, privatisation, and Doing-Business-style reforms which were supported by a coalition of influential donor organisations).65 In contrast, more complex industrial policy approaches – such as in the field of SME promotion – that demand that the Government play an active role in providing strategic direction; building coalitions with enterprises, financial institutions, local governments and donors; and facilitating or building coordination platforms mainly exist on paper and lack the drive needed to get implemented on a relevant scale. This pattern can be explained in part by the low technical capacity and institutional development of the State administration, by the weak formal organisation of the local private sector – in particular in what refers to small enterprises – and by the high aiddependency. Moreover, high aid-dependency creates incentives for the Government to primarily focus on keeping high levels of aid flows, to secure political legitimacy by high spending levels in social sectors (Castel-Branco 2008, 14) and, hence to neglect, in relative terms, engaging in an active industrial policy.

Although some projects pursue monitoring and evaluation approaches (mostly donordriven), there is no consistent system of feedback cycles and checks and balances to improve overall industrialpolicy learning. First of all, it would be difficult to create such a culture of learning through trial and error because there is not yet a coherent and coordinated industrial policy that deserves the name (see Chapter 5). Secondly, the GOM avoids accountability and tries to escape from transparent public evaluations of its policies. One exception is the annual Joint Review with the Program Aid Partners (PAP). However this review does not include industrial policy, since this is a cross-cutting issue that is not a high priority for most donors (see Chapter 4.3).

Other governance features also weaken the GOM’s capabilities in industrialpolicy management capability, for instance the capability to establish clear rules of the game for market-based competition, the capability to deliver services effectively, and the capability to avoid political capture. Widespread corruption results in the poor enforcement of measures meant to foster local industry (like the tax on raw cashewnut exports), in the opaque 65 See Castel-Branco (2008) for similar argumentation.

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awarding of contracts based on favours, and in the intentional distortion of the implementation of business regulations to the advantage of inspectors and at the expense of businesses. FRELIMOparty dominance and weak checks and balances allow for selective interventions and service providers to be misused to transfer resources to constituencies before elections in order to secure votes (as was reported by some interviewees in the case of the INCAJU). Finally, the fact that prominent FRELIMO cadres (including President Guebuza) simultaneously hold public office and direct powerful business groups they acquired during the privatisation process, creates considerable conflicts of interest.66 This situation renders industrial policy, and economic policy in general, vulnerable to misuse for the particularistic benefit of enterprises owned by FRELIMO or party cadres.67 Despite this rather pessimistic assessment of Mozambique’s industrial policy management capability, it is important to acknowledge that some progress and learning have taken place during the last years. For instance capacities in the state administration (particularly at the central government level), in business associations and in think tanks are slowly improving and thus also the conditions for establishing coordination platforms for selective industrial policies. Moreover the government has corrected some deficiencies in the policy framework like e.g. the extremely generous tax exemptions for mega projects or the state-centred top-down approach to SME promotion. Finally, as highlighted above, the case studies have also gathered evidence for some positive experiences with selective approaches that could be replicated. Therefore prospects for a welfare-enhancing industrial policy in Mozambique that combines improvements to the investment climate and marketenhancing measures with targeted interventions to stimulate competitiveness and productivity growth of enterprises seem to improve. Nevertheless, for such an approach to be put in practice effectively the government and donors would have to radically revise their strategies and priorities and the governance would have to improve in terms of control of corruption and checks and balances.

66 See, e.g., the case of the concession for non-intrusive inspection services at the port of Maptuo (Mosse / Munguambe 2007).

67 Hanlon / Mosse (2009) even see a certain opportunity in this situation. They argue that the more development-oriented FRELIMO factions could use their combined political and economic power to engage in an industrialpolicy approach that would build on their own business empires (see Section 4.3).

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