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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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5 Industrial development strategy

This chapter summarises the key Government strategies in the field of industrial policy (those that aim to structurally transform the economy), as defined in Chapter 2.

These strategies are not necessarily ‘selective’ and they are not necessarily mutually coherent. Since most of these strategies are very recent, the chapter focuses on describing and summarising the respective Government papers; discussion of the implementation and impact of the strategies is cursory and restricted to a few cases where information is available. For more evidence on the implementation and impact of industrial policies, see the two Case Studies in Chapter 6 on cashew-industry- and linkage promotion.

The rest of this chapter summarises and discusses the following strategies: the povertyreduction strategy (5.1), the industrial development strategy (5.2), the investment promotion strategy (5.3), the SME policy strategy (5.4), and the strategy to improve the business climate (5.5). The chapter ends with some preliminary conclusions (5.6).

16 Indicadores do Quadro de Avaliacao de Desempenho (QAD–PAF 2008–2010);

online: http://www.pap.org.mz /jr_08.htm, (accessed 9 Apr. 2009) 26 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Industrial policy in Mozambique 5.1 The povertyreduction strategy A relevant document that treats industrial policy issues is the global povertyreduction strategy paper, PARPA II (República de Moçambique 2006a). Its broad scope includes almost every aspect of economic and social development. More specific strategy papers mentioned in PARPA II are the Industrial Policy Strategy, the SME Strategy and the Business Climate Strategy (see below). Unlike PARPA I (2001–2006), which focused almost exclusively on the social sectors, PARPA II (2006–201017) acknowledges the importance of economic growth for poverty reduction. Nevertheless, the main focus of PARPA II remains the social sectors, which receive the most funds. The objectives for economic development expressed in the document are to: (i) foster rural development; (ii) develop the national business community; and (iii) create an environment favourable for business investment. For example, one of its 13 priorities is promoting the expansion of agro-industrial and labour-intensive manufacturing activities, in particular of small and medium export-oriented businesses with great potential to add value and create new jobs (República de Moçambique 2006b, 34–35).

Almost all national planning instruments, donor interventions and aid inflows are linked to the strategies and lines of action outlined in PARPA II. Since it is based on a national consensus of the various interest groups, the document remains very general and does not set clear priorities.18 As a consequence, it is not suited to be a practical guide to the allocation of public resources.

Moreover, until recently there was no formal system that linked the objectives and actions defined in PARPA II with the State planning and budgeting process. The Government of Mozambique’s annual development plan (Plano Económico e Social – PES)19 and the State budget, which drew on the Five-Year Plan approved by the national assembly, were created independently of PARPA II. PARPA II has recently been integrated into State planning and budgeting, and from 2009 on it is supposed to be in complete harmony with the country’s Five-Year Plan.

The PARPA process formally opened some space for more participatory policyformulation and planning and is committed to make this an ongoing endeavour, involving representatives of the Government, the private sector, trade union confederations, civil society and donors (Fox 2008). An annual, participatory poverty assessment provides an alternative perspective on poverty in the country, usually aiming to present voices and perspectives of the poor. Although participation is an important first step, the impacts of the PARPA process remain very limited. Low capacity of both the Government and civil society impedes meaningful participatory monitoring and presents a major obstacle to effective civil-society participation (see also Section 4.2).

17 Originally from 2006 to 2009, then prolonged until 2010.

18 If national interest is broadly defined as broadly as ‘poverty reduction’ or ‘accelerated growth’, it is possible to have most social groups and organizations on board, for example. Such a definition of the national interest is useless, however, from the point of view of supporting ownership, leadership and commitment, because it offers no clear reference point for the political, social and economic agenda (Castel-Branco 2008).

19 The annual PES is basically a prevision for the following year that establishes quantitative and qualitative goals for each sector, without links to other sectors. The targets are usually set independently by the line ministries.

German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Matthias Krause / Friedrich Kaufmann 5.2 Industrial policy strategy The so-called ‘Industrial Policy and Strategy’ that the Council of Ministers approved in July 2007, intends to stimulate production and productivity. It also supports the creation of conditions that allow for the introduction of new technologies, qualifications, ways of organising production, and products (República de Moçambique 2007a, 4). It takes a very broad and general approach, which gives the impression that the Government does not want to “miss anything” – instead of setting a clear, realistic focus. The strategy paper strikingly does not address the specific role of the mega projects and how they could strategically be used to boost economic development (APRM 2009, 165).

The strategy recommends several selective industrialpolicy measures (see below). These recommendations are based on general principles, such as an industry’s ability “to modernize and develop rapidly” and to penetrate domestic and international markets; to positively contribute to the balance of payments (through exports or import substitution) and the State budget; to contribute to diversification, particularly of rural markets and production; to maximise linkages and the use of national resources; and to contribute to employment and to the reduction of regional imbalances (República de Moçambique 2007a, 25).

In particular, the following selective industrialpolicy approaches are highlighted:

• “The development of linkages between the beneficiaries of industrial development, encouraging them to organize into productive clusters in order to increase the productivity and efficiency of the entire value chain.

• Focus on areas that have a major economic and social impact, such as for instance the food-processing industry, with its capacity to maximize agricultural and fishery potential, and in turn providing multi–sectorial linkages, employment, and import substitution as well as increased and diversified exports.

• The promotion of the vertical and horizontal integration of the food sector.

• The promotion of industries that allow for the adequate and sustainable exploitation of productive resources and capacities, such as industries for the processing of timber and its derivatives, and industries producing construction materials, among others.

• The promotion of import substitution for the metal, the chemical and the construction material industries.

• The development and the strengthening of Free Zones with a view to attracting both capital and labour intensive industries” (República de Moçambique 2007a, 4).

The strategy also includes some functional (non-selective) measures, like programmes to develop infrastructure services (energy, water and transport); vocational training programmes for technical capacity building and “the promotion of public-private partnerships for the development of technological services, alternative technology, information and industrial counselling” (República de Moçambique 2007a, 5).

The document does not address whether the State has the capacity to design, coordinate and implement these industrial policy measures. The need to improve coordination and sharing of information among the authorities and stakeholders is recognised. But there is no mention of concrete actors or coordination platforms that would be responsible for implementing the action plan. Moreover, the issue of how to finance the public investments needed to achieve the goals of the strategy (e.g., in infrastructure and vocational training programmes) is not addressed. (Hardly any resources are available from the national 28 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Industrial policy in Mozambique budget, which means that these investments depend to a large degree on the availability of donor funds.) The paper also sketches a monitoring plan, but says nothing about one important challenge to the implementation and monitoring of the complex industrialpolicy approaches proposed: the public administration’s low capacity.

The strategy paper further refers to sub-sector strategies (either already elaborated or to be elaborated with the assistance of consultants), which thoroughly analyse the market potential and the conditions of the respective sectors, using international benchmarking along the value chain.

One example is the sub-sector strategy for the textile industry (República de Moçambique 2008b). But concrete policy measures and the actions necessary to boost textile production are not developed in the document, and there is no clear commitment discernable to provide the public and/or specific goods needed to transform the potentials analysed into practical results.

5.3 SME policy strategy The “Strategy for the Development of Small and Medium Size Enterprises in Mozambique”, which was approved in August 2007 (República de Moçambique 2007b), results from the demands of PARPA II and the Industrial Development Strategy. Because of limited national experience and capacity, it was elaborated with the assistance of donors and external consultants. Although CTA was consulted throughout the process of strategy formulation, private sector representatives and Government officials were not able to agree on certain important elements. During the consultations, for example, private-sector participants advocated for creating a non-governmental institute for SME promotion. But this was not in the interest of the Government, who decided to set up a State-owned SME institute (see below).

The document underlines the important role of SMEs as drivers of employment, competitiveness, diversification and innovation, as well as their role in mobilising social resources (República de Moçambique 2007b, 1; see also Kaufmann / Fungulane / Macamo 2008).

The strategy analyses Mazambique’s status quo, its specific complex barriers and shortcomings to SME development – and defines objectives, priority measures and a sequence of actions. A State-owned SME institute, the Instituto para a Promoção das Pequenas e Médias Empresas (IPEME) was founded in 2008 to implement or facilitate the strategy.

The lines of actions proposed in the strategy are threefold:

1. improve the business environment for SMEs

2. strengthen SMEs’ technological and management capacities

3. give strategic support (e.g., to exporters and high-tech firms, etc.) The strategy emphasises that selective interventions are likely to fail unless the general business environment is improved. Thus, improvement of the business environment to create a level playing field and reduce the transaction costs for SMEs takes priority in sequence and importance. This item is high on the political agenda; currently, the introduction of a ‘negative licensing system’ to spur enterprise creation is being discussed. This basically means that any SME that applies for a license is automatically licensed unless the competent authority explicitly objects the application for justified reasons. Simplification of the arbitrary inspection and tax systems is also part of the reforms.20 In 2008, a general “Strategy for Improving the Business Climate” was approved, which addresses these issues in detail (see below).

20 For more details on these and other barriers for SME development, see Krause et al. (2010).

–  –  –

Figure 2: The SME development strategy Source: República de Moçambique (2007b, 36) The second pillar, capacity development, will also include all sectors and regions. The newly founded IPEME is supposed to play an important role as facilitator here. Only the third pillar is selective. Its focus will be on growth drivers, such as export-oriented SMEs and high-tech companies, which would qualify for special credit lines or special creditguarantee conditions (República de Moçambique 2007b, 35ff). Figure 2 shows the planned system for SME development (República de Moçambique 2007b). Since both the strategy and IPEME are very recent, it is too early to evaluate their success.

As conceived in the strategy, IPEME’s role is that of a facilitator and not one of an implementer. The basic idea is that IPEME will facilitate access to private businessdevelopment services. The strategy draws on lessons learned from prior unsuccessful experiences in the area of SME support. The IDIL (Instituto de Desenvolvimento Local Industrial)21 and FFPI (Fundo de Fomento à Pequena Industria)22, which, with its own advisory staff and credit funds, took a more ‘implementing stance’, will be closed down.23 21 IDIL ran an incubator near Maputo and offered training courses to small-scale entrepreneurs and start-ups.

22 FFPI gives credits up to USD 60,000 to SMEs. For more details, see Bogarello et al. (2004, 25).

23 Although no impact assessments of IDIL and FFPI are available, no significant impact has been visible.

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