Mozambique has abundant natural resources, natural gas reserves, a young population, and a strategic position in Southern Africa. Yet it remains one of the world’s poorest nations. To unlock the country’s economic potential for sustainable growth the focus must be on infrastructure and government regulation, write Andrea Correa-Jimenez, Rahat Siddique, Fernando Pino

Correa Jimenez, Andrea Correa

Pino Magna, Fernando

Siddique, Rahat

English

LSE Research Online

Andrea Correa-Jimenez Rahat Siddique Fernando Pino July 17th, 2024Unlocking Mozambique’s economic potential forsustainable growth0 comments | 2 sharesEstimated reading time: 4 minutesMozambique has abundant natural resources, natural gas reserves, ayoung population, and a strategic position in Southern Africa. Yet itremains one of the world’s poorest nations. To unlock the country’seconomic potential for sustainable growth the focus must be oninfrastructure and government regulation, write Andrea Correa-Jimenez, Rahat Siddique, Fernando Pino.Following the end of the civil war in 1992, Mozambique experienced strongeconomic growth, mainly due to reconstruction efforts, market-orientedreforms, and favourable global commodity prices. From 2000 to 2015, theextractive industries led economic dynamism, resulting in an averageannual growth rate of 4.7 per cent per capita.06/08/2024, 15:50 Unlocking Mozambique's economic potential for sustainable growth | Africa at LSEhttps://blogs.lse.ac.uk/africaatlse/2024/07/17/unlocking-mozambiques-economic-potential-for-sustainable-growth/ 1/9This growth trajectory was disrupted in the 2010s by falling export prices, adebt scandal, and then, in 2020, by the Covid-19 pandemic (Figure 1). Theseevents led to an economic contraction and a signi cant increase in povertylevels, which reached over 60 per cent in 2020. Now, the country’s GDP percapita stands at around £385, well behind other resource-based economiesand the sub-Saharan African average.Simple average of countries. SSA excludes Mozambique. The peer group iscomposed of South Africa (ZAF), Cameroon (CMR), Ghana (GHA), Uganda(UGA), Tanzania (TZA), Rwanda (RWA), Zambia (ZMB), and Chile (CHL).Source: WDI.Identifying challengesThe  rst step is to diagnose the problem. The government’s limited capacityto provide public goods is due to poor economic performance and lowlevels of private investment.Although Mozambique has received signi cant domestic and foreigninvestment in recent years, most of these investments have been directedtowards extractive industries. However, these industries have limited linksto the rest of the country’s economy, resulting in a lack of employmentopportunities, low labour productivity, an underdeveloped economy, anextensive informal labour market and a reliance on agriculture.To unlock Mozambique’s economic potential, it is necessary to improvephysical infrastructure and protect intellectual property while keeping  scalpolicy stable. This will help increase private investment and create a diverse06/08/2024, 15:50 Unlocking Mozambique's economic potential for sustainable growth | Africa at LSEhttps://blogs.lse.ac.uk/africaatlse/2024/07/17/unlocking-mozambiques-economic-potential-for-sustainable-growth/ 2/9and complex economy (Figure 2). To achieve this, the government musttackle the three immediate challenges limiting its capacity: poorinfrastructure, regulatory barriers, and weak government coordination.Road infrastructure needs to be at the centre of these policies. A strategic,transparent, and accountable plan for road development is needed as wellas engagement with the private sector through public-private partnerships.Authors’ elaboration based on the Growth Diagnostic of Mozambique(Arroyo, Canavan, and Enciso; 2024).Inadequate infrastructure in Mozambique is preventing private investmentand sti ing economic growth, especially in the rural and agriculturalsectors. The road system has remained in poor condition for many years,with 80 per cent of it unpaved and in dire need of maintenance. This hasresulted in high transport costs, making it di cult for farmers, domesticcompanies, and large investors to access domestic and foreign markets.The road network has limited connections between rural and urban areas.This has reduced the capacity of workers to move into higher value-addedindustries. Unfortunately, public road investment has been constrained dueto a lack of resources and the state’s inability to manage publicinfrastructure investment and maintenance programmes.One reason for this lack of resources is its excessive bureaucraticprocedures and regulations. These include restrictions on accessing landfor productive sectors and demonstrate the government’s inability to fostera business-friendly environment. These obstacles result in increased costsfor new and existing  rms, lead to a decline in medium-sized enterprises,06/08/2024, 15:50 Unlocking Mozambique's economic potential for sustainable growth | Africa at LSEhttps://blogs.lse.ac.uk/africaatlse/2024/07/17/unlocking-mozambiques-economic-potential-for-sustainable-growth/ 3/9and push people into the informal economy, with 96% of the workforce inthe informal sector.Accessing land is complicated, with lengthy procedures for registering andtransferring user rights. These hurdles deter investment and sustain afeedback cycle of petty corruption, as companies circumvent regulatoryobstacles to continue their operations and investments.While the workforce is informal, the government is siloed. There is a needfor greater coordination among government agencies. There are currentlyoverlapping responsibilities and ineffective policy implementation, whichultimately hampers private  rms’ trust in the government’s ability to create afavourable business environment and follow though with any promisedinvestment or policy.Bureaucratic processes to access land have shown to be burdensome, withthe land access performance in Mozambique being very low compared toits peer countries. The country has scored just 53 out of 100 in theregistering property score, and 7.5 out of 30 in the quality of landadministration index. Poor regulatory quality and weak governmentcoordination further hinder investment attraction, which is crucial forbuilding a more productive economy.Policy recommendations for inclusive growthIn terms of infrastructure, establishing a high-level board to oversee thelong-term strategic plan for road infrastructure can ensure transparencyand accountability. This should be accompanied by the creation of adelivery unit to implement the plan and monitor progress. PPPs need toimprove their legal framework to support road infrastructure investment.Alongside this, there is the need to develop a prioritisation criterion forinvestment projects based on their impact on market access, agriculturalgrowth, and regional connectivity.The reforms to regulation and government coordination need to besimpli ed. Particularly, the business registration processes and the access,06/08/2024, 15:50 Unlocking Mozambique's economic potential for sustainable growth | Africa at LSEhttps://blogs.lse.ac.uk/africaatlse/2024/07/17/unlocking-mozambiques-economic-potential-for-sustainable-growth/ 4/9transfer, and use of land-use rights certi cates. Implementing digitalreforms for transparency and accountability, including digitising core publicprocesses can improve connectivity among government entities. Similarly,adopting a business-friendly and risk-based approach to governmentinspections can foster cooperation with businesses while ensuringregulatory compliance. The Ministry of Industry and Trade needs to developan effective, well-oriented action plan to integrate all these policies.There are additional considerations such as strengthening public  nancemanagement and improving the revenue administration to generate  scalspace for the development of the infrastructure strategy. Effectiveimplementation requires collaboration among government, privatestakeholders, and technical experts. This decisive action is already beingshown in the design of the country’s National Development Strategy andcan shape a path towards a resilient, diversi ed, and inclusive economy thatfosters prosperity for all its citizens. But it needs to continue and is only justthe start.The Growth Co-Lab at LSE recently partnered with Mozambique’s Ministryof Economy and Finance, the US Agency for International Development, theInternational Monetary Fund and the African Development Bank to identifythe best ways to promote inclusive economic growth using the growthdiagnostics framework. Read more about the research here. Photo credit: Eric Fortin used with permission CC BY-NC-ND 2.0About the authorAndrea is a research o cer at the Growth Co-Lab. She has experiencein monetary and  scal policy, macroeconomic modelling, and climatechange. She has previously consulted for the IDB evaluating policyAndrea Correa-Jimenez06/08/2024, 15:50 Unlocking Mozambique's economic potential for sustainable growth | Africa at LSEhttps://blogs.lse.ac.uk/africaatlse/2024/07/17/unlocking-mozambiques-economic-potential-for-sustainable-growth/ 5/9Posted In: Development | Economics | ResourcesLeave a Replyimpacts on LAC economies. She holds a master's in publicadministration from LSE, specialising in economic policy.Rahat is the Policy Manager at the Growth Co-Lab and a Policy Fellowat HM Treasury. Her interests focus on UK economic policy anddecarbonization. She previously worked at the CBI and the Centre forEconomic Performance at LSE. Rahat holds a master’s in public policyand a bachelor’s in economics from LSE.Rahat SiddiqueFernando has worked at the Growth Co-Lab, LSE’s economicsdepartment, and the IGC on economic growth and development policyin Tanzania, Mozambique, and Zambia. He also studied bankruptcyregulation and innovation in the US. Previously, he was a  nancial andeconomic analyst for Chile’s Ministry of Labour and Central Bank,focusing on  nancial stability and pensionsFernando Pino06/08/2024, 15:50 Unlocking Mozambique's economic potential for sustainable growth | Africa at LSEhttps://blogs.lse.ac.uk/africaatlse/2024/07/17/unlocking-mozambiques-economic-potential-for-sustainable-growth/ 6/9

Unlocking Mozambique’s economic potential for sustainable growth

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Unlocking Mozambique’s economic potential for sustainable growth

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