24 January 2014

Mozambique: Growth Has Not Led to Economic Transformation

Maputo — Although the Mozambican economy has been growing at an average rate of seven per cent a year for the past two decades, this has not yet led to the economic transformation of the country, according to research published in Maputo on Thursday.

This study, entitled “Survey of Manufacturing Industries 2012” says that economic growth has been driven by mineral resource discoveries, the increase in the prices of basic goods and the recovery of domestic demand.

“However, this growth has not yet been accompanied by a generalised structural transformation, and poverty reduction is less than expected”, admits the study, which is the joint work of the Confederation of Mozambican Business Associations (CTA), the Ministry of Planning and Development (MPD), and the University of Copenhagen.

The survey gathered data from 761 micro, small and medium enterprises from Maputo and Gaza in the south, Sofala, Manica and Tete provinces in the centre of the country, and Nampula in the north. 216 of these companies had taken part in the previous survey, held in 2006.

The purpose of the survey was to look at the rate of company survival in manufacturing and the changes that have occurred in the sector.

The data show that, of the 90 micro enterprises surveyed in 2006 six have made the transition to become small companies, while two are now classified as medium companies.

On the other hand, of the 92 small companies surveyed in the earlier study, 23 have shrunk and are now considered micro enterprises. 11 grew to become medium companies, while the rest have remained in the category of small companies.

As for the medium companies, the 2006 survey looked at 34 of them - seven of them are now classified as small companies, but none have descended to the level of micro-enterprises.

Perhaps the most shocking finding is that many of the companies surveyed are breaking the law by failing to pay their workers the statutory minimum wage. Almost half of the workers in the companies surveyed earned less than the minimum wage. This was explained away with the claim that the minimum wage is higher than the productivity of many workers.

Presenting the study, the economist Finn Tarp, of the Development Economic Research Group (DERG) of the University of Copenhagen, said that one of the problems noted is that many companies are operating at a very low level of productivity.

“In comparison with other economies in the southern African region, one notes that the degree of survival of small companies in Mozambique is very high. But is this a good or a bad thing?”, he asked.

He believed that, in a context of economic growth, there should be a dynamic in companies, and simple survival “is not a sign that things are going well”.

Tarp stressed that economic transformation in agriculture and in manufacturing industry is not happening in Mozambique, and it was necessary to find out why.

For Augusta Pechisso, deputy national director of studies and policy anaysis in the MPD, stagnation, or the fall of companies to a lower classification, is due to the business environment.

“The restrictions on business remain the same”, she said. “One of the questions to which the report draws attention is that, particularly in the major cities, access to land with the infrastructures necessary for manufacturing industry remains rather difficult”.

Pechisso believed that access to credit remains a barrier for most Mozambican entrepreneurs, even though the micro enterprises surveyed had not identified it as such. “This depends a lot on the size of the company”, she said. “The micro enterprises, for example, didn't feel a lack of credit, because they depend more on their own financing rather than on bank loans”.

The chairperson of the CTA's industry, trade and services portfolio, Mumbaraque Abdulrazac, noted that the government's figures show that the extractive industry grew by 22 per cent in the first six months of 2013, but the growth in manufacturing over the same period was only 4.8 per cent. This year the government's target is a 5.6 per cent growth in manufacturing.

He hoped that the survey's finding and recommendations would contribute to the taking of more informed decisions, leading to the sector's growth.

The research was financed by the Business Environment Fund, a body resulting from a partnership between the Mozambican and Danish governments intended to make the Mozambican business environment more favourable for the private sector.

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