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Mainstreaming trade: a poverty reduction strategy for Mozambique

Supported and funded by the Trade Capacity Building Project
U.S. Agency for International Development (USAID)

Nathan Associates

October 2002

SARPN acknowledges the DEC website as the source of this analysis:
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Despite regional conflict, devastating floods, and fluctuating world prices for its commodities, Mozambique has made significant gains in economic growth and reform in the past decade. Still, the country is among the world's poorest, with more than two thirds of its population classified as poor and many living in extreme poverty.

To lift its citizenry from poverty, Mozambique must grow quickly and sustain that growth over a number of years. At present, however, the internal market is too small and the purchasing power of Mozambican consumers too low to expand production at the rate required to achieve such growth. Improvement in national welfare will instead depend on export growth. The challenge: develop a strategy that will help Mozambique achieve export growth while ensuring that such growth provides economic opportunities and income to the poor.

The position of this report is that trade must become an integral part of Mozambique's strategy to stimulate sustained growth and to reduce poverty. Only when the public and private sectors address constraints to trade and investment in a comprehensive and collaborative manner will Mozambican entrepreneurs be able to increase exports and create jobs, thereby helping to reduce poverty. Addressing these constraints implies a broad, but necessary, agenda - an agenda fraught with obstacles. Overcoming such obstacles will require endorsement at high political levels, effective intergovernmental coordination, public-private partnership, and targeted donor-funded technical assistance.

One such obstacle is the lack of consensus on the value of trade liberalization, as well as other measures for accelerating export growth. This lack of consensus is reflected in Mozambique's national poverty reduction strategy paper (PRSP). According to the PRSP, the main goal of economic policy is strong and broad-based growth with poverty reduction. To reach this goal, the government has stated its commitment to maintaining financial discipline, improving the environment for the expansion of private sector activities, and fostering development of a strong export base through liberal trade and investment policies. Interviews with policymakers and reviews of policies, however, reveal that stated commitment is not supported by action. Necessary reforms are either not enacted or not implemented. Effecting change will require not only high-level commitment to change but also an interagency and public-private mechanism devoted to achieving it.

In addition, while trade liberalization may be necessary to pro-poor export growth, it is not sufficient. Developing export capacity will require economy-wide changes to (1) reduce anti-business bias in the regulatory system, (2) improve the transportation infrastructure that links Mozambican producers to global markets, (3) reduce transaction costs that render Mozambican exports uncompetitive in world markets, and (4) attract domestic and foreign investment to labor-intensive sectors of the economy.

This report presents an assessment of Mozambique's trade integration needs and the relationship of those needs to poverty reduction goals. Chapter 2 describes the relationship between exports, economic growth, and poverty reduction in general. Chapter 3 provides an overview of Mozambique's current economic environment, including its resources, macro-economy, investment climate, and trends in imports as well as exports. Chapter 4 describes Mozambique's untapped export potential in various industries. Chapter 5 discusses Mozambique's opportunities for increasing access to foreign markets through trading arrangements, multilateral, regional, and preferential. Chapter 6 describes the institutions and processes involved in trade and investment policy, negotiations, and public-private coordination in Mozambique. Chapters 7 and 8 describe constraints in the trade and investment environment and the regulatory environment. Chapter 9 describes the necessity, value, and virtues of a national trade strategy and proposes creation of a National Trade Strategy Committee as a coordinating mechanism. Chapter 10 describes what will be necessary to prepare for the effects of trade liberalization, particularly short-term negative effects on the rural poor and displaced workers. Persons interviewed for this report are listed in Appendix A and sources consulted are listed in Appendix B. Recommendations for capitalizing on Mozambique's inherent strengths, for addressing constraints, and for pursuing opportunities are presented throughout the report.

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