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Economic growth as an instrument for poverty reduction in Mozambique:
Framework for a growth strategy


Gabinete de Estudos Discussion Paper No. 12a

Bruce R. Bolnick*

SARPN acknowledges the TIPMOZ-website as the source of the document: www.tipmoz.com
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Introduction

  1. Poverty reduction is the central goal of the Government's medium-term economic program. This commitment is expressed in many policy documents, including the Programa do Governo para 2000-2004, the Government Document to the Consultative Group, the Interim Policy Reduction Strategy Paper (I-PRSP), and the Plano de Acção para Redução da Pobreza Absoluta 2000-2004 (PARPA). The focus on poverty is equally endorsed by the international community, as reflected in the decision of the World Bank and the IMF in 1999 to frame future support for low-income countries on the basis of poverty reduction strategies.


  2. Despite the remarkable progress that has been achieved over the past five years, Mozambique remains one of the poorest countries in the world.1 According to the National Human Development Report 1999 (NHDR99), Mozambique still has the lowest Human Development Index (HDI) and the highest Human Poverty Index among the 14 SADC member countries. The weakest component of the HDI for Mozambique is per capita income: "This imbalance, to the detriment of living standards, reveals a great weakness in the whole foundation that is indispensable to sustainable human development." (NHDR99, p.24.) Strengthening the economy is therefore indispensable for poverty reduction and human development.


  3. The Government's economic program is designed to reduce absolute poverty by 30 percent by 2010, which implies a decline in the poverty head count to under 50 percent by the end of the decade.2 According to Government estimates,3 this goal can only be achieved if per capita income grows by at least 5 percent per year over the next ten years. This requires a GDP growth rate in the neighborhood of 8 percent per year or more.


  4. This growth target is ambitious, but feasible.4 For the decade 1985-95, nine countries managed to maintain per capita growth above 5 percent per year, including two from Africa: Botswana and Mauritius. These success cases5 demonstrate that the objective can be realized, with appropriate policies. They also reveal that the benefits of success are profound. For these nine countries, per capita income grew at an average rate of 6.5 percent per year; at this rate, living standards double in just over a decade. If this growth can be sustained for a quarter century - as achieved by seven countries6 -- average incomes rise nearly five-fold, completely transforming living standards and the quality of life for the people. In contrast, the average growth rate for all developing countries was 0.7% over the period 1985-95; at this rate, average incomes increase by only 19% in a quarter century, offering no hope for significant poverty reduction.


  5. No single ingredient or universal formula can guarantee success.7 The appropriate package of policies must be specific to time and place. For example, the nine success cases noted above were quite different in many respects, such as the scope of government intervention, initial levels of education attainment, and degree of dependence on primary product exports. Still, valuable lessons can be learned from the last half-century of international experience. Indeed, the success cases shared many elements in common, including: political stability; a consistent commitment to macroeconomic stability; high rates of saving and investment, including investment in human capital and productive infrastructure; a leading role for the private sector as the engine of growth; development of reliable market-supporting institutions; deliberate policies to expand and diversify exports; and deepening of financial markets.


  6. What, then, is the best strategy for Mozambique to sustain rapid growth that benefits the poor? This paper provides an analytical framework for addressing the question, based on a review of the lessons suggested by international studies of growth and poverty reduction, taking into account the special conditions and constraints in Mozambique. The analysis is based on six fundamental ideas about to the development process:

    • First, that rapid, broad-based and sustainable growth is an essential and powerful instrument for poverty reduction. Prosperity for the people will remain out of reach unless there is a tremendous expansion in productive capacity, and a corresponding increase in the resource base for financing public-sector programs.


    • Second, that high rates of saving and investment, and rising productivity are the foundation for rapid and sustainable growth . These three basic factors should therefore figure prominently in the development of a successful growth strategy. At the same time, the distribution of investment and productivity gains has to be broad based, to ensure that growth benefits the poor.


    • Third, that human development plays an essential role in fostering growth. Growth and human development are mutually reinforcing: growth promotes human development, and human development promotes growth. An effective program to foster growth and human development creates a "virtuous circle" of accelerated progress in poverty reduction. Effective policies for human development are therefore a vital component of the growth strategy.


    • Fourth, that rapid, sustained and broad-based growth is achievable. Fifty years ago no one dreamed that a poor country could sustain per capita income growth above 5% per year. Yet this outcome has been realized by a handful of countries. Mozambique is well placed to match or surpass this standard, but success depends on maintaining a high rate of investment and steady gains in productivity.


    • Fifth, that government policies, programs and institutions are critical determinants of investment, productivity, and hence growth. While the private sector is the main engine of growth, government is the catalyst. Rapid, sustained and broad-based growth requires an environment of well-conceived and consistent policies, efficient administration of public programs, and effective public-sector institutions that facilitate private initiative.


    • Finally, that the people are the central players in the growth process, not passive "target groups" for actions taken by government. The growth strategy must address the needs, capabilities, potentialities, aspirations and vulnerabilities of poor households, as essential participants in a successful development process. It must also facilitate the development of domestic entrepreneurs, while taking full advantage of growth opportunities afforded by foreign investment.


  7. The remainder of the paper is structured as follows. Section II begins by defining the concept of poverty that is used here. Section III discusses the links between growth and poverty reduction. Section IV examines the basic macroeconomic determinants of growth. Section V then assesses the policies and institutions that are most important for achieving success. Section VI discusses sectoral and regional considerations, while section VII highlights the importance of evaluating growth policies from the point of view of poor households themselves. Section VIII discusses the importance of an open, transparent and participatory policy process as an instrument for economic policy management. Finally, section IX offers a short summary and concluding comments.


Footnotes:

    * Center for International Development, Harvard University and Gabinete de Estudos, Ministério do Plano e Finanças, Government of Moçambique. Views expressed in this paper are the responsibility of the author and do not represent the position of the Ministry of Planning and Finance.
  1. According to the World Bank, World Development Indicators 2000, seven countries -- Ethiopia, the DRC, Burundi, Sierra Leone, Guinea Bissau, Eritrea and Niger -- rank lower than Mozambique in terms of per capita income for 1998. Using the Purchasing Power Parity measure of income, the WDI shows twelve countries below Mozambique.
  2. As stated in the PARPA and the I-PRSP.
  3. See the Government Document to the Consultative Group Meeting, June 2000.
  4. Even so, the UNDP's National Human Development Report for 1999 views this target as "excessively modest and slow from the point of view of the population's needs." (p.32) In a similar vein, the World Bank's recent report on growth prospects for Mozambique (World Bank 2000) suggests that: "Making a significant dent in poverty…will require that the economy sustain the double-digit growth rates of the past three years." Neither report, however, provides a feasibility analysis for this super-growth scenario.
  5. China (the leader at 8.2% per year), Indonesia, Thailand, Mauritius, Malaysia, Chile, Korea, Hong Kong, and Singapore. Source: World Development Indicators CD-ROM, 2000, using series for per capita GNP in constant 1995 US$.
  6. For the 25-year period 1970-1995, 6 countries maintained average per capita growth of 5% or more: Botswana (the leader at 7.6% per year), China, Hong Kong, Korea, Singapore, and Thailand. Source: see previous footnote.
  7. This point is emphasized in the World Bank, World Development Report 1999/2000.


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