The Political Economy of Industrial Policy in Mozambique · The Political Economy of Industrial...
Transcript of The Political Economy of Industrial Policy in Mozambique · The Political Economy of Industrial...
The Political Economy of Industrial
Policy in Mozambique
By Epifania Langa
Institute of Social and Economic Studies - Mozambique
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Day 2 Paper SC3
Presented at REPOA’s 22nd Annual Research Workshop
held at the Ledger Plaza Bahari Beach Hotel, Dar es Salaam, Tanzania;
March 29 - 30, 2017
This preliminary material / interim, or draft research report is being disseminated to encourage discussion and critical
comment amongst the participants of REPOA’s Annual Research Workshop. It is not for general distribution.
This paper has not undergone REPOA’s formal review and editing process. Any views expressed are of the author(s)
and do not necessarily represent the views of REPOA or any other organization
Draft – Strictly Not for Quotation
1. Introduction
‘Africa Rising’ narrative VS Premature de-industrialisation
scenario in most African countries;
The case of Mozambique: rapid economic growth with inability
to reduce poverty;
Calls for urgent rethinking of the role of industrial policies (IPs)
Studies on the political economy of IPs in Africa: narrow focus
on specific factors either economic, political or institutional
need for a comprehensive approach investigating how the
market, economic structures and agents interact and influence
each other;
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1. Introduction
Main objectives: - Analyze how the productive base of the Mozambican economy has
evolved, focusing on industrial dynamics;
- Use a political economy approach to interpret the current state of the industry, emphasizing on factors shaping orientation, implementation and outcomes of IP in Mozambique;
The research is based on a desk-study and secondary data research, surveying existing academic publications (including IESE’s own primary research), databases, documents and reports.
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2. Theoretical Framework
2.1 Structural transformation and the role of industrial policy
How to trigger structural transformation in Africa with industrial, particularly manufacturing development?
- IPs to facilitate exploitation of latent comparative advantage (Lin, 2013);
VS
- IPs to accelerate learning and technological capabilities accumulation – the distinctive feature between developing and developed economies (Amsden, 2001, 2009; Chang, 2013; Khan, 2013; Lall, 2004);
IPs in developing countries:
- Correcting market imperfections;
VS
- Generating decent employment, improve skills, qualifications and wages across all socio-economic strata;
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2. Theoretical Framework
2.2 Conditions for successful industrial policies
Developmental State (Evans 1995; 1997);
Business-state relations – Embedded autonomy (Rodrik, 2007);
Reciprocal control mechanism – rent management (Amsden, 2001);
Yet, whether the state can act as developmental, ensure embedded
autonomy or enforce reciprocal control mechanisms depends on the
political economy context;
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2. Theoretical Framework
2.2 Conditions for successful industrial policies
Politics matter: implementation of IPs involves allocative and
institutional changes affecting the current distribution of economic
benefits (Khan, 2010);
Overcoming social contestation with different degrees of
distribution of power within and outside the ruling coalition;
Formation of new social classes and underlying interests;
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3. The Mozambican economy and its industrial sector
Rapid economic growth (average annual real GDP growth between 1995 and 2014 of 7%) driven by large inflows of foreign capital (ODA, FDI and loans)
Graph 1: Evolution of resource flows to Mozambique 1995-2014, current millions US$
Source: WDI, 2017
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0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Net official development assistance Foreign direct investment Loans (official and private creditors)
3. The Mozambican economy and its industrial
sector
Concentrated and extractive productive base: primary commodities dependence
Discoveries of large reserves of oil will increase concentration
Graph 2: Mozambique’s export structure 2001-2015, US 000’
Source: Trademap
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0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Aluminium Coal and coke Electrical energy
Gas Tobacco Ores
Sugars and sugar confectionery Wood and articles of wood Fruita and nuts
Machinery and parts Cotton Fish and crustaceans
Beverages, spirits and vinegar Mineral oils All products
3. The Mozambican Economy and its industrial sector
Small and stagnated industrial production excluding FDI megaprojects
Graph 3: Mozambique’s industrial production in 1996-2015, constant 2009, millions LCU
Source: National Institute of Statistics
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0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Total industrial production
Total industrial production excl. gas and coal
Industrial production excl. extractives and aluminium
3. The Mozambican Economy and its industrial sector
Concentrated industrial production excluding FDI megaprojects
Table 1: Main industrial products share on sub-sector and on total manufacturing output
Source: National Institute of Statistics
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Share on sub-sector
1997 2006 2015
Cement 63% 87% 96%
Beer and Soft Drinks 64% 96% 68%
Sugar and Wheat 54% 71% 47%
Tobacco 29% 100% 72%
Share on total
manufacturing
44% 75% 60%
3. The Mozambican economy and its industrial sector
Graph 4: Manufacturing sector value-added in Mozambique 1995-2015 (% annual growth)
Source: WDI
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-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Sugar, beverages
and cement
Aluminium smelter (first
phase)
Aluminium smelter (second
phase)
3. The Mozambican economy and its industrial
sector
Premature de-industrialisation in Mozambique:
Manufacturing production increasingly concentrated: shrinkage of the variety of existing products and industries, and new products are not emerging (Castel-Branco, 2010);
On-going technological obsolescence combined with simplification of productive processes (Cruz et al, 2014; Warren-Rodriguez, 2008)
Consequently, backward linkages between SME and FDI megaprojects (Langa & Mandlate, 2015):
Are short-term and limited to basic services provision;
Reproduce the same patterns of concentration, fragmentation and instability;
Business growth for domestic firms is sustained through diversification but with loss of industrial specialization, undermining structural transformation;
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4. Understanding industrial policy dynamics in
Mozambique
IP orientation restricted to:
Macroeconomic stability and business environment
improvement;
‘Horizontal’ interventions ;
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4. Understanding industrial policy dynamics in
Mozambique
Fragmentation and lack of coordination of instruments of IP
and between sectors, government levels and different actors:
Donors diverging interests and discoordination Outcomes
are limited in scope and short-term (ex. Fragmented
intervention around linkage promotion) (Krause & Kaufmann,
2011; Langa 2015);
Power fragmentation within the national ruling elite Effective
enforcement of policies requires high political support to
overcome internal contestation (ex. sugar industry) (Whitfield
et al, 2015);
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4. Understanding industrial policy dynamics in
Mozambique
Small, weak and emerging domestic private sector
Earlier emergence of a black domestic private sector prevented
before independence and by state-led development adopted
after;
Emerged from the privatization process in the 1990s;
Weak capabilities and absent firm rehabilitation and
development mechanisms Most firms traded, turned into
warehouses or became bankrupt within five years after
privatization (Cramer, 2001; Castel-Branco et al, 2001);
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4. Understanding industrial policy dynamics in
Mozambique
Emerging domestic private sector dynamics
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Weak productive capabilities
Limited and disarticulated
markets
Financial system discriminating against SME
Restrictive IP, neglecting learning and technological
upgrading
Incentive structure of
the economy gearing
firms to seek links with
international capital for
the generation of quick
payoffs
Vicious cycle of low capabilities reproduction
5. Final Remarks
Reverting premature de-industrialisation trend in most African
economies, including Mozambique, requires IP shift from
reliance on comparative advantage to effectively ensuring
learning and technological capabilities accumulation;
Key drivers of IP outcomes in Mozambique: the interplay
between dominant policy orientation, degree of attainable
strategic coordination and power dynamics, and the
characteristics of the domestic private sector;
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