This week we take a closer look at Mozambique. As indicated last week, these articles highlight the progress a number of countries in Sub-Saharan Africa have made over the last two decades and the lessons we can learn.
The Ritesh Anand Column
These countries are by no means perfect examples as every country has its challenges, but we can learn as much from their failures as we should from their successes. Zimbabwe needs to define its own economic model and policy based on its own philosophy, ideology, values and principles.
Once clearly defined, investors can decide whether they wish to invest in the country or not.
In any environment and more so in a dollarised economy, it is imperative to develop an environment that fosters growth and development and encourages foreign investment. In the absence of domestic liquidity and savings, attracting foreign investment becomes critical to sustain long-term development.
Much has been written about the loss of competitiveness due to the weakness in the South African rand. Zimbabwe is the only country in Africa to adopt full dollarisation. While it is a bitter pill to swallow it provides sought-after stability for investors.
It is surprising that we have not seen greater interest from South African-based investors looking to diversify risk, but recent announcements regarding the investment in Cairns and Blue Ribbon Foods are encouraging. Investors are starting to pay closer attention to Zimbabwe and we need to build on the goodwill of the international community towards Zimbabwe. So let us see what we can learn from Mozambique.
Mozambique’s annual Gross Domestic Product (GDP) growth averaged 7,4% over the past two decades. Sound macro-economic management, large-scale foreign investment projects, political stability and significant donor support have contributed significantly to such performance.
However, the rapid growth of the past decades has not always translated into significant poverty reduction. Strong economic growth was accompanied by large decreases in poverty until the early 2000s.
The national poverty headcount fell by 14 percentage points between 1997 and 2003 to 56%, while income per capita grew by 36% during the same period.
In contrast, poverty fell by only 4% between 2003 and 2009, a much slower rate of decline.
The weakened relationship between growth and poverty reduction is due to the changing pattern of growth, which in the past decade was driven by capital-intensive, import-dependent sectors.
This pattern of growth is also reflected in labour markets, which continue to be dominated by low skilled labour in the agricultural sector.
Meanwhile, the rest of the economy is unable to offer better-paying jobs for the 300 000 new workers entering the labour force every year.
Recent discoveries of large deposits of coal and gas may transform Mozambique into a significant player in global markets. However, in order for Mozambique to reap the benefits of a growing resource sector it will need to develop the capacity to manage the country’s extractive industries and ensure that they contribute to sustainable and broad-based growth.
Recent “mega-projects” in coal, mineral sands and natural gas extraction and processing have thus far had only a limited impact on employment and poverty reduction. Some of the challenges ahead include the formulation of strategies for developing Mozambique’s coal and natural gas reserves, determining how these industries interact with other economic sectors, and ensuring that the expected increase in natural resource revenues are used in the most effective way, avoiding the fate of many other natural resource-rich countries, including Zimbabwe.[quote style=”boxed” float=”left”]Since 2000 Mozambique has raised over US$18,7 billion while Zambia has raised over US$11,5bn. During this period Zimbabwe has raised less than US$2bn.[/quote]
In the last two years, Mozambique has raised over US$11,5bn following the discovery of the coal and gas deposits. Zimbabwe has abundant natural resources and could easily attract similar if not better levels of forein direct investment (FDI).
Before the multi-currency system, raising FDI was not so critical as government to could print money to support the economy and investment. In a dollarised environment that is not possible. We can either rely on domestic savings to spur investment or open our economy to foreign investors.
Once again, it is critical to define an investment policy that is synonymous to the needs of investors while ensuring there is appropriate local participation. Ultimately, communities should benefit from inward investment through job creation and mutually beneficial equity participation. Investors (domestic or international) would naturally be reluctant to relinquish majority stake at the onset.
Structural reforms, sound macro-economic policies, opening up to the global economy and political stability have generated strong growth since Mozambique emerged from the civil war and started its transition from a controlled to a market economy.
Zimbabwe can learn much from the experiences of Mozambique, Zambia, Kenya and Tanzania. Over the last two decades, these countries have transformed their economies through the adoption of open market economic policies. They have developed stable macro-economic conditions and an investor-friendly environment.
The recent slowdown in the global economy, especially China, is likely to have a negative impact on number of African economies in the short-term. Zambia is already showing signs of weakness with the currency depreciating over 30% in recent months.
Despite the short-term weakness these countries have laid the foundations for sustainable long-term growth and development. Zimbabwe needs to build on the foundations it already has post-dollarisation.