Mozambique: Globalization and Domestic Policy Choices

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Mozambique Globalization and Domestic Policy
Choices

• Frank Flatters
• Queens University, Canada
• May 4, 2006

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Purpose

• Assumption The real question is not whether to
  integrate with the global economy, but how to
  integrate most successfully
• Explore lessons from Mozambique and elsewhere to
  discuss policy options for global integration
• A few key dos and donts

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Outline

• Context
• Private and Public Sectors
• Trade Diplomacy and Unilateralism
• An Agenda for Mozambique

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International context

• Growth, trade, jobs and poverty reduction
• Openness is necessary but not sufficient
• Globalization of production networks
• Export-led growth or import-led growth?
• Logistics and trade facilitation
• Many general lessons but no unique solutions

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Domestic context

• Mozambique has come a long way in a short time
• But it is still poor and has a long way to go
• Some hesitancy and confusion about the way forward

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Private and public sectors

• The private sector must drive growth, but in a
  policy framework set by government
• The government must listen to the private sector
  but must be independent, represent all interests
  and avoid capture
• Global competitiveness as a guiding vision

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Trade diplomacy

• Use trade negotiations to support and lock in
  beneficial reforms, not to delay them
• Induced mercantilism and the fallacy of
  concessions
• Dangers of regional agreements and how to avoid
  them
• Market size, trade diversion, complexity
  (tariffs, rules of origin), policy diversion
• Grant all preferences on a multilateral basis

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Do it yourselfUnilateralism

• What Mozambique needs it can do for itself but
  watch out for dangers
• Infant industries, declining industries, and
  adjustment
• Tax incentives
• Dumping and subsidies
• Development finance

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Agenda for Mozambique

• Focus on domestic reform
• Import policies
• Export policies
• Investment reform

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Focus on domestic reform

• Mozambiques comparative advantage is in
  improving its own policies, not those in the
  United States or EU
• The focus needs to be the entire regulatory
  regime, at the border and behind the border
• Implementation is the most difficult part

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Import policies

• Continue nonpreferential tariff reform
• High rates on final goods, surcharges, cascading
• Customs and trade facilitation
• Excessive focus on revenue and control
• No need to put imports in cold storage before
  release

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Export policies

• The best export incentive is easy importing
  (import-led growth)
• EPZ and other import facilities (VAT, duty
  drawbacks, etc.) as immediate first steps
• Regulations, red tape, poor infrastructure, and
  weak service sectors tax exports
• Export taxes and restrictions hurt the poorest

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Investment environment

• Mozambiques high cost economy is due largely
  to well known domestic policy failures
• Laws and regulation labor and land laws,
  financial regulation, business licensing, legal
  system
• Infrastructure and services roads, transport,
  telecoms, education
• Taxes low rates, broad base, and no incentives
• Improvements in all these areas are a necessary
  complement to trade policy reform

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Can Mozambique compete?

• Yes but it requires an environment that
  encourages and facilitates investment,
  employment, imports, and exports
• The current regime raises costs, rewards
  rent-seeking and discourages competition