Neil Balchin (ODI) | Mozambique needs to act now to avert a jobs crisis

Neil Balchin (Research Fellow, ODI)

16 October 2017

Many countries in Africa are facing a looming jobs crisis. According to the African Development Bank, only one-fifth of the 12 million young people entering African labour markets each year are able to find waged employment. Rapidly expanding working-age populations on the continent only intensify competition for paid work. The International Monetary Fund reckons that by 2035 sub-Saharan Africa will boast more working-age people than all of the world’s other regions combined.

While the promise of a demographic dividend spurred by a burgeoning working-age population can help drive higher growth and accelerate development, it also creates major challenges in terms of sustainable job creation. At their current pace of growth, most African economies are simply not creating enough jobs to absorb their expanding workforces. Researchers at the Tony Blair Institute for Global Change suggest the jobs deficit in Africa could reach 50 million by 2040.

The challenges in Mozambique are similar, though also specific. Despite registering annual growth in the range of 5-7% in real terms over the past decade, Mozambique has not developed structurally or created sufficient quality jobs for inclusive growth. The unemployment rate stands at 27%; among those who are employed, only 6% work in the formal sector and only 3% are active in the private sector. An estimated 420,000 young people enter the labour market in Mozambique each year, adding to the urgency to develop a coherent strategy to address the challenging macroeconomic situation, transform the economy and create more jobs.

Mozambique needs to act now.

In search of a suitable development model

A recent SET study argues an important initial step would be to select, and implement, a suitable development model to promote economic transformation and create jobs. Four possible models could be considered.

Mozambique could look to capitalise on its comparative advantage in land and focus on boosting agricultural productivity and developing agro-processing capacity – with strong backward linkages and multiplier effects to agriculture. This may help Mozambique graduate to other sectors in the future, while growth in agricultural productivity could have strong poverty-reducing effects in the short to medium term.

Alternatively, Mozambique could focus on diversifying away from its current dependence on natural resources, and look to utilise the revenues that come from exploiting these resources to transform the economy. This approach has been effective in Indonesia, which has successfully diversified its natural resource-based economy into manufacturing and services.

Diversification into manufacturing, with a focus on export-oriented manufacturing, could drive Mozambique’s transformation. Experiences in Korea, Mauritius, Singapore and Vietnam show how harnessing trade and openness in manufacturing can drive industrialisation and create much-needed employment. The manufacturing sectors in Ethiopia and Rwanda have experienced rapid growth and thus serve as more recent examples of what is possible in Mozambique.

A cross-country study by SET in 2016 indicated Mozambique was among the most promising African countries in terms of attracting foreign direct investment into export-based manufacturing. Mozambique boasts a number of comparative advantages – including access to a relatively large pool of labour, a long coastline and significant ports, close proximity to regional markets and duty- and quota-free access into the US for a range of manufactured goods – that could support an export-led manufacturing model. Despite these advantages, the recent performance of Mozambican manufacturing has been weak and the sector still has a largely peripheral role within the economy – accounting for just 0.6% of total employment and contributing less than 10% to total gross value added in 2015 (down from nearly 30% in 1975).

The window of opportunity for Mozambique to follow a transformation model based on developing capacity in labour-intensive manufacturing may be closing quickly as manufacturing becomes increasingly capital- and technology-intensive and less employment-intensive, and as developed countries begin to insource. Again, Mozambique will need to act quickly.

Finally, Mozambique could look to services to promote economic transformation and create jobs. Such an approach would need to focus on improving services productivity and moving into high-productivity services sectors in order to avoid agglomeration in low-skill, low-productivity urban and informal services.

The best way forward may lie in a combination of these models. Our SET study suggests Mozambique could follow a combination of agro-processing-based transformation, diversification away from natural resources (in the style of Indonesia) and diversification into manufacturing (as in Mauritius and, more recently, Ethiopia). Underlying all these strategies is a targeted push towards industrialisation.

How to make it happen

We recently engaged with senior policy-makers in Mozambique on how to make this happen. This included discussions with the minister of economy and finance and the deputy minister of industry and commerce. Our discussions emphasised the need for senior policy-makers to work closely with the private sector to develop a shared vision for Mozambique’s economic transformation, grounded in a strong drive for sustainable job creation. Once delineated, this shared vision will need to be built up in a nation-building project.

Developing capacity for implementation will also be key. At present, significant institutional challenges, ranging from inefficiencies in the use of funds to a lack of coordination and integration of development planning, make policy-making and implementation in Mozambique very difficult. There is thus work to be done to build the required institutional capabilities to make Mozambique’s transformation vision a reality. But there is a window of opportunity right now for working with certain ministries and agencies to support implementation around an economic transformation and job creation agenda. Mozambique’s development partners could play a useful role in aiding this process by engaging in institutional support for key ministries and agencies, which may include the National Directorate for Economic and Financial Studies within the Ministry of Economy and Finance and the newly established Agency for Investment and Export Promotion.

More can be done at other levels too. Ongoing SET research is examining how to improve the outcomes of future investment negotiations for megaprojects to make it possible to harness these to stimulate backward and forward linkages from multinational corporations to local small and medium enterprises. Promoting local content and local linkages to large and megaprojects can help facilitate economic transformation and job creation in Mozambique.

More of this sort of analysis, particularly at the firm level, would help policy-makers better understand the constraints to job creation in Mozambique. Estimates suggest the Mozambican private sector creates only around 18,000 new jobs each year. More needs to be done to facilitate the creation of sufficient new jobs for inclusive growth.

The Government of Mozambique’s existing policies – including the recently announced Industrial Policy and Strategy 2016-2025, the National Employment Policy and the current Five-Year Plan – are insufficient on their own to kick-start manufacturing and higher-value added activities in other sectors, transform the economy and create jobs. Mozambique needs to act now to develop a shared vision and strategy for transforming the economy, focused on boosting the quality of economic growth (so it is less skewed and more inclusive), generating sustained increases in productive employment and facilitating a long-term, sustainable and inclusive reduction in poverty.

Photo credit: John Hogg / World Bank. License: CC BY-NC-ND 2.0.