Sam Jones (University of Copenhagen) andFinn Tarp (UNU-WIDER and University of Copenhagen)African Lions Authors Draft Workshop, 5 June 2015, Arusha, Tanzania

Understanding Mozambique’s growth through an employment lens

Motivation• Mozambique one of the top regional growth performers since mid-1990s

• Successful transition from post-conflict reconstruction to frontier African economy

• BUT pace of poverty reduction under question

• Another on-going concern = absence of growth-enhancing structural transformation

• Mozambique not unique in this respect (Rodrik & MacMillan, 2012; de Vries et al., 2013, UNU-WIDER L2C)

• New challenges looming: gas and mining sector

Outline• Historical context• Macroeconomic success• Microeconomic concerns• Labour market analysis

– Data– Methods– Trends– Findings

• Policy implications

Historical context• Long history of external engagement

– ‘Este é Portugal’ = ‘This is Portugal’ – Written in stone (municipal building LM)

• 1960s emergence of liberation movement (FRELIMO)• Independence struggle late 1960s – early 1970s• Independence in 1975

– Messy: ‘000s of Portuguese suddenly departed• 1980s externally-driven internal conflict/war• Massive human suffering: millions of deaths• 1992 peace, 1994 multi-party elections

Macroeconomic success

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1980 1990 2000 2013Year

US$ per capita Real p.c. growth rate (%)

Macroeconomic success90-94 95-99 00-04 05-09 10-13 Change

GDP per capita, PPP (constant 2011 int. $) 458.3 524.4 662.1 832.7 1000.0 541.7

Inflation, consumer prices (annual %) 46.2 22.9 12.9 8.4 7.5 -38.7

Foreign direct investment, net inflows (% of GDP) 1.1 3.9 5.9 4.5 30.1 29.0

Exports of goods and services (% of GDP) 11.7 13.8 25.4 31.8 29.6 17.9

Imports of goods and services (% of GDP) 42.0 30.7 42.7 41.7 40.4 -1.6

Government consumption expenditure (% of GDP) 11.9 7.5 9.7 14.8 19.5 7.7

Net ODA received (% of GNI) 57.7 30.1 29.9 21.1 16.2 -41.6

Microeconomic questions(a) DHS surveys Group 1997 2003 2011 1997-03 2003-11

No education Male 26.2 25.4 19.3 -0.1 -0.8Female 47.4 44.4 32.8 -0.5 -1.5

Infant mortality Boys 153 127 75 -4.3 -6.5Girls 142 120 67 -3.7 -6.6

Under 5 mortality Boys 225 181 113 -7.3 -8.5Girls 213 176 103 -6.2 -9.1

Total fertility rate - 5.2 5.5 5.9 0.1 0.1

(b) Budget surveys Group 1996/97 2002/03 2008/09 1997-03 2003-09Consumption poor - 69.4 54.1 54.7 -2.6 0.1Asset poor - 73.8 73.6 66.7 0.0 -1.2Asset & cons. poor - 54.0 42.6 40.1 -1.9 -0.4Neither (non-poor) - 11.8 14.8 19.0 0.5 0.7

Change p.a.

Change p.a.

Afrobarometer surveysUrban Rural

2002 2008 2012 2002 2008 2012(a) Fairly or very good living conditions now (%)South 23.2 27.2 18.8 26.8 28.4 26.2Center 40.1 18.8 24.7 45.4 24.5 25.8North 35.1 23.2 29.9 51.7 35.3 24.7All 31.6 23.6 23.7 44.3 28.9 25.5(b) Better or much better living conditions now vs 12 months ago (%)South 32.3 40.1 47.0 15.3 43.2 36.7Center 38.3 39.9 28.8 47.0 42.3 30.9North 34.4 47.8 46.0 48.2 41.8 31.8All 34.8 42.1 41.4 42.0 42.3 32.2(c) Often or always without a cash income (%)South 25.5 28.0 33.3 66.7 53.0 55.4Center 23.6 27.4 36.8 53.4 35.7 48.7North 46.7 32.9 36.9 37.2 50.1 60.4All 30.3 29.1 35.4 49.5 43.5 54.1

Labour market analysis• Labour market = primary mechanism linking household welfare and macroeconomic

trends• Key question:

– To what extent has macroeconomic success been accompanied by structural changes in use of labour throughout the economy?

• Data sources:– No regular comprehensive employment data in Moz.– Latest full household budget survey 2008/09– New survey in the field now, we use preliminary version– Contribution = up to date insights, linking household budget data on employment to

sectoral GDP data

Methods• Standard decomposition of changes in labour productivity into three main

sources:

1. Intra-effect: changes in productivity within-sectors, holding labour composition fixed.

2. Denison effect: reallocation of labour across sectors, holding productivity fixed.

3. Baumol effect: dynamic structural reallocation effect, equal to the interaction between productivity growth and relative labour growth.

• 2 + 3 = contribution due to structural transformation

Methods

Sectoral GDP trends

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Labour market trends

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Relative Labour productivity trends

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Sectoral dynamics

Agr icult ur e '97- 05Agr icult ur e '06- 14

M ining '97- 05

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M anuf act ur ing '97- 05

M anuf act ur ing '06- 14Ser vices '97- 05

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-1 0 -5 0 5 1 0Ch a n g e i n l a b o u r s h a re (% )

Structrual change?Intra SRE DYE Total Intra SRE DYE Total

1997-'02 Agriculture 1.40 -0.29 -0.01 1.10 22.2 -4.5 -0.2 17.5Manufacturing 0.06 1.94 -0.01 2.00 1.0 30.8 -0.2 31.6Mining 0.67 0.06 0.01 0.73 10.5 0.9 0.2 11.6Services 2.15 0.32 0.01 2.48 34.0 5.1 0.2 39.3Total 4.28 2.04 0.00 6.32 67.7 32.2 0.0 100.0

2003-'08 Agriculture 1.15 -0.08 0.00 1.06 27.6 -2.0 -0.1 25.5Manufacturing 2.04 -1.44 -0.21 0.39 48.9 -34.5 -5.0 9.5Mining 0.66 -0.07 -0.01 0.58 15.8 -1.7 -0.2 13.8Services 0.19 1.94 0.00 2.13 4.5 46.6 0.1 51.2Total 4.04 0.35 -0.22 4.17 96.8 8.4 -5.2 100.0

2009-'14 Agriculture 1.02 -0.44 -0.02 0.56 24.2 -10.5 -0.4 13.3Manufacturing -0.20 0.49 -0.08 0.20 -4.8 11.6 -1.9 4.8Mining 2.97 -1.57 -0.69 0.71 70.5 -37.3 -16.4 16.8Services -0.39 3.16 -0.03 2.74 -9.2 75.0 -0.7 65.1Total 3.40 1.64 -0.82 4.21 80.6 38.9 -19.5 100.0

Absolute Relative

Findings• The majority of Mozambique’s labour force remains dependent on low productivity

agriculture• Inter-sectoral labour movement has been small, and dominated by growth of services sector• Inter-sectoral differences in labour productivity are widening, esp. with investment in mining

sector• Productivity growth driven by:

– Within-sector growth, BUT this is slowing– Movement of workers from agriculture to services BUT average productivity in services

is falling– Negative dynamic reallocation effect most recently (!)

• Contribution of structural change is low and falling

Policy implications• Primary concern: Mozambique’s current growth mode (dynamic) is capital

intensive and NOT pro-poor• What can be done?• Policy from two perspectives:

– Microeconomic sector-/firm-specific policies– Macroeconomic initatives (affect multiple sectors)

• Broad-based macroeconomic approaches warranted– Scale of the challenge: pure demographics (Jones and Tarp, 2013)– Fertility rate not yet falling – Weak policy implementation capacity

Policy priorities• Raise rural sector productivity

– Establish clear and stable incentives for private sector agents to engage with rural producers

– Rural infrastructure

• Address policy distortions that limit labour demand

– Over-valued real exchange rate

– Minimum wage policies

Minimum wages

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Conclusion• Mozambique IS a success story• BUT new challenges emerge in each development phase• Current challenge is ensuring that growth is sustained and yields genuine welfare

improvements across society• Recent evidence suggests this concern is pressing

– Structural transformation weak and slowing– Current mode of growth is dependent on capital intensive mega-projects and

shift of some labour from low productivity agriculture to only slightly higher productivity services

• No ‘magic bullet’ policy solutions• Address rural productivty and labour demand

www.wider.unu.eduHelsinki, Finland