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Desired Economic Growth and Structural Transformation

Desired Economic Growth and Structural Transformation

  • Salim Cripton Valá • Chairman of the Mozambican Stock Exchange

How to explain and measure economic growth? The search for explanation begins with an attempt to measure the well-being of a population, in areas such as education, health, food, income, energy, water, transport, political freedom, the environment, communications, participation, security, democracy, among others. Economists use real “per capita” income as a measure of well-being, or the sum of all goods and services produced in the country divided by the population.

Gross Domestic Product (GDP) is one of the main indicators that measure the performance of an economy (with more relative weight than inflation, exchange rate, unemployment, etc.), expressed by the total income of a country and its overall expenditure, excluding the so-called informal economy. GDP measures the value of everything produced within a country, whoever owns it, and differs from Gross National Product (GNP) in that this indicator excludes the income of foreigners in the country and includes that of the country’s citizens abroad.

A frequent explanation for per capita GDP growth is capital accumulation, although it is recognised that a vital factor is productivity growth. Harvard professor Elhanan Helpman (2004)[1] has shown that high productivity makes investments more profitable, and consequently induces more capital accumulation.

There is a rich debate about the fundamental factors that determine economic growth and development, with some authors emphasizing education, research and innovation, others emphasizing institutions, geography and climate, availability of natural resources, religious ethics, history and culture, and even the political system (Acemoglu & Robinson, 2013)[2].

With globalisation and increasing interdependence, factors such as external crises and shocks, commodity price volatility in the international market and deteriorating terms of trade, chronic balance of trade problems, extreme weather events, aid policy and increasing indebtedness, epidemiological crises, in addition to corruption, poor business environment, poor governance and political instability, are elements that can either favour or hinder economic growth (Valá, 2021)[3].

It is right that our concern is to keep economic growth high and permanent, i.e. to ensure a sustainable increase in real GDP “per capita” over time. No less importantly, it is vital that the productivity of the economy can allow it not to be cancelled out by the increase in the population growth rate, which is still high in Mozambique (2.8%).

There is no doubt that economic growth can generate an increase in living standards, nutrition, longevity, literacy, material abundance, in short, well-being for most of the population of a territory. However, this trajectory of shared prosperity is not inevitable, does not depend on a “magic wand adopted in a prescriptive way” and has a cost to bear.

If we do not insist on, and bet on, inclusive, endogenous economic growth, with a human face and taking into account the social dimension, we run the risk of increasing quantitative indicators, benefiting high-income groups but, at the same time, not reducing poverty rates, increasing social inequalities, being unable to generate enough jobs, negatively affecting socioeconomic stability and cohesion and degrading the environment.

A productive economy depends on a healthy and educated labour force, of that we know, and we also know that abysmal poverty and social inequalities threaten economic efficiency. Having balanced, integrated and inclusive development depends on the choices we make, the priorities we establish, the commitments we make, which have costs that we must be prepared to bear.

With around 46% of the population still living below the poverty line, it is clear that poverty eradication is a central development concern in Mozambique, including for ethical reasons. In addition to being above any purely economic objective, the successful implementation of pro-poor policies will favour inclusive economic growth strategies and reduce social inequalities.

An outward oriented (extroverted) economic growth does not benefit the national economy, empower the country’s businessmen / entrepreneurs or strengthen SMEs. Of course, we do not want that … We know today, given our own experience, that attracting foreign direct investment and implementing mega-projects are vital strategic actions to boost the economy and make GDP grow, but we have learned that this is not enough.

An outward oriented (extroverted) economic growth does not benefit the national economy, does not empower the country’s businessmen/entrepreneurs and does not strengthen the SMEs. Of course, we do not want this … We know today, given our own experience, that attracting foreign direct investment and implementing mega-projects are vital strategic actions to boost the economy and make GDP grow, but we have learned that this is not enough

Some questions that arise in debates focused on our very depressed economy in recent years are: (i) How to invest in quality investment in the productive sector, and what financial architecture might be more appropriate for this purpose? (ii) How can large projects energise SMEs? (iii) How can public investment be a catalyst for private sector development? Obviously, these questions have no easy, definitive or linear answers.

Let us not be under any illusion, as the economy grows and diversifies, more and more people and families leave subsistence agriculture and invest in other economic activities that pay more for labour and capital, such as industry and services, in the cities.

Cities without the capacity to receive many people from the countryside, and who do not have the required aptitudes and skills, can swell the “army of the unemployed”, expand the informal economic sector, restrict the tax base and create the climate for increased criminality and the development of other illicit or undesirable activities.

How can we halt the rural exodus and increase economic productivity in the countryside, where 66% of the Mozambican population lives? We leave some suggestions for reflection:

Induce the development of micro and meso nuclei of settlement in the countryside, more densely distributed throughout the country and more sustainable;
Strengthen small and medium manufacturing industries, managed by Mozambicans and whose vanguard are the agro-processing units, in fact a clear “gateway” to industrialisation in many African countries, according to Lopes (2020)[4];
Calibrate the education and training of cadres to exploit the dormant potential in the countryside, retaining them in the territory and preventing them from leaving the countryside by virtue of the type of education provided (emphasize that education and training should be of the countryside, in the countryside and for the development of the countryside);
Rethinking the possibility of recreating institutions, and adapting them to the new context, such as IDIL and T-BARN (the latter at UEM);
Design and implement innovative and specific financing mechanisms to promote industrialisation [e.g. Mutual Guarantee Fund along the lines recommended in the Economic Acceleration Package (EAP), Development Bank, Risk Capital Fund, greater use of capital markets, among others;]
What can we do additionally to stimulate the creation of many jobs? In addition to the investments currently being made in agriculture, throughout its value chain, which should be pursued firmly and with a long-term perspective, investments should also be made in fisheries, tourism projects, small businesses in urban areas, manufacturing and infrastructure projects, fostering the use of intensive labour.
We know that entrepreneurs need capacity building, (innovative) financing, access to infrastructure and markets, business linkages between SMEs and large projects, and giving priority to local SMEs in State procurement in the Districts. The lessons of the past have taught us that large projects, although vital for economic development, will not directly solve the problems of poverty, unemployment, the high cost of living and social inequalities.

We know that entrepreneurs need capacity building, (innovative) financing, access to infrastructure and markets, business linkages between SMEs and large projects, and giving priority to local SMEs in State procurement in the Districts. The lessons of the past have taught us that although large projects are vital for economic development, they will not directly solve the problems of poverty, unemployment, the high cost of living and social inequalities.

In fact, Mozambique experienced economic growth rates of about 7.5% on average from 2000 to 2014. However, this growth had a restricted base, generated little diversification, failed to transform the inherited economic structure, and did not create productive employment opportunities for the majority of the population. The country has experienced a strong economic slowdown, which led to a fall in GDP growth to 6.6% in 2015, 3.8% in 2016, 3.7% in 2017, 3.3% in 2018, 2.9% in 2019, and a contraction of -1.2% in 2020 (Valá, 2021).

There is a trend towards economic recovery in 2021, with a growth of 2.1% and in the first semester of 2022 the GDP growth was 4.14%, due to the performance of agriculture, trade and services, transport and communication, and the manufacturing and mining industries (especially exports of aluminium, natural gas, coal and energy), in a context of increasing inflation, which in July was 11.77%, well above the trend of recent years. The economic situation may improve significantly with the effective exploration of the gas projects in the Rovuma Basin and the recovery of the tourism sector, infrastructure and other economic areas due to the resumption of support from cooperation partners, already signalled with the agreement with the IMF and the World Bank.

Attention should be focused on strengthening the skills and competencies of the national workforce that can be absorbed by the productive sector, investing in much better quality business-friendly infrastructure, and removing constraints affecting the private sector (Valá, 2017)[5].

Promoting inclusive and sustainable economic growth requires continuing to strengthen human capital (in the broadest sense), enhancing physical capital (infrastructure, equipment, factories, …), innovating in the financing mechanisms for Mozambican entrepreneurs (and carefully selecting the “champions/talents”), demanding a more direct contribution from science, technology and innovation in the productive sector, improving the business environment, and ensuring that the rule of law and its uniform and fair application favour business and the economy, particularly the small- and medium-scale economy.

Rapid and robust economic growth is necessary to combat poverty and promote the well-being of the population, but for this growth to be sustainable in the long term, it must be broad-based, encompass diverse economic sectors and include a large part of the country’s workforce, which is linked to activities such as agriculture, fisheries and various services in the informal sector in cities.

Rapid and robust economic growth is necessary to combat poverty and promote the well-being of the population, but for this growth to be sustainable in the long term, it must be broad-based, cover diverse economic sectors and include much of the country’s workforce, which is linked to activities such as agriculture, fisheries and various services in the informal sector in the cities.

Authors with Lopes (2020) and Chang (2014)[6] advocate that industrialisation is a sure path to structural transformation of poor economies by creating more jobs and income for households, adding value to primary products, earning foreign exchange from exports, better integrating countries in the region and the world and better remunerating productive factors capital and labour. Lopes argues that boosting agricultural productivity is “the most obvious gateway to achieve the much-desired structural transformation,” or in other words, agro-industry can be the engine of industrialisation in Mozambique, alongside large-scale industry linked to extraction and exploration of natural resources within the country, through foreign investment.

In his book “Development as Freedom”, Amartya Sen (2000)[7], winner of the 1998 Nobel Prize in Economics, puts forward a thesis that contrasts with narrower views, such as those that identify development as economic growth. Sen’s central argument is that economic growth should be understood as a means to achieve other goals, and not as a goal in itself. The author emphasizes qualifications and skills, which should be popularized, explaining that the problem of poverty is not lack of agricultural product supply, but lack of income, purchasing power, that is, conditions to enter the market, and capabilities in terms of education and health.

See Also

This view of Amartya Sen is echoed in the perspective that argues that although GDP is often seen as reflecting the well-being of Nations, more recent economic theories (such as development, environmental, behavioural and happiness economics), recognise its limitations. In fact, GDP does not consider potential inequality between members of society, does not measure environmental and social quality, or the happiness of individuals and families.

We want inclusive and sustainable economic development, not just economic growth. We cannot but corroborate with the ideas of Banerjee & Duflo (2020)[8], winners of the 2019 Nobel Prize in Economics, in arguing that a certain type of economy has granted enormous benefits to the rich and reduced social aid programmes to the poor, sold the idea that states are necessarily corrupt and sluggish and the private sector is always entrepreneurial and efficient, emphasised that poverty and social inequalities are the cost of development to be paid by society and the agents who create wealth and prosperity should be valued and rewarded for being the champions, stressed that free trade and rapid economic growth can occur wherever liberal ideals are implanted and misery, poverty and lack of opportunities are present where there is no democracy, market economy and respect for human rights. The events of the last decades challenge us to reflect deeply on these orthodox and unidirectional approaches, which invite us to “resist the seduction of the obvious” and to question seemingly unshakeable paradigms.

This reflection recognises that accelerated and continuous economic growth is a necessary condition for the development of Nations, but it is not the only factor nor should it be seen as a dogma. It is vital that growth be inclusive and sustainable, involving various economic sectors, benefiting diverse social groups and having an inter-generational perspective. Obviously, economic growth requires, for its potential, a series of parallel improvements in other areas, such as investment in human capital, in the provision of essential quality services to citizens, in the increase of productivity and economic competitiveness, in the sustainable and profitable management of natural resources, in the improvement of institutions and infrastructures, and in good governance.

An unequivocal option for an industrialisation strategy, led by agro-processing and by projects for exploiting natural resources transformed within the country, can pave the way for the structural transformation of the economy, which in these 47 years of independence has not been able to fully activate the energies and entrepreneurial talent of Mozambicans

An unequivocal option for an industrialisation strategy, led by agro-processing and by projects for the exploitation of natural resources transformed within the country, may make it possible to pave the way for the structural transformation of the economy, which, in these 47 years of independence, has not been able to fully activate the energies and entrepreneurial talent of Mozambicans, in order to guarantee the success of economic development strategies and well-being and shared prosperity.

[1] Helpman, Elhanan (2004). The Mystery of Economic Grouth. Cambridge: Harvard University Press.

[2] Acemoglu, Daron & Robinson, James (2013). Why Nations Fail: The Origins of Power, Prosperity and Poverty. Lisbon: Circulo de Leitores.

[3] Valá, Salim C. (2021). Globalized Economy & Development Paradoxes: Inconclusive Reflections. Maputo: Escolar Editora.

[4] Lopes, Carlos (2020). Africa in Transformation: Economic development in the age of doubt. London: Palgrave MacMillan.

[5] Valá, Salim C. (2017). Endogenous Development in Mozambique in Transformation. Maputo: Escolar Editota.

[6] Chang, Há-Joon (2014). 23 Things They Never Tell You About the Economy. Lisbon: Clube do Autor.

[7] Sen, Amartya (2000). Development as Freedom. São Paulo: Companhia das Letras.

[8] Banerjee, Abhijit & Duflo, Esther (2020). Good Economics for Hard Times: The Best Answers to the Biggest Problems. Lisbon: Actual Editora.

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