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Impact of the Programme “Medium and Long-Term Economic Acceleration Measures”

Impact of the Programme “Medium and Long-Term Economic Acceleration Measures”

Wilson Tomás – Research Banco Big

The growth of economic activity in Mozambique in recent years has been negatively affected by several internal and external events, which have resulted in a slowdown in GDP growth rates and, consequently, in the tax base. Since the withdrawal of external support by multilateral institutions and donors in 2016, the reduction in foreign direct investment and, more recently, the effects of the restrictions imposed by the covid-19 pandemic, have reduced the State’s revenue collection capacity.On the other hand, the natural disasters that have ravaged the country annually and the armed conflict in Cabo Delgado have put greater pressure on State Expenditure.

After the recession period in 2020, in which the annual GDP contracted by -1.2%, 2021 was a year of recovery, with the economy growing by +2.2% despite the various challenges. This growth recovery trend has continued to solidify, albeit in a timid manner, with the economy registering an accumulated growth of 4.37% in the first semester of 2022, as a result of the continued positive performance of the primary sector, with greater emphasis on the Mining Industry branch, followed by the Agriculture, Livestock, Hunting, Forestry, Logging, Fishing and Aquaculture branches.

In view of this situation, the Mozambican government created and made public a new policy programme aimed at improving the current scenario of growth and economic performance, which, according to the government, has remained below its potential. This programme, called the Programme of Measures for Economic Acceleration (PAE), was announced by the President of the Republic at the beginning of August and includes, apart from tax incentives, measures for debureaucratisation and restructuring of public services.

Of particular note is the reduction in the VAT rate from 17% to 16% and the exemption of customs duties on imports for the agriculture and rural electrification sectors, as a way to boost renewable energy.

The Programme also proposes the reduction of the IRPC rate from 32% to 10% for the Agriculture, Aquaculture and Transport sectors, and the creation of a loan guarantee fund of USD 250 million to promote access to credit by the country’s small and medium enterprises (SMEs), which operate in the Agriculture, Pisciculture, Agricultural Commercialisation and Processing, Tourism and Housing sectors.

“It is necessary to recognise that the private sector will play a preponderant role in the implementation of the measures of this programme”

These measures and the fiscal stimuli that have been defined in the programme could provide an important impetus for an expansion of economic activity in the sectors covered in the medium term, through the strengthening of value chains and a structuring and expansion of the primary sector market.

The guarantee fund, as it is used by companies, could support the high financing needs of Mozambican companies and contribute to their growth, thus fostering production and the provision of services at national level. Hence, it is expected that intermediate sectors, such as Transport, will increase and improve their capacities to bring more efficiency in service provision, contributing to the proliferation of a market more directed towards marketing locally produced products, and in the medium/long term to the growth of manufacturing and exports.

The Agriculture sector, which employs most of the Mozambican population and which showed growth of USD 127 million in the value of exports in the first half of this year over the same period, is a clear example of a field that has benefited from the strategies adopted under the Sustenta programme, the main aim of which is to strengthen the capacity of small farmers, thus being well placed to take advantage of this stimulus programme.

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With regard to the natural resources extracted in the country, the increase in the allocation of the percentage of tax revenue for the development of the provinces where extraction occurs, from 2.5% to 10%, may accelerate the process of expansion and socio-economic development of these provinces, thus reducing the tensions associated with economic inequalities.

In initial reactions to the programme, the country’s private business sector, represented by the CTA, responded favourably to the programme, stating that it represents a strengthening of confidence between the public and private dialogue, and acknowledging that it addresses several issues that have been raised by the private sector for several years.

However, and despite its potential, it is necessary to recognise that the private sector will have a preponderant role with regard to the implementation of the measures in this programme.

In addition to the approval of this program, and in order for it to materialize in an effective manner, the responsibility will fall to some extent on the companies, making it necessary for these organizations to prepare themselves adequately, so as to meet the conditions for the implementation of the program, in line with the Government’s expectation that it will be functional within two years.

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