Republic of Mozambique: Selected Issues
Author: International Monetary Fund
Publication Date:
31 Jul 2007
eISBN:
9781451931129
Language:
English
Keywords:
ISCR; CR; Mozambique; firm; Ilha de Moçambique; spend; policy record; trade policy option; enterprise survey; simple average tariff; trade pattern; Trade barriers; Africa
Download PDF (1,008.6 KB)

This Selected Issues paper on the Republic of Mozambique reports key policy and institutional issues in the macroeconomic management of scaled-up aid and in promoting sustainable private-sector led growth. A further moderate scaling-up of foreign aid could continue to be fully spent and focus on productive priority sectors. This would help achieve the Millennium Development Goals while at the same time eliciting a supply response to mitigate potential Dutch-disease effects brought on by an appreciating real exchange rate.

Abstract

This Selected Issues paper on the Republic of Mozambique reports key policy and institutional issues in the macroeconomic management of scaled-up aid and in promoting sustainable private-sector led growth. A further moderate scaling-up of foreign aid could continue to be fully spent and focus on productive priority sectors. This would help achieve the Millennium Development Goals while at the same time eliciting a supply response to mitigate potential Dutch-disease effects brought on by an appreciating real exchange rate.

III. Trade Policy in Mozambique: An Overview44

A. Introduction

52. Trade policies have recently been acknowledged as an important driver of sustainable growth episodes. Trade liberalization can both accelerate and sustain growth, particularly when accompanied by a competitive exchange rate (Berg, Ostry, and Zettelmeyer 2006) and preceded by reforms to streamline burdensome regulatory environments (Bolaky and Freund 2004). This recipe has been proven particularly successful in East Asian countries where policies to avoid over-valued exchange rates and reduce regulatory trade costs have played an important role in facilitating and sustaining their growth take-offs (Johnston, Ostry, and Subramanian 2007). These results suggest that it is important to take a broad look at a country’s trade policy options, with a view to determine how such policies should be prioritized in the context of globalization and regionalism.

53. This paper analyzes Mozambique’s trade policy options using a simple framework focused on creating an environment to promote external trade. This simple qualitative framework reduces Mozambique’s trade policy options into two categories: those that improve Mozambique’s external competitiveness and those that enhance its market access. Reforms to enhance competitiveness by reducing the regulatory burden of Mozambique’s business environment are proposed as the main policy priority. A stronger business environment is shown to not only improve competitiveness directly by reducing the costs of doing business, but also to have important indirect effects by allowing unilateral trade liberalization to effectively improve firm-level competitiveness and market access opportunities to be securely tapped. The paper is organized as follows: Section B presents the key concepts and introduces the framework proposed to evaluate Mozambique’s trade policy options. Section C discusses Mozambique’s policy record in addressing competitiveness. Section D examines market access issues. Section E summarizes the main conclusions.

B. Trade Policy options

Competitiveness: macro and micro perspectives

54. Both macro and microeconomic factors need to be taken into consideration when analyzing a country’s external competitiveness. 45 Common measures of macroeconomic competitiveness are the real effective exchange rate (REER) and changes in a country’s export share in the world market. These measures, however, are limited for several reasons. First, a country’s share of exports in the world market could result from distortionary policies in the form of subsidies or a manipulation of the exchange rates aiming to capture a higher export share. Second, the macroeconomic perspective fails to take into account microeconomic factors, such as custom procedures and the regulatory environment, which, through their effects on the cost structure of firms, have direct implications for external competitiveness, even when exchange rate policies are deemed appropriate. 46 The microeconomic perspective of competitiveness emphasizes the importance of the overall business environment in which the firms operate, including the importance of tariff and nontariff barriers. 47 A strong business environment promotes competitiveness by allowing countries to trade efficiently. The government’s role is thus to ensure that all economic agents have fair and comparable conditions (a level playing field).

55. A weak business environment can hurt trade even when the trade regime is deemed appropriate. For example, broad-based multilateral trade liberalization, which reduces tariff and nontariff barriers to imports, can reduce input costs and improve how efficiently firms allocate resources. Such liberalization alone, however, is not enough to improve firms’ competitiveness. The speed with which less efficient firms exit and more efficient firms enter the liberalized domestic market is also crucial. 48 For example, if protectionist policies or a poor business environment keep inefficient firms from exiting or more efficient businesses from entering the market, then competitiveness is not likely to improve very much. 49

Market access

56. Market access refers to the ability of domestic providers of goods and services to sell in foreign markets. Two parties participate in international trade: the country in question and the rest of the world. Thus, trade outcomes depend on not only the trade policies of the country in question toward other countries as well as the trade policies of the rest of the world as they relate to that country formalized under alternative trade agreements. A country and the rest of the world enter into trade agreements on a bilateral, regional, and/or multilateral basis. In general, these agreements reduce market access barriers partners face in accessing each other’s markets, such as: (i) tariffs and other price-based border measures; (ii) nontariff border measures (e.g., quantitative restrictions, contingency measures, technical barriers to trade, and sanitary measures); and (iii) domestic policy measures (e.g., government policies, which may favor some sectors if not applied uniformly to all imported inputs and exported final products). 50 From an individual country’s perspective, gaining greater market access to foreign markets depends on the negotiating power and skills of the incumbent government and the collective interests of other members of these trade agreements.

A simple analytical framework

57. A simple two-dimensional analytical framework can be used to identify trade policy constraints and propose trade policy priorities. Trade policy constraints and priorities are divided into those impacting external competitiveness and those affecting market access. External competitiveness includes policies to lift trade barriers and strengthen the business environment, whereas market access involves the establishment of regional, bilateral or multilateral trade agreements.

58. Under this simple framework, a government must first determine whether trade is restricted and if so, identify what factors are driving trades below potential. As shown in Figure 1, trade is not restricted in a country that has (i) an environment that is conducive to trade and (ii) access to foreign markets (outcome 1). In all other cases (2, 3, and 4) trade is deemed restricted. Under each of these cases, a different policy action is required: gaining access to key markets to utilize competitive potential (2); addressing (macro and micro) competitiveness constraints to utilize market access opportunities (3); and addressing both market access and competitiveness constraints (4). It is important to note that under case 3, policy actions to address competitiveness issues are under the full control of the government, while gaining market access to foreign markets is conditional on foreign trade policies and the negotiating power of the government (policy actions needed in cases 2 and 4, respectively). 51

Figure III.1.
Figure III.1.

Analytical Framework: Trade Policy Choices

Citation: IMF Staff Country Reports 2007, 258; 10.5089/9781451931129.002.A003

C. Evaluating Competitiveness

59. This section evaluates the competitiveness of Mozambique’s economy from the macroeconomic and microeconomic perspectives. From the macroperspective, we analyze export shares in world trade and the terms of trade. 52 From the microperspective, we look at tariff and nontariff barriers, domestic policies, and the business environment Mozambique’s overall external competitiveness is shown to be constrained by a weak business environment and protectionist policies.

Macroperspective

60. Mozambique’s world export shares and terms of trade have grown markedly in recent years. Its average share of world exports more than doubled in 2001-06, more than the average for sub-Saharan African (SSA) and ASEAN 4 countries (Table 1). 53 Mozambique’s terms of trade improved on average by nearly 7 percent a year in 2001-06, up from 0.5 percent in 1991-2000, mainly because prices for aluminum, its primary export, rose more than prices on imports beginning in 2003.

Table III.1.

Mozambique: Share in World’s Exports and Terms of Trade

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Source: IMF staff estimates and projections.

61. Mozambique’s strong export performance, however, almost exclusively reflects megaproject-related exports most notably aluminum, rather than broad-based competitiveness gains. 54 Mozambique revealed comparative advantage is in the production of aluminum, gas, and wood articles (Table 2). 55 All megaproject exports (electricity, aluminum, and gas) accounted for more than 70 percent of total exports in 2006; aluminum alone accounted for 58.6 percent of the total. Traditional exports grew by an average 4 percent a year, while mega-project exports grew by 10.4 percent. Megaproject-related imports as a share of total imports hovered around 20 percent (Figure 2). Excluding megaproject exports, the contribution of the export sector to the economy has remained fairly stable. Since 2000, the year the aluminum smelter factory Mozal reached full capacity, megaproject-related exports have surged. In 2004, Mozal’s exports accounted for 72 percent of total exports.

Table III.2.

Mozambique: Export Profile

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Source: COMTRADE.

Revealed comparative advantage.

Figure III.2.
Figure III.2.

Mozambique: Megaprojects Share in Total Exports and Imports

Citation: IMF Staff Country Reports 2007, 258; 10.5089/9781451931129.002.A003

Source: IMF staff estimates, and projections.

Microperspective

Protectionist domestic policies

62. Mozambique’s trade patterns have been strongly influenced by favorable domestic policies for megaprojects. Besides favorable trading terms and tax exemptions, many megaprojects qualify as export-processing zones (EPZ), which allow manufacturers to import goods duty free, offer on-site customs facilities, and carry tax incentives. For example, Mozal, which is an EPZ, is exempt not only from customs duties on imported inputs, but also from real property, value-added, and specific consumption taxes. Nineteen manufacturing factories in Mozambique benefit from EPZs, including Mozal, Moma, a large mining company, and a number of textile manufacturing, tires, and engineering firms. 56

63. Protections for the sugar and cashew industries have also shaped trade patterns. In the late 1990s, to protect what were then infant industries, Mozambique introduced an export tax on raw cashew (18 percent) and an import tax on sugar (25 percent), measures that are still in place. The import tax on sugar was introduced as a condition of large-scale foreign investment in the sugar estates located in remote areas with few other income opportunities. 57 As a result of these protective measures, the production capacity and output of sugar mills increased significantly. An export tax on unprocessed cashew was also introduced to help the newly privatized cashew sector adjust to international competition and after the government abolished the price control. Currently, the export tax penalizes small-size raw cashew nut exporters and stimulates small and medium-size labor-incentive cashew nut processing factories.

Tariff and nontariff barriers

64. Mozambique’s trade regime is not excessively restrictive. Its tariff structure is relatively simple: import tariffs fall into four nonzero bands (2.5, 5, 7, and 20 percents). According to overall ratings of trade restrictiveness, Mozambique’s trade barriers (tariff and nontariff) are lower than all neighboring countries (Tanzania, Malawi, Zimbabwe, South Africa, and Swaziland) and most ASEAN countries (Table 3). Its trade-weighted average tariff is 9.1 percent, among the lowest in SSA, though the simple average tariff (12.1) percent is higher than most other SSA countries (Table 4) as a result of high tariffs in certain import categories with low import levels. 58 Thus, reducing the maximum tariff band further could eliminate the latter restriction on trade. 59 In particular, a reduction of the maximum tariff rate by 5 percentage points, else equal, has been shown to lower Mozambique’s simple average tariff from 12 to 10 percent bringing it closer to the current trade-weighted average tariff level.

Table III.3.

Mozambique: Tariff and Non Tariff Barriers, 2006

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Source: IMF staff estimates and projections.
Table III.4.

Mozambique: Average Tariff, 2006

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Source: IMF staff estimates and projections.

65. Mozambique’s nontariff barriers are less restrictive than its bordering neighbors’ (Table 5). According to an absolute ranking of nontariff barriers, besides Mozambique, only a few other SSA countries have less restrictive nontariff barriers than Thailand, Indonesia, and Malaysia. Import permits and import licensing are the most common nontrade barriers. These results, however, must be analyzed with care, because information on nontariff barriers is more complete for ASEAN 4 than for SSA countries.

Table III.5.

Mozambique: Types of Non Tariff Barriers and Ratings, 2006

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Source: IMF staff estimates and projections.
Trade liberalization and firm competitiveness

66. Trade liberalization has also contributed to open Mozambique’s economy to foreign goods and services (Table 6). The average share of Mozambique’s imports in GDP went from 14 percent to 43 percent over the past 15 years, pushing it higher than the average for SSA countries (Table 6). The average share of exports in GDP, while doubling during the same period mostly due to megaprojects as mentioned above, remains below the average for SSA and well below the average of ASEAN countries.

Table III.6.

Mozambique: Share of Exports and Imports

(percent of GDP)

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Source: IMF staff estimates and projections.

67. However, trade liberalization has yet to yield improvements in firm-level external competitiveness. Recent enterprise surveys show that in 2002-06 the number of exporting firms increased by only 2 percent, while the number of importing firms increased by 20 percent (Table 7). Indeed, few of the firms surveyed said they had introduced new products or diversified their production (though a number of firms reported that they had improved the utilization of their production capacity).

Table III.7.

Mozambique: Results of Firm-level Survey 1/

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Source: MPD, Enterprise Survey, 2006.

192 firms are included in the 2002 survey and 158 firms in the 2006 survey.

Business environment

68. Mozambique’s business environment is weak. Mozambique must still surpass 53 percent of the countries ranked in the Governance survey and more than 80 percent of the countries listed in the Doing Business survey to reach the top (Table 8). Only four countries in the region have passed the 50 percent mark in the Doing Business survey (with South Africa and Mauritius being the best performers in the SSA group). On average, SSA countries rank worse on the Governance and Doing Business surveys than ASEAN countries.

Table III.8.

Mozambique and Comparators: Distance to Top Rank in Business Environment

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Sources: World Bank Governance Indicators, 2006 and World Bank Doing Business Report, 2007.
Regulatory Costs of Trade

69. Regulatory costs to trade are among the most binding constraints to Mozambique’s business environment. Benchmarked against SADC and Asian countries, custom procedures and other regulatory costs to trade across borders together with contract enforcement, and business registration stand out among the most important constraints to private sector development in Mozambique (Table 9). In particular, exports of goods must undergo cumbersome evaluation at customs checkpoints. Large firms, which tend to have more resources to draw on, usually do not complain about customs procedures. Small- and medium-size firms, however, find customs procedures burdensome and nontransparent. 60 More worrisomely, the regulatory environment for trade appears to be deteriorating as indicated by the observed decline in the World Bank’s Cost of Doing Business ranking relative to the previous year.

Table III.9.

Mozambique: Cost of Doing Business Rankings, 2006 data 1/

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Source: World Bank Doing Business Report, 2007.

Out of 175 countries.

Difference in ranks between Mozambique and highest ranked country in SADC, and Asia and Pacific (ASEAN 4, India, China), + = worse ranked.

Change in rank observed in Mozambique relative to previous year. (+ = worsening rank).

70. Custom procedures also appear to be mostly ineffective according to mirror trade statistics. Mirror trade statistics for bordering countries show discrepancies with data reported by Mozambique. For example, the value of declared exports to Mozambique from South Africa exceeded the value of imports registered in Mozambique from South Africa (by about 29 percent); the figures also were higher for imports from Tanzania (by 37 percent) (Table 10). 61 Mozambique reported twice as many imports to Malawi than Malawi reported exporting to Mozambique. In addition, the trade-weighted average tariff is lower than the simple average tariff, suggesting that a substantial amount of goods enter Mozambique duty free. It is interesting to note that countries with lower trade-weighted average tariffs, such as Angola, South Africa and Mauritius, have a lower discrepancy between their simple average and trade-weighted average tariffs (Table 4).

Table III.10.

Mozambique: Mirror Statistics on Trade with Bordering Countries, 2004

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Source: WITS database.

Numbers are represented in percent.

Summary

71. Mozambique’s external competitiveness gains have been concentrated in a few protected sectors; a weak business environment, meanwhile, has constrained the rest of the economy. Mozambique’s competitiveness, measured as a share of exports in the world’s exports has improved considerably in the past five years. However, export trends and volumes are dominated by megaprojects, which enjoy widespread protection, including tariff and tax exemptions and preferential access to EPZs. Though nonmegaproject businesses face tariff barriers that are among the least restrictive in the SSA region, as well as minimal nontariff barriers, the weak business environment continues to sap their competitiveness. Small- and medium-term enterprises, in particular, would benefit from improvements in areas such as customs procedures.

D. Market Access

72. Mozambique is in relatively good standing when it comes to market access. Mozambique has preferential market access to the United States (U.S.) under the African Growth and Opportunity Act, and to the European Union (E.U.) under the Cotonou Agreement and Everything but Arms initiative. In addition, under the Southern African Development Community (SADC) Trade Protocol, Mozambique’s exports have preferential access to the lucrative South African market. Mozambique’s bilateral trade patterns, particularly those with South Africa, largely reflect its market access (Table 11). Trade with South Africa absorbs about 16 percent of Mozambique’s exports. Moreover, South Africa in 2005 accounted for more than 11 percent of FDI in Mozambique. The importance of FDI from South Africa is likely to continue following a relaxation of capital control on investments into SADC by South Africa’s central bank.

Table III.11.

Mozambique: Destination of Exports

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Source: IMF, Direction of Trade Statistics.

Revisiting Mozambique’s market access strategy

73. Until recently SSA, including Mozambique, and ASEAN 4 countries followed different market access strategies. While ASEAN 4 countries were liberalizing trade relations on a broad multilateral basis, following the most favored nation (MFN) principle underlying successive World Trade Organization trade rounds, SSA’s strategy has typically been based on regional or bilateral preferential trading arrangements. 62 In observing the MFN principle, countries levy tariffs or impose other restrictions without considering the origin of the goods or services imported, extending equal access to their markets to goods from all exporting countries. Regional or bilateral trading agreements, by contrast, only extend preferential access to goods and services from the countries participating in the agreement.

74. The economic literature has usually regarded broad-based liberalization as the best strategy. Vamvakidis (1998) and Yagci and Aldaz-Carroll (2004) are among several studies showing that economies trade more and grow faster after broad-based multilateral liberalization than after discriminatory liberalization. Other studies have argued that overlapping trade agreements—sometimes referred to as the “spaghetti-bowl of bilateral and regional trading agreements”—increases the complexity of the world trading system and might impose administrative costs on trade. As a result, Yagci and Aldaz-Carroll (2004) have estimated that SSA would stand to lose 0.7 percent of its GDP if all SSA countries negotiated bilateral free trade agreements (FTA) on manufacturing products with Australia, Canada, the EU, Japan, New Zealand, and the United States. Yang and Gupta (2005) argue that the costs could be even higher because (i) not all countries want to negotiate bilateral FTAs with African countries; (ii) complex rules of origin can be and have been used to restrict market access;63 and (iii) SSA countries trying to negotiate and implement multiple bilateral FTAs face capacity constraints.

75. Given the developments in Mozambique’s traditional export sector, and taking into account the other arguments made above, pursuing regional or bilateral agreements should be reconsidered as Mozambique’s main market access strategy. Revisiting this strategy is also recommended in light of the expected negative impact on exports from preference erosion resulting from further trade liberalization, either through an increasing number of regional or bilateral FTAs or through agreement of further multilateral liberalization, such as the WTO Doha round. 64 Trade policy in Mozambique has already started to be geared in this direction. Mozambique has been more successful than most other SSA countries in simplifying its trading arrangements. It is a member of one regional trade agreement (SADC) and has thus been able to avoid the confusion associated with participating in overlapping trade agreements. 65 This was one of the rationales for Mozambique’s decision to suspend its participation in COMESA in 1995.

76. Multilateral liberalization does not compromise poverty reduction efforts in Mozambique. A recent study by Arndt (2005) considered the potential implications of trade liberalization scenarios on poverty in Mozambique. 66 They used a general equilibrium model and household survey covering 2002-03 to evaluate the effects of price changes on commodities owing to trade liberalization on household consumption. The authors conclude that the Doha trade liberalization scenario has insignificant implications for poverty, particularly given the high value of domestic products consumption in the consumption distribution. 67

77. However, market access decisions must consider potential revenue losses and administrative capacity constraints associated with trade liberalization. 68 For example, according to Alfieri et al (2006) Mozambique could loose 22 percent of its revenues on adoption of the Southern African Customs Unions (SACU), 28 percent of revenues by joining the SADC, 39 percent by achieving Most Favored Nation status, though the composition of those revenue losses differ by arrangement (Table 12). In addition, Mozambique could face administrative constraints, especially in joining SACU, which requires members to have a complex common external tariff of 38 bands and 216 rates. 69

Table III.12.

Mozambique: Actual and Estimated Revenue from International Trade, 2004

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Source: Alfieri, Cierera, and Rawlinson (2006).

Market access and business environment

78. Regardless of which market access strategy is pursued, success will depend on the business environment in which firms operate. By improving the business environment, Mozambique would be able to better explore its current market access opportunities and increase its potential gains from any future liberalizations. A stronger business environment would also lead to more secure property rights, business friendly regulations, cheaper inputs and goods, the adoption of new technologies, and the emergence of more efficient firms, which combined would generate long-term gains in overall productivity. This is particularly important if Mozambique is to compete with SADC countries; these countries, which have the same preferential market access to the U.S. and E.U. markets and similar labor cost structures as Mozambique, tend to have stronger and less costly business environments (Table 9 and 13).

Table III.13.

Mozambique: Labor Cost for Garments, Business Environment and Market Access for Selected Countries

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Source: Cadot and Nasir (2001), The World Bank’s Doing Business Indicators (2006).

As estimated by Cadot and Nasir (2001).

E. Conclusion: Policy Priorities and Lessons

79. Mozambique’s trade policy priority should be to make the business environment more friendly including by reducing the burden of trade regulations for small and medium-size enterprises. Mozambique has to some extent a less restrictive trade regime than most SSA countries. It already enjoys preferential access to profitable markets. On the other hand, Mozambique’s business environment is weak even by regional standards with burdensome and ineffective trade regulations and custom procedures among its most binding constraints. As such, continuing to improve competitiveness through reforms to strengthen the business environment rather than utilizing scarce administrative resources in complex trade agreements would be Mozambique’s main trade policy priority (Figure 3). In fact, a stronger business environment would also allow Mozambique to better exploit its current as well as prospective market access opportunities.

Figure III.3.
Figure III.3.

Mozambique: Optimal Trade Policy Choices

Citation: IMF Staff Country Reports 2007, 258; 10.5089/9781451931129.002.A003

80. Further trade liberalization would still be important. Mozambique’s tariffs in some low-level import categories are still high driving Mozambique’s simple average tariff above regional standards. Moreover under a better regulatory environment, the impact of trade liberalization is expected to be higher as it allow emerging export-oriented firms to benefit from lower input costs and easier technology transfer. Looking ahead, it would be important that efforts to improve Mozambique’s business environment be accompanied by further broad based MFN trade liberalization.

81. Mozambique’s experience offers other SSA countries important lessons. Setting clear policy priorities focused on simplification of trade regulations and strengthening the business environment for small- and medium-size enterprises could improve trade in other SSA countries. Often, to offset difficult business environments and burdensome procedures, SSA countries use exemptions and special incentives that favor large businesses, leaving business environments for small- and medium-size businesses to remain difficult. Moreover, the trade policy decisions of African countries are often focused more on complex regional trade integration than on providing all economic agents with a fair business environment, a more pressing need in countries seeking to realize their trading potential.

Appendix. Regional Trade Agreements: Organizational Integrity

This Appendix estimates hypothetical indexes for a country’s commitment to RTAs and integrity of RTAs. It applies the following assumptions: (i) an individual country is 100 percent committed to the RTA if it is not a member of any other RTA; and (ii) the sum of members’ commitments to an RTA defines the organizational integrity of this group. For example, if the RTA consists of individual members that do not belong to any other RTA, then the organizational integrity index is 100 percent. As shown in Table A, individual countries are members of up to four different RTAs, and the individual country’s commitment index to RTAs varies from 25 to 50 percent, except for Mozambique, which has a 100 percent commitment to SADC. The organizational integrity of RTAs varies from 28 to 43 percent. The SADC is a more integrated RTA than all the other RTAs except for IGAD.

Table III.A.

Africa: Indices of Individual Country Commitment and Group Integrity in Regional and Sub regional Economic Integration Groupings

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Sources: European Center for Development Policy Management, Department of Foreign Affairs, Republic of South Africa and IMF staff estimates.Notes:SADC- Southern African Development CommunityCOMESA- Common Market for Eastern and Southern AfricaSACU-Southern African Customs UnionEAC- Eastern African CommunitySEA- Eastern and South African CommunityIOC- Indian Ocean CommissionIGAD- Inter-Governmental Authority of Development

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44

Prepared by Eteri Kvintradze.

45

External competitiveness is defined here as the ability to offer a conducive trade environment.

46

As discussed in USAID (2006).

47

In this sense, it is different from a static concept of comparative advantage, which looks into factor endowments, as discussed in Porter (1998).

48

See Bernard, Redding, and Schott (2007).

49

Governments protect some businesses for various reasons. Infant businesses are protected to help them reach their competitive potential. Strategic businesses may be protected because of their location in postconflict zones or underdeveloped regions where they are the main source of social welfare. Other businesses can be protected because they successfully lobby their interests. The literature on the political economy of trade analyzes the effects of interest group lobbying on trade policy. For example, a number political economy models of trade with heterogeneous firms, have found that sectors with more concentrated factor ownership are better able to secure favorable protection, than those with less concentrated factor ownership. See Grossman and Helpman (2002) for a survey of the literature.

50

As discussed in IMF (2002).

51

We are considering a general two-dimensional analytical framework at a country level. The same framework could be applied at the sector or at the firm level in order to determine the degree of competitiveness or market access constraints. Therefore, this framework could help to define a specific reform strategy addressing sector-specific constraints.

52

An updated assessment of competitiveness from a macroperspective on the basis of REER is conducted in Box 1 of the accompanying staff report. Mozambique’s REER is shown to have been relatively stable over the past decade. However, econometric results presented suggest that the REER may be overvalued by about 10 percent, though with some statistical uncertainty about the precise magnitude. As such, Mozambique’s external competitiveness may have been stronger had its REER been aligned with its underlying equilibrium rate.

53

Throughout this chapter, ASEAN 4 countries (Indonesia, Malaysia, Philippines, and Thailand) will be used as benchmarks given their successful sustainable export-led growth experiences.

54

Megaprojects’ economy wide spillovers to the rest of the economy remains subdued by their capital intensive nature, profit repatriation patterns, limited vertical and horizontal linkages to the economy, and reduced fiscal contribution. See Box 1, IMF Country Report No. 06/46 for additional information.

55

Revealed comparative advantage is the ratio of the product’s share in country exports to its share in world exports. If that ratio is greater than one, the country is said to have a revealed comparative advantage in that product.

56

Firms must employ at least 250 permanent Mozambique workers to qualify as a stand-alone EPZ.

57

Investment in the sector came mostly from South Africa and Mauritius.

58

A simple average tariff is calculated by adding up all tariff rates and dividing it by the number of import categories. The simple average tariff may overstate the degree of protectionism in the economy, if a country trades mostly in a few categories with low tariffs, but has high tariff in categories that it would not find advantageous to import. The trade-weighted average tariff avoids this problem by dividing the total tariff revenue by the total value of imports. Thus, if a country has import categories with high tariff rates but low imports in these categories, the trade-weighted average tariff will be lower than the simple average tariff.

59

Mozambique has gradually reduced its maximum tariff, from 35 percent in 1999, to 25 in 2002, to 20 percent in 2006.

61

There is anecdotal evidence reported by Arndt (2005) on contraband and smuggling of goods on the borders of Mozambique. Goods are divided in small lots and smuggled through the borders.

62

ASEAN, the Association of South East Asian Nations, East Asia’s first regional trade arrangement was established in 1967. See World Bank (1995) and Sarel (1996) for discussion of trade policy in ASEAN 4 countries.

63

See Brenton, Flatters, and Kalenga (2005).

64

Preference erosion is defined as a reduction in the tariff advantage enjoyed by a preferred beneficiary vis-a-vis its competitors. Preference erosion stems from multilateral liberalization and unilateral liberalization extended toward countries that do not include existing beneficiaries. See also discussion in Yang (2005).

65

For more on this point see the Appendix, which estimates group integrity indexes and individual country commitments to RTAs for a number of SSA countries.

66

See also Benito-Spinetto and Moll (2005).

67

Mozambique’s tariffs are zero in the Doha scenario.

68

See IMF (2005), Arndt and Tarp (2005) and Arndt, Jones, and Tarp (2006).

69

However, the rules of origin of SADC are more complicated than those of SACU.

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
Republic of Mozambique: Selected Issues
Author: International Monetary Fund
Volume/Issue:
Volume 2007: Issue 258
Publisher:
International Monetary Fund
ISBN:
9781451931129
ISSN:
1934-7685
Pages:
70
DOI:
https://doi.org/10.5089/9781451931129.002

Analytical Framework: Trade Policy Choices

Mozambique: Megaprojects Share in Total Exports and Imports

Mozambique: Optimal Trade Policy Choices