Supporting the Policy Environment for Economic Development

Industrial Policy for Mozambique

In recent years, African countries have demonstrated renewed commitment to industrialization as part of a broader agenda to diversify their economies, build resilience to shocks, expand productive capacity for high and sustained economic growth, create employment opportunities and contribute to poverty reduction. This commitment is also evident at the regional level, with the New Partnership for Africa’s Development (NEPAD), which recognizes the need for Africa economic transformation through industrialization, and the African Heads of State agreeing to a Plan of Action for the Accelerated Industrial Development of Africa (AIDA) in 2008. Underpinning this, is the belief that industrialization has the potential to promote long-term sustainable development and to generate productive jobs and livelihoods for the large number of young people entering the labor force each year. However, pitfalls from past industrial policies should be avoided.

To contribute to an informed decision on a future Industrial Policy in Mozambique, SPEED commissioned the Discussion Paper: An Industrial Policy for Mozambique. The paper, developed by Ashok Menon, examines the policy choices for Mozambique by reviewing the differences between vertical and horizontal industrial polices, discussing other countries’ experience with industrial policy and Mozambican experience to support industrial development.

The paper argues that vertical industrial policy typically targets specific sectors by aiding them with subsidies, trade barriers, and other forms of “support”. More often, a vertical industrial policy tends to build in protectionism measures, thus defying the development of competitive firms. Horizontal industrial policy focuses on addressing the barriers and failures affecting industrial development such as inadequate infrastructure and weak capacities to create a fiscal, legal, and regulatory environment that is conducive to investment and entrepreneurship.

The paper shares the pros and cons of different types of industrial policies, showcases some sector-specific industrial policies which highlight successes and expensive mistakes. The paper calls attention to industrial policy linkages and implications for trade, taking into consideration commitments made by Mozambique in their regional and international trade agreements. The paper offers some considerations for developing an industrial policy for Mozambique which include: a) a strong business environment matters if a country wants to successfully pursue vertical industrial policies; b) sound economic analyses are required to effectively pursue industrial policies; c) the nature and implementation of domestic policies matter; d) vertical industrial policies can run contrary to WTO and other trade commitments; e) horizontal policies designed to improve the overall business environment are preferable to vertical industrial policies at Mozambique’s current stage of development, and e) commitment to implement horizontal policies is essential.

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