Accelerating Inclusive Growth John Panzer World Bank

Bottom Line Principles 1.Focus and support the rural economy and self-employed in urban areas through both general as well as specific active polices 2.Exploit and take advantage of natural resources. They are central. But, they need to pay their share and be taxed 3.Social Protection

Motivation Mozambique has enjoyed rapid sustained growth But clear indications on limitations in building national industry and agriculture that create jobs and reduce poverty – Need lots of growth even to reduce poverty moderately Business as usual is not an option: dual challenges – Sustain High Growth – Have Growth that is more inclusive & successful in reducing poverty

Structural Issues to Consider Expectations need to be realistic and account for structural issues that condition how to meet the challenge 1.Still in early stages of economic and demographic transition from a rural economy; Increase productivity in agriculture 2.Despite recent achievements, people enter the labor force with very low levels of education; Condition job opportunities on the supply side

Structural Issues: Implications Agriculture and rural development are critical → Increase productivity, move up in value chain, rural enterprises “Informal jobs” or household production are critical for growth and poverty reduction →Increase productivity Coexist with a growing modern sector that has its own dynamic “The Sandton Economy”. Fast growing modern businesses anchored on the development of natural resources

Structural Issues: Role of the State Mozambique needs “both economies” to do well to grow and reduce poverty Different role of the State Rural and Informal State that facilitates public goods and has proactive policies to help increase productivity “Sandton Economy” needs a contribution from the revenue side to help finance the modernization or transition of the “less developed economy”

Structural Issues: Tensions Inevitable social and political tensions as transition will probably lead to increased inequality – Need Safety Nets Development will not be harmonious. Geographical distribution will be determined by pull from natural resource development – Need to tax and redistribute

Policies For Growth And Jobs In Less Modern Sectors Much can be done with good Results Combinaton of Passive and Active Policies – Passive (Red Tape, Education, Labor Legislation, Trade Facilitation, Land into Production) – Active Focus on accelerating economic activity in promising areas Requires choices and risk-taking

Active Policies Choices: Impact, Chance of Success, Endowment, Opportunities, Signs of Emerging Issues Areas:Knowledge Transfer Bundle Assistance / Coordination » Public » Private Essential: Accountable Institution To Lead – Small Office Under Prime Minister or President – Convening Power, Solve Problems, Brief PM

Policies for Natural Resource Based Sector Avoid regulatory capture (BP-ENV) – Rigorous cost-benefit – Fair, efficient, and transparent taxation – Social Accountability

Conclusion Few countries blessed with initial conditions of equity leading to harmonious development Not the case for Mozambique Great opportunities, navigate choppy waters Avoid capture Strengthen focus on less modern sectors Social protection Can be done incrementally & needs to be sustained Needs focus and your leadership