09 May 2006

09 May 2006 Minutes

Minutes, Private Sector Working Group, May 9, 2006

1. GTZ Business Environment Program

Freiderich Kaufman presented the GTZ program, and introduced Ralf Lanwehr, who will serve in Beira. The purpose of the program is to reduce transaction costs for SMEs through, among other things, unified inspections and one-stop shops. The presentation is attached. The EUR 4 million program runs to 2008, with technical advisors in Maputo (Kaufman) and Beira (Lanwehr).

In response to Gilberto de Barros’ question about how success in reducing transaction cost would be measured, Kaufman cited Doing Business, CTA’s Business Confidence Index, and provincial surveys.

Ramón stressed the importance of closing the gap between the formal and informal sectors.

2. Terms of Reference for the Private Sector Working Group

There was a long discussion of the terms of reference for the PSWG.

MIC and CTA will serve as co-chairs for the next year, with a donor as chair, represented at the level of head of cooperation (CTA’s suggestion, accepted). DfID (Elizabeth Jones) and the EU (Ramón Ynaraja) will vacate their co-chairs. CTA also suggested that the donor assuming the chair should have a significant private sector program, but it was agreed to leave this point to the self- and group selection process. Andrea Cilloni strongly favored periodic rotation of the leadership group. Jay Knott requested expressions of interest for the chair position.

There was genuine disagreement about the advisability of government chairing or co-chairing the private sector group, with CTA (Paulo Fumane) strongly preferring donors in these roles, but Ramón Ynaraja and others arguing that the PSWG should be no exception to the rule that the GRM should be assuming more and more responsibility for all aspects of policy. CTA’s two main objections to government participation were: (a) the private sector has other forums to engage government, but the PSWG is the only place where it effectively interfaces with the donors as a group; and (b) the government co-chair might inhibit discussion of controversial areas or criticism of government policy or its implementation. The general feeling was that whatever the theoretical objections, in practice having the government and CTA as co-chairs was unlikely to inhibit the ability of the group to address sensitive issues.

Liz Jones and Tim Born will finalize the TOR for approval at our next meeting.

3. Private Sector Conference

Paolo Fumane briefly summarized the private sector conference: three days was not enough and there was good high-level government attendance. The meeting set four priority areas: finance, red tape, fiscal reform, and transaction costs.

4. Competition Policy

Ramón summarized a one-day seminar on competition policy; and distributed the document on Wednesday. In summary, the Finns are proposing, and, according to Olga Gomes, the government is planning, to develop a competition policy and law by the end of the year, with UNCTAD assistance. Ramón and Tim reminded the group of earlier work done by a USAID consultant, Dr. Armando Rodriguez, that suggested that only advocacy functions made sense for Mozambique at this time, as the costs would likely far outweigh the benefits under more elaborate institutional and legal arrangements for promoting competition. An interesting point highlighted by Ramón from the Finnish presentation was that it is better to establish the institution first and detailed regulations second.

5. Doing Business Follow Up (presentation attached)

Gilberto de Barros presented some general advice and then summarized new work related to the labor law and the Doing Business Report. He pointed out that whatever its flaws, the index was an important source of information for investors and policy makers, and therefore had to be taken seriously. He recommended that donors assist CTA and government to develop time-bound, specific targets to improve Mozambique’s performance.

He then provided a practical example of how the labor law, now in draft with passage expected this year, could be tweaked to improve Mozambique’s Doing Business ranking by a dramatic 21 places (110 to 89 if others stay where they are). These include lifting the 100-hour limit on overtime, and removing language that appears to limit the use of term contracts, which have a cumulative limit of ten years, to “temporary" workers.

There was a suggestion that some of the changes might be constrained by Mozambique’s treaty obligations under the ILO. [Paulo Fumane reported the following day that at least the overtime limit was not covered by any ILO treaty.]

It was agreed to develop a follow-up plan to make sure these points are brought to the attention of the concerned ministries and the CCT before the law is presented to the Conselho de Ministros (June).

6. Date of Next Meeting

The agreed date of June 7th conflicts with the next Economists Working Group, so, subject to general agreement, we’ll meet on Thursday, June 8th at 10 am.

Attachments: 1) GTZ Presentation 2) Doing Business Presentation

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