This study seeks to better understand reasons for Mozambique’s low productivity and suggest some policy recommendations to increase productivity growth. The study was conducted to find reasons for Mozambican firms’ low productivity, and suggest policy changes to increase productivity. The research was based on a combination of an extensive literature review, field interviews, and data analyses. Data were obtained from field visits to a sample of firms, most in the industrial sector. The study also included a survey. The Ministry of Industry and Trade (MIC) arranged the interviews. We also obtained industry- and firm-level data from MIC sources.
The study analyzed the structure of the industrial sector highlighting its extremely skewed nature both in terms of manufacturing value added as well as the spatial distribution. Using firm level data as well as ministry data, we also calculated the value added per worker and its distribution across firms in both the manufacturing and agro industry sub sectors. Further analyses of some clusters in each sector were revealing. For instance, in manufacturing, a study of five firms in similar activity we found a wide dispersion in costs and value added. Consequently, labor productivity within this cluster is also very different. The productivity (value added per worker) also varied widely despite the similar activities. The firm with highest labor productivity is 11 times more productive than the firm with the lowest productivity.
Our study corroborates earlier World Bank-CTA study, in that labor productivity is very low, and we also found low capacity utilization. Besides low productivity, there is also a wide dispersion in the cost structure and labor productivity of firms with similar activities. During interviews conducted for this study, it was clear that there is a lack of awareness of productivity as an issue for domestic firms. Few firms had installed human resource training and skills investment or a system of productivity enhancement wage schemes. Firms do not appear to practice the payment of piece rate, which links pay to productivity in most labor-intensive industries.
The results of our study reconfirm previous studies’ conclusions that productivity and growth in Mozambique must be analyzed in the wider context of the business environment and competitiveness. As the World Bank’s Investment Climate study rightly pointed out, in Mozambique firm-level productivity and productivity growth were low primarily because of the business environment. A favorable business environment can support productivity growth. Second, in promoting investment and growth at the firm and sectoral levels, competitiveness is immensely important. Labor componentand consequently labor productivity are only part of competitiveness in the value chain.
Our research corroborates the findings of the World Bank study on Mozambique’s poor business environment. While our interviewed sample was too small to give robust quantitative results, a clear sense emerges that not only are workers poorly trained, and worker training does not seem to be a high priority for business. Worker health, primarily the widespread prevalence of HIV, besides being a major issue of social concern, the AIDS epidemic has direct consequences for firms and productivity. Besides workforce skills, management skills are another issue affecting the organizational environment in general and worker productivity in particular. Our research showed disparities in indicators such as worker-to-administrator ratio, administrator-to-worker ratio among firms engaged in similar activities, and indicators of possible organizational problems. Although issues of organizational problems are difficult to capture quantitatively, the way the firm is structured in terms of sourcing of materials and composition of human resources may determine the value added. Overall our study strongly suggests that the road to increasing competitiveness via improving the business climate would lead to productivity increases as well.
If Mozambique has come far, it needs to go further still if it is to rid itself of its stigma as one of the world’s poorest countries. Mozambique is still recovering from the collapse of production and infrastructure after the departure of the Portuguese, who took with them the technical, managerial, and entrepreneurial classes a market economy needs. We suggest policy changes to promote productivity growth and increase Mozambique’s competitiveness.
We suggest specific policy changes and recommend other studies, namely the World Bank’s Investment Climate Assessment and Nathan Associates’ Diagnostic Trade Integration Study, among others, for a wider range of policy suggestions. Among our recommendations, we suggest specific policy measures that would enhance the pool of trained Mozambican workers. We also propose the creation of a council to promote productivity and competitiveness. Many countries have used national competitiveness and productivity councils to foster productivity awareness and promote productivity growth among firms. We also recommend that the government should avoid artificially increasing production costs, especially labor costs. In order for Mozambique to take advantage of its fundamental competitive advantage in labor-intensive manufactures. We also recommend a set of measures aimed at reducing the high cost of doing business in Mozambique.