Trade and Poverty Reduction in Mozambique

Bruce Bolnick

Nathan Associates

USAID/Maputo, June 10, 2004

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DTIS: Trade-Poverty Linkages

• Diagnostic Trade Integration Study for the Integrated Framework

• TOR for Mozambique: Clearly define trade and poverty linkages―Link to the PRSP (PARPA)―Evolution of poverty―Impacts of imports and exports ―Analysis of effects of future changes in trade

policy (or market access)―Indicators linking trade to poverty reduction

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Agenda

• Trade and poverty:- Mainstream view - Critical appraisal - Synthesis

• Poverty in Mozambique (briefly)• Trade policy in the PARPA• Impact of trade on poverty in Mozambique• Strengthening trade-poverty linkages

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Trade Promotion Poverty Reduction

The mainstream view:

• Higher growth poverty reduction

• Openness higher growth

• Trade has no systematic effect on variations around mean

Ergo: Openness poverty reduction

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Trade Poverty = Controversy

• Wide perception that globalization and trade harm the poor

• Example: Too hot to handle: The absence of trade policy from PRSPs - Paul Ladd, Christian Aid, 2003:

Rapid trade liberalization has “forced poor people to compete…, undermining their livelihoods and increasing their vulnerability.”

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Trade Poverty: Critical considerations

• Rodrik: Trade Growth?? Spurious Causality? Inference for trade policy?

• Losers & gainers, from both imports and exports• Transitional costs, “de-industrialization”• Political economy of trade policy

the “losers” often win • Natural resource “trap”• Many exceptions to empirical link between export

growth and poverty reduction (UNCTAD, 2004)

• General equilibrium analysis fairly small aggregate effects

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TradePoverty:View from the bottom

• How does trade liberalization look to a poor household? Income, jobs, opportunities Price of goods consumed Remittances Public services (revenue effects) Institutional development Risks, vulnerabilities

• Tapestry of gains and losses• Expectations and perceptions

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TradePoverty: Synthesis

• For poor countries, trade is critical to growth and poverty reduction

• But impediments and costs must be taken seriously into account

• Bear in mind the costs of not adjusting ! ―Winners and losers―Protectionism is a retrogressive way to deal with

the impediments and costs ―Waiting until “conditions are conducive” is self-

defeating

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TradePoverty: Synthesis

• Implication: ―Facilitate the gains―Mitigate the costs―Manage the risks―Monitor the impacts

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Poverty in Mozambique: IAF 2002/03

• Quality of the IAF findings• Definition of poverty line• Main results

―Poverty reduction ahead of PARPA targetNational: 69.4% 54.1%

Rural: 71.3% 55.3%Urban: 62.0% 51.5%

―But still, poverty is pervasive and severe.Daily reality for over 10 million people

• Corroborated by other data

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Example

Bicycle ownership

Similar trends for

- Radio ownership- Improved roof- Access to latrine- Access to water- Children in school

IAF96 QUIBB00 IAF02National 13.3 27.3 28.1Rural 14 30.7 31.8Urban 10 17.9 19.4Niassa 24.1 47 56.9Cabo Delgado 14.8 24.9 24.1Nampula 10.9 23.3 26.7Zambézia 13.9 46.8 38.7Tete 20.3 37.1 27.9Manica 18.3 25.9 38.5Sofala 11.9 25.4 35.5Inhambane 7.8 12.5 11.7Gaza 14.4 15.3 16.7Maputo Province 9.4 9.6 10.2Maputo City 2.6 9.1 7.8

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Trade policy in PARPA 2001-05

• Very little discussion of trade policy

• Too hot to handle in Mozambique?- PRSP as a participatory process

• Decision: focus on the fundamentals

Trade policy in next PARPA?

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Trade-Poverty links in Mozambique: Basic considerations

• Need for export-led growth• Public interest vs “special interests”• Efficiency and sustainability• Role of mega-projects • Predominant issue today = Impact on

agriculture, rural households• For the future: Off-farm opportunities

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Trade-Poverty links in Mozambique: Specific policies/sectors

• Cashew

• Maize

• Sugar

• Cotton

• Tobacco

• Rice proposal

• Garments (second hand clothes)

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Trade-Poverty links in Mozambique: Scenarios to consider

• Implementation of SADC trade protocol

• Reduction in top duty rate to 20%

• Flat-rate import duty (say, 10%)

• SACU option

• OECD market access for agricultural products and garments

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Strengthening trade-poverty links

Facilitate the gains―Strengthen the investment climate

Red tape (Doing Business findings) Financial system Legal/judicial institutions Corruption

―Facilitate exports Customs reform VAT refunds Infrastructure Export financing Product quality standards Agronomy research

―Maintain competitive exchange rate !

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Strengthening trade-poverty links

Mitigate the costs ―Scarce resources! ―Targeted safety net programs

• Rural food for work

• Special adjustment assistance (e.g., cashew processing)

―Training programs (private sector emphasis)

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Strengthening trade-poverty links

Manage the risks―Political stability ―Macroeconomic stability―Export diversification―Forex reserves/exchange rate policy―Sound banking system

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Strengthening trade-poverty links

Monitor the impacts―Macroeconomic indicators

Real per capita household consumption

―Existing survey resources―International price data―Special purpose data―Poverty Observatory as forum―Training for press and civil society

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Conclusion

Will trade liberalization serve to reduce poverty in Mozambique?

Can the IF help the people of Mozambique benefit from trade?