USAID/Maputo, June 10, 2004
Trade and Poverty Reduction in
Mozambique
Bruce Bolnick
Nathan Associates
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
1
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
2
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
3
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.”
4
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
5
TradePoverty:
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
6
TradePoverty: 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 selfdefeating
7
TradePoverty: Synthesis
• Implication:
―Facilitate the gains
―Mitigate the costs
―Manage the risks
―Monitor the impacts
8
Poverty in Mozambique:
IAF 2002/03
• Quality of the IAF findings
• Definition of poverty line
• Main results
―Poverty reduction ahead of PARPA target
National:
Rural:
Urban:
69.4%  54.1%
71.3%  55.3%
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
National
Rural
Urban
Niassa
Cabo Delgado
Nampula
Zambézia
Tete
Manica
Sofala
Inhambane
Gaza
Maputo Province
Maputo City
IAF96
13.3
14
10
24.1
14.8
10.9
13.9
20.3
18.3
11.9
7.8
14.4
9.4
2.6
QUIBB00 IAF02
27.3
28.1
30.7
31.8
17.9
19.4
47
56.9
24.9
24.1
23.3
26.7
46.8
38.7
37.1
27.9
25.9
38.5
25.4
35.5
12.5
11.7
15.3
16.7
9.6
10.2
9.1
7.8
10
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
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•
•
•
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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
12
Trade-Poverty links in Mozambique:
Specific policies/sectors
•
•
•
•
•
•
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Cashew
Maize
Sugar
Cotton
Tobacco
Rice proposal
Garments (second hand clothes)
13
Trade-Poverty links in Mozambique:
Scenarios to consider
•
•
•
•
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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
17
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?
19