Will COVID-19 bring winds of change in Mozambique?

The time is ripe for policy change! This seems to be the position of the Ministry of Economy and Finance, shared in a panel discussing the economic impacts of COVID-19 and their policy implications in Mozambique. The debate was organized by the Inclusive growth in Mozambique (IGM) programme during its Annual Conference 2021 in Maputo. This is, for me, the main takeaway from the programme’s flagship event.

Nearly two years since the beginning of the pandemic, it is time to draw on the lessons learned and plan for a future dictated by the ‘new normal’—and to ’Build Back Better’. Showcasing some of the most relevant research on the impacts of COVID-19 in Mozambique—and discussing their policy implications amongst key policymakers, academics and development practitioners—the conference programme provided lots of food for thought in this sense.

Weakened by crisis, conflict, and natural disasters, the impact of COVID-19 on the Mozambican economy has been significant

Until around 10 years ago, Mozambique was one of the best performing economies in Africa, with an average annual growth rate of 8%. The fall in commodity prices in 2014, the emergence of an external debt crisis, resulting inflation and withdrawal of budget support partners in 2016, conflicts in the central and northern regions of the country since 2013 and 2017, respectively, and two recent cyclones in 2019 have all significantly weakened the Mozambican economy.

On top of this came COVID-19. While the health impacts of the pandemic have not been as frightening as some initial predictions, the economic impacts are significant and protracted. Important export sectors, such as mining, have faced large price declines in world markets, resulting in lower export earnings. For tourism, another key sector for the Mozambican economy, the travel restrictions and social distancing measures have had devastating effects. In short, COVID-19 has further slowed Mozambique's economic growth.

Government response was rapid but insufficient

The Government of Mozambique and the Central Bank were forced to take emergency measures to offset the socio-economic impacts of COVID-19. Support to the private sector included credit market and tax relief, as well reductions in public services utility bills. In addition, the number of beneficiaries of social protection programs more than doubled, from around .6 to 1.7 million households and a new emergency subsidy to vulnerable households was phased in.

According to Finório Castigo, Ministry of Economy and Finance, the mitigating role of the tax and benefit rescue packages in Mozambique was, however, limited. This was partly due to the slow roll-out of some of the measures, confusion about eligibility criteria, and limited support to informal businesses.

Urban women and youth were the hardest hit

The reduction in domestic demand that followed the introduction of measures to contain COVID-19 negatively affected the dynamics of the private sector and industrial production. Many formal businesses, especially small businesses which are often led by women, were left with no reserves to support themselves. According to the National Institute of Statistics (INE), around 120,000 jobs were lost and 63,000 work contracts were suspended by June 2020.

The loss of jobs and livelihoods was more pronounced in urban areas, where most private sector companies reside. For about two-thirds of the Mozambican population that live and work in rural areas and practice subsistence agriculture with little or no connection to larger markets, the immediate effect of COVID-19 seems to have been less significant.

The impact on the informal sector seems to have been particularly severe. As noted by Alex Warren-Rodrigues, UNDP Mozambique, the informal sector is an integral part of the urban economy, and as such, exposed to the dynamics of the global economy, including the recession caused by COVID-19. It is directly impacted, too, by the restrictive measures to prevent the spread of the virus. At the same time, it has limited access to social protection programmes and private sector support measures.

Research produced under the IGM programme further shows that, in addition to women, young people, who are important contributors to family income, faced unemployment or accepted precarious work during the pandemic. And those that recently graduated faced particular difficulties in finding stable employment.

'Building Back Better' implies investing in the domestic market and inclusive growth

COVID-19 once again raises the question of the country's ability to resist external economic shocks—not only in terms of protecting economic and social gains but above all sparking economic transformation. The idea of a new growth model—the change that I saw being referred to by the Ministry of Economy and Finance at the panel discussion — is built on the diversification of the economy and the development of a competitive domestic market. This would lead to reduced inequality, job creation, and improved conditions for small businesses for a young and fast-growing population. It would also contribute to support for pro-poor policies.

Many challenges remain ahead, however, including limited fiscal space conditioned by a tight national budget and high levels of public debt, as well as the ongoing conflict and significant displacement of populations in the north of the country, which risks increasing military spending, compromising regional trade, and limiting the creation of local employment and business opportunities associated with the natural gas exploration. ‘Building Back Better’ requires economic transformations that align with a more inclusive growth model amidst many dividing forces – not easy, but a necessary change.

Selma Inocência is a CNN Awards winning Mozambican journalist with more than 15 years of experience in communications, TV and journalism. She moderated the panel discussion during the IGM Annual Conference 2021.

The views expressed in this piece are those of the author(s), and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors.