J. LUIS GUASCH World Bank Mozambique, February 2011

1. FACILITATING PRODUCTIVE ACTIVITY AND COMPETITIVENESS: Passive and Active Policies: How to Grow and Alleviate Poverty: Building Productive/Export Platform J. LUIS GUASCH World Bank Mozambique, February 2011

2. It can be done • Yet it requires leadership, commitment and bringing in a number of stakeholders • Trough a combination of passive and active policies and programs: minimum platform • Plenty of examples from LAC and others

3. Increasing Productivity, Productive Actvity and Mainstreaming SMEs Program of policies and instruments needs to be supported by an educated an intelligent industrial policy, combination of active and passive policies incentive driven use of public funding gradual and evolving, results oriented critical focus on knowledge transfer and quality on attracting critical new firms (investment)-ie commercialization and processing well targeted geographically (provinces) and sectorially needs certain level of institutionality and capacity focus on both domestic and export markets phased out, sunset clauses and evaluation of results coherent and coordinated across relevant sectors

4. Passive and Active Policies • Passive policies are those focused on removing obstacles to economic activity, on reducing transaction costs, red-tape, improving processes and procedures etc • Active policies are those focused on assisting producers improve productivity/productive activity, on jump starting economic activity and so on-most address forms of market failures • Both are needed, while the passive ones are quite important (particulalrly in Mozambique on processes, procedures, taxes, licences, trade facilitation, land etc), without the active ones the reaction/impact time would be quite long

5. Platform Leadership and problem solving capacity Vision and Objectives Programs/Instruments Institutions Evaluation Taking stock of what you have: building on endowments and success A combination of passive and active policies Building through a minimum platform shape to country conditions and endownments Sectorial and province focus: building on success-from byproducts to diversification; differentiated approach for large and for small firms Close collaboration and involvement of private sector Joint public-private undertaking

6. Objectives Overall: Increase productivity, production activity, moving up the value added chain and the level and content/diversity of exports. All while integrating micro and SMEs into the production and value and export chain

7. Components of the Strategy Trade Policy and Access to Markets Tariff Regime Free Trade Treaties Exportable/Production Supply Productive/export mapping Quality and Standards Human Capital Innovation and Knowledge Transfer, CITEs, TTOs Clusters and value chains Discovery and new products Logistic and Trade Facilitation Costs Harware: Infrastructure Corridors and Export Zones Software: Associated Services and Trade Procedures Social/Productive Inclusion of SMEs: Knowledge Transfer Articulation Hubs Consortia CITEs Suppliers programs; rverse factoring Government Procurement Easy Export Financial Instruments for Trade and FDI, Incentives Institutions: Delivery Unit, Export Facilitation, Quality Agency, Knowledge Transfer Articulation Innovation Agency-Regional focus Overall Investment Climate

8. Embedded in a new modern and educated Industrial Policy • Explicit criteria for selection, focalization, use of resources • Strong emphasis in mainstreaming SMEs into the productive, value and export chain • Strong emphasis also on commercialization and processing • Also on securing new medium large firms in strategic and key areas and sectors • Moving up the value added chain • Adequate job creation emphasis • Critical emphasis on knowledge transfer

9. Access to Markets Bilateral and multilateral FTAs Exchange rates-volatility Market intelligence Identification of markets Identification of product characteristics and standards Identification of distributors/buyers Identification of intermediaries/users: (maybe diaspora) Run by technical Ministry (aided by private sector) and not by State or Foreign Relations Ministry Communications and Internet Export Promotion Agency

10. Productive and Exportable Offer Quality: services and adoption Productivity: knowledge and technology transfer Innovation Value Chain-Clusters-Silos and Cold chain Information ICT CITEs can play major role Discovery Productive/ Export mapping Evaluate possibilities for efficient import substitution FDI strategically choses Human capital

11. Infrastructure and Services Logistic Platform Hardware Productive and Export (and Tourism) corridors: Port and Accesses Regional exit points: hubs ports and airports Logistic terminals-network Silos Access Export/Special economic zones Cross Border Rural Electrification for Productive purposes-moving up value chain Software Network of Service sites, hubs Single windows Dedicated lines: Perishables Privileged lanes: Track record Customs and Inspections Warehousing Hubs-Markets Cold Chain Multimodality Law Transport services: Trucking Certifications on quality and phytosanitary compliance Digitalization of Certificates of Origin

12. Employment Impact of a Decrease of 12% points in logistic\infrastructure costs across industries with different Capital/Labor Intensities

13. Global PRW Capacity in 2008 Source: IARW

14. Geographic Zones from Peru: Economic Potential, Productive Efficiency, Access Costs, Poverty

15. Knowledge Transfer and Innovation Program • To support using existing knowledge, discovery efforts and diversification • Minimum package-need to be not too ambitious • Build on strenghts and capacities • Focalized support, geographical (provices) and sectoral • Educated criteria to select sectors support • Matching grants proven effective • Separate objectives: i) knowledge transfer-high priority; ii) creation/adaptation of knowledge; iii) comercialization and processing

16. Strategic FDI: Paralel Approach for small and larger firms • Critical to attract generously, new firms strategically in terms of location and products with particular focus on commercialization and processing (particularly related to agriculture) • For success a parallel approach is needed: to improve and articulate micro and SMEs and second to support and attrac medium larger firms higher up in the value chain

17. Centers for Knowledge Transfer • In particular CITEs (i) facilitate the transfer of knowledge and existing technologies (off-the-shelf) to enterprises; (ii) address missing links in sectoral value chains and quality issues; (iii) identify bottlenecks and opportunities for further innovation of products and processes at the sectoral level; (iv) facilitate the commercialization of products; (v) provide value added services not reasonably available; and (vii) provide specialized training; (viii) access to electrification.

18. CITEs Centers of technology and knowledge transfer, mostly oriented to serve SMEs In situ Offer technical services, knowledge and technology transfer, quality and conformity to standards, testing, assist in articulation and export , and training Highly focused on products and location:agro industry, acquiferous, metal-mechanic, textiles, software, electronic instruments, jewelry, tourism, paper and pulp, leather and shoes, furniture and wood, art craft, fruits, packaging, software, logistic Private run/managed, but public-private undertaking Capital equipment grant, operating costs through user fees Includes new product CITEs Results sample: new products (20%), new exporters (25%), productivity increases (80%) Spain (pioneer), Peru, Mexico, Colombia, Uruguay, Dominican Republic, Brazil, Croatia, Slovenia, Honduras, etc

19. Strategic Alliances:between • To support adaptation and new knowledge generation • Industry or/ and Research Centers/Universities • Large/medium firms and SMEs • Consortias • Technology Transfer Offices (TTO) • Can be supported by matching funds type program • Results and productive focus and job creation oriented • IPR issues need to be resolved at the start • Public-Private undertaking • Selective: building on “success”

20. Special Economic/Export Zones • Can be quite effective if properly designed • Addresses infrastructure and bureaucracy issues • Multipurpose-Going beyong manufacturing (includes services and agro-industry) • A mix of export and domestic market focused activities • Limiting reliability on unsustainable fiscal incentives

21. Mainstreaming SMEs • Easy Export • Articulators • Hubs • Suppliers programs and reverse factoring • Quality, quality and quality • Knowledge Transfer • Storage and Packaging • CITEs • Special Economic Zones • Government Procurement incentives • Silos • Rural Electrification for productive purposes • Internet access/ Centers • In situ assistance • Working with communities and local governments

22. Hubs and Storage Sites/Silos • Critical element of rural development success in poor East Asia countries • Specially fit for disperse productive activity and costly access to markets, and to reduce losses • Intermediate stage-quasi wholesale market: strategic location: designed for facilitate distribution and access to markets and reduce losses • It also addresses issues of scale packaging and cold chain • Starts implemented by public sector phased out to private sector

23. Articulators I For a country where production is highly fragmented as in Mozambique, articulation initiatives are critical to secure scale benefits and knowledge transfer, all likely inducing much needed significant productivity gains and products fit for domestic and export markets and increased entrepeneurship and also have a strong demonstration effect Usually specialized individual agents, can be trained, NGOs etc Functions: identifying communities of small producers and facilitating associativity securing scale; transfer information and quality; identifying intermediaries. They can assist on finance, accounting, leadership, technical (production know-how, fertilizers, seeds, and soil treatment); marketing (access to local markets, exports, linking with buyers, traders or specialized wholesale and distribution firms (resorts, restaurants supermarkets); secure scale effects consolidating land, through various forms of associativity and even facilitate the financing working with microfinance institutions, and NGOs

24. Articulator II: high value Who are they? They are usually medium/large, formal firms: The usual suspects plus others through digging Larger firms up on the value chain or distriutors and exporters a (often looking for scaling up), buyers, firms higher up in the value chain (pulp, juices, canning etc), foreign firms, chains, firms in related business Functions: transfer know-how, quality issues, lock in contracts ex-ante (that can be used for securing finance) Quality, reliability and scale are the critical factors for Articulators II to get involved

25. For agro-sector: Typical Assistance to Farmers Specific focus on commercialization and processing Soil preparation, seed selection and treatment, harmonization and planting density, timing of production, use of fertilizers, fito-sanitary control and testing When applicable, procedures for phytosanitary permits, organic certification and the certification itself When applicable FSC certification for forestry producers

26. Range of products All sort of fruits, vegetables and horticulture Animal related, meat, cheeses, lactics, fiber Fish farming, trout, tilapia, shrimp and other indigenous species Peanuts and other nuts, berries, medicinal plants, potatoes, wood and related products, Grains Art crafts, jewelry, watches, tourism, textiles, paper and pulp, leather, furniture, and related products

27. Results: An example of mainstreaming micro and SMEs into productive activity and exports Within 24 months, in the Peru program 67,000 small producers were articulated, increasing sales by US$ 65 million, exporting over 50% of their products (tripling their earnings) Profile: Small and micro firms including farmers (about 1 hectare holdings), animal husbandry (meat, cheeses, fibers), art crafts , textiles, fish, wood, tourism, miners Through about 100 articulators

28. Other Programs for Mainstreaming SMEs • Suppliers programs and reverse factoring • Government procurement, favoring consortia with SMEs , or SMEs

29. Easy Export Export by post From any part of the country Avoids all intermediation, custom agents and logistic costs Filing one page trough internet Limits in value to 5,000 US$ Limits in size 30 to 50 Kilos But unlimited sends Insurance available Extraordinary impact on micro and SMEs

30. RESULTS EASY EXPORTNúmber of Firms that used the service within 2.5 years of implementation 2,000 new exporting firms (mostly micro/small firms) 40% from provinces 60% from the greater capital area 20 new countries 25 new export products Over US$2.5 million exported annually

31. Products Exported

32. Discovery Quinoa Sauco, aguaymanto, coca, asparagus, quinoa, tropical products, acquiferous, white moss, sacha-inti, medicinal plants Value added products Brand Denomination of Origin Specialized CITE for new products

33. Financial instruments for Exporting Export insurance Pre and Post export financing Credit to buyers abroad ROSCOS or group guarantees

34. Institutionality • Strong leadership at highest level and political commitment • Led by a lean Delivery Unit with problem solving capacity • Execution by strong Unit at MPD and supported by Knowledge Transfer and Articulation, Export Promotion, Quality, and Infrastructure agencies (to be setup) • With a Board composed by mix private sector and public agents • Capacity and appropriate resources • Coordination capacity • On the background are strategy for education and training

35. Functions of Delivery Unit (DU) • A key role of the DU is accelerating 'lagging' programs. It has led the reform program from the center by: • Monitoring Targets, which set measurable goals • Monitoring Plans, which are used to manage delivery and set out the key milestones and trajectories • Monthly reporting on key themes • Stocktakes, which the Prime Minister holds every 2/3 months • Priority reviews, to check the reality of delivery at the frontline • Problem-solving/Corrective action, where necessary • Delivery reports, summarizing the government's progress on delivery every six months. • The process of 'unblocking' selected delivery outputs entails an quick turnatound ( a week), with a team comprised of both internal and external members, and the production of a confidential report to the Prime Minister.

36. Location of Delivery Unit • The unit should be kept simple and relatively lean with a backbone of skilled analysts. Direct access to the political leadership, in order to be able to initiate authoritative and binding problem-solving meetings of senior policy makers and senior civil servants, is important. • For example:In the UK, the PMDU was first established in the Prime Minister's Office, but has gradually relocated toward the Treasury (and is now jointly controlled) and focuses on 30 Public Service Agreements; • In Indonesia, the Delivery Unit - the Presidential Working Unit for Supervision and Management of Development(UKP4) - is located in the Vice President's Office and focuses on delivery of the 11 major priorities of government; • In Malaysia, the Delivery Unit is located in the Prime Minister's Office, reflecting the implementation and service delivery leadership role of the PM, focusing on the KRAs. • The equivalent unit in Chile is located in the President's Office.

37. ANNEX: Mozambique Context

38. On Trade and Access to Markets • Relatively well positioned. • Tariffs. This Mozambique’s MFN applied (import-weighted) tariff averages (including the ad-valorem equivalent or AVE for specific tariffs) have declined from 17.4% from 1995-99, to just 9 % in 2005, below the regional and low-income comparators’. The average applied tariff, namely the tariff taking into account Mozambique’s membership in the Southern African Development Community (SADC), is slightly lower than its MFN tariff and is destined to fall further given that SADC is envisioned to become a customs union by 2010 and a common market by 2015. In addition, as a member of WTO, Mozambique has now bound 100% of its tariff lines. • Market Access. With SADC, EBA, GSTP, AGOA and EPA Mozambican firms can have access to markets in 14 Southern Africa countries, the United States and the 27 countries of the European Union. Overall it represents access to 1 billion people and a GDP of US$24 trillion • But do not forget hungry China!!!

39. Need to develop (expand) productive/exportable offer: goods and services • Sectoral (and geographical) focus • Agribusiness: fruits, nuts, poultry, fisheries etc • Wood related products • Tourism • Light manufacturing and spillovers from mega projects • Textiles and apparels • Artcraft Exploiting Linkages across sectors (ie agrobusiness, artcraft and tourism)

40. The National Quality System

41. Closing information gap… • At a minimum, Mozambican producers/exporters would need to close the following information gaps to make their products attractive to foreign importers: • characteristics of products demanded by trade partners-current and potential • how products are kept to fresh or fresh-frozen; • how calibration needs are secured; • good information on the packaging; • good information on logistics and deliveries; • good service in terms of logistics and export processing; • regular predictable supplies; • regular interactions with buyers; • how certification of quality and compliance with standards are secured.

42. Need to address… • In situ services: mobile units • Measurements • Inspection • Certification • Acredditation • Reciprocity protocols • Issuance of norms, product IDs • Phyto sanitary support • Advocacy a culture of quality

43. On Developing the Quality System • i) advocacy efforts showing the importance of quality and developing a culture of quality; ii) revamping INNOQ, with enough resources to gradually be able to perform its mandate; iii) establish partnerships with South Africa labs and quality agencies to develop and transfer capacity and know-how; iv) establish a system of mobile labs so that service can be provided in situ; v) systemically issue normative about product standards in trade country partners; vi) special emphasis in phyto sanitary agreements; vii) harmonize standards at international levels; viii) secure accreditation with international bodies; ix) product IDs

44. Articulating Efforts in Mozambique Some of the main articulators are NGOs, Producers Associations, private sector firms, some Governments agencies and so on, such as, TECNOSERVE, SIGUAMA, AICAJU, IKORU. CLUSA, AIA. Those efforts in a variety of forms, extent and success are presents in the following product sector cashews macadamia, peanuts, fruits and horticulture (mangos, carrots, onions, papaya, tomatoes, beans, maize, soy beans), poultry, animal feed, coco, wood products, eco-tourism. The beneficiaries tend to be small family firms half to four hectars, articulation size of about 20. However few have transferred quality standards or fair trade and organic certification, although is in the support strategy. For example TERCNOSERVE, operating in the Beira corridor, has articulated 1,800 producers into: 94 association, selling about US$1 million, with an average earnings increase of 30% in 18 months. • Others are AIA in the nuts sector and UGC, Abilio Anutunes, and Belos Horizontes in the poultry sector

45. Possibles CITEs in Mozambique • Nuts • Poultry • Fruits • Horticulture • Fisheries • Textiles • Tourism • Artcraft • Discovery: Transformation

46. Trade Facilitation I • The environment for trade facilitation while improving remains highly contentious and a concern stated by most traders in Mozambique. There are a number of issues that increases costs (either direct or indirect through time consumed and losses-opportunity and real through spoilage of merchandise). While each of the contentious elements might not make or break a deal-relatively individual low cost, the combination or sum of them all do amount to a considerable amount with real impacts on competitiveness

47. Trade Facilitation Issues II • Cross borders issues: Extent of Pre-shipment inspections, use and cost of scanners, certificate of origin, custom inspections, permission to export from MIA, certification of EPZ • Finance issues: VAT refund, letter of credit procedures, restrictions on access and payments of foreign exchange, multiple and cascading taxes • Documentation There is not a single SADC document for imports and exports; Required declarations cannot be submitted electronically.. . Payments: Payment compensation are not able to be made from non-paid approved reimbursements, Payments are not able to be made electronically • Supporting Services: Withholding tax, 10% on transport firms not registered in Mozambique; availability and effective services on quality and standards certification including phyto-sanitary for perishables; transport and air service domestic and international; storage and depot capacity; customs services and fines procedures; availability and access to the cold chain-freezers, refrigerated storage and refrigerated transport is most scarce in Mozambique; reliable transport service; lack of multimodal operators; packaging services and provision and a: lack of understanding and of packaging services for exports and labeling • All those issues needs addressing. Each one them has a relatively small impact-with some exceptions-but the sum of them all add considerable adverse impact on logistic costs, and can hamper the marketing of Mozambique as an export friendly country

49. Infrastructure Focus • Corridors framework and selected feeder roads • Key priority Maputo-SA corridor: Port and border crossing • Nancala corridor: Port and West expansion, railroad but… • Beira corridor: Port and West expansion • Jurisdiction issues, associated services in ports (cold chain and storage), equipment, consolidation and so on

50. Air Connectivity • Improve international air access and the domestic services by: • For both tourism and agrobusiness (perishables goods) it is essential to have an effective coverage of air service both domestic and international, now lacking. For that it will be necessary to: • (i) Continuing to implement 5th freedom rights for neighboring countries (allowing for instance British Airways, KLM and Air France to fly from other African cities to destination(s) in Mozambique) in line with SADC protocol agreements; • (ii) Entering into code share agreements with large airlines on key routes to Europe. • (iii) Approaching LAM with a proposal to break off its domestic service and either reinvest and recapitalize or privatize management; • (iv) Bring other players into the domestic market to increase supply and competition.