Obstacles for Mozambique's manufacturing firms amplified by macroeconomic disturbances.

Position:Blog
 
FREE EXCERPT

Mozambique has been facing macroeconomic difficulties since 2015. This has amplified the obstacles for micro, small and medium-sized manufacturing firms, but the actual problems lie deeper.

The 2017 Survey of Mozambican Manufacturing Firms (https://www.wider.unu.edu/node/159057) (IIM 2017) shows that Mozambique's structural transformation is still in its very initial phase, and that the manufacturing sector is struggling. This is backed by aggregate data from the World Development Indicators showing that the sector has been in decline over the last ten years despite large migrations out of the rural areas and into the cities.

Of the 840 companies interviewed in 2012, 308 either closed down (216) or were not to be found (92). The remaining 523 companies cut down on their number of employees by a total of 5,100 jobs between 2009-17. Furthermore, company owners are less likely to report profits and more likely to report large losses than five years ago.

The IIM 2017 report identifies many potential explanations for the apparent downturn, but three main complications stand out:

  1. Difficult and non-transparent laws

    Company owners do not have basic knowledge about tax laws and other regulations related to their companies. Owners of informal companies generally do not know how to register their companies. In around half of the companies in the sample the owners said they fear being shut down by the authorities. Some complain that both taxes and fines are arbitrary, and there seems to be a large variation across provinces and districts.

    One example of the difficulty to comply with tax regulations was explained by a shop owner who repairs electrical devices: "Many firms are informal. For us, it was important to create a normal firm for people to accept us as a business. Also, to be able to issue invoices. For us, it is not a question of not paying taxes; we want to comply with our obligations. However, we would like to have more ease when paying taxes. We are being treated like a company that bills much more money than we do."

    Another interviewee summarized why his business does not export: "Sometimes we even have a good price out there. But when we calculate the local expenses, for example when we order and fill a container, these expenses are very high in Mozambique. If we exported, we would earn a bit more. But the difference is so small that we prefer to sell to a national company."

  2. Low access to credit

    Around 70% of the interviewed firms show...

To continue reading

FREE SIGN UP