Business Development in Mozambique: What is the Role of the Regulatory Business Environment in Supporting Formalisation and Development of Micro, Small and Medium Enterprises?

Project description

Research Question:
Since the end of the civil war (1992) Mozambique has made important progress regarding political stability and economic growth. Nevertheless, Mozambique is still one of the poorest countries in sub-Saharan-Africa. Therefore, one of the greatest challenges for Mozambique is achieving a pro-poor growth path. This implies changing the prevailing pattern of growth which up to now has been driven by relatively few, but large, capital-intensive projects in the extractive and energy industries financed with foreign direct investment. These projects have had relatively weak employment and income effects on the local economy. Especially the – mostly informal – micro, small and medium enterprises (MSMEs), which employ the bulk of Mozambique’s economically active population, do not have shown a dynamic development.

There is a debate amongst researchers and policy makers concerning appropriate approaches for promoting private sector development in developing countries. One of the approaches that has received much attention in this debate is the one propagated by World Bank and IFC, among others, in their Doing-Business Report Series. This approach prioritizes policy measures for improving the regulatory business environment, i.e. easing registration of private property rights and improving contract enforceability, reduction of bureaucracy and red tape, facilitation of starting and closing a business (e.g. one-stop shops, reform of insolvency law), liberalization of labor law and business-friendly tax reform.

The study analyzes empirically the potential of the “Doing-Business approach” for mastering the challenges for private sector development in Mozambique. The focus will be set on the MSMEs, since it is to suppose that the development of MSMEs is going to be critical for the pro-poor character of Mozambique's future economic growth. Since an important portion of Mozambique's MSMEs belongs to the informal economy, the aspect of informality needs to be elaborated in the study. Consequently, the following main question will be analyzed:
What is the role of the regulatory business environment in supporting formalisation and development of MSMEs in Mozambique?

Business Development in Mozambique: What is the Role of the Regulatory Business Environment in Supporting Formalisation and Development of Micro, Small and Medium Enterprises?

DIE Country Working Group 2007/2008

Time Frame:
Jan. 2007 – May 2009

Project Lead:
Dr. Matthias Krause

Project Team:
Moritz Ackermann
Lena Siciliano Brêtas
Claudia Hirtbach
Martin Koppa
Lena Traub

Co-operation Partner:
Instituto de Investigação paro o Desenvolvimento José Negrão (Cruzeiro do Sul), Maputo
Ministério de Planificação e Desenvolvimento/ Direcção Nacional de Estudos e Análise de Políticas (MPD/DNEAP), Maputo

Research Question:
Since the end of the civil war (1992) Mozambique has made important progress regarding political stability and economic growth. Nevertheless, Mozambique is still one of the poorest countries in sub-Saharan-Africa. Therefore, one of the greatest challenges for Mozambique is achieving a pro-poor growth path. This implies changing the prevailing pattern of growth which up to now has been driven by relatively few, but large, capital-intensive projects in the extractive and energy industries financed with foreign direct investment. These projects have had relatively weak employment and income effects on the local economy. Especially the – mostly informal – micro, small and medium enterprises (MSMEs), which employ the bulk of Mozambique’s economically active population, do not have shown a dynamic development.

There is a debate amongst researchers and policy makers concerning appropriate approaches for promoting private sector development in developing countries. One of the approaches that has received much attention in this debate is the one propagated by World Bank and IFC, among others, in their Doing-Business Report Series. This approach prioritizes policy measures for improving the regulatory business environment, i.e. easing registration of private property rights and improving contract enforceability, reduction of bureaucracy and red tape, facilitation of starting and closing a business (e.g. one-stop shops, reform of insolvency law), liberalization of labor law and business-friendly tax reform.

The study analyzes empirically the potential of the “Doing-Business approach” for mastering the challenges for private sector development in Mozambique. The focus will be set on the MSMEs, since it is to suppose that the development of MSMEs is going to be critical for the pro-poor character of Mozambique's future economic growth. Since an important portion of Mozambique's MSMEs belongs to the informal economy, the aspect of informality needs to be elaborated in the study. Consequently, the following main question will be analyzed:
What is the role of the regulatory business environment in supporting formalisation and development of MSMEs in Mozambique?

Relevant publications:
Krause, Matthias / Moritz Ackermann / Lena Gayoso / Claudia Hirtbach / Martin Koppa / Lena Siciliano Brêtas (2010): Formalisation and business development in Mozambique: how important are regulations ? , Studies 53
Krause, Matthias / Moritz Ackermann / Claudia Hirtbach / Martin Koppa / Lena Siciliano Brêtas / Lena Traub (2008): Business development in Mozambique: what is the role of the regulatory business environment in supporting formalisation and development of micro, small and medium enterprises? , Mitarbeiter sonstige
Krause, Matthias / Friedrich Kaufmann (2008): How to address regional and sector-specific regulatory issues? Case study on Mozambique, Externe Publikationen
Altenburg, Tilman / Christian von Drachenfels (2008): Creating an enabling environment for private sector development in sub-Saharan Africa, Externe Publikationen
Rippin, Nicole / Michael Brüntrup (2006): The evolution of national systems of innovation in agriculture and resulting prospects for Sub-Sahara Africa: lessons learned, Manuskripte öffentlich
Altenburg, Tilman / Christian von Drachenfels (2006): The "New Minimalist Approach" to private-sector development: a critical assessment, Externe Publikationen