'Premature deindustrialisation'

Can services be Mozambique’s route to economic development?

The World Bank’s latest recommendation for Mozambique to lift itself out of poverty, is to focus on developing the service sector. According to the 9th edition of the World Bank’s Mozambique Economic Update, published last week:

“Under the right conditions, services could be an avenue toward inclusive growth and accelerated job creation.”

But those “right conditions” are of course easier wished for than implemented. “Currently, although the services sector is the largest (in terms of output share) and relatively the most productive, it is oriented towards less complex activities such as retail,” the report continues.

“Services need to upgrade into more sophisticated and tradable activities—such as ICT, finance, and professional and business services—to become an engine of inclusive growth and employment creation,” the World Bank suggests. But achieving those upgrades will require some fundamental things to change, including in particular education — something that the World Bank report notes in passing, without suggesting how this might happen.

To be fair, the report also bangs the drum for “raising agricultural productivity through better technologies (e.g., improved seed and fertiliser) and enhancing market and climate risk mitigation,” and for maximising comparative advantages in small-scale manufacturing.

But the focus of the report is on how the services sector can bring development — a focus which may have mostly been driven by the facts on the ground, showing how fast the sector is growing compared to others.

But, as economist Daniel Gay argued in a blog for the UN, the trend towards services outgrowing agriculture and manufacturing in developing countries “isn’t necessarily a good thing.”

For one thing, he says, “the services sector is simply such a large category that it effectively acts as a ‘catch-all’ for anything that doesn’t count as agriculture or manufacturing.”

But he also invokes Dani Rodrik’s concept of premature deindustrialisation, highlighting the danger of countries which never industrialised in the first place, moving to a post-industrial economy.

In his paper, Rodrik highlights the features of manufacturing that make it “instrumental in the process of growth,” including that “manufacturing has traditionally absorbed significant quantities of unskilled labour, something that sets it apart from other high-productivity sectors such as mining or finance.” This is a highly relevant point for a country with education outcomes as poor as Mozambique’s.

Moreover, he says, “manufacturing is a tradable sector, which implies that it does not face the demand constraints of a home market populated by low-income consumers.” As Gay pithily puts it: “You can’t export a taxi ride.”

Services can grow if the rest of the economy is growing, and of course in some senses Mozambique’s economy is expected to grow, dramatically but unevenly, with an increase in productivity in the extractives sector.

It’s not hard to imagine a future for Mozambique whereby the majority of the population is engaged in providing low-value services for a thin layer of much richer people benefiting from the extractives sector. In fact, that doesn’t sound too much unlike the present. But it’s not a very optimistic vision.

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Agenda:

• Today: funeral of rapper Azagaia at 2pm at Michafutene cemetery, preceded by a march through Maputo

• Today: Council of Ministers weekly meeting

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Today’s headlines:

• MDM to study coalitions for municipal elections in Mozambique

• Number of victims of Cyclone Freddy in Zambezia rises to 10 

• Floods cut N1 highway in Zambezia 

Today’s front pages in Maputo. Photo © Faizal Chauque / Zitamar News