Quarterly Report #3: April - June 2011

The project is a four-year USAID-funded trade and investment initiative that seeks to increase trade and investment, create local opportunities for job and income growth, and enhance the competitive position of Mozambican firms. The SPEED project focuses on reforming trade and investment policies, as well as implementing and monitoring these reforms. The project delivers training and technical assistance to build the capacity of business associations and government institutions, and it operates a grants fund to support these activities. The project places a high premium on using Mozambican expertise to achieve sustainable results. In the second quarter of 2011, the SPEED team conducted several technical activities. A review of Mozambique's business environment strategy was conducted, with consultants from Georgia and Rwanda sharing their experiences and advising on changes to the strategy. The review emphasized the need for strengthening leadership and political will, accountability mechanisms, and deadlines, as well as establishing a high-level coordination unit. A draft report was completed on estimating the monetary benefits of policy reform, using a pragmatic and systematic framework. The framework involves four steps: establishing a pragmatic evaluation plan, conducting the analysis, preparing a benefits report, and verifying the results. The report will be finalized in July and presented to staff in August. The SPEED team also published a Note on Foreign Exchange, which updates the previous note and comments on the final version of the Regulamento da Lei Cambial (Regulation of the Foreign Exchange Law). The Note highlights the need for repatriation and obligatory conversion of export earnings, as well as the establishment of a 90-day deadline for conversion. The Note also emphasizes the administrative burden on commercial banks and the potential for increased compliance costs. Analytical work was conducted on government policy-measures (Medidas) aimed at offsetting expected price increases due to the elimination of domestic subsidies to fuel and wheat/bread, and increases in world prices for basic foodstuffs. The work reflects on the main objective of the proposed instruments, implementation issues, and potential success and/or failures. The work also provides recommendations to enhance the efficiency of such policies and proposes a new instrument to replace the Cesta Básica. The SPEED team also conducted analytical work on fixing marketing margin ceilings, which would fix maximum ceilings to marketing margins of basic foodstuffs and make posting of prices compulsory. The Note points out that fixing marketing margins has many of the same effects as fixing prices and would result in a reduction of supply. The Note also reflects on the impossibility of administering prices and the neglect of informal retailing instead of formal stores in the proposal. The SPEED project aims to provide recommendations to enhance the efficiency of such policies and proposes a new instrument to replace the Cesta Básica. The project also emphasizes the need to examine the supply chain of basic foodstuffs to identify their cost structure and possible triggers for price increases. The project recommends the exemption of import duties and VAT on cereals to reduce domestic prices and the use of safety net instruments to protect the poor.