Improving framework conditions in the private sector
Title: ProEcon – Improving Framework Conditions in the Private and Financial Sector
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Co-financier: Cofinanced by the European Union
Lead executing agency: Ministério da Indústria e Comércio (MIC)
Overall term: 2010 to 2021
Mozambique is still one of the world’s poorest countries. The majority of the population have not benefited from the high growth rates of recent years. Around 70 per cent of the people in Mozambique live in rural areas and the income of more than half of them is still below the poverty line. Micro, small and medium-sized enterprises (MSMEs) are neither creating sufficient jobs nor providing the people with adequate goods and services to meet their daily needs. This is caused by a variety of factors, including excessive bureaucracy, corruption, insufficient infrastructure, inadequate services, especially in rural regions, and an acute shortage of entrepreneurial skills. There are virtually no financial services for MSMEs in rural areas. Businesses are unable to expand and therefore unable to create jobs or generate a source of income for the population. To combat poverty in Mozambique, it is therefore necessary to boost the development of the MSME sector.
MSMEs take advantage of better framework conditions for growth that benefits all sections of the population. Through inclusive growth driven by the private sector, employment in Mozambique is rising, incomes are increasing and poverty is on the decline.
The project focuses on three fields of action:
It works with the Mozambique Ministry of Industry and Trade and with provincial and municipal gov-ernments to improve the policy framework for MSMEs. Specifically, the project advises and supports them in developing and implementing a national strategy to improve the business climate. Training, workshops and organisational advice provide the partners in the Ministry, central bank and municipali-ties as well as private sector stakeholders with the knowledge required to implement changes and reforms.
In addition, the project promotes inclusive business models with MSMEs. The aim here is to integrate weaker economic stakeholders such as smallholder farmers or informal micro enterprises into the supply chains of established medium-sized or large enterprises. In development partnerships, the project works with both national and international companies. Moreover, the project helps improve ser-vices for small farmers and MSMEs in the agricultural sector.
The project also supports the country’s central bank, its banking association and selected commercial banks in improving access for MSMEs to formal financial services. This work focuses on developing innovative sales models and new financial products for MSMEs in rural areas. Savings and credit groups – which are provided with training in financial literacy, for example – and bank agent networks play a particularly important role here. The project additionally advises the central bank on improving regulation in this area.
The consulting firms AFC Consultants International/Akademie Deutscher Genossenschaften and Co-mo/Mierke Investment are supporting the implementation of the project.
In 2019, EU cofinancing enabled the project to expand its activities to Nampula and Zambezia in addition to the previous provinces of Inhambane, Sofala and Manica.
- Working with the Ministry of Industry and Trade, the private sector and civil society, the project has identified and implemented key reforms to improve the business climate.
- The project has supported efforts to simplify the process of obtaining a business license at national and provincial level. The number of licensed businesses in Mozambique has risen by more than 40,000 since 2013.
- The process of granting construction permits has been simplified and piloted in eight municipalities. These partner municipalities have issued over 1,700 simplified construction permits since 2017.
- Almost without exception, the companies participating in the 18 development partnerships have become more competitive. Over 1,300 MSMEs have been integrated into inclusive business models since 2017. The successfully developed, inclusive business models can now be adapted and further MSMEs included through investment.
- In the area of financial system development, banks have been supported in establishing and expand-ing their network of bank agents in order to provide formal financial services for MSMEs in rural areas. A total of over 200 new bank agents have thus been offering services in the provinces of Manica, Sofala and Inhambane since 2017.
- The project has also encouraged the development of ties between savings and credit groups and banks. As a result, more than 54,000 MSMEs in rural areas that had previously been excluded from the formal financial system, including over 65 per cent of companies managed by women, have gained access to financial services.