Shanta Devarajan (Chief Economist, World Bank Africa Region) is puzzled by the recent growth in Mozambique, despite its undeveloped financial system :
I fail to see the paradox here. There's nothing special about Mozambique, that you don't see in DRC or Angola. All of these are countries posting higher growth rates, without a developed financial system. The simple point surely is that all of these countries have started from very low positions - previously ravaged states. Simply put, when you at the bottom, even minimal macroeconomic stability is enough to propel you forward (since it makes it an attractive destination for investment). The question is whether Mozambique can sustain the growth without further financial development. Much will depend on what is propelling the growth. As we have chronicled many times on this blog, Mozambique is investing heavily in infrastructure, fuelled by innovative partnerships between the State and foreign investors. As these continue to pour in, we are likely to see the economy expand, and with good policy interventions "credit access" may follow.
There is widespread consensus that financial development is critical to economic growth, globally, and in Africa. Yet Mozambique, a country with very low levels of financial development (in a recent survey, only 13 percent of firms had obtained credit from the banking sector, rural credit is almost nonexistent), registered a GDP growth rate of over 8 percent a year over the last decade.
On a recent visit to Mozambique, I tried to understand this apparent paradox, but ended up with even more puzzles. A group of prominent bankers said the problem was that enterprises lacked managerial and accounting skills, which is why they didn’t want to lend to them. They insisted that subsidizing credit will not solve this problem. In a separate meeting, one of the most successful entrepreneurs in Mozambique said that even he has trouble getting credit; he needs to put up his factories as collateral, and even then it takes about seven months. Finally, the government’s plan to stimulate agricultural production includes a program of credit subsidies to farmers to buy tractors and other inputs.
So, while everybody seems to agree that access to finance is a constraint (which begs the question of how Mozambique grew so fast), there are different views on how to relax that constraint.