Growth Co-Lab at LSE

Mozambique, despite its rich natural resources and strategic geographical position, remains one of the poorest countries in the world, with significant economic disparities and a high poverty rate. Between 2000 and 2015, Mozambique experienced notable economic growth driven by its extractive industries. However, this growth did not translate into widespread poverty reduction, and income inequality worsened, with nearly half the population still living in poverty by 2015. A series of domestic and external shocks have since hampered growth, further exacerbating the challenges. The country's development issues are compounded by high population growth, a stagnant agricultural sector, and insufficient infrastructure, particularly in rural areas, which limits economic diversification and access to markets.

This study provided a growth diagnostic of Mozambique to identify policies that may unlock the country’s potential and accelerate inclusive growth. The study was commissioned by the United States Agency for International Development (USAID) and completed in collaboration with the Ministry of Economy and Finance, USAID, the IMF, and the African Development Bank. 

The primary constraints identified in Mozambique are poor infrastructure, particularly road networks, and a burdensome regulatory environment. These factors limit private investment and hinder economic diversification, especially in the agricultural sector, which employs the majority of the workforce. Additionally, the government's limited capacity to provide essential public goods, such as infrastructure and effective business regulations, contributes to a stable but suboptimal economic equilibrium. To achieve inclusive growth, Mozambique must overcome these barriers by improving infrastructure and regulatory quality, enabling the economy to produce and export more complex goods and services. The Growth Diagnostics Framework identifies these as the most pressing issues that must be addressed to unlock Mozambique's economic potential and ensure more equitable development.

You can watch the launch of the Mozambique Growth Diagnostic Brief in April 2024, here, and download the report here.

Inclusive growth has failed in South Africa: the country has experienced more than a decade of weak and slowing economic growth, losing economic diversity, complexity and international competitiveness over time. Long-term problems include extreme inequality, widespread unemployment, and high prevalence of poverty. This project diagnosed the causes of South Africa’s challenges and worked with government and stakeholders to accelerate growth and include more citizens in the process. The work was jointly undertaken with South Africa’s National Treasury and was supported by the Centre for Development and Enterprise (CDE), one of South Africa’s leading think tanks.

Tanzania's manufacturing sector, despite the country's impressive GDP growth and attainment of lower-middle-income status, has not experienced the same level of development seen in other sectors like services. While Tanzania's economy has shifted somewhat from agriculture to services, manufacturing's contribution to GDP has remained stagnant, growing only slightly from 7% in 1990 to 8.5% in 2021. This slow growth is attributed to the dual nature of Tanzania's manufacturing sector, where a capital-intensive formal sector coexists with an unproductive, labor-intensive informal sector. Decades of inward-oriented policies have led to a heavy reliance on the domestic market, with limited export sophistication and a persistent anti-export bias. 

In partnership with the Investment Climate Reform Facility (ICR), the LSE Growth Co-Lab deployed growth diagnostics within Tanzania’s manufacturing sector to promote a better understanding of the reasons why the country has failed to achieve its industrialization goals. 

To unlock growth in Tanzania's manufacturing sector, the study suggests a strategic shift from domestic protectionism to enhancing export competitiveness.. This requires addressing the binding constraints identified in the growth diagnostic, including improving electricity generation and distribution, streamlining regulatory inefficiencies, and reducing red tape. Additionally, Tanzania should reconsider its trade policies, gradually phasing out protections that contribute to the anti-export bias while reimagining Special Economic Zones (SEZs) to attract foreign investment and boost exports. By targeting specific manufacturing sub-sectors with high export potential and leveraging existing knowledge and capabilities, Tanzania can position itself as a strategic player in East Africa, driving both its own economic development and that of its neighbors.

The UK has had mixed experience with macroeconomic modelling. As part of its regular review of this area, the Economic and Social research Council (ESRC) commissioned us to provide an in-depth summary of the UK’s macroeconomic modelling landscape. The report combined desk-research with in-depth interviews with economists working on UK models. This work should help set out a path to future funding in this area.

The reconstruction of Ukraine will be a daunting challenge, involving multiple stakeholders such as governments, international financial institutions, private sector, civil society, and academia in and out of Ukraine. To facilitate coordination across key stakeholders, the School of Public Policy organised and hosted the Ukraine Reconstruction Forum in May 2022.