Is natural resource abundance a curse or an opportunity? Economic complexity, FDI, and industrial policies in Mozambique

Recent research has shown that a lack of structural transformation predicates the onset of the resource curse, that is, the notion that resource-rich countries paradoxically have lower growth prospects in the long run. Such structural transformations can be mapped through economic complexity indicators, which have been shown to predict the long-term economic underperformance of countries before it is manifested in lower economic growth rates. Economic complexity thus provides countries with an early warning before the onset of the resource curse. FDI and effective industrial policy have been proposed as potential tools to facilitate diversification and counter the resource curse. Emerging insights from economic complexity can further unpack how FDI and industrial policy impact the resource curse. To illustrate this, we critically evaluate the role that FDI and industrial policy have played in the case of Mozambique. We investigate whether these tools have contributed to circumventing or accelerating the onset of the resource curse in the country. Our empirical results cover a period between 1996 and 2019, showing that FDI mainly focussed on natural resource products in the periphery of the product space with a low to average product complexity index. Moreover, industrial policies have also promoted diversification into some related mining goods and relatively simple activities, such as textiles and agriculture, that would only slightly improve the country's overall complexity but not lead to structural realignment. Neither FDI nor industrial policies have exploited the most promising new industrial opportunities associated with mining activities, which can help master new technological and productive knowledge. Where industrial policy has targeted more complex goods, these have often been unrelated to existing capabilities and consequently been unsuccessful. Hence, despite the economic growth that Mozambique has experienced, it has not been able to improve its industrial structure, which points towards the eventual onset of the resource curse. Based on these observations, we make recommendations on how FDI and industrial policies could be refocused in a smart diversification direction to improve Mozambique's industrial structure in a promising and achievable direction. • Lack of structural transformation predicates the onset of the resource curse, impacting long-term economic performance. • Economic Complexity offers a framework to map the long-term impacts of the resource curse and identify better development opportunities. • We use Economic Complexity to evaluate the impacts of past Industrial Policies and FDI on Mozambique's structural transformation. • Despite the short-term economic growth experienced by Mozambique, FDI and Industrial Policy failed to support significant structural transformation. • Mozambique can benefit from adopting a Smart Diversification framework for long-term structural transformations.