Report No. 9815-MOZ

MozambiquePublic Sector Pay and Employment Review

December 3, 1991

Africa Region MICROFICHE COPYSouthern Africa DepartmentCountry Operations Division Report No. 9815-MOZ Type: (SEC)

FOR OFFICIAL USE ONLY FALLON, P / X34420 / J11027/ AF6CO

'Docitatet of the World Bank

Thi~document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. its contents may not otherwisebe disclosed without World Bank authorization.

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CURRENCY EOUIVALENT

Currency Unit Metical Metical (plural meticais)

US$1 1975 = 22.5 1985 = 43.21980 = 32.4 1986 = 40.41981 = 35.4 1987 = 289.41982 = 37.8 1988 = 528.61983 = 40.2 1989 = 747.11984 = 42.4 1990 = 929.1

GLOSSARY OF ABBREVIATIONS

EGFE - Estatuto Geral dos Functionarios do Estado

ERP - Economic Rehabilitation Program

SIDA - Swedish International Development Agency

UEM - University Eduardo Mondlane

UNDP - United Nations Development Program

lb*'N b

FOR OFFICIAL USE ONLY

PREFACE

Tbis review is based on a World Bank mission to Mozambique of October

1990. The report was written by Peter Fallon and Luiz Pereira da Silva (Southern Africa

Country Operations Division) with contributions from Arnaldo Pessoa and Cecil Rajana

(consultants).

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

MOZAMBIOUE

PUBtIC SECTOR PAY ANSD EMPLOYMEN?TR

TABLE OF CONTENTS

Paae N2.

EXECUTIVESUMMARY ............... i-iu

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 1A. Background . . . . . . . . . . . . . . . . . . . . . . . . . 1B. The Labor Market. 1

1. The Structure of the Labor Force . . . . . . . . . . . . 12. Skilled Labor Supply .. 33. Demand for Skilled Labor .. 54. The System of Remuneration . . . . . . . . . . . . . . . 6

C. The Fiscal Constraints .. 6

II. PUBLIC SECTOR PAY AND EMPLOYMENT ISSUES . . . . . . . . . . . . 9A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . 9B. The Organization and Regulation of the Civil Service . . . . 11

1. General Principles of the EGFE . . . . . . . . . . . . . 112. Career Provisions for Higher-level Civil Servants . . . 12

C. The Size and Composition of the Civil Service . . . . . . . 121. Size of the Civil Service - International Comparison . .122. Sectoral Composition of the Civil Service . . . . . . . 143. Qualifications in the Civil Service . . . . . . . . . . 16

D. Civil Service Pay Levels and Structure . . . . . . . . . . . 181. International Comparison: Pay Level

in the Civil Service . . . . . . . . . . . 18

2. Pay Regimes in the Mozambican Civil Service . . . . . . 183. Pay Levels in the Mozambican Civil Service . . . . . . .21

E. The Civil Service Personnel System . . . . . . . . . . . . . 241. Organization .. 242. Legislation .. .................... 26

F. Job Classification in the Civil Service . . . . . . . . . . 271. Recruitment.. . . . . . 282. Information Systems .. 28

III. PAY ISSUES IN THE PRIVATE SECTOR AND THE DONOR AGENCIES . . . . 30A. The Private Sector and the Parastatal . . . . . . . . . 30

1. Pay Structure in the Private Sector and the Parastatals 302. Salaries in the Private and Parastatal Sectors . . . . 31

B. Donor Agencies . . ... . . 331. Interpretation and Coverage . . . . . . . . . 332. Bilateral/Multilateral Organizations' Pay Structure . . 333. Donors' Practice: Conditions of Service . . . . . . . . 344. Summary.. . .. 37

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TABLE OF CONTENTS (Cont'd)

IV. POLICfCONC.LU IQU.. . . . . ....... 39A. Main AnalytLcal Ftnding . . . . ... . . . . . . .39

1. Pay Differentials Across Sectors . . . . . . . . . . . . 392. The Supply Gap in Skilled Manpower . . . . . . . . . . . 403. Non-Cooperative Behavior Among Donors:

Demand Pressure . . . . . . . . . f . . . . . . . . . 404. The Short-Term Solutions: the Two Special Funds

and the New Salary Scale . . . . . . . . . . . . . . . 415. The Budgetary Cost of the Implement3tion of

a New Salary Scale . . . . . . . . . . . . . . . . . 42B. Policy Recommendations . . . . . . . . . . . . . . * . . 44

1. Civil Service Wage and Remuneration Policy . . . . . . 442. Civil Service Employment . . . . . . . . . . . . . . . . 473. Personnel Issues.. .... . . . . . 484. The Supply of Skilled Manpower . . . . . . . . . . . . . 49

C. Wage Issues in Other Parts of the Economy . . . . . . . . . 49D. Managing Civil Service Wage Increases . . . . . . . . . . . 50E. Concluding Comments . . . . . . . . . . . . . . . . . . . . 52

ANEX s Mozambique Public Pay and Employment t a diagramaticpresentation of some controversial issues . . . . . . . . 53

AINNEX 2: Current initiatives in personnel and training . . . . . . 60

INDEX OF TABLES

I Introdugtion

1.1 MOZAMBIQUE: Structure of the Labor Force . . . . . . . . . 31.2 MOZAMBIQUE: Tentative indicators of the Demand for

Skilled Labor . . . . . . . . . . . . . . . . . 51.3 MOZAMBIQUEs Structure of Government Expenditures . . . . . 7

II Public Sector Pay and Emplovment Issues

11.1 INTERNATIONAL COMPARISONs Number of Public Employee . . 1311.2 MOZAMBIQUE: Breakdown of the Civil Service by Ministry . .1411.3 MOZAMBIQUE: Breakdown of the Civil Service by Sector

and Province . . . . . . . . . . . . . . . . . . . . . . 1511.4 MOZAMBIQUE: Level of Education of Higher Level Staff . . 1711.5 INTERNATIONAL COMPARISONS: Pay Levels in the

Civil Service . . . . . . . . . . . . . . . . . . . . . . 1811.6 MOZAMBIQUE: Nominal Wage Developments . . . . , . . . . . 2011.7 MOZAMBIQUEt Pay Structure in the Civil Service. . . . . . 24

III PAY ISSUES IN THE PRIVATE SECTOR AND THE DONOR AGENCIES

111.1(A) MOZAMBIQUEs Salary Structure in the Parastatals . . . 31111.1(B) MOZAMBIQUE: Salary Structure in the Private Sector. . 31III.2 MOZAMBIQUE: Pay Structure for Support Staff

Employed by Bilateral/Multilateral Organizations . .33

IV IV.1 MOZAMBIQUE: Pay Structure across Sectors . . . . . . . . .39IV.2 MOZAMBIQUE: Tentative Estimate of the Budgetary Cost

of the Now Salary Scale. . . . . . . . . . . . . . . . . .43IV.3 MOZAMBIQUE: Estimates of the Impact of the New Salary

Scale on the Government's Wage Bill. . . . . . . . . . . .44

i

EXECUTIVE SUMMARY

i.. This report: (i) revie;s the pay and employment situation inMozambique's civil service and compares it with that in other sectors of theeconomy ,the productive sectors and the expatriate agencies operating inMozambiquo); (ii) assesses the suitability of the current civil aervice paystructure iii the light of b-th the cou.ntry'7 stabilization and aijuotment programand the ptevailing market imperfections in specific segments of the labor marketfor skisled manpower; and viii) makes recommendations to improve the presentsituation.

ii. Adjustment °olicies in the areas of government wage and employmentpolicies have usually Focused on the shorter-term issues of reducing fiscaldeficits. Though adequate macroeconomic management is a necessa.y condition forstabilization, one should also pay due attention to the microeconomicimplications of restrictive public sector wage policies. A dominant feature ofthe market for skilled manpower in Mozambique is that the international agencies(IA) are much less constrained than the Government in setting wages. Recently,donor-driven competition for skilled personnel has led to an escalation of wagespaid to locally recruited staff.

iii. The resulting situation is far from optimal and is summarized inTable A below which gives pay levels by broad occupational categories for thethree main sectors of the economy. When pay differentials range from about 400Zup to 1,000 for the same occupational category, and when a cleaner's salary (inthe IA sector) rcughly equals that of a National Director (in the civil service),it is clear that there are severe labor-market imbalances, and that theGovernment, in particular, is likely to face severe problems of turnover andmorale among its skilled employees. Both the Government and the donor communityare now fully aware of the adverse consequences of these distortions and of theneed for urgent remedial actions 'l.

Table A : MOZAMBIQUE - Pay structure across sectors.(End 1990)

('000 of Meticais --MZM-- and current USD)Average salaries per month

Total Base Salaries forCivil Service Parastatal Private Sector Internat. Org.

in MZM in USD in MZH in USD in MZH in USD in MZM in USD

Senior Adm. Staff 438 243 308 171 na na na na

Professional Staff 488 271 137 76 2,000 1,111 2,440 1,355

Lower L. Technician 86 48 75 42 75 42 880 489

Clerical Staff 58 32 42 23 69 32 586 325

Drivers 45 25 87 48 87 48 567 315

Unak. Manual Worker 35 20 26 14 26 14 396 220

Source t Tables 11.7, 11I.1 and 111.2. -in the report.

I/ It Is worth noting that since the Mission's first visit (October 1990), the Government has started the

Implementation of the recommendations included in the Mission's Aide-Memoire. Specifically, a new, unified arAdecompressed salary scale was adopted In December 1990 and implementation started in April 1991. The technical subsidypaid in USD was also abolished and replaced by a bonus paid in local currency. It will be therefore of the utmost importancethat these encouraging steps should be sustained by a more frequent wage review process and by further progress on arecruitment/wage policy agreement between the donor community and the Government.

ii

iv. Remedial action under present circumstances will require closecooperation between donors and the Government. However, despite commendableefforts to stabilize the economy and to restore domestic growth, the centralproblem is likely to persist in Mozambique for quite some time, as budgetaryconstraints will continue to hamper the Government in. competing with theinternational agencies for scarce akilled labor, and as out-mobility fromGovernment employment may increase if private sector employment expands and newemployment opportunitie- open up outside the country.

v. Immediate measures should therefore focus on:

(1) Reducing intersectoral pay differentials for skilled labor categoriesthrough: (a) a targeted and well-designed pay raise in the civil service (seeChapter IV, section B) bolder than the one that has been envisaged 2/; (b) anagreement with donors regarding their own pay structure for both skilled andunskilled locally hired staff.

(2) Financing the pay-raise through: (a) improvements in the taxcollection system (see Chapter IV, section C); (b) expenditure-shifting measures;and (c) institutionalizing and clarifying donors' contributions to the recurrentbudget (see Chapter IV section C.) 3/.

vi. Accompanying structural measures are not to be neglected. Varioussuggestions are detailed in Chapter IV (section B) on how to improve the qualityof civil servants through the strengthening of personnel administration,institutional reforms, training and other capacity-building initiatives.

vii. Obviously, the problem will not be easy to solve. Efforts should bemade by donors to coordinate further their recruitment and remunerationpractices. A framework with guidelines could then be established. This Reportcould serve as an appropriate starting point. The Government, in coordinationwith the donor community, could host a series of meetings to discuss the issuesraised in the Report with a view to reaching consensus on the harmonization ofdonor employment and remunzration practices.

viii. Whatever developments are to take place in Mozambique by way ofinstitutional upgrading of the public services, a principal focus will have tobe on the provinces. Once the country becomes reintegrated, the existingorientation of donors towards Maputo will have to be modified substantially. Amajor effort will have to be directed towards both the restoration of the ruraleconomy and the strengthening of key provincial administrations. Donors shouldbegin to devise special programs to re-equip the regional administration for thetasks ahead. Resources and attention should not be focused exclusively on thepublic service in Maputo but rather across the country.

ix. While the adoption of measures along the lines of those suggested inthis report should temporarily relieve some of the pressure on the Government'sadministrative capacity, it must not be forgotten that the central problem isthat skilled labor is in extremely short supply. In the long run, the onlysolution is to expand the country's skill base while permitting the import ofhighly skilled workers from abroad.

2) The incremental coat of the proposed new salary scale Is about MZM 24-25 billion per year (about USD 2-3 million at theofflcial exchange rate). Scales with fewer grades and more steps could accommodate all the 105,000 civl servants with a hlahercompression ratio (I.e. with higher salarIes for the top categories) at a lower budgetary cost

3/ The coat of the proposed pay raise In the cvili service has to be related to the possible sources where expenditure-shiftlngmeasures could pawy or totally be an effective and susalnable way of gettng additional financing for the civil service wage bill.Among other areas, one could consider: (0 the present cost of the technical subsidy (about USD 2 million a year (MZM 4biflon)), the esmated cost of oooperantes program (about USD 45 million a year (MZM 80 billion)); the overall amount ofdefence expenditures (about MZM 136 billon In 1990); and donors' expenditures on project-related wages and TechnicalAssistance (about USD 100 million a year (MZM 180 billion)).

C H A P T E R I

INTRODUCTION

A. BACKGROU

1.01. Nozambique faces great difficulties and many challenges. After a collapseof domestic production in the first half of the 19808, there has been, overrocent years, the beginnings of an economic recovery. After years of civil war,there is at last the prospect of domestic security. Through the EconomicRehabilitation Program (ERP) l/ initiated in January 1987, the Government hasdisplayed great ccmmitment both to reforming the economic environment, and tomobilizing the resources needed to finance its capital and rehabilitationinvestment program. In implementing this program, the Government has encounteredserious constraints arising from its limited administrative capacity. Thisreport examines one important source of this problem, namely the pay andemployment policies followed in public administration. Improvement in theseareas is essential if Mozambique is to take full advantage of the opportunitiesafforded by the emerging peace process. While the effects of such policies asfollowed in the parastatal sector are also of importance, the status of manyparastatals is under review, and consequently, parastatal pay and employmentpolicies are not evaluated in this report.

1.02. To understand the situation that has emerged with respect to the civilservice in Mozambique, it is first necessary to examine two background areas.These are: the operation and structure of the labor market; and the fiscalconstraint currently facing the Government.

B. THE LABOR MARKET

1.03. The labor situation in Mozambique cannot be analyzed without taking lntoaccount both the displacement of population that followed the deterioration inthe internal security situation and the various market imperfections that prevailin some specific areas of the labor market. This section reviews the followingareas: (i) the structure of the labor force; (ii) and (iii) the majorcharacteristics of skilled labor supply and demand respectively; and (iv) thesystem of remuneration.

1. The Structure of the Labor Force

1.04. Labor Force. Estimated values of the population of Mozambique, its laborforce, and the distribution of the latter by labor force status are given inTable I1.. As data for years other than 1980 are essentially projections basedupon the 1980 Population Census 2,1 1980 is used as the best guide to thestructure of the population. 3asically, the Census data indicate that the crudelabor force participation rate (labor force/ population) in Mozambique was about

I For a detailed description of the Econornic and Social Rehabilitation Program, see Mozambihue - Restorino RuralProduotion and Trade Report No. 8370.MOZ, The World Bank, October 23, 1990.

1 A *urvey of the Labor Market for the province of Maputo Is available for the 1989-1990 period but hi results cover onlyths spepific province.

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48 percent -- a relatively high figure for sub-Saharan Africa. This in turnreflects higher-than-average participation rates among women. As one wouldexpect in a country at a relatively early tage of its development, the formalwage sector is a minor source of iabor force absorption. In 1980, tho formalsector only accounted for about 19 percent of the total labor forcee non-waseemployment in agriculture -- much of it on collective farms -- accounted for 79percent (see Figure 1 bAlow)l and unemployment -- typically low in a low-incomscountry-- made up the remaining 2 percent. The Cenous indicated an almost totalabsence of an urban informal sector in services, trading and small-scalemanufacturing .

Figure 1

MOZAMBIQUE - STRUCTURE OF LABOR FORCEF for Formal, I for Informal

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3

2

01980 IBB3 1630e

FAG FIND FSER lAG 168L

1.05. The major development during the 1980., as reflected in Table 1.1, was thedisplacement of population following a deterioration in the internal securitysituation. Out of a population of nearly 16 million, over one million have takenrefuge in neighboring countries, while between two to four million have beendispleasd from rural areas to settlements located near towns and cities. It isstimated in Table 1.1, that 13 percent of the total labor force within thecountry consists of such displaced persons. This proportion is leos than thodisplacoment rate among the total population, as many of those displaced havewithdrawn from the labor force. It is likely that the unemployment rate is veryhigh among displaced workers. The true overall unemployment rate in Mozambiquecould now be 10 percent or higher. This compares with a figure of 1 to 2 percentamong tho lose-affected sections of the labor force. Table I also shows a sharpdecrease in the relative importance of agriculture as a source of employment.This is again mostly due to the displacement of labor from rural areas.

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TABLE 1.1: MOZAMBIQUE Struoture of the Lobor Forge

1976 1980 1985 1990'000 % '000 % '000 % '%

In Thousands and porcentagoo

Population (mid.ya. a/ 10,627 100% 12,103 100% 13,779 100% 158s9 100%Pop. aged >15 & e0o b/ 5,453 51% 6,211 51% 8,624 48% 7,621 49%Refugees oI (1,000) 6%

Labor Foroo d/ 5,077 100% 5,782 100% 6,253 100% 6,218 100%Displaced labor force */ 0 0% 0 0% 0 0% 807 13%

Avalable (Residenolabor force 5,077 100% 5,782 100% 6,253 100% 5,411 87%

Formalemp;oymentf/ 1,109 19% l,200 19% 1,038 17%Agrioultural 278 5% 301 5% 280 4%Induetry 403 7% 436 7% 377 6%

o/w Mlgrant workors 152 3% 96 2% 40 1%Service, 428 7% 463 7% 400 6%

Informal employment fU 4,583 79% 4,957 79% 4,289 69%Agrioultural 4,567 79% 4,939 79% 4,274 69%Urban servioc g/ 16 0% 17 0% 15 0%

Unemployed 98 2% 106 2% 92 1%Agrloultural employment 4,845 84% 5,240 84% 4,534 73%Non-agrloultural employment 838 15% 907 15% 785 13%

Total employment 5,683 98% 8,147 98% 5,319 86%

Growth raoots (annual overaoo)

PopulatIon (mid-year ./ 2.6% 2.6% 2.6%Pop. aged >15 & <60 b/ 2.6% 1.3% 2.8%Refugoes o/

Labor Foro d/ 2.6% 1.6% .0.1%Displaced labor force o/Avallable (Rosldent) labor froo 2.6% 1.6% *2.9%

Souroes:Mozambique's Statistloal Yearbooke (1975 to 1988); Mozamblque's 1980 Census of the population; other yeas than 1980 are eimateo;Staf EsUmatee

Note:o/ Reidents In tho oountry only; howwor, projeotions also inoludo refugees from 1985 on. A corroetion factor of 4% appiled In 1980 to account

for miselng Informaton.b/ 1986 and 1966 ouroeo were used to estimate 1985 and 1990 data respectively.o/ Source: Mozambique CEM 1990.d/ The 1960 Census provides tho only actual data; other years are etimates based on the 1980 partIolpaton ratlo; corrections applied also (age

truoture of populton Refugees were not Included In the oaloulatIons; migrant workers were Inoluded.o/ Average pautllpatlon ratio applied to the etmated dIsplaced population (CEM Vol. 2).

The 190 Census provlde the only actual data; other years are estimates. Displaced workers are mumed not to obtaln formalemployment All of the displaced labor foroo Is Includod In urban Informal employment.

2. Skilled Labor 8upply

1.06. There in a sharp contrast between the markets for unskilled and skilledlabor in Mozambique. Unsilled labr is generally in excess supply in or aroundurban areas. This arises from both the displaced labor phenomenon referred to

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above, and slow economic growth over much of the 1980g. The supply price oflabor li low, and employers have no difficulty in recruiting unokilled workersat going wage ratoe.

1.07. The market for killtd labor presents a very different picture, however.On the supply aide, Mozambique has a very limited human resource bae. out ofa total estimated labor force of 6.2 million, there are lese than 2,500Mozambicana with University-level qual'fications. Of these, only 20 havedoctorates. The paucity of skilled manpower has much of its roots in thecolonial legacy inherited by the country in 1975. At that time the literacy rateamong the local population was only 7 porcent, and the overwhelming majority ofdomestically-produced university graduates were Portuguese nationals. Atindependence, most skilled, administrative, professional and technical workersleft the country, thus denuding Mozambique of the bulk of its human resources.

oa08. While the Government made great progress in expanding educationalenrollments -- primary and secondary enrollments have increased threefcld andfourfold respectively since 1975 -- Mozambique has still one of the least-educated populations in the world. However, after reaching a peak in 1980, givenbudgetary constraints and a need to close some schools in the light of adeteriorating internal security situation, enrollment rates have since slowlydeclined. At the elementary level, less than 5% of the students complete fourgrades in four years. In 1988, the first grade had about 500,000 pupils, whilejust a little over 1,000 were in the 10th grade (IDA, 1988).

1.09. A parallel decline also occurred in the provision of education to theadult population. Following several literacy and post-literacy campaigns in thelate 1970s, around 475,000 adults were enrolled in primary and secondary levelclauses by 1981, but this number had fallen to 55,000 by 1989. A further declinehas also occurred in enrollments in vocational and technical training courses.While information on literacy is scarce in Mozambique, the 1980 Population Censusindicated that 22 percent of the labor force was illiterate, and it has beenestimated that the literacy rate among the population aged between 15 and 24years was over 40 percent in 1988. Progress has also been made in increasing thenumber of domestically-produced university graduates. Enrollment at theUniversity Eduardo Mondlane (UEM) in Maputo has increased from about 2,100 in1986 to about 2,700 in 1988. However, given a high failure rate, UEM onlygraduates about 150 students a year -- a very small outturn relative to themanpower needs of the economy.

1.10. Given the small stock of indigenous high-level manpower, the domesticsupply has had to be supplemented with skilled workers from abroad. Such workersare almost invariably funded directly out of donor-funded projects or technicalassistance. This diverse ethnic supply of foreign workers has made an invaluablecontribution to the functioning of the economy. While estimates of the numberof skilled expatriates working in Mozambique vary, it is estimated in a recentUNDP NATCAP report that about 3,000 expatriate technical assistants were workingin the country in 1987. Other sources put their number at around 3,500 in 1985.However, another recent study estimated that about 5,000 expatriates arecurrently working in Mozambique. Whatever the number is, it is expected todecrease with the departure of much of the Soviet and Eastern European personnelin the near future. The shortage of skilled labor is thus likely to beaggravated by the combination of the departure of some "cooperant-o" 3/ with therelatively low number of new university graduates. The total number of"coopsrantes" has to be compared first, to the 1,500 local higher leveltechnicians and managers who constitute the top level categories of the civilservice and second, to about 150 local university graduates per year. Were theGovernment to absorb all university graduates, irrespective of their specificqualifications, then at the present outturn of university graduates, it would

1 Therm 'oooperante has two definitlon6 In Mozambique: ) all resident expatdate workers other than diplomatio staff; and IDresident expatriates working for tho Government, Here, the wider definiton Is applied. Apart ftrom those Imported as part oftechnIoai ae"stanos for Eastern Europe, most oooperantes are from Latin Amerloa, and from Chilo In particular.

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take around two decades to replace all the present foreign technical assistanvespecialists. While this observation should be tempered by the fact that much ofboth the demand and supply of expatriate workers is generated directly by donoractivities, such workers also play a very important role in supporting publicadministration.

3. Demand for Skilled Labor

1.11. The demand for highly skilled labor has increased sharply with thegrowing number of development projects in the country. From 1985 to 1989,concessional external capital assistance (grants and multilateral loans) ro8efrom USD 0.38 billion to USD 0.66 billion. As the number of expatriate workersha. only increased modestly, this has put tremendous pressure upon the demand forhighly skilled Mozambicans. More recently, the demand for such workers isbeginning to be raised further by the emergence of the private sector. Moreover,while the Government was heavily constrained in its ability to raise theremuneration paid to its employees, donor agencies and other employers had muchleas difficulties in setting wage rates to compete for skilled labor. As aresult, skilled wage rates rose substantially in non-Government's sectors withan associated shift of some highly qualified personnel away from Governmentemployment. The resulting situation was far from optimal which is illustratedby the Government's difficulties in implementing donor-funded projects.Consequently, some donors have attempted to partially remedy this situationthrough the provision of salary-toppings and other fringe benefits to civilservants. This situation and its adverse consequences as well are now wellunderstood by both the donor community and the Government.

1.12. Table I.2 below provides some tentative indicators of the demand pressureon skilled labor arising from the flow of ext;-rnal assistance in Mozambique.These indicators show that, during the 1985-19 'i period, the growth rate of the"number of cooperantes" -- the majority of highly skilled workers in Mozambiquewas substantially lower than the growth rate of both unrequited officialtransfers and Government investment expenditure (two indicators that can berelated to the demand for skilled labor). It is thus very likely that the demandfor administrative, financidl and other professional skills arising fromincreased inflows of foreign assistance have been growing more quickly than thecorrssponding supply. It is hardly surprising therefore, that the remunerationpaid to highly skilled workers has been growing -ipidly.

1.13. As explained in detail later in the report, these developments havewidened the gap between wages paid to skilled workers by the parastatals andcivil service and those paid in other sectors of the economy. There are twofurther developments that are relevant here: the system of administered wages;and foreign exchange wage payments.

Table 1.2 : MOZAMBIOUE : Tentative Indicators of theDemand for Skilled Labor

--------------------------------------------------------------- __----------

1985 1986 1987 1988 1989 1990est. est. est.

Cooperantes 1/ 3,500 3,000 3,409 3,873 4,401 5,000(1985-100) .00 86 97 111 126 143

Unreq.Of.Transf.2/ 139 213 304 377 388 427(1985-100) 100 153 219 271 279 307

Gov. Invest. Exp. 3/ 155 230 235 264 287 349(1985.100) 100 148 151 170 185 225

Cooper./UOT 4/ 25 14 11 10 11 12_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

1/ Source: UNDP-NATCAP study & World Banbk staff estimate2/ Exclud. Technical Assistance, in current USD Million - Source : Balance of Payments3/ In current USD Million - Source : Summary of Government Finance4/ Ratio of number of "cooperantesa to unrequited official transfers (uoT)

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4. The System of Remuneration

1.14. The present system of remuneration in Mozambique derives from a complexmet of measures taken since 1975 as described in detail in Chapter II. Its mainpresent features can be summarized as follows: (i) salaries in the civil servicewere dissociated from those in the productive sphere of the economy in 1987; (ii)in the productive sectors, a regulatory framework guarantee a minimum wage foreach occupational category; however, the supply price of unskilled workers isreported to be slightly below the legal monthly minimum wage of MZZ4 25,100 (aboutUSD 27) in January 1990; (iii) despite the existing regulatory framework,salaries for highly-skilled workers in the productive sectors (with the exceptionof loss-making parastatals) had been effectively deregulated through a complexsystem of bonuses and fringe benefits; (iv), the practice of paying wages inforeign exchange has become a major feature of the market for skilled labor; thishas arisen as a consequence of the country's macroeconomic imbalances which ledto the design and implementation of the Economic Recovery Program (ERP).

1.15. In the mid-1980a, a substantial fall of domestic supply due to thesecurity situation and the consequent drop in exports reduced foreign exchangeearnings and, given a lack of appropriate remedial policies, led to a substantialovervaluation of the Metical. This, in turn, constituted a natural motive forparallel market activities to arise. Given the limited availabilLty of goods onlocal markets, a number of legal procedures to circumvent local market scarcitywere put in place. The basic principle was to allow a dual market oftransactions in the economy through the selling of imported goods in duty-freeshops (Lojas Francao) to be accessed exclusively by holders of foreign exchange.Initially, employers with foreign exchange access such as donor agencies andNGOe, realizing that basic commodities were unavailable through meticais-denominated transactions, issued employees with foreign-exchange-denominatedvouchers to be exchanged for food items (known as the food basket) at the LojasFrancas. Over the years since then, the practice has been modified to one inwhich foreign exchange is paid directly. Payments in foreign exchange became awidespread incentive and were extended to higher level employees and consultantsthroughout wide sections of the economy. Though the dollarization of someincomes permitted the payment of adequate levels of remuneration to foreign"cooperantes" and expatriates, the practice of paying wages in foreign exchangefed parallel market activities in spite of substantial improvements in thedomestic supply situation. However, as wages regulations were progressivelyweakened and the availability of metical-priced goods improved, this particularlabor market distortion has become less important. The important development isthat the emergence of foreign exchange payments as a standard practice, hascompletely and effectively de-regulated wages paid to highly-skilled workers.

C. THE FISCAL CONSTRAINTS

1.16. Fiscal constraints have clearly been a crucial factor in limiting thewage and salary bill of the civil service. Such constraints have taken twoforms: the constraint upon the level of recurrent expenditure as a whole; andconstraints upon the composition of such expenditures. The overall fiscalconstraint arises from the macroeconomic position faced by the economy. Priorto 1987, fiscal austerity was forced upon the Government by a difficult externalposition. In 1987, at the time of the initiation of the ERP, the economysuffered from widespread shortages and a considerable depression in domesticproduction. While increased external capital assistance has enabled higherdomestic investment, and increased availability of imports has alleviatedshortages and enabled a partial recovery in domestic production, this had to beviewed in the light of Mozambique's substantial external current account deficitand its high debt service ratio. One early effect of "opening up" the economythrough the program was to increase the current account deficit (includinggrants) from 9.9 percent in 1986 to 25.1 percent in 1987. While this jump in the

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deficit wao financed through increased concessional loans, debt service as aproportion of exports of goods and non-factor services was 227.6 percent. To

improve its external position, it was still necessary for Mozambique to restrict

domestic absorption while maximizing, within existing constraints, growth in its

GDP. To achieve this and the further objective of controlling domestic

inflation, both credit limits and fiscal targets were set. While the program has

recognized the importance of key items of recurrent expenditure, the fiscal

deficit (including grants) has fallen as a percentage of GDP from 11.8 percent

in 1987 to 7.1 percent in 1989.

1.17. While the need to keep the fiscal deficit under control would, of itself,

have put pressure on Government's ability to pay wages and salaries, further

constrainta may be traced to the effects of both a deteriorating internal

security situation and distortions arising from the prevailing administrative

allocation mechanisms. A worsening internal security situation necessitated

growing defence expenditures (these grew by over 50 percent in real terms from

1980 through 1987), while as scarcities appeared on official markets, the

unofficial economy flourished with a consequent shrinkage of the tax base. In

addition, the physical destruction of some public enterprises combined with the

mounting financial losses of others, gave rise to a substantial growth in

subsidies to parastatals. By 1986, such subsidies exceeded defence expenditures.Growing interest payments on public debt have exacerbated fiscal difficulties

further over recent years. As public investment in Mozambique is heavily

supported by concessional external finance, and is, consequently rather donor-

driven, the authorities reacted to the deteriorating fiscal situation by applying

stringent expenditure controls on fungible items within the recurrent budget,

namely, goods and services and the civil service wage bill.

Table I.3 : MOZAMBIOUE - Structure of Government Exiend.tureB

h07;-NoV-91 1980 1985 1988 1989 1990 1991Current MZM Million Act. Prov. Prog.

Total expendlture 22,892 39,562 288,489 472,992 693,200 963,800

Recurrent expenditure 14,172 32,907 148,759 245,992 342.500 487.800

Total, budget year 14,097 33,387 150,459 247,132 344.700 491,000

Defense and security 4,419 11,031 58,200 102.400 136,000 175,900

Salaries and wages 5.112 7,600 24,814 42,977 65,000 97,200Education and health 2,949 4,418 16,595 29,000 40.500 --

Other civilian wages 2.163 3,182 8,219 -- ^- --

Goods and services 3.605 4,295 26,100 42,320 62.000 92,900

Interest on public debt 5 90 15.400 30,700 44,700 66,000Domestic interest 0 0 2,400 -

External interest 5 90 13,000 -- --

Price subsidies-local prod. 284 500 7.200 8,420 9,900 12,000enterprise loss subsidies 0 9,013 11,145 12,000 12,000 14,000Income transfers 0 3,100 18,000Other current (& provisions) 672 858 7,600 8,315 10.000 15,300

Complementary periods, net 75 (480) (1,700) (1,140) (2,200) (3,200)

Investment (fiscal year) 8,720 6,655 139,730 214,300 324,300 440,000

Percentaae of GDP

Recurrent expend. 18.1 22.3 22.5 25.8 25.6 26.0Defense and security 5.7 7.5 8.8 10.8 10.2 9.4Wages and salaries 6.5 5.1 3.8 4.5 4.9 5.2

Investment expenditure 11.2 4.5 21.2 22.5 24.2 23.4

Percentaae of recurrent exp.

Defense and security 31.2 33.5 39.1 41.6 39.7 36.1Wages and saluries 36.1 23.1 16.7 17.5 18.9 19.9

Sources: Ministry of Finance; and staff estimates.

1.19. Wages and salaries fell as a proportion of recurrent expenditure from36.1 percent in 1980 to 16.7 percent in 1988. In real terms, this represents anaverage annual decrease in expenditure on wages and salaries of 10 percent peryear. The crowding-out effect of increased defence expenditures, subsidies andinterest payments on wages and salaries and other recurrent items may be crudelyinferred from the fact that the aggregate share of the former items in recurrentexpenditure rose from 33.2 percent to 61.8 percent over the same period -- anaverage annual increase in real terms of 9 percent. These crowding-out effectshave also adversely affected the Government's ability to provide education. Asnoted above this has had an adverse effect upon the supply of skilled manpower.While the ERP has imposed continued fiscal restraint, the degree of crowding outwithin the Government's budget has been lessened by a substantial reduction insubsidies to enterprises. However, this reduction has put further pressure uponthe ability of parastatals to pay realistic wage rates. The real value ofgovernment expenditure on wages and salaries has risen at an average annual rateof 9.2 percent from 1987 through 1989. However, as shown in the next chapter,the wage bill of the civil service remains very low in relative terms whencompared with that of other sub-Saharan African countries.

C H A P T E R II

PUBLIC SECTOR PAY AND EMPLOYMENT ISSUES

A. INTRODUCTION

2.01. While the central features of the pay and employment structure of thecivil service in Mozambique resemble those of a number of other sub-Saharan

African countries 11, there is strong reason to believe that the problems facedare unusually severe. As noted above, the Mozambican labor force is bothuneducated and unskilled, even by the standards of other countries in sub-SaharanAfrica, and this is strongly reflected in a lack of sufficiently skilled and

experienced manpower in the system of public administration. As explained in

more detail below, better-qualified civil servants are seriously underpaidrelative to comparable workers in other sectors of the economy, and this has

further stressed the ability of the civil service to discharge its functionseffectively. The system of personnel management employed within the civilservice also presents further obstacles to its effective operation. While these

problems undoubtedly have their origins in the very difficult, internal and

external constraints imposed upon the country since its independence, muchimprovement can be achieved through decisive policy action. This will beparticularly important in the next few years, as the Government will need toincrease its administrative capacity considerably, if it is to execute future

programs of resettlement, rehabilitation and reconstruction.

2.02. This chapter surveys the salient problems faced within the system of

public administration in Mozambique. Four main areas are highlighted. First,the organizational structure of the civil service and its regulation are

described. Second, the size and composition of the civil service is reviewedwith the aim of assessing its adequacy in the light of anticipated future needs.Third, the civil service pay structure is reviewed, and pay levels are compared

with those in other sectors of the economy. Fourth, the system of personnel

management within the civil service is described and evaluated.

" See Govemment Wage Policy In Africa- Some Findings and Policy Issues by David L. LIndauer. Oev Astra Meesok& Parlta Suebsaena, Research Obsetver 3- No. 1, January 1988, The World Bank.

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aci l

THE ORGANIZATION AND REGUILATION OF PUBLIC ADMINISTRATION.

Ormanization. The first decisive steps in the organization of an independent#dminstration in Moza-mbiqe were initiated in 1974. The new, democratic government, Installed in

Portugal with the overthrow of the forty-year old "New State" authoritarian regime of Dr. Salazar

and Coarano, had paved the way for the gradual transfer of power (1974-75) to local authorities,

both in otsambique and other Portuguese territories in Africa. The Front for the Liberation of

nosembique (PRELINO) took over most of the local administration in September 1974, and the country

became indepandent in June, 1975.

The lack of administrative capabilities within the FRELIMO gave little room formanoeuvre in the designing and setting up of the new administration. The new political.

administrative system of the country was forced naturally to rely on the unitary and centralized

batkgrouud inherlted from the colonial era. One should bear in mind that most, if not all, of the

higher level staff of the colonial civil service (with about 29,000 employees in total) were either

portuguese or of direct portuguese descent. A substantial amount of them left the country after

indePcadence. Though innovative solutions were sought to supplement the lack of administrativeskills, the functlonning of the public administration, defined in the Constitution of 1975 and thatof 1990, remained unitarian and centralized. One of the 1981 decrees of the Council of MinisterstD~ecree No. 4/81) defines the systems

"The central organs of the State Apparatus constitute the unitary instrument of

political power for the command, planning and control of governmental action" (Art. 1)."In the exercise of their functions, the central organs warrant the unitary

implementation of the State policies in their respective areas of responsibility" (Art. 20).

As a result, local government possesses little autonomy. Articles of the

Constitution establish that: (a) in the national territory, the central organisms of the governmentact directly or through their designated representatives in the supervision of the government's workIn a given territorial area (Art. 112); (b) "the representative of the central government at the

provincial level is the Provincial Governor" (Art. 13); (c) "the members of the ProvincialGovernment are chosen by the central government" (Art. 114). There are eleven provinces, plus thecity of Maputo, which is treated as a province. Each province contains further units of

administration at (rural) district or (urban) city level. There are currently 128 districts and 23cities. Districts typically contain even lower levels of local government in the 1042

'localidades", (rural villages), and 68 "vilas", (small towns). All levels are subject to central

^ontrol in virtually every area of wage and employment policy. The fiscal autonomy of non-centralgovernmental entitities is extremely limited.

The executive branch of the government includes: (a) the offices of the President andthose of the Ptime Minister; (b) the Council of Ministers; (c) the National Commissions$ among which

ta the National Planning Commission (the CNP); (d) 19 Ministries; (e) 8 Secretariats of State, *

these are agencies for special programs or services--; (f) the Bank of 4ozambique; (g) the

"subordinate institutions", each related to the economic or social area of a ministry or secretariatof state and enjoying i certain degree of administrative autonomy. Moreover, within the purview of

the executive branch, one finds a considerable number of other entities, connectad in different

forms to the ministries or secretariats of statei the public enterprises and the "intervened"companies which were confiscated by the government or were taken over because they were abandoned

y. their (mostly Portuguese) owners.

The structure of government displays a close degree of parallelism as one moves downthe hierarcbical scale. Virtually the same administrative structure reveals itself at central,prov$xcial, district, city level. Provincial, city and district governments include delegations

trom central government that are under their control. These delegations nevertheless responddirectly to directives from central government. There is thus a system of dual control in effect,

eentral government controls local government througb its delegations, but local government also hasauthority over the bureaucracy. Town and village governments come under the direct control of thedistrict.. Occupant. of senior administrative posts at non-central government levels usually hold

comparable position8 in the same geographical hierarchy within RELIMO.

Rlellation. At the time of Mozambique's independence, Portugal considered its

African possessious an integral part of the Pcrtuguese nation. They were thus subject in generalto Portugueps law. The country possessed, however, a considerable number of laws and other legalinstruments specially designed for colonial rule. The most recent and comprehensive part. of thisl.gislation had been approved during Salazar's regime. These included the Colonial Act (1930) and

the Organic tharters for the Overseas Territories (1953).

in its fifteen or to years of existence, the Govetnment of Mozambique has formulated

a vast and complex aet of legislation and other legal instrumonts, vbtch includes law and

resolutions, from the Popular Assemblies; decrees and resolutions, froa the Council of Ministers;decree., from the President, "diplomas ministeriais" and decisions, from the Hinisters; etc. The

exarcise of organizing and te-organizing has been continuous. This could be expected ma a newlyfounded country that chose a political-economic model very different from the one under which ithad lived for hundreds of years as a colony.

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B. THE OROANIZATION AND REGULATION OF THE CIVIL SERVICE

2.03. The process of creating a national civil service legislation startedsoon after independence (see Box 1 below). While different acts or pieces oflegislation of this initial period were consolidated in a decree of the Councilof Ministers titled "Norms for Employment and Discipline in the State Apparatus"(Decree 16/78), the most important piece of legislation governing the civilservice is the Statute of the Civil Service, or Estatuto Geral doe Funcionariosdo Estado (EGFE), as approved in May 20, 1987, (Decree 14/87). Itsimplementation started in November of the same year.

2.04. According to the introduction to Decree No. 14/87, and article 6 ofthe EGFE, it applies to all "functionnaires of the State" and "all sectors of thestate", as well as to "the institutions that are subordinate to the State".However, the document refers almost exclusively zo the civil service per so.

1. General Princigles of the EGFE

2.05. The EGFE defines the central occupational structure, the principalconditions of service, and lays down rules regarding entitlement to a number ofbenefits. With respect to occupational structure, the document contemplates acomplex system of "common careers" -- carreiras comuns -- and "common functions",applicable over the entire government, each "career" consisting of a series ofpossible promotions up a job ladder from a given starting point. Besides the"common careers", specialized agencies or ministries are allowed to create theirown "specific careers".

2.06. The main conditions of service as defined in the EGFE are; a)approval in competitive entrance exams is to be a basic requirement for admissionin the civil service; b) new entrants in a career are to be subject to asupervised probatory period; c) all government agencies are required to offertheir employees opportunities for further education and training; d) promotionfrom one category of positions to a higher one is to depend on the results ofannual performance evaluations and competitive exams; e) civil servants areguaranteed tenure after two years of service; f) disciplinary action is regulatedin detail, as is the appeal process; g) public servants are to be entitled to anumber of paid leaves: annual, sick, maternity, etc.; and h), the right toretirement is guaranteed after 35 years of service or upon reaching a certain age(60 years for males and 55 for females). Retirement is compulsory at 65 or 60years of age, for males and females, respectively.

2.07. The benefits defined as entitlements by the EGFE include: a) paymentof bonuses for years of service or after the employee has reached the highestlevel of his 'career'; b) payment of bonuses for productivity, efficiency andquality of work or in recognition of exceptional services rendered to the State;c) post allowances, according to the level and nature of work or place ofassignment; d) supplementary payment to employees assigned to take trainingcourses, whether inside or outside the country; e) special payment for nightwork; f) provision of housing (government housing or rent subsidy), and vehiclesand fuel allowance for individual use to officials of a sufficiently seniorlevel; g) payment to dependents upon the death of an active or retired servant;and h) medical assistance. An important feature of the EGFE is that a number ofsections of the document still require supplementary regulations or instructionsbefore they can be implemented. However, virtually all of the requiredadditional regulations are in an advanced stage of preparation.

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2. Career Provisions for Higher-level civil servants

2.08. Two specific "careers" are worth mentioning since their provisionsapply to higher-level civil servants 2/: first the "technical career" --carreira teenica -- to which access is limited to holders of an university degreeor an equivalent; and second, the "management career" -- caraos de chefia -- towhich access does not depend on educational criteria 3/ but rather on workingexperience and political appointment.

2.09. As described below 'V, these specific careers are regulated by theEGFE. However, some further provisions apply, namely: a) levels of remuneration(including fringe benefits) depend on the educational background of the employee;b) when a higher level technician is assigned to a management position, his basesalary is calculated as the maximum of his previous base salary and the basesalary of his current position.

C. THE SIZE AND COMPOSITION OF THE CIVIL SERVICE

1. Size of the Civil Service - International Comi3ariso

2.10. In Mozambique there are an estimated 105,000 civil servants 'S,

while the parastatals are believed to employ a further 122,000 individuals.About 88 percent of civil servants are in local government -- an extremely highproportion --. However, this has little significance given the unitary systemof government described above. Emplovment in the civil service is relativelysmall when compared with that of other sub-Saharan African countries. This isillustrated in Table II.1 below. In Mozambique there are approximately 7 civilservants for every thousand inhabitants. This compares with similar ratios inMalawi and Mali, and much higher ratios in the other countries considered. Whilethe number of military personnel per thousand population is relatively high inMozambique, this is not true of employment in the public sector as a whole (civilservants, military personnel, and employees of parastatals). There are about 20public sector employees per thousand population in Mozambique, compared with 14.5in Mali, 20 in Nigeria, 23.1 in Liberia, and 42 in Zambia. While it may beargued that, the ratio of civil servants to population in Mozambique should belower than comparable ratios for most of the comparator countries, given itsearly stage of development, this explanation does not bear further examination.As Table I1.1 shows, the civil service accounts for only 10.1 percent of totalformal employment in Mozambique -- a much lower proportion than in any other sub-Saharan African country for which information is available.

2v Higher level staff is defined here as staff occupying senior and/or management positions in one of the 'careers' ofthe public administration. For instance, an economist would, as a Tecnician Category A, B or C, be regarded as ahigher level staff. However, given what is discussed above, Directors without educational degree3 are also claissifiedas higher level staff.

3/ Though originally the 'management career, relied naturally on educational critoria for access/promotion, the lack ofskilled manpower at independence forced the Govemment to make exceptions to the rule prevailing In the colonialadministration. Efforts are being made to reduce the discrepancy between occupied management positions andeducational requirements through on-the-job training and promotion of young graduates from the University.

4' See sections E. and F. of the present Chapter for details regarding the Civil Service Personnel system and thesystem of Functions and Positions in the civil service.

5' This figure is based upon preliminary results from the Census of Civil Servants conducted during 1 989/90 by theMinistry of State Administration.

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2.11. In the World Bank'a Long-Term Perspective Study on Sub-saharan Africa(LTPS), a number of principles were laid down for the calculation of anappropriate size of a civil service after taking into account population and percapita income.(a) Combining these principles with other countries experiences suggests

a benchmark of between 175,000 and 200,000 civil servants for Mozambique.Mozambique, with an estimated 105,000 civil servants is thus far behind areasonable norm in terms of government civilian personnel for a country with itspopulation and income per capita'".

Table II.1 INTERNATIONAL COMPARISONS - Number of Public Employees.number or pubLIC employ...

______ -_______________ ot________________________ ______________________-_ Public Civil Hil ts,yclvi. Service 9Nlitary Zratatals Total Sector Servants per '000Pereonnl ployass aS of ps inhabit.Total Contral .noci _ foral oGov. Gov. *uealom. inhab.Population (1) (2) (3) (4) (5) (6) (931 _ ,(aid-yost) -(2)+(3) "(1)#(4)+(5) (1)1Pop. (4)/Pop.Country Million _E coverage *

Year

Moxambique bI 1989-90 15,696 105,000 12.911 92,089 no 122,048 ne ... 7 naAngola 1988 9,481 250,137 tic na 147,500 376,363 774,000 75Z 26 16Ghana 1983 11,750 200,000 na nt S,000 na ... , 17 1Liberia 1983 2,040 33,600 na no 5,000 10,000 48,600 21% 16 2Malavi 1983 6,820 50,368 na nI 6000 no ... ... 7 1MAL 1980-83 7,050 50,066 49,116 950 8,000 45,401 103,467 661 7 1Senegal 1980 5,710 88,390 na na 18,000 no 106,390 451 IS 3Sudan 1983 20,530 335,759 na na 86,000 na 16 4Zambis 1983 6,250 131,646 Us Us 16,000 136,420 284,066 75S 21 3Nigeria 1983 93,120 1,101.778 279,665 822,113 144,000 621,741 1,867,519 65% 12 2

Sources, World Development Report (various issues)Government Wage Policy in Africa -- Lindauer D., Meecook O.A., Suebeseng P.-- in WB Research Observer 3, No.1 January 1988The Military Balance 1990-1991 , IISS London 1990.World Military Expenditures and Arms Transfers 1988, The US Arms Control & Disarmamnt ASency (US AC&DA)Staff estimates

Notes. a/ coverage may vary across countries (.s* Lindauer and clii.)bl based on Ministry of State Admintitration of Mosambiquel census of he civil service (preliminary resulto)Parastatals employees are *stimated. Data cose from Industry Survey covering 707 enterprisesamong which 428 are public or under State intervention.

(b) The actual number of civil servants in Mozambique is still to bedetermined: this is understandable in a country that has been facing a civil warsince its Independence. The number of 105,000 civil servants is based on twoparallel estimates: the preliminary results of a 1990 census of the civil servicecarried out by the Ministry of State Administration and a reconciliation of thiscensus with the payroll carried out by the Ministry of Finance. Since November1990, the Government has been taking a number of important steps aiming at: (i)determining the total number of civil servants within the 1990 structure ofgrades and salary scales; (ii) elaborating a new, unified and decompressed salaryscale in conjunction with new unified grades across the whole civil service; and(iii), integrating progressively the civil servants into the new grades and thenew salary scale. In parallel with this three-stage process, the Ministry ofFinance has refined its survey of the civil service payroll. Initial results atthe end of September 1991 suggest that about 90,000 civil servants (instead of105,000) are in the Government's payroll. As of October 1991, the three-stageprocess has been completed for about 58,000 civil servants. It is expected thatbefore the end of 1991, the process will be completed for the rest of the civilservice. It will be therefore possible to reconcile the results of theintegration process with those coming from the survey of the payroll and thus todetermine the number of "ghost" workers. However, it is unlikely that thisnumber could be substantial.

6/ Estimates of the number of military/securty personnel in 1989/90 vary from 72,000 to 130,000. This wouldimply that estimated total Government employment was of the order of 177,000 to 235,000. This compares with anhntemational norm of 200,000 to 225,000.

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2. Sectoral Comoogition of the Civil service.

2.12. Table. II.2 and II. 3 gives the distribution of civil servants byministries, sector and province. Out of an estimated 105,000 civil servants,over 51,500 are in education, and 25,500 are in health services. These twosectors account for the bulk of civil servants engaged in local government. Thehigh totals for theme two sectors are not surprising, considering the emphasisgiven by the Government to education and health, and the labor intensity of thesesectors. It is interesting to note that the proportion of civil servants inthese sectors does not vary unduly across provinces. This indicates a welcomedegree of equity in the allocation of scarce resources. The total staff in othersectors is, however, relatively minuscule. For transportation, public works andsanitation, there are about 3,700 employees; for agriculture and irrigation,4,800; and for industry, fisheries and commerce, 1300. However, a veryconsiderable part of the activities related to these sectors are conducted byparastatals, "subordinate" entities and government-run enterprises. Theagriculture enterprises, for instance, employ over 132,000 persons (UNDP/NATCAPReport, 1987). The ministries, state secretariats and other major agenciesappear to be very thinly staffed if one comparee their staffing levels in centralgovernment with the wide range of functions and responsibilities assigned to themin the respective organic laws or charters. In 1990, the Ministry of Labor, hadjust 170 employees; the National Planning Commission, 155; the Ministry ofAgriculture, 1077. Last year, the Ministry of Finance employed only 2,607persons over the entire country.

Table II.2 MOZAMBIOUE - Breakdown of the Civil Serviceby Ministrv.

Teecln 1990 N u a b * r a f c i v I I c a r v * n t a

Tote. Total Total uano ala cne.- anici aputo Npu- rLassa uoral Tate zames- naputoCivil Contral Prov. Delgado ba Prov Na ao Caty

COo Servants Gov. Gov. 01 02 03 04 05 06 07 08 09 10 11

- Fresiasncy 3-1 J3u2 Agriculture 4,680 1,077 3,603 180 907 107 308 327 129 443 365 416 323 973 Hydr. Agricult. 50 504 Cotton 46 46i Cashew 52 526 Education 51,502 358 51,144 6,619 3,389 4,179 2,999 2,305 8,596 2,792 3,952 3,537 6,621 6,155

nlEdction 92 923 toEducci 536 144 392 29 54 22 26 84 37 58 20 47 17

10 Industry X Energy 269 83 186 14 12 13 22 20 17 9 20 17 16 2611 Fisheries 167 16712 Com_ree 880 288 592 29 42 35 43 51 58 24 89 51 42 12914 Transportation 1,598 892 706 13 58 124 39 14 16 22 191 52 142 3416 Public Works & San 2,261 950 1,311 69 99 52 125 102 92 90 307 92 81 20117 Justice 974 115 859 224 61 35 46 35 27 128 55 86 16118 Planning 529 155 374 18 26 25 48 38 35 22 64 46 25 2619 Cooeain74 7420 intnce 2,607 1,625 982 92 71 84 84 48 159 81 136 86 94 4721 State AGministreti 7,536 317 7,21S 818 490 694 565 388 1,094 872 923 558 616 20122 Labor 686 170 516 30 43 47 34 46 67 26 64 37 56 6723 Hinercl Resources 816 387 429 64 35 97 51 27 106 4824 Esaith 25,514 2,985 22,529 1,655 1,625 1,843 1,465 1,004 2,783 1,425 3,047 1,995 2,531 3,15825 Porcign Affairc 323 32326 Information 269 145 124 9 25 22 9 20 3931 Priwme inister 41 4133 Surem Court 996 26 970 86 56 102 43 48 129 46 127 67 61 20435 University 1,643 1,64339 KHteorology 188 18840 National Asebly 212 58 154 17 8 10 13 10 18 12 16 20 21 941 Touriam 41 4142 Physc Planning 112 112

Total 105,000 12,911 92,089 9,958 6,941 7,383 5,897 4,401 13,434 6,001 9,521 7,171 10,649 10,5S3

Source: Mozambique - ministry of state Administration.

Table 11.3 : MOZAMBIOUE - Breakdown of the Civil Serviceby Sector and Province

ere IS90 -4 N u a b * r o t c I v I I c* v * n t a

Total Total Total Gato Gave lab.- Hanlic Maputo Raopu - Mgces botcla Toto ZItDO- tlaputoCivil Central Prov, Dolgedo ba Prov e co City

Sorvants Gov. Gov. 0 02 03 04 05 06 07 08 09 10 11

Total Civil Servants 105.000 12,911 92,089 9,958 6,941 7,383 5,897 4,401 13,434 6,001 9,521 7,171 10,849 10,533

Specialized Adainietration 4,331 2,459 1,872 140 140 156 166 132 261 129 264 169 175 140olv Planning 641 267 374 18 26 25 48 38 35 22 64 46 25 26

Finance 2,607 1,625 982 92 71 84 84 48 139 81 136 86 94 47

general Administration 10,066 864 9,202 1,145 616 842 667 447 1,277 957 1,193 699 784 575o/v Justice 1,970 141 1,829 310 118 137 89 48 165 73 255 122 148 365

Civil Service Ads. 7,536 317 7,219 818 490 694 565 386 1,094 872 923 558 616 201Executive Funct. 348 348Legislative Funct. 2'2 58 154 17 8 10 13 10 18 12 16 20 21 9

Other Administrationa 498 374 124 9 25 22 9 20 39

Sducation 53,773 2,237 51,536 6,648 3,443 4,201 3,025 2,305 8,679 2,629 4,009 3,557 6,668 6,172

Iealth 25,514 2,985 22,529 1,655 1,625 1,843 1,465 1,004 2,783 1,425 3,047 1,993 2,531 3,158

Transport, Pub. Works & Sanit. 4,675 2,229 2,446 146 157 176 200 116 204 163 525 250 272 235

Agriculture & Irrigation 4,828 1,225 3,603 180 907 107 508 327 129 443 365 416 323 97

Industry, Fishcries & Comorce 1,316 538 778 43 54 48 65 71 75 33 108 68 58 156

I n p e rc e n t a g e of n uv b e r o f c i vi 1 s e r v a nt s

Total Total Total ICeO Ga amn- lnicac naputo naspu- ases bOt5lC TOt ZtUtD- NaputeCivil Central Prov. Delgado ba Prov. la zs City

Servants Gov. Gov. 0 02 03 04 05 06 07 08 09 10 11

Total Civil Servants 100S 1002 1002 1002 1002 1002 1002 1002 1002 1002 10 '2 1002 100S 1002

Specialiged Administration 42 192 2S IS 22 22 32 3S 2S 22 SS 22 2S 1Io/v Planning IZ 2Z 0S O S 0 S ox 12 12 OX 02 I1 12 0S 0S

Financa 22 132 1 It I1 I1 12 12 12 12 12 12 I1 O0

General Administration 102 72 102 112 92 112 112 102 ioz 162 131 102 72 52o/v Justice 22 12 22 32 22 22 22 12 12 12 32 22 I1 52

Civil Servieo Adn, 72 22 82 8S 72 92 102 92 6S 152 IO1 82 62 22Executive Funct. 02 32Legislative Funct. 02 02 02 02 02 02 02 02 02 0t 02 02 02 02

Otbhr Administrations 02 S 3 020 02 o 02 02 02 0S

Education 51S 172 562 672 502 572 512 522 652 472 422 502 612 592

Healtb 242 232 242 172 235 252 252 232 212 242 322 282 232 302

Transport. Pub. Works & Sanit. 42 172 32 1S 22 22 3 352 22 35 62 31 32 22

Agriculture 4 Irrigation 52 92 42 22 132 I 52 7n 12 7n 42 62 35 12

lindustry, Fisheries & Contnreo 12 42 12 02 12 I1 I2 22 12 12 12 12 12 12

Total Civil Servants 1002 122 882 92 72 72 62 42 13S 62 92 72 102 102

Specialized Adainietration 1002 572 432 32 32 42 42 32 62 35 62 42 42 32o/v Planning 1002 422 582 32 42 42 82 62 62 35 102 72 42 42

Finance 1002 622 382 42 32 35 35 22 62 35 52 32 42 22

Goneril Administration 1002 92 912 112 62 82 72 42 152 102 122 n 82 62c/v Justice 1002 72 953 162 62 97 52 22 8 42 132 62 72 192

Civil Service Ads. 1002 42 962 112 72 92 72 52 152 122 122 72 82 52Executive Funct. 1002 1002Legislative Funct. 100X 272 732 82 42 5S 62 52 92 62 72 92 102 42

Other Administrationa 1002 752 252 22 52 42 22 42 82

Educatioan 1002 42 962 122 62 82 62 42 162 52 72 n 122 112

Health 1002 122 88S 62 62 n 62 42 112 62 122 62 102 122

Transport. Pub. Works & Sanit. 1002 482 522 35 32 42 42 2 42 352 II 52 62 52

Agriculture & Irrigation 1002 252 752 42 192 22 6 7n n2 92 82 92 72 22

Industry, Fisheries & Co- rce 1002 412 592 S2 42 42 52 52 62 22 8S 52 42 122

Sources: Mozambique - linistry of State AdministrationSt&f satiates

Notest Specialized Administration t Plarming, Finance, Labor, Phys. Planning, Foreig AffairsGoneral Administration A Justice Supree Court, State Administration, Prosidency, National Assembly,Otbor Administratitson I Meteorology, Tourim, InforationEduestion I Education, Phys. Education, Culture, UniversityeaIltb I Healtb

Public Work. & Sanitation a Transportation, Public Works 6 Saitation, Mineral eS ourcesAgriculture & Irrigation a Agriculture, Hyd. Agric., Cottoa, CasbhwIndustry, Fisheries & Comerce, Industry, fisheries, Com_rec

- 16 -

2.13. An examination of the occupational structure of the civil servicesuggests that the scope for savings from redundancies is extremely limited. Asnoted above, some 77,000 civil servants work in either the Ministry of Educationor the Ministry of Health, and of whom only about 3,400 are in conventional civilservice jobs in central government. Of the remainder, the overwhelming majorityare either teachers or health workers, and are therefore engaged in activitiesthat need substantial expansion. While some unskilled workers are retained inthese sectors, their numbers are relatively small and some of their functionssuch as hospital porterage are obviously essential. These leaves thereforearound 32,000 individuals doing conventional civil service jobs, of whom about21,000 are unskilled. Given the skill shortage currently prevalent in theMozambican public administration, the scope for redundancies i8 thus limited tothe latter category. However, the potential for creating savings from theGovernment's wages and salaries bill by retrenching unskilled workers are verylimited. Even if 5,000 such workers were retrenched total savings per year wouldamount to only just over 2 percent of existing employee compensation. Inpractice, however, this would be an overestimate of actual savings as redundancypayments, early pensions etc. would have to be paid.

3. Oualifications in the Civil Service

2.14. Mozambique provides a striking example of one of the most commonobstacles to the development of a modern public administration: namely, the lowlevel of education (general and technical) of the majority of public employees.Economic and administrative problems have led to an educational system incapableof supplying the public sector with sufficient individuals possessing areasonable good elementary or junior high education. This situation is stronglyillustrated in Table II.4. Less than 20 percent of higher-level civil servantspossess university degrees, while 16 percent have no formal schooling at all.In sharp contrast, expatriates are entirely university-educated. The followinginformation illustrates the problem further: a) among chiefs of department atthe central government: 61 nut of 247 were college-educated; b) among provincialdirectors: the corresponding numbers were 21 out of 133; c) among chiefs ofprovincial departments: only 5 in 199; and d) none of the 199 district directorswere college-educated. The NATCAP Report (1987) gives for four centralinstitutions, the following percentages of employees with only basic orelementary schooling: the Ministry of Labor, 56.6 percent; the Ministry ofFinance, 86.4 percent; the National Planning Commission, 55.0 percent; and theBank of Mozambique, 61.0 percent. Within the education sector itself,qualifications are very low. Out of a total of over 30,700 elementary/juniorhigh teachers giving classes in 1990, more than 18,500 had completed onlyelementary school.

2.15. These conclusions seem to fit in very well with views expressedwithin the civil service itself. The belief that most of the government agenciesare understaffed is widespread. Directors and chiefs frequently state that theyrequire both more and better prepared personnel, particularly at the medium-highand medium-technical levels. However, there is little systematic analysis ofmanpower needs 6/. Some overstaffing does appear to exist at the lower-middleand low levels of the hierarchy. This frequently occurs in countries where thegovernment is an important source of employment for the less-educated orunskilled urban population. However, various officials interviewed on thismatter, argued that such overstaffing does not exist, as low-level employees areoften assigned tasks that are not proportionate to their skills and grade to fillgaps caused by lack of personnel at higher levels. Exercises in job evaluationwould be required to determine whether redundancies are needed.

0' The ASDI-unded FUNDAP-executed technical assistance project at the Ministry of State Administration Is carryingout a comprehensive survey of the higher level staff In the public administration. This commendable effort Is the firststep towards determining the needs for skilled manpower in the civil service. Some preliminary results were given tothe World Bank November Mission.

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Table II.4 : MOZAMBIOUE - Level of Education of Higher Level Staff

In units in percentage

Years 1989-90 Total Lavel of Education Total Level of Education

UnIver- Hecon- Prary none UnTvar- S0con- Prrery -onsaity dory city dary

Higher Level Civil Servants A/ 1,525 302 620 359 244 1002 201 412 24Z 1622 of Total (asa.1.) 112 72 152 1SS 15S2 of Total (ass.2.) 172 92 252 252 252

Sigher Level Military Peroonnel bi 1,046 ... ... 1002 ...2 of Tot&% of Total 822 of Total (aas.2) 112

"Cooperantes" cl 579 579 0 0 0 1002 1002 02 o0 022 of Total (&au-1) 42 142 02 OX 022 of Total (sau.2) 62 182 O0 O0 O0

xpatriates d/ 1,528 1,526 0 0 0 1002 1002 O0 02 O02 of Total (Is%1.) 112 362 O0 O0 022 of Total (aes.2.) 172 462 O0 02 02

Aeduaption 1. (e1)

IL Staff in the Parastatals AboutAnd in the Private Sector. o1 8,991 1,760 3,655 2,117 1.439 1002 202 412 242 162

Z of Total 662 422 852 852 852

Assumption 2. (0/)

EL Staff in the Parastatala aboutand in the Private Sector. A/ 4,495 890 1,828 1,058 719 1002 202 412 242 162

2 of Total 492 272 752 75S 751

Total (deg*nding on Assumptions)Tttl d Assumption 1 13,669 4,189 4,275 2,476 1,683 1002 312 312 182 122

1002 1002 1002 1002 1002

Total - Assumption 2. 9,173 3,299 2,448 1,417 96s 1002 362 272 152 1121002 1002 1002 1002 1002

Sources: Ministry of State Administration - Survey of skilled labor force 1990. (Quadros Tecnicossuperiores de Direcao)

Ministry of Finance (Payroll)Ministry of Cooperation - Documento de Orientacao da Politica de CooperacaoStaff estimates

Notes: a/ source is the above mentionned surveyb/ assuming same proportion of skilled labor as in civil servicec/ cooperantes" means expatriates paid by the Government of Mozambique

data from Ministry of Labor (1987). cooperation (1985) and also the Government'sPayroll (1989)

all cooperantes hold university deqreesd/ expatriates are paid by donors; data come from Min. of Cooperation

all expatriates hold university degreese/ staff estimate; both assumptions are based on a survey by the Ministry

of Labor combined with the assumption that the managers inthe productive sectors (public plus private) are in thesame proportion (assumption 1.) or half the proportion (assumption 2.)of higher level staff in the civil service.No distinction could be made between the public and the private sectorsBase of comparison was the civil service and the non-agriculturalformal sector (excluding migrant workers).Educational background was assumed identical to that of thecivil service.

2.16. The Government has been engaged in a major effort aimed at: (i)allocating a substantial amount of manpower to local government (88 percent oftotal civil servants); and (ii), devoting the bulk of its manpower to the socialsectors (75 percent of total civil servants are in Education and Health).

2.17. However, the Government is constrained by a general scarcity ofskilled workers. In 1990 only about 3,000 to 4,000 employees in the wholecountry held a university degree. This number represents about 0.3 or 0.4iercent of total emplovment in the formal sector. Moreover, assuming that about2,000 of these skilled employees are expatriates, the ratio of local employeduniversity graduates to total formal employees is about 0.1 percent (one Per onethousand).

2.18. The 1,000-1,500 Mozambican public employees holding a universitydegree represent a substantial proportion of the country's skilled manpower. Asexplained further below, it can hardly be argued that competitive marketconditions are prevailing in this section of the labor market. An importantimperfection will be illustrated by the next section of this Chapter.

[ ~~~~~~~~~~- 18 -

D. CIVIL SERVICE PAY LEVELS AND STRUCTURE

1. lpt-rnational Comparison : Pay Level in the Civil service

2.19. While it is true that the average wage paid to civil servants inMozambique is at a higher ratio to GNP per capita than in a number of other sub-Saharan African countries (Table II.5), this statistic is extremely misleadingas a guide to the appropriateness of existing wage and salary levels in publicadministration. The essential point is that while wages at lower levels may notbe inappropriate in the light of substantial excess supply of unskilled labor andpossible overstaffing at lower grades, wages at middle and higher grades aregrossly inadequate in the light of prevailing labor market conditions.

Table II.5.: INTERNATIONAL COMPARISON - Pay Levels in CivilServices

GDP GNP per capits Central Govern. Govert.Exptnd. Govennt e Govt. Govt.Expenditure. Not Lending Uage & Salaries av ; over to

(') T7F T (3) T87 3Ta) Tt Wage Wagein in i l e as 2 as in as In in as I

current current of GRP of GDP of GDP current of Gov. current current of GNPUSO M. USD USD M. EaxpNnd. USD M. USD per

nd NSt capitaCountry sources sources sourcet sources * Lending - (annual)S coverage Us IBRD US IBRD (1)*(2) (5)*(4)

Year AC&DA WDRe AC&DA WDRe

Hosaubique 1989-90 1,296 80 47.5S 616 98 58 46 575

Angola 1988 7,400 600 29.8S 2,204 29X 642 214 368

Ghana 1983 4,057 298 310 8X 6S 8.2S 333 258 82 34 118

Liberia 1983 1,067 477 480 388 232 34.38 366 378 136 337 708

mlai 1983 1,221 128 210 30S 168 28.88 332 19S 64 112 538

mail 1980-83 1,079 207 160 32S 278 31.58 340 248 8o 134 838

Senegal 1980 2,465 630 440 288 19S 2i.8S 661 348 226 213 488

Sudan 1983 7,339 425 400 188 135 20.3S 1,490 ... ...

Zambia 1983 3,343 265 580 35Z 268 33.42 1,117 298 323 204 358

Nigeria 1983 89,770 222 770 16S 118 21.28 19,031 88 1,446 109 148

Sources: World Development Report (various issues)Government Wage Policy in Africa --Lindauer D., Meesook O.A., Suebsaeng P.- in WB Research

Observer 3, No.1 January 1988The Military Balance 1990-1991 , IISS London 1990.World Military Expenditures and Arms Transfers 1988, The US Arms Control & Disarmament Agency

(US AC&DA)Staff estimates

Source: Staff escimate.

2. Pay Regimes in the Mozambican Civil Service

2.20. Three distinct pay regimes can be identified for the Mozambican civilservice covering the periods: 1975-1985; 1987; and 1987-1990. Quantitativedevelopments regarding an indicator of the real wage and of the compression ratio 7/of wages during these three periods can be seen in Table II.6 and Figure 1,below.

7" The ratio of the wage of the highest category to that of the lowest

- 19 -

2.21. From 1975 to 1985, the new regime aimed primarily at improving socialwelfare for the lowest categories of workers. This was translated into anincrease in the compression ratio of wages paid in the civil service (managerialsalaries were set at about two times unskilled workers' salaries in 1980j. In1975, at independence, civil service pay scales were adopted that closelyfollowed those of the previous colonial administration but, salaries of lowergrades were increased by a merging of the lowest categories of the colonial scale(see Box 2 for more details on the Mozambican pay regimes in the civil service).The 1975 system recognized 25 categories of civil servants (from Z -- the lowest--up to A -- the highest--) based upon the six educational levelo used during thecolonial era. Nominal salaries were kept unchanged, thus incurring substantiallosses of purchasing power in the face of inflation. Moreover, no distinctionwas made between wages in the public administration and those of the productivesector.

2.22. In 1985, the authorities decided to correct growing inconsistencieswithin the 1975-80 system of remuneration, and the salary scale was redefined inline with new occupational categories and job requirements. However, theimplementation of the new system was poorly executed. As a result, each ministryincluded, despite the recommendations made by the existing Civil ServiceCommission, sectoral-specific occupational categories in its payroll. As aconsequence, about 6,000 occupational categories emerged. This led to asubstantial lack of cohesion in pay across ministries and a huge increase in thenumber of pay categories from 25 to over 2,000.

2.23. After the launching of the ERP in 1987, a number of modifications(see Box 2) were progressively introduced in the salary scales. The thrust ofthese changes was to restore the incentives for skilled labor in the civilservice (through a decompression), to correct nominal waves for the purchasing-power losses experienced during the 1975-1985 period / and, to address theissue of the large number of pay categories. In addition, further modificationswere aimed at separating the civil service salary scale from tnose of othersectors (1987).

2.24. Since then, the Government has taken steps to: (i) unify the"technical career" (Carreira Tecnica) of the civil service for higher leveltechnicians; and (ii) reduce progressively the number of occupational categoriesand homogenize salary scales across ministries. These steps have included: thecompletion of an inventory of civil servants (November 1990); the elaboration ofa unified salary scale (November 1990-April 1991); and the definition ofsimplified requirements for each occupational category. The Government nowintends to introduce new consolidated scales during 1991.

e1 In nominal terms, these pay raiees were: 50 percent on January 1, 1987; 50 percent on August 1, 1987; 5,000 MZMflat on March 1, 1988; 15 percent on October 1, 1988; 22.5 percent on April 1, 1989; and, 16 percent on January 1,1990.

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Table I1.6 : MOZAMBIOUE - Nominal Waae Developments11975-19901

Base Mionthlly sal~ary 191b 1950 19 5 1987 OcL.1985 Apr.1959 Jan.1990

Category: USD Eac. USD H2H USD HZH USD NHM USD HZH USD HZM USD HZH

Senior Administrative 1,045 26,700 103 3,500 81 3,500 130 37,500 182 96,132 158 117,762 227 213,500

Professional Staff 939 24,000 370 12,000 278 12,000 130 37,500 182 96,312 158 117,982 146 136,859

Lover Level Technic. 384 9,800 96 3,100 72 3,100 91 26,250 106 56,206 92 68,852 85 80,000

Clerical Staff 276 7,050 65 2,100 49 2,100 48 13,875 75 39,905 65 48,884 60 56,000

Drivers 198 5,050 na na na na na na 32 16,875 28 20,672 32 30,000

Unskilled Hanual Work. 137 3,500 48 1,563 36 1,563 18 5,250 30 15,750 26 19,294 27 25,100

Source, Various ministerial decrees (Decree 28/75 of October 21, 1975 tor 1975 data) and staff *etisatt.Note$ OSD selsrie are in current DSD at the offica exchange rate, ezcludiaS fringe benefits and oxcludiog the tecbnical subsidy tn 1990.

rigur. 1

MOZAMBIQUE-REAL SELECTED BASE SALARIESIN 1995 US DOLLARS COFFICIAL EXC RATE)

!10

200 -

IO MA*eS+CEQSO UILE

170

130

120

90

70soso40

3020

logo98 1997 1988 1989 1990

0 MANAGER 4. CLERKS 0 UNSKICILLED

- 21 -

2.25. The behavior of the real wages of civil servants is not easy toanalyze in the Mozambican context given the large number of occupation&lcategories. Figure 1 illustrates a tentative exercise in which average salariesfor some broad categor es were converted into US dollars and deflated by the USexport price index. If one uses the official exchange rate, the result istwofold: (i) as expected, a substantial fall in the USD real wage occurredbetween 1975 and the 1980s; and (ii), after 1987, real wage rates of lowercategories of workers continue to decline, while those of managerial grades showsome improvement.

3. Pay Levels in the Mozambican Civil Service

2.26. This sub-section reviews pay levels in the Mozambican civil serviceas of November 1990. To evaluate the suitability of the existing civil servicepay structure, it is necessary to compare civil service pay levels with thoseprevailing in other sectors of the economy. This is attempted in detail inChapters III and IV. The parastatal sector is not used as a comparator, as theevidence collected suggested that, in the larger parastatals at least,remuneration closely follows that of the civil service. Making comparisons ofthis nature is unusually difficult in Mozambique for three reasons.

2.27. First, as noted in Chapter I, salaries are often paid in a mixtureof local and foreign currency. This is particularly true at professional andadministrative levels. As described in Chapter III, employees and consultantsin both the private sector and the international agencies receive most of theirremuneration in foreign exchange. In the case of employees of the major localdonors, even those at the lowest levels, such as guards and janitors, receive thebulk of their salaries in foreign exchange. In the public sector, a "technicalsubsidy" (subsidio tecnico) was introduced in January 1989 as a short-termmeasure aiming at raising the salaries of higher level staff 9/. Officially,the technical subsidy (TS) applies only to the highest level categories of thecivil service "I' (i.e. in the managerial career --directors and heads ofministerial departments, and in the technical career -- specialists and higherlevel technicians A and B). The technical subsidy is equivalent to a dollarallowance deposited every month in a convertible-currency-denominated bankaccount. A ceiling for cash withdrawals of USD 300 per month was established bythe Ministry of Finance. The amount of the annual technical subsidy depends onthe grade of the employee. The rates are: USD 2,000 per year for a specialist;USD 1,500 for category A higher level technicians and national directors; and USD1,000 for other applicable categories. At the end of 1990, an average monthlytechnical subsidy of USD 125 represented about MZM 225,000 per month (at theparallel exchange rate). This calculation is based upon a conservative estimateof the parallel exchange rate of MZM 1800 per USD, and compares with the officialrate as of November 1990 of MZM 930 per USD. This was roughly equal to the basesalary of a National Director (the highest position in the civil service). About2,600 higher level staff were receiving a technical subsidy at the end of 1990.In Table II.7, to ensure consistency in treatment across sectors, the technicalsubsidy is consolidated into the average base salary of civil servants.

2.28. Second, fringe benefits vary widely across civil servants as aproportion of total remuneration. Two sorts of fringe benefits were identified.For lower level staff in the civil service, the Government offers a subsidizedfood basket through entitlements ("cartoes") or buying rights and provided a

1' The Department of Foreign Exchange of the Ministry of Finance reported that about the cost of this special incentiveamounted to USD 1.9 million in 1989.

o' Though the measure was extended In 199 to firms In the productive sector that have earnings In foreign exchangeIn this case, the firm can spend up to 2.5 percent of its forex gain. In this type of internal incentive. However, this issubject to the approval of the Department of Foreign Exchange of the Ministry of Finance and of the availability offoreign exchange.

- 22 -

family allowance until 1980. The amount of goods that can be purchased throughsuch entitlements varies according to the number of dependents in the household.For example, for a household of five persons, the end-1990 metical value of the"cartao" is estimated at 'IZM 9,000 per month at market prices. This compareswith a minimum wage for unskilled workers in the public sector of about MZM26,000 per month). For higher level xtaff, the Government provides, in somecases, housing benefits not exceeding about MZM 50,000 per month and gasoline andcar allowances (only applicable to the highest level managers) worth about MZM100,000.

2.29. Third, a noticeable dispersion still exists within the salaries paidto existing categories of workers in the public sector. This occurs for at leasttwo reasons: a) differences in the speed of implementation of the 1985-87 reformregarding the reclassification of employees (see Box 2), although for somecareers, (e.g. technical and managerial), the unification of salary scales isalmost complete; and b) differences between salaries in central and localgovernments. In general, Table II.7 gives average wage rates as calculated fromthe data collected.

2.30. Table II.7 provides very strong evidence that salary payments in thecivil service for medium and higher level staff are low as compared to othersectors of the economy (international agencies and the private sector asdescribed in Chapter III). Senior administrative staff earn a little under onefifth of alternatives elsewhere such as those offered by local consultancies.The position is similar for professional staff, although the rates of pay forthis group are considerably dispersed outside the public sector. Clerical staffare at a considerable disadvantage relative to rates paid by the donors.However, little significance can be attached to this as the white-collaremployees of international agencies need considerable proficiency in foreignlanguages. Certainly, the pay rates offered to clerical staff in the privatesector are much closer to civil service levels. Possession of language skillsmay also partly explain the huge dispersion in the pay of drivers outside thepublic sector. Manual workers, whether skilled or unskilled, face much lowerintersectoral differences in pay levels. The main conclusion is that civilservice pay levels are much too low for occupations requiring a substantialdegree of education. The evidence is much weaker for other groups. The ratioof the highest to lowest salary (the compression ratio) is estimated at 16 : 1(including all fringe benefits) or at only 6 : 1 excluding all fringe benefitsand the technical subsidy. This compares with a much higher estimated value inthe private eactor.

2.31. It must be remembered, however, that the salaries presented in TableII.7, refer only to those paid by the worker's employer. In practice,substantial donor-funded fringe benefits accrue to some higher level Governmentemployees. They consist of the following types of payments: (i) consultancy feespaid to higher level staff while on duty; (ii) travel allowances (per diem) forduty travel both domestic and abroad and for study tours abroad; (iii) trainingallowances provided by donors for counterparts and/or Government officials and(iv) use of office cars. It is believed that most of the monetary paymentsassociated with these donor-funded fringe benefits are in foreign currency.

2.32. It could be argued that, as a result of donor-funded fringe benefits,in some specific cases among the highest ranks of the civil service, effectiveremuneration is catching up with that of the competing sectors for suchindividuals. However, this is not true for higher level staff taken as a whole,as many, if not most higher level staff, benefit little from either Government-funded and/or donor-funded fringe benefits. The picture that is emerging is anuntidy one and accurate information on those matters is mainly anecdotal and notcomprehensive.

2.33. While inadequate pay has not led to substantial turnover from thecivil service as a whole, there has been a net loes of some of the most highlyand qualified personnel. Consequently, senior posts have on occasions beenfilled by the promotion of relatively inexperienced staff. Moonlighting andabsenteeism are, however, significant phenomena among higher and middle level

- 23 -

personnel. Absenteeism is also common place among the lower levels, but thisrelates to health and transportation problems. Moonlighting is, however, lesspronounced at lower levels, as the latter have limited outside opportunities forincome generation. Among the highest grades in particular, both problems arefurther exacerbated by donor-funded payments of travel expenses and allowancesthat unnecessarily take staff away from their duties. Thus, while such paymentsraise worker satisfaction, they reduce worker input within the civil service.Such payments, along with other payments in kind such as the free or subsidizedprovision of vehicles are clearly inefficient. Moreover, the existence of suchpayments may give rise to potential conflicts of interest.

2.34. Problems also arise from the pay structure within the civil serviceitself. The existence of different levels of effective remuneration (i.e.different pay structures across ministries and different incentives accruing toemployees) encourages internal turnover with higher-paying ministries, especiallyin Central Government, finding it easier to attract higher-calibre staff. TheGovernment is, however, addressing this problem by consolidating the pay scalesacross ministries. Within ministries themselves, the lack of salary incrementswithin grades reduces the attractiveness of a civil service career and decreasesmorale as the only route to a higher future salary other than through general payawards is by queuing for promotion. This may tend to exacerbate moonlighting andabsenteeism among those with a lengthy tenure in a given grade.

2.35. When taken as a whole, these problems constitute a serious constraintupon the Government's ability to carry out its administrative functions. Asskilled lEbor is very scarce in Mozambique, it is especially important that thecivil service obtains its due share of the skills available. At present,weaknesses in public administrative capacity create difficulties with respect toeffective project implementation. This undoubtedly has encouraged donors to top-up salaries and, more recently, to provide non-transparent fringe benefits.Unless remedied soon, present deficiencies in the system of public administrationwill become more evident in the future as the peace process develops, given thedemands that are likely to be posed by a substantial need for rehabilitation,reconstruction and resettlement.

2.36. There are also difficulties arising from the widespread practiceoutside the public sector of paying substantial portions of wages and salariesin foreign exchange. Apart from the loss of seignorage to the domestic monetaryauthority that results from the use of foreign currency as a medium of exchange,it appears that this encourages income tax avoidance and evasion. From availableevidence, remunerations payed in foreign exchange either go totally untaxed orare made in meticais equivalent to the income tax owed expressed in foreignexchange converted at the official exchange rate. As meticais prices are oftenrelated to dollar or rand prices converted at the parallel exchange rate, theeffective tax rate is reduced substantially below the nominal rate.Undercollection of personal income tax has important implications for publicsector wage and employment policy, as this will, at the one hand, widen the gapbetween civil service wages and net-of-tax wages in other sectors and, on theother hand, will reduce the Government's ability to finance much needed increasesin its wage bill.

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Table II.7: MOZAMBIOUE - Pay Structure in the Civil Service.(End of 1990)

In '000 of Meticais (MZM)unless otherwise specified.

End-190 Average Av.Ba8e Fringes Total Fringes Cop res8ion RatiosBase Sal Benefits in MZM in USD in USD /Base i. excl. excl.

Category of Staff Salary inc.TS '000 (of.e.r) (pa.e.r) Salary fring. fring. TS

Managerial Career

National Director 213 438 120 558 600 333 272 16 12 6Department Director 163 313 100 413 445 247 32% 12 9 5Division Chief 131 131 0 131 141 79 0 4 4 4

Technical Career

Specialist 188 488 20 508 547 304 42 14 14 5HL Technician 123 348 20 368 396 220 62 10 10 4Lower Technician 86 86 0 86 93 51 02 2 2 2

Secretarial Career

Clerk 58 58 0 58 63 35 0 2 2 2

Support Staff

Driver 45 45 0 45 49 27 02 1 1 1Unskilled Ma.nual Worker 35 35 0 35 38 21 02 1 1 1

Source : Data provided by the Mozambican authorities and staff estimates.

Notes: Base salary are averages which take into accourt, when applicable, the existence of three steps. TS meanstechnical subsidy. Specialist denotes holders of a doctorate level university degree. Higher level techniciansusually have university degrees (MA or BA).

Abbreviations: of.e.r -- official exchange rate; pa.e.r. -- official exchange rate.

E. THE CIVIL SERVICE PERSONNEL SYSTEM

1. Oraanization

2.37. In the organization of the manaaement of the country's civil service,four main levels can be distinguished. The levels aret a) central personnelpolicy-making; b) central control of the personnel process and provision ofgeneral support to the personnel management units; c) management of personnelat the headquarters of the ministries and secretariat. of state; and d)management of personnel at provincial level.

a) Central Personnel Policv-Making

2.38. This function belongs to the "Civil Service National Council" orConselho Nacional da Fungao Publica, an institution with characteristics similarto those of a civil service commission. Its main responsibilities are asfollows: a) to approve rules, regulations and other norms related to the publicfunction; b) to establish criteria and methodology for the implementation of theEstatuto (EGFE), and coordinate measures of E "national scope" related thereto;c) to promote or carry out inspections, particularly in the areas of "laborrelations and organization", discipline and competitive exams for the selectionor promotion of personnel.

2.39. Central control of the personnel process and provision of generalsupport to personnel management is the jurisdiction of the Ministry of StateAdministration (MSA), through its National Directorate for the PublicAdministration (Direcao Nacional da Funcao Publica). The Ministry of State

- 25 -

Administration dates from October, 1986 (Presidential Decree No. 66/86). Itsorganizational structure includes a unit for Insoeccao Administrativa(Administrative Inspectorate), a Direcgao Nacional da Fungao Publica (centralpersonnel office), and a Direcgao Nacional de Administragao Local (NationalDirectorate for Local Administration). Various entities are subordinate to theMinistry, such as the Centro Nacional de Documentagao e Informa2ao (a referencecenter and general archives) and the Escola de Estado e Directo (a medium-levelschool for remedial education, political indoctrination and management training).

2.40. As the central' personnel office, the Direcgao Nacional da FungaoPublica is empowered to: a) organize the medium and higher-level cruadro (systemof functions and positions under the general control of the Council ofMinisters); b) implement the EGF or Estatuto Geral dos Funcionarios do Estado;c) promote the preparation and implementation of norms for personnel managementin the state apparatus; d) regulate the system of competitive exams (admissionand promotion); e) create a central personnel register; f) advise the ConselhoNacional da Fungao Publica; g) identify training needs in the public sector andprogram training activities; and h), develop norms and regulations for thepurpose of improving the organization and management of the State.

b) Management of -ersonnel at the headauarters of the Ministries andSecretariats of State

2.41. Within each ministry and secretariat of state, there is a directorateof human resources with this responsibility. In some cases, the directorate ispart of a larger unit. These directorates were created at different times, andtheir functions and structures were defined in the statutes of the respectiveministries. To some extent, each ministry created its own personnel system.

2.42. The directorates of human resources are also responsible for managingcentral-government personnel located outside Maputo. Normally, they take careof the day-to-day management activities related to personnel and administercompetitive civil-service examinations. They also administer training programs.Their responsibilities related to field staff are discharged with the support ofthe various directorates in provincial government.

c) Personnel management at provincial level

2.43. The Ministry of State Administration and the personniel offices at theheadquarters of the ministries both exercise considerable control over personnelmatters at other (i.e. non-central) levels of government. Other major centralinstitutions, such as the Administrative Tribunal and the Ministry of Finance,are also involved in the recording and clearance of some personnel processes.

d) Some problems

2.44. The concept of a unified, centrally-regulated civil serviceadministration has been only partially realized. A number of factors havehindered its "operationalization", namely: resistance to change at differenthierarchical levels; lack of standards and procedural guidelines; insufficiencyof adequate personnel, both in quality and numbers; and scarcity of materialresources.

2.45. Through its Administrative Inspectorate, the Ministry serves as acombination of general controller and central management office for the publicadministration system as a whole. This includes both provincial administrationand the municipal executive councils. The Inspectorate is also empowered toverify the implementation of regulations related to both training and themanagement and deployment of human resources. However, the National Directoratehas functions which may sometimes overlap with those of both the AdministrativeInspectorate and the Directorate for Public Administration. For example, theDirectorate for Local Administration can establish procedures related to staffingand control of personnel through its powers to regulate and organize competitiveexaminations. Such overlappings create confusion.

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2.46. The legislation (presidential decree no. 66/86 and ministerial"diploma" 97/87) is clearly founded on the principle that there should be aunified administrative system for the civil service. However, in its role as theGovernment's central personnel office, the Ministry of State Administration hasnot given neither sufficient authority nor a sufficiently wide range ofresponsibilities to develop, implement and control such a system. Not only theduties and authority of the Ministry, but also its human and physical resources,should be considerably enhanced to enable it to play its role more appropriately.The National Directorate for Public Administration is still far from being ableto provide the advisory and supporting services required by the policy makingbodies. These bodies (the National Council for Public Administration, theCouncil of Ministers, and the National Planning Commiseion) therefore do notreceive the benefit of useful analysis on the state of the government's humanresources, or on other matters such as position classification and remuneration,organizational issues in the civil service area, and personnel training.

2.47. The units in charge of personnel management (human resourcesdirectorates, departments and other subdivisions) currently constitute a ratherdisjointed structure. Their functions, their internal organization, theirmethods of operation and their reporting systems need redefining and redesigningwith a view to greater standardization. The present multiplicity and diversityof personnel regulations and practices impede the development of necessarysystems of coordination, monitoring and control.

2.48. There is a widespread view amongst administrators that decision-making on personnel matters is unreasonably concentrated, even in those caseswhere minutely-drafted regulations apply. Human resources directorates atministerial level feel that they are constantly limited in their decision-makingcapacities by either the higher authorities within their own sector, or by somecentral entity, such as the National Directorate for Public Administration, theAdministrative Tribunal or the Ministry of Finance. In turn, the provincialhuman resource directorates feel that practically all of their decisions have tobe reviewed, authorized and recorded in the capital. This concentration ofauthority in a large country, where communication systems are far from adequate,contributes heavily to the inefficiency of the Mozambican civil serviceadministration.

2.49. The Administrative Tribunal and the Ministry of Finance intervene ascontrollers or as clearance points in a number of personnel areas. The Tribunalverifies/certifies the legality of actions related to hiring, transfers,promotions, and retirement. The Ministry of Finance controls the same type ofactions from the budgetary viewpoint. These controls frequently cause delaysin the implementation of various actions, particularly in cases where staff areto be assigned or reassigned to the interior of the country, as theAdministrative Tribunal has no of.ices in the provinces and the Ministry ofFinance has very few.

2.50. The Government is aware of most of the issues and problems discussedabove and is initiating remedial measures. This is discussed in a subsequentpart of this report.

2. Leaislation

2.51. The EGFE is a very wide-ranging piece of legislation and contains asurprising level of detail. For example, it includes: a) references to politicalideology or political party loyalty; b) details on job classification, systemsof careers, executive and supervisory "functions", even in the case of thosecareers, categories, etc., that are to be "common", i.e., applicable to all theagencies of the government; c) job descriptions or specifications (cualificadoresProfissionais); and d), details on the techniques and processes of performanceevaluation, competitive exams, and the format of official documents, etc.

2.52. The treatment of career structure gives one important example. TheEGFE groups the so-called "common" categories of positions into three careers:

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the state administration career; the technical career; and the secretarialcareer. The state administration career consists of 8 categories; the technicalcareer of 6 categories that are, in turn, further subdivided; while thesecretarial career includes 7 categories. Employees may be promoted from theircareer positions to posts defined as possessing "common executive and supervisoryfunctions", of which there are 12 levels. If an employee is dismissed from sucha post, then he or she will automatically return to his or her previous careerposition. In addition, the ministries and main agencies can create other"professional occupations" not integrated into careers, as well their own"specific technical careers".

2.53. In most countries, administrative details of this kind are coveredin civil service regulations, and are not included in formal legislation. Thislatter arrangement usually allows much more flexibility, as job requirements andappropriate career structures are likely to change with governmental needs.Furthermore, international experience suggests that formal legislation coveringthe civil service may prove unnecessarily difficult to change. A further problemalready encountered is that the complexity of the EGFE has been a significantfactor in delaying its full implementation.

2.54. There are other sections or parts of the EGFE that require revision.The main problems are:

a) The established maximum age of 35 years for inscription incompetitive entrance exams is extremely low. This provision limits the citizen'sright to compete for a civil service job and reduces the universe from which thegovermnent can select its employees;

b) The minimal level of schooling (4th grade) required forinscription in competitive entrance exams may be too low;

c) The number of personnel actions (over 24) that must be recordedor published in the Boletim da Renublica seems excessive. Constant delays in thepublication of such actions, due to failures in coordination and communications,are detrimental to administrative efficiency. Important personal decisions maynot implemented simply because they have not been recorded in the Boletim. Evencontracts for temporary service must be so treated before they can be consideredofficially sanctioned.

F. JOB CLASSIFICATION IN THE CIVIL SERVICE

2.55. As noted above, the EGFE (the implementation of which started inNovember 1987) establishes the rules that government agencies must follow inestablishing their job classification systems. However, in 1987 most of theministries, secretariats of state and other bodies had already some form of"career" system (reaulamento de carreiras). Some of these systems were developedby following models designed for the Ministry of Finance and the Ministry ofHealth.

2.56. The development of individual job classification systems withinagencies has led to an unwarranted multiplication of cateaorias nrofissionais(classes of positions). Jobs implying work of equal or similar complexity maybe treated differently across different agencies. For example, such jobs maydiffer according to, minimum qualifications required, salary level, and promotionprospects. This may occur even within a single ministry. A 1989-90 survey,carried out jointly by government officials and experts from FUNDAP (a Brazilianconsulting agency), examined 26 such job classification systems, and found thatthey contained over 1,200 different titles. This illustrates the diversity ofjob classification within the Mozambican civil service.

2.57. This survey cited represents the first stage of a program conductedby the Ministry of State Administration aimed at restructuring existing job

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classification systems in accordance with the EGFE. This exercise includes

standardization of job titles, reclassification of positions across government

agencies into common categories, and further development of job descriptions.

Proposals to this effect have been prepared and widely discussed throughout the

civil service, and reinforced through seminars and courses.

1. Recruitment

2.58. The process of filling vacancies in the civil service, both for entry

and promotion, is regulated in the EGFE (Chapter V, Section II), its

complementary legislation and in rkgulations of the individual ministries and

other principal agencies. However, the testimony of government officials and an

examination of individual files both suggest that these rules and regulations are

not always observed.

2.59. The recruitment of civil servants has been largely in response to

isolated staffing requests. Little attention has been directed towards either

analyzing the manpower needs of individual agencies, or matching manpower needs

with manpower requirements. Most job specifications are too general and seem to

be the product of supposition or guess-work. In addition, most government

agencies have limited knowledge of the precise jobs actually performed by their

own employees and of their skills and potentialities. There is also no system

to either anticipate changing personnel needs, or to deal with those that do

occur.

2.60. At present, there is an overly complex assignment of responsibilities

in matters related to personnel administration. This impedes the development of

a rational and efficient process of selection, hiring and placement. Here, as

in other aspects of the country's public administration, an excessive number of

agencies tend to intervene. If a post is to be filled in Maputo, the Ministry

of State Administration, the Administrative Tribunal and the Ministry of Finance

have to be involved. When the post refers to an agency located in the interior,

the process is even more complicated, for it depends on decisions and

administrative actions both by organizations in the capital and by those of a

plethora of decentralized bodies, namely: the provincial directorates of the

sector ministries, the Provincial Directorate of Support and Control (DPAC), the

district administration, and the Provincial Governor. It should be noted, that

most recruitment occurs in the interior. As already noted, out of a total of

about 105,000 civil service employees, over 92,000 serve in the provinces.

2.61. Poor coordination between the agencies, difficulties in

communication, and the existence of numerous certificates and other documents

which the candidates must submit, further contribute to make the filling of posts

a long, protracted, involved and inefficient process. The units directly in

charge of recruitment are very thinly staffed even in the largest ministries

(Education, Health, Finanices). Often these units do not ha.ve the necessary

expertise and resources required to discharge their responsibilities

satisfactorily.

2. Information Systems

2.62. Inadequate availability of information is a serious obstacle to the

efficient operation of the personnel management system. The proc'ess of gathering

and organizing information has been faulty at all administrative levels. For

example, personnel files (process individuais) are not properly maintained. An

individual file normally contains scanty information on the employee's family,

his education and training, his employment history, and his work record in the

civil service. The inadequate content of individual records was demonstrated

recently, by a survey aimed at creating a central data base on the government's

highest executive and technical staff. Out of 1,400 forms distributed and

completed by personnel units at both central and provincial government level, 90

percent of the answers were incomplete. Personnel files are not only incomplete,

but also follow different criteria and formats in their format. This hampers the

uniform preparation of necessary reports. Given such deficiencies in personnel

record-keeping, particularly at non-central government levels, it is hardly

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surprising that personnel units are unable to prepare elementary reports andbudgetary exercises. Frequently, such units have to search laboriously for thedata needed to attend to simple requests by employees or to prepare routinereports.

2.63. Surveys directed by the Ministry of State Administration haverevealed that, at central government level, some personnel records are reasonablywell organized and complete. This includes those of some of the human resourcesdirectorates of sector ministries and those of the Administration Tribunal andthe Ministry of Finance. However, they are restricted in scope. Those of theAdministrative Tribunal, contain data on personnel actions (appointments,promotions, retirement, pensions, etc.) which have to be recorded or certifiedby that institution. The files in the Ministry of Finance encompass, mostly,information on actions related to salaries and benefits and payments to thestaff. These two central files can certainly be important data sources at thetime of preparation of a central/national data bank for the civil service.

2.64. With the help of external specialists, the Ministry of StateAdministration is undertaking a program to assist the personnel units in theimproving their information systems. The program involves a number of differentactivities:

a) Definition of those personnel actions related to the employeethat must be registered in his individual record, e.g. those pertaining toattendance, leaves, evaluation, transfer and retirement.

b) Preparation of a manual, for general use, on the "Installationand Maintenance of Individual Personnel Records".

c) Extensive and intensive training exercises.

2.65. The Ministry of State Administration is also initiating an ambitiousprogram aimed at instituting a national system for the collection, processing andinterchange of information on the human resource base of the civil service. Theend product of the program will be a central data base. A first important stepin this direction has been the organization of detailed information on the OuadroTecnico Superior e de Diregao, i.e., high and high-medium level technical,managerial, and supervisory staff. The data base will cover nearly 2,000individuals, distributed over 32 levels of functions and categories, fromMinisters, Vice Ministers, Secretaries of State, National Directors, etc., downto some Administrative Officers.

2.66. The process of generating a national information system on the civilservice will be lengthy and complex. This will be particularly true inMozambique, in view of: the size of the country; the under-development of itscommunications systems; the complexity of its governmental machinery; and thelack of human, financial and technological resources.

C H A P T E R III

PAY ISSUES IN THE PRIVATE SECTOR AND THE DONOR AGENCIES

3.01. The appropriateness or otherwise of civil service pay levels can onlybe judged in comparison with pay levels in other sectors. This chapter examinespay levels both in the parastatal and private sectors, and in the expatriateagencies (donors). Three donor pay categories are analyzed: personnel hired byresident missions; personnel involved in donors' project implementationactivities; and expatriates or "cooperantes".

A. THE PRIVATE SECTOR AND THE PARASTATALS

3.02. As described in Chapter II, the ERP separated the system ofremuneration of the productive sectors (private and public) from that of thecivil service. In 1987, sets of administered wages were introduced in theproductive sectors. One of these applied to agricultural manual workers, whilethe other applied to all employees including technicians and mangers in theproductive sector. The analysis concentrates only upon the second of these.

1. Pay Structure in the Private Sector and the Parastatals

3.03. The system of wage administration in Mozambique lays down a set offixed wage rates to be paid to each of twenty categories of worker. It appliesto both the local private sector and the public enterprises. However, in thecase of joint ventures with Government participation, the applicability of thelegislation is open to question. The rates, as last set in January, 1990 1/,vary according to three steps for each category and between MZM 25,100 per month(first step or level 3) and MZM 26,100 per month (third step or level 1) for thelowest level of unskilled worker, and MZM 150,800 and MZM 157,750 for the chiefexecutive of a large corporation. These ranges are noticeably narrow and maximumpay rates are extremely low by sub-Saharan African standards at the highestlevels. The existing legislation allows, however, for a number of additionalallowances and payments. These are: a) overtime payments (at up to 50 percentof the base wage); b) a night-shift payment of 15 percent of the base wage; c)redistribution of net profits up to 20 percent of the base wage; d) up to two andone half percent of foreign exchange payments may be redistributed to higherlevel staff; e) loyalty payments at 5 percent and 10 percent of base after 5 and10 years service respectively; f) an efficiency bonus at 25 percent of base; andg) a productivity bonus without effective legal limit. In addition, a number ofwidespread practices have arisen such as paying both housing allowances or rentsubsidies and gasoline allowances. A survey carried out by the Ministry of Laborin mid-1990 showed that observable wages at the lowest level ranged between MZM17,000 to MZM 50,000 per month while the highest levels of remuneration couldreach about MZM 500 to 600,000 per month in some private firms. This indicatesthat to some extent there has been some de-regulation of the wage system in theprivate sector.

1" See Boletim da Republica, Suplemento, I Serie, Numero 2, 10 de Janeiro de 1990. Ministry of Labor - Ministerial Decree No.7/90.

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2. Salaries in the Private and Parastatal Sectors

3.04. Tables I11.1(A) and III.1(B) highlight prevailing monthly salaries

in both parastatals and a number of companies based in Maputo. The data were

collected by the mission. Benefits are tax exempt and seem to be a key

competitive factor in attracting and retaining skilled labor. Recently, (as

described in Chapter II) a practice has emerged in the private sector under which

some companies pay part of their salary bills in foreign exchange. The

Government has condoned this practice where firms earn foreign exchange.

Table III.1(A). : MOZAMBIQUE - Salary Structure in the Parastatals.Monthly Salaries

End-1990 Average MA Fringe Total Total Total Fringes compression aatios

Base Bene its in MZM in USD in USD /Base ic. excl. excl.

Category of Staff Salary '000 (of.e.r) (pa.e.r) Salary fring. fring. MA

Levels XIX to XX (Managers)_ _________ _ ____

Manager 158 50 100 308 331 184 63S 9 6 4

Deputy Manager 143 0 50 193 208 115 35% 5 5 4

Assistant Manager 131 0 45 176 189 105 34% 5 5 4

Levels XV to XVIII (HL Technicians)

Engineer 98 0 32 130 140 78 33% 4 4 3

Economist 96 0 32 128 138 76 33% 4 4 3

Syst. Analyst 100 0 37 137 147 82 37% 4 4 3

Levels I to XV (Support Staff)

Lower level technician 62 0 13 75 81 45 21% 2 2 2

Driver 69 0 18 87 94 52 26% 2 2 2

Senior Clerk 56 0 13 69 74 41 23% 2 2 2

Clerk 42 0 0 42 45 25 02 1 1 1

Guard 31 0 0 31 33 19 0% 1 1 1

Unskilled Manual Worker 26 0 0 26 28 16 0% 1 1

bOu caD Data provSaCd Dy companies.Not*e a 1A is a tpecial allowance for managers. Conversion to USD vas done at the official exchange rate(of.e.r.) snd at the parallel arket exchange rate (pa.e.r.)

Table III.1(B). : MOZAMBIOUE - Salary structure in the Drivate sector.Monthly salaries.

End-1990 Average MA Fringe Total Total Total Fringes compression RatiosBase Benefits in MZM in USD in USD /Base incl. excl. excl.

Category of Staff Salary '000 (of.e.r) (pa.e.r) Salary fring. fring. MA

Levels XIX to xX (Managers)angra__a__n_a a_a__

Manae er na na na na na na na na na na

Deputy Manager na na na na na na na na na na

Assistant Manager na na na na na na na na na na

Levels XV to XVIII (HL Technicians)___________ ______

Engineer 1,500 0 500 2,000 2,151 1,111 33% 57 43 43

Economist na na na na na na na na na na

Syst. Analyst na na na na na na na na na na

Levels I to XV (Support Staff)__________________

Lower level technician 62 0 13 75 81 42 21% 2 2 2

Driver 69 0 18 87 94 48 26% 2 2 2

Senior Clerk 56 0 13 69 74 38 232 2 2 2

Clerk 42 0 0 42 45 23 0% 1 1 1

Guard 31 0 0 31 33 17 0% 1 1 1

Unskilled Manual Worker 26 0 0 26 28 14 0% 1 1 1

Source: Intormation provided by tirms and statt estimate.

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3.05. Salaries paid by parastatals follow the administrative rates set in1987. With few exceptions, parastatal salaries are lower than those paid tocivil servants, and it is hardly surprising that parastatals report similarproblems of absenteeism and turnover to those found in the civil service. It ismuch more difficult to measure salaries paid to Mozambicans in the privatesector. At both managerial and professional levels, most of the firmsinterviewed employed expatriates. Such individuals, while nominally receivingadministratively-set compensation levels, in fact receive the overwhelming bulkof their remuneration in the form of off-shore payments. There appear in effectto be rather few Mozambicans employed at senior levels in the private sector.Evidence for one observable professional group (engineers) indicates an averagetotal remuneration level of about MZM 2 million per month -- over four times thecomparable rate in the civil service. At lower occupational levels, privatesector remuneration rates only exceed those paid by parastatals if the parallelrather than the official exchange rate is used to convert foreign exchangepayments into meticais. Foreign exchange payments to employees are absent inparastatals, but increasingly commonplace in private sector firms with foreignexchange earnings. The amounts paid by such firms seem to vary between 10.0percent and 40.0 percent of salaries depending on grades and scale points.

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B. DONOR AGENCIES

1. Interpretation and Coveraae

3.06. A very broad interpretation is taken of donors in this chapter. It

includes the international financial institutions, the bilateral agencies and the

non-governmental organizations. The data collected on conditions of services

enjoyed by Mozambicans in donor employment to are based on a survey of six

bilateral, four multi-lateral / international and six non-governmental

organizations.

2. Bilateral/Multilateral Organizations' Pay Structure

3.07. This section reviews the pay structure of bilateral/multilateral

organizations for local support staff. While comparisons between donors are

partially hindered by minor differences in occupational structures and non-wage

benefits, in general the degree cf comparability seems reasonably high. The pay

etructure in such organizations is given in Table III.2. As expected, the levels

of remuneration offered by these organizations far exceed those of both the civil

service and productive sectors of Mozambiqre.

Table III.2. : MOZAMBIOUE - Pay Structure for Local sup-ort StaffEmploved by Bilateral/Multilateral Organizations

End-1990 Base Salary Fringes Base Salary Total Compression Ratios

in MZM in USD Benefits in '000 MZM in USD at

Category of Staff '000 (of.e.r) (pa.e.r) (pa.e.r) (of.e.r.)(pa.e.r.)

Senior Adm. Professional

Maximum 0 2,375 Yes 2,209 4,275 2,375 14 14

Minimum 491 1,025 Yes 1,445 2,336 1,298 9 8

Average 426 1,375 Yes 1,705 2,901 1,612 11 9

Professional Staff.______ __________

Maximum 0 2,083 Yes 1,938 3,750 2,083 12 12

Minimum 371 774 Yes 1,090 1,763 980 7 6

Average 291 938 Yes 1,163 1,978 1,099 7 6

Clerical Staff

Maximum 0 489 Yes 455 880 489 3 3

Minimum 123 257 Yes 362 586 325 2 2

Average 107 344 Yes 426 725 403 3 2

Drivers

Maxlmum 38 371 Yes 383 706 392 2 2

Minimum 103 214 Yes 302 488 271 2 2

Average 83 269 Yes 333 567 315 2 2

Manual Unskilled Worker

Maximum 84 271 Yes 336 572 318 2 2

minimum 0 170 Yes 158 305 170 1 1

Average 58 188 Yes 233 396 220 1 1

Source : intormation provided by donors and statt estimates.

3.08. Donors' pay structure are organized according to standard salary

scales with usually about 10 steps for each category of workers (about 10 on

average). Though the average compression ratio is not significantly different

from that of the civil service (about 14 : 1), the base salary for a senior

administrative staff is about five times that of a National Director in the civil

service. For moot donors, payment are made in a mix of meticais and foreign

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currency (usually US dollars). The proportion paid in foreign currency isgenerally high and varies across donors between 100 percent and 66 percent. Inaddition, staff are granted a number of fringe benefits such as familyallowances, education allowances, medical assistance and sometimes free transport(cars are available for senior staff only).

3. Donors' Practices: Conditions of Service

3.09. In attempting to understand donors' pay practices, it is importantto distinguish between:

(a) personnel involved in the resident missions and in the developmentcooperation administration of donor agencies; and

(b) personnel involved in contractual arrangements and/or in special unitsfor the execution and or implementation of projects in the field.

a) Mission and Development Cooperation AdministrationStaff.

3.10. Mission and development cooperation administration staff are involvedmostly either, in the programming and monitoring of projects and other resourceinflow delivery mechanisms or, in other support, liaison and backstoppingfunctions for projects being executed or implemented in the field.

3.11. Bilateral and Multilateral Agencies. A considerable dispersionexists across basic salaries. This is reflected in Table III.2 by thesubstantial differences observed between maximum and minimum salaries within eachoccupational group. To quote examples from individual scales (using the officialexchange rate), in one agency, the salary scale of an office assistant orgardener starts at USD 3,136 annually, and reaches USD 4,072 over ten increments.By contrast, in another agency, the scale for the same group begins at USD 2,036annually, and reaches USD 2,756 over five increments. There is thus about a 50percent difference in the starting-points and about 33 percent in the end-pointsbetween the two donors. However, if one compares salaries paid to the highergrades within the same two agencies, the situation is reversed. The agency withthe lowest pay for gardeners pays between USD 24,000 and USD 28,500 annually(over ten steps). But, the other agency pays between USD 17,261 and USD 22,436.Here the difference in salaries is less pronounced and is merely in the order of20-25 percent. Taking into account salary supplements does not alter thesedifferences significantly.

3.12. Non-salary benefits are difficult to quantify. These includeeducation and housing grants, medical provisions, leave, working hours, andtraining possibilities. However, there are no contrasting features betweenagencies that could plausibly change the rankings of the net real value of theirsalary packages.

3.13. Non Governmental oroanizations. The observations above are alsorelevant to the NGOs. The salary practices of the NGOs are similar to those ofthe bilateral and multilateral agencies. However they are able to recruit theirfull complement of personnel at much lower salaries. The NGOs tend to pay aboutone third less for their lower level staff and about fifty percent less for thehigher grades staff than the bilateral donors and the multilateral agencies.Conditions of service are not uniform, however. In the two cases examined, oneNGO paid on average about 20 percent more to its staff than the other. Thisobservation applies to all grades and scales. Salary supplements are mostuncommon in the case of the NGOs, and the mission was unable to ascertain thecomposition of USD and MZM payments salaries. Non-salary benefits tend not tovary considerable from one NGO to another. However, they tend to be extensive.Officials at one agency indicated that the cost of fringe benefits to theorganization was equivalent to half the annual salary bill.

3.14. Bilateral, Multilateral and International and Non-GovernmentalAgancios. Two main conclusions may be drawn. First, salaries paid to localemployees of donor agencies are much higher than those paid elsewhere. Second,

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salaries vary widely across donors, even among workers at low grades. Whilethese results are unsurprising for higher-level staff, given a widespreadshortage and the rather 'thin' nature of this segment of the labor market, theyare more difficult to justify at lower occupational levels. While donorsdoubtless are guided by efficiency wage motives in setting wages above those inother sectors, there seems to be no such explanation for the plethora ofdifferent pay rates that currently prevails. Clearly, rational cooperationbetween donors on wage levels could both restore greater order to the labormarket and create across-the-board savings for the donor community.

b) Donors practice: government execution and contractimplementation.

3.15. Donor payments to individuals engaged on project. are more difficultto analyze. Existing practices can be subdivided into two categories:

(i) those relating to projects being implementedlargely by Government agencies; and

(ii) those relating to projects being implemented bycontractors.

3.16. Government Proiect Laonleentation. This applies mostly to technicalcooperation projects. Normally, there is an agreement between the donor and theGovernment that a specific department be responsible for the implementation ofa project. This may entail additional responsibility for the existing managementstaff of the department in question, and may require recruitment of furtherskilled individuals. In such circumstances the question has arisen as to whetheradditional salary supplements may be paid to government employees associated withthe project.

:-.17 The practice of topping-up civil service salaries appears to be quiteprevalent in Mozambique, although donors are quite reluctant to admit itsexistence in their own activities. However, five agencies acknowledged that cashsalary supplements had been paid by them at one time or another. At least twoof the five were active in topping-up the salaries of government officials as ofDecember, 1990. In one case the supplement varied between USD 145 and USD 490per month, while in the other, a supervising engineer was topped up at USD 2,500per month.

3.18. Topping-up does of couroe take forms other than cash payment. Somedonors such have provided housing, while others have provided vehicles. A morecommon form of incentive is provided through extensive access to overseastraining and study tours, and through substantial daily subsistence and travelallowances.

3.19. It is difficult to determine whether the practice of topping-up ismore extensive among the bilateral or the multilateral agenciec. Certainly itis quite common or, even the rule, among the NGOs. Most NGO projects tend to bedirected at the urban and rural poor, and tend to be based on communityparticipation with associated rewards. If government or local authorityemployees are involved in the implementation of NGO projects, then they tooreceive supplements in both cash and in kind. It is difficult to put a monetaryvalue to this practice.

3.20. Contract and Unit Implementation. This applies usually when aproject is implemented either:

(i) by awarding a contract to a third party (usually a private firm); or(ii) by establishing an independent implementation unit.

3.21. In either case, the contractor or implementation is free to buy itsinputs (including labor) at the going rate. Often staff are recruited locallyfrom the civil service, the parastatals, and to some extent, the local staff ofother donors. This draws heavily upon the limited pool of qualified local

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personnel. Examples exist of senior civil servants being attracted away fromtheir posts at salaries as high as USD 4,000 per month, and of projects "poachingaway" staff from each other.

3.22. Within project implementation units, there are also considerable non-salary benefits accruing to locally recruited staff. Ready access to trainingand study tours abroad with associated benefits are common features. Projectvehicles are normally provided as well as other ancillary benefits.

3.23. These two modes of project implementation account for the bulk of allproject financing. The Ministry of Development Cooperation estimated in August1990, that they accounted for approximately 75 and 50 percent of all multilateraland bilateral project financing respectively. Such financing amounted to nearlyUSD 150.0 million in both 1989 and 1990. The Ministry projects an increase toUSD 250.0 million annually over the period 1992-1994. Project implementation hasadded substantial pressure to the labor market for skilled manpower inMozambique, and created immense problems for the Government. These trends areunlikely to abate in the foreseeable future given the anticipated increase inproject financing.

3.24. The percentage of total project finance taking the form of salariesand benefits to local employees is difficult to estimate. However, taking aconservative estimate of 5.0 percent implies that approximately USD 7.5 millionaccrues to local salaries from project activities. The tax status of theseearnings remains somewhat cloudy. Staff directly employed on projects by UnitedNations agencies cannot be taxed. Those employed by contractors should be taxedunder existing law. However, the question of whether income tax can be collectedfrom employees of project implementation units remains open to question.

c) The cooperante- scheme.

3.25. This scheme emerged in the early 1980w as a way of alleviatingshortages in skilled manpower. Reeident Portuguese citizens who had quitgovernment jobs because of deteriorating conditions of service (and for otherreasons) were induced by Government to resume employment on the condition thatthey would be given special service contracts and paid in USD at a rate ofbetween USD 1,000 - USD 2,000 per month. They were also offered free housing,transportation, and initially, exemption from all taxes and duties. Counterpartswere to be provided both as assistants and understudies. The scheme was financeduntil 1986 from a special allocation in the budget.

3.26. From its rather modest beginning of 25 cooperantes in 1982, thescheme has ballooned into a complex and confusing arrangement. Many donors havenow established their own version of the scheme. UNICEF and DANIDA haveestablished their own brigades of 47 and 15 cooperantes respectively, at the lastcount in October 1990. The scheme is no longer confined to Portuguese residents.It now includes many citizens of Latin America and Eastern Europe.

3.27. The term "cooperantes" is used rather loosely. Technically, thedistinguishing features of a cooperante are the special salary scale and specialcontract as originally defined by the Government. In theory, before a cooperanteis recruited a number of forms have to be completed and endorsed by severalgovernmental agencies, and then finally approved by the Ministry of Finance.However, a common usage of the term defines all foreig:ers working in Mozambiqueas cooperantes.

3.28. The Personnel Fund. The Government now finances the cooperantes whomit recruits via a "Personnel Fund". It is not clear whether this is a line itemin the budget. However, it is a fact that both Sweden and Norway have beencontributing a declining volume of resources to the Fund. The Ministry ofFinance has also been contributing resources. In January 1990, USD 4.9 millionin donor contributions were available to the Government to recruit cooperantesfor the whole of that year.

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3.29. There is no hard information on the number of cooperantes inMozambique. The register in the Ministry of Finance indicates that there were1,000 cooperantes in 1990. The problem is that donors and, in some cases,parastatals with foreign exchange resources, have not complied with theregistration formalities and other procedures. There are thus many cooperanteswho are not paid via the Central Bank, and who have not been registered with theMinistry of Finance.

3.30. A recent independently-commissioned study suggests that the numberof cooperantes coAld be as high as 5,000. The Ministry of Finance believes that2,500 would be a more realistic estimate. Assuming both that the Ministry'sfigure is correct and that the average cost of a cooperante is USD 18,000 perannum, then the annual cost of the scheme is in the order of USD 45 million.Given the uncertainty on the average cost of a cooperante, the annual cost of thescheme could be even higher. Virtually all of this is exempt from income tax,except for a small part that is paid in meticais.

3.31. The scheme has not been without its problems. The procedures arecumbersome, and the three state agencies involved tend to process applicationsslowly. Furthermore, the scheme lacks transparency with respect to selectioncriteria. There are also a number of cases in which Portuguese residentsattended the same school and university with locals. Some even graduated in thesame year and from the same faculty and thus have equivalent qualifications andexperience. However, because of their foreign nationality, they were recruitedas cooperantes and placed in supervisory positions over Mozambicans. Obviously,considerable friction has arisen in such cases. This is an example of an evenwider problem. Budgetary constraints are such that technical assistance isneeded to maintain the stock of highly-qualified manpower in the civil service.However, this assistance precludes the employment of Mozambicans.

3.32. The scheme seems rather cost effective, however, despite itsproblems. Mozambique will find it necessary, in the short to medium-term, torecruit expatriate skilled labor. However, the present system needs to beintegrated into an appropriate human resource development program. The programshould have as its main objective, the provision of skills consistent with themain aims of the Economic Recovery Program. As Brazil is currently experiencingextensive lay offs in its civil service, it may be possible to recruit Brazilianson more competitive terms that before. Given that Portuguese is a commonlanguage in the two countries, Brazilians are likely to be more effective thancooperantes recruited from other parts of Latin America.

3.33. The Incentive Fund. Some donors also contribute to the IncentiveFund in the Ministry of Finance. The Fund has been in place since 1987, and inJanuary 1990, it had USD 4.0 million available. The Fund is administered at thesole discretion of the Minister. It is used for the topping-up of salaries ofspecific public officials and the payment of "technical subsidies". Between USD1,000 and USD 2,500 is given to each beneficiary annually, in addition to areturn air ticket to Western Europe or North America. Such tickets aretransferable, and may therefore be resold. This particular facility lacksopenness in implementation. It is not clear what criteria is used in eitherselecting officials, or in determining the amounts each should receive. TheIncentive Fund is restrictive in its application and creates acrimony that couldlead to industrial relations instability within the civil service. It should berendered transparent and/or phased out.

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4. Summary

3.34. To summarize, it appears that a considerable dispersion exists withinthe salaries paid to existing categories of workers outside the public sector.This occurs for a number of reasons including: a) differences in worker quality;b) a varying degree of efficiency wage motive across employers; c) the naturaldispersion that arises in "thin" labor markets -- the market for specialized,professional manpower in Mozambique provides a strong example; and d) differingpay policies imposed on donor agencies by their own regulations, for example,some donors pay identical consultancy rates to both local and expatriateconsultants, while others are free to determine different rates. The dataconfirm strongly that both civil servants and employees of parastatals are paidmuch less at higher occupational levels than workers in other sectors.

3.35. Obviously, the situation as described in this section, is highlyunsatisfactory. Donor-driven competition for skilled personnel is creatingimmense problems for the Government. The preoccupation of many donors to ensureboth that their local administrations have a full complement of qualified staff,and that they secure, at all costs, the requisite manpower for the successfulimplementation of their projects, is leaving Government without the capacity toeffectively manage its administration. The Government's response through thePersonnel and Ince..tive Funds does not, in itself, represent a serious answer tothe problem, and is, at best, an ad hoc measure to ease its predicament in thevery short term.

C H A P T E R IV

POLICY CONCLUSIONS

4.01. This Chapter reviews the main analytical findings of the report, andmakes recommendations in the following areas: (i) the pay structure in the civilservice; (ii) personnel issues in the civil service (including organization,staffing and employment); (iii) wage issues in other areas of the economy; and(iv) alternatives for financing an increased civil service wage bill.

A. MAIN ANALYTICAL FINDINGS

1. Pay Differentials Across Sectors

4.02. Table IV.1 compares pay levels for selected occupational categoriesacross sectors. An interesting feature is that, once comparable fringe benefitsare incorporated, the compression ratios arsi not substantially different (16:1,14:1 and 9:1). However, salaries paid by donors are a substantial multiple ofthose paid elsewhere.

Table IV.1 : MOZAMBIOUE - Pay structure across sectors.(End 1990)

Total base Salarles torCivil Service Parastatal Private Sector Internat. Org.

vn mm in usn in mm in U i La In uSD in mm in GOSenior Adm. Staff 438 243 308 171 na na na na

Professional Staff 488 271 137 76 2,000 1,111 2,440 1,355Lower L. Technician 86 48 75 42 75 42 880 489

Clerical Staff 58 32 42 23 69 38 586 325

Drivers 45 25 87 48 87 48 567 315

Unak. Manual Worker 35 20 26 14 26 14 396 220

Source a S bl.. 11.7, 111.1 and 11.2.

4.03. Two conclusions can be derived from Table IV.1. First, wagedifferentials across sectors for unskilled labor are very large, and higher thanthose for skilled labor (about 11:1 when comparing the donors' sector to thecivil service). Consequently, the salary of say a guard or a gardener in anbilateral or multilateral agency is comparable to that of a higher leveltechnician in the civil service. Second, pay differentials within categoriesemploying skilled manpower (managers and professional staff) range between (6:1to 5:1).

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4.04. Figure 1 Figure 1gives an illustrationd f t h e F e MOZAMBIQUE - SALARIES ACROSS SECTORSdifferentials. Figure1 shows the average 1.4 - In LD pw ith (En 1000)

wages (in USD) for 1 -each occupational 2category in the threesectors: ci v il 1.1-service, donors, and 1-the private sector. 0.oAs for Table IV.1,these calculations owere made using o.averages (for bothbase salaries and 0.5 fringes) and using the 0.4 -parallel market 0. _exchange rate to ocalculate the usdollar value of 0.1

0.remunerations. Gc Stff Prof. Staff Low r.Tee. Clark Diver NII.

CATEGORIES OF SrAFFI CIVIL EfC WM PRIVATU wI.oG.

2. The SuRn1v Gao in skilled Manoower

4.05. The existence of a rigid and limited supply of skilled labor is notan uncommon feature of labor markets in Sub-Saharan African countries. Given theprevailing situation in the education sector (and especially at the university),the shortage of skilled manpower is likely to last for some time. The"Cooperante" scheme has played an important role in relaxing this supplyconstraint over the past ten years. However, the future of the supply ofcooperantes is difficult to assess in view of a decreased supply of EastEuropeans and a possibly increased supply from Brazil. At present, there arebetween 2,500 and 5,000 cooperantes in Mozambique. This compares with a totalsupply of highly-skilled labor of between 9,000 and 14,000. Thus, Governmentpolicy regarding external cooperation and the foreign supply of managerial skillsis likely to play a crucial role in the near future.

3. Non-Cooperative Behavior Asona Donors: Demand Pressure

4.06. Donors are aware of the pay differentials between their local staffand public sector employees. Moreover, many donors have expressed their deepconcern regarding the distortions caused by this. The donor community has eventried to improve it. knowledge of pay differentials by disseminatingquestionnaires among the various donors, and organizing internal discussions onthis topic. However, apart these commendable initiatives, few commonly-agreedpolicy rules have been applied to the recruitment of local staff. What inobserved, in effect, is non-cooperative behavior among donors, particularly whenthe staffing of a project coordination unit is at stake.

4.07. Indeed, what the donor community does not perceive clearly is theadverse externality that can occur when a highly skilled individual is attractedaway from public administration. While the donor employing that individual willgain the marginal product associated with the addition of his services, both thedonor in question, and other donor agencies, will find it marginally harder to

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implement their activities because the administrative capacity of the Governmenthas been reduced. Negative externalities may also be felt in both theparastatals and the private sector. The basic argument is therefore that themarginal private product associated with employing a highly-skilled individualis, under conditions currently prevailing in Mozambique, likely to besubstantially higher than the social marginal product. Thus, as donor activitiesrise over time, and increasing numbers of experienced public officials (or theinput of such officials) are diverted away from the civil service, donors willfind it progressively more difficult to successfully conduct their affairs. Atechnical presentation of the argument is presented in Annex 1. An additionalpoint is that if, as seems highly plausible, the civil service wage issubstantially below society's perception of the marginal product in publicadministration, then, even in the total absence of externalities, the labormarket may not allocate efficiently.

4. Bhort-&-Ter Solutions I The Two Special Funds and the Now SalaryScale

4.08. The establishment of the two special Funds (the Personnel and theIncentive Funds) was aimed at addressing the problem of inter-sectoral wagedifferentials among higher-level categories of workers in the short-term. While,short-term measures were needed to stem the drain of skills from publicadministration, it seems that the lack of transparency in the functioning ofthese special incentives is now causing counter-productive effects in terms ofthe morale of civil servants.

4.09. The new salary structure introduced in April 1991, uses 24 levelswith three salary steps or increments per level. A written examination has tobe passed to move upwards from one level to the next, and movement betweenadjacent steps requires internal approval. Under the new structure, salariesvary between MZM 32,500 per month at the bottom of the lowest grade, and MZZM601,605 at the top of the highest grade, thus raising the top-to-bottomcompression ratio to 18.5. The foreign-exchange-denominated technical allowanceto high-level civil servants has been abolished and integrated into their basesalaries. The new scales have the merit of: (i) introducing a single set ofsalary scales throughout the entire civil service; (ii) initiating a process ofjob classification and regrading; and (ii) signalling an intention to concentratethe pay rise at higher grades. However, the proposals stop well short ofaddressing the problem of intersectoral inequalities. The differential betweendonors' pay structure and that of the civil service under the new proposal willnot be substantially altered. Moreover, the "meticalization" of the technicalsubsidy will be done at the official exchange rate. This may be perceived as aloss in the purchasing power of the present earnings of the higher level civilservants. Indeed, the proposals set the top of the highest grade salary at MZM601,605 which is -- at the parallel market exchange rate -- about USD 340. Thiscompares with a dollar-equivalent salary for the same category of about USD 333at the end of 1990 (see Table II.7 in chapter II).

4.10. Nevertheless, the new salary scale will improve management policiesin the civil service. Figure 2, below, shows examples of two old (i.e. pre-April) salary scales and one, among others, that has been proposed. Thefollowing points may be noted about the earlier scales: (i) the same grade (i.e.A to Z) may have different pay levels, depending on where in the civil service,the staff member is located; and (ii) wage differentials between the highest (A)and lowest (Z) grades are relatively small. The new salary scale would: (i) makeeach pay level consistent with each grade in the whole civil service (i.e. onesingle new salary scale 1/); and (ii), increase wage differentials between thehighest (A) and lowest (Z) grades (i.e. an exponential profile for the new salaryscale).

It which would Include the various fringe baneito that ar paid to higher level aff arnd thus Inoreas transparency.

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rigure 2

MOZ: SALARY SCALES (OLDCA) & NEW(**))an Salary pl me.th Civil I Swvie Cin WAt.)

400-

400

100

50

CAECI ES E FR ;A CHIhWOtN to Z

* these two examlol of current pay levels (+ and triangles in Figure 1) in twoministries by occupational categories of civil servants are given to illustratethe existing discrepancy between ministries; one notices that base salariesdiffers across ministries for the same occupational category (e.g. E, F, G, H,or I).

(**) the "new" salary scale by occupational categories (squares in Figure 1) isnot the Government's proposal unveiled March 1991; it is given here as anillustration of the Government's intention: actually, the top salary in the newsalary scale implemented in April is higher than the one shown in Figure 2.

5. The Budgetar, Cost of the laDlementation of a New Salary Scale

4.11. The cost of implementing the new salary scale depends upon a numberof parameters: (i) the starting salary of the lowest grade (Z); (ii) the startingsalary of the highest grade (A); (iii) the number of steps within each grade; and(iv), the salary increase for each of these steps. On the basis of informationprovided by the Government 2,, Table IV.2., below, summarizes best estimates ofthe parameters of the new pay scales. The present set of assumptions led to atotal cost of MZM 24.5 billion per annum. The Government's proposal dated April1991 revolves around the following set of assumptions: (i) the starting salaryof the lowest grade in the civil service (Z) would be MZM 32,500 per month; (ii)the highest salary in the civil service would be MZM 601,605 per month (forcategory (A)); (iii) each grade would have three steps; and (iv) between eachstep, salary increases would be 5%. The estimate of the budgetary impact of thisnew salary scale requires a final assumption. The recent survey of the civilservice ended up with a wage bill that is below the Government's budgeted wagebill. This &rose from the difference between surveyed civil servants and actualcivil servants. Since there is no information regarding the qualification of thecivil servants not covered by the survey, two assumptions can be made: - that theremaining civil servants belong to the lowest grades; or, alternatively, that

"S. MmnMeddl Note No. OOVDNO-GAB/91 of February 4,1991.

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they are distributed across grades in the same proportion as those covered by thesurvey. Table IV.3 summarizes the budgetary impact of the new wage billfollowing these two assumptions.

4.12. The precise impact of the new scale on the wage bill is, however,still difficult to determine as the survey of the civil service is not yetcomplete. The FUNDAP team surveyed a total number of about 83,500 civilservants, while the official estimate of 105,000 employees was used inconstructing Table IV.2. Table IV.3 below provides some additional estimates ofthe impact of the new salary scale on the wage bill following different sets ofassumptions.

4.13 It should be noted that these estimates refer only to the impact ofthe civil service wage increase, and exclude the impact of any corresponding payawards that may be granted to the military and to employees of parastatals.While clearly, both the military and the parastatals suffer from similar problemsof inadequate pay as the civil service, the future budgetary impact of any payrise in these sectors is impossible to judge, given future demobilization andprivatization.

Table IV. 2. : MOZAMBIOUE - Tentative Estimateof the Budgetarv Cost of the New salary Scale

Civil Service Private Sector (*)& Donors' sector

New SS Old SS

Lowest grade salary 3z,500 26,100 20,000 to 28,500(in Met. per month)Highest grade salary 601,605 213,150 2,000,000 to(in Met. per month) 4,000,000Number of steps withinthe same grade 3 3 unknown

2 increase for step:1 to 2 52 unknown unknown2 to 3 52 unknown unknown

Increase in the wage bill:(in Mt. Million) 24,500 na na(in percentage) 392 na na

(*) comparisons are dltticult aue to a variety or tactors:exchange rate (parallel or official), rigid supply ofskilled labor, unknown fringe benefits, etc.Figures for the private sector are examples

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Table IV. 3 s MOZAMBIOUE - Estimates of the Impact of the New Salary Scale onthe Government's Wage Bill (in current MZM)

Z4-Apr-91 5s5.1 FM,I 1 Monthly AnGur.-

mnown wage gil.J (trom *ample data) 3,9561,952,51 I T773Z7Known Wage Bill (from Budget) 4,884,307,000 58,612

Hspothesis for correction factors(1T) Same proport. of grades A to Z on residual 1.23(2) Only gradae V to Z apply to residual 1.13

Estimates for New Wage Bill (1991)(A) With hypothesis (1) 7,510,414,062 90,125(B) With hypothesis (2) 6,934,494,148 83,214(C) With an additional *al in Dec.

(Cl) from hypothesia (A) 97,635(C2) from hypothesis (B) 90,148

inerease. relative to previous wage BlllS i(D) Programmed Wage Bill 1990 54,700(E) Provisional Wage Bill 1990 63,000(F) Programmed (Art.IV) Wage Bill 1991 87,500

(A)I(D) 64.76S(A)/(K) 43.06K(A)/(F) 3 00%

(B)/(D) 52.13X(B)I(E) 32 09K(B)/(F) -4.90O

(Cl)/(D) 78.49K(C1)I(E) 54.98K(C1)I(F) 11.58X

(C2) (D) 64 81S(C2)I(E) 43.092(C2)/(F) 3 03S

Source i World Bank staff estimte.

B. POLICY RECOMMENDATIONS

1. Civil service Waae and Remuneration Policy

4.14. In designing a new system of remuneration, one must pay due regardto the objectives that are to be achieved. These are basically twofold: to bothdeter turnover and enable recruitment among skilled, and in particular, moreexperienced staff; and to generally improve motivation and discipline. Whilethere is no doubt that incentives should be improved at the highest level, theimportance of setting more appropriate levels of remuneration for the technicaland managerial medium level grades must not be underestimated. Staff in thesecategories are both essential to the efficient functioning of public service andare likely to be in increasing demand as the economy revives and the privatesector develops. Moreover, special emphasis needs to be put on these grade.where staff benefit less from the existing donor-funded fringe benefits.

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4.15. The two figures Figure 3b * l o w g i v e a

of the priednt aid one SIMPLIFIED VIEW OF EX!qTING PAY STRUCT.among possible options .o. TWEYT cWfor the future. Forconvenience, we $oosubdivided civilservants into three 00-

categories: higher,middle and lower. Thewage units showed in PIthe Figures are purely 3notional and do not 3400_represent the wage I4differentials actually ,ooapplying under eithercase. The present 20-

system as illustratedin Figure 3 is one 1 _

where the wage variesby grade but only 4

little by years of 'Wf OF PEIBdCE

experience within a o L LEeL + MIOOLE LL M HOM UIM

given grade.

4.16.F i g u r e 4characterizes the pay

wage reform. When SIMPLIFIED VIEW OF REVISED PAY STRUCT.compared with Figure 1 8ETATIV EVAL

it may be seen thatthe proportionate ooo D

differential betweenthe starting salaries 700 -

of middle and lower OD

grades has been SOD

widened, while the t 0 _salaries of bothmiddle and higher 4 -

grades increase moresteeply with years of J0O _

experience.500

1 L~ LEVUL + YASOF 2)(P * 4I StO LO^I LIVEL + i00U LIM mo m Hl

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4.17. Specific points regarding a wage reform now follow3/:

a) One single salary scale should be established that would applyeverywhere within the civil service. It is particularly important that thenumber of grades be reduced and that a consistent grading procedure be applieduniformly. The implementation of the April wage reform represents a major effortby the Government towards this goal. However, one should not underestimate thetime length in the implementation of such a comprehensive reform: the pastexperience of 1985-87 shows that the job-reclassification and regrading processwhich should accompany the wage reform are usually delayed by implementationdifficulties at aectoral and/or ministerial levels.

b) Civil service waae structures need to be decomoressed. As a generalprinciple, the proportionate differential between salaries of the managerial andtechnical cadres and those of lower grades needs be increased by more thanproportionate differentials among the managerial and technical grades themselves.The new salary scale increases the top-to-bottom compression ratio from about16:1 to about 18:1. This should be considered a positive first step, and shouldbe followed by further salary decompression in future pay awards.

c) A substantial number of annual salary increments or steps should beeatablished within the salary scale for each higher and middle level arade. Onlyshort or even 'one step' scales could be applied at the lowest levels. Theprinciple here is that an extensive upward sloping scale will act as a turnoverdeterrent among both better qualified and experienced workers and shouldgenerally enhance staff morale. The exact number of steps to be introduced willvary by grade and should be assessed according to promotion probabilities.However, for middle and higher level grades it is tentatively suggested that thiswill be in the order of 6 to 10. As discussed below, steps should in general begranted automatically according to years of service completed. The new Aprilsalary scale uses only the existing three steps. Though this can be sufficientfor the lower level grades, it is clearly insufficient for higher level staff,when compared to the promotion possibilities offered by most donors forprofessional staff.

d) Waae pavments should be kept as transRarent as possible. Monetaryfringe benefits such as cost of living allowances are clearly admissible,however, payments in kind should be avoided as far as possible. In view of thelikely future importance of provincial and local government, a hardship allowancecould be granted for some postings. Similarly, a cost of living supplement couldbe given to staff in high cost areas as deemed necessary. However, study toursor training abroad should be limited and granted when carefully programmed withthe Government's needs and policy regarding technical assistance and cooperationto minimize the disruption in the performance of Government work.

e) A freauent wage review orocess should, in future, assess both salaryscale entry levels, and the size of increments in the light of expected inflationand changes in labor market conditions. Such a process will be essential ifrecommendations b), c) and d) above are to be successfully implemented overfuture years.

4.18. The effectiveness of these actions would be enhanced by anappropriate response from the donor community. Donors should carefully examinetheir recruitment practices with due regard to the strains that these impose uponthe Government's administrative capabilities. This process should be undertaken

3/ 1 Is worth noting that since the Mission's first visit (October 1990), the Govemment has stareted the implementation ofthe recommendations Included In the Misson's Aide-Memoire. Specifically, a new, unified and decompressod salary scale wasadopted In Decmber 1990 and implomentaton began in April 1991. The technical subsidy paid In USD was also abolished andreplsced by a bonus paid In local currency. it will be therefore of the utmost Importance that these encouraging steps should besustained by a froquent wage review process (item (e)) and by further progross on a recruitment/wage policy agreement betweenthe donor community and the Govermment (pars. (4.18) and (4.19)).

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in cooperation with the Government. Capacity building should be given a highpriority in future donor activities.

4.19. There would be further advantages to be made from a donor agreementon remuneration levels. There is a wide variation in pay practices among donoragencies and NGOO, particularly with respect to local consultants, and fees paidare often extremely high. This reflects to some degree a conipetitive biddingprocess for scarce, highly skilled labor. At middle to lower skilled levels, itis clear that donors pay far above the supply price of such labor. Moreover,substantial rents are being extracted by the recipients of such payments. Acooperative agreement, seems to be the only short-term workable solution toreduce significantly the huge intersectoral pay differentials that were describedearlier. More moderate and less dispersed pay levels for Mozambicans in thedonor sector would confer the joint advantage of both freeing up some donorresources for other activities, and reducing job dissatisfaction in the civilservice arising from the existence of large intersectoral differentials.

2. Civil Service Emplovment

4.20. Specific points regarding civil service employment are:

a) The main vroblem is not one of simplv reducina the absolute level ofcivil service emplovment oer se from its current estimated level of 105.000 butrather one of altering its composition. As stated above, the size of theMozambican civil service is not large by international standards. This isparticularly true of the health and education sectors. While the level ofoverstaffing is virtually impossible to estimate with any accuracy, it is mostprobably concentrated at the lower grades 4/. As there is a need to use donorassistance more effectively, and as demands upon the civil service will grow withthe emerging peace process, the number of skilled technical and administrativestaff should be increased. As domestic environment security improves, anextension of the existing manpower study (i.e. the one carried out on higherlevel technicians) to middle level staff should be undertaken to enable theGovernment to assess its own future skilled labor requirements more accurately.Substantial training will be required to improve sufficiently the composition ofcivil service employment.

b) It is unlikely that substantial reductions can be achieved in thenumbers of staff in the lower grades without recourse to retrenchment. Theprospects for easy reabsorption of such retrenchees are unpromising underexisting conditions. As argued in chapter II, the financial savings fromfeasible retrenchments are likely to be small. However, the implementation ofthe new pay structure may provide an opportunity to eliminate ghost workers.

c) Settina waae increases for low-grade staff at modest levels. assuaaested above, should increase the cuit rate amona these aroups. Though thisa sensitive political issue, issues regarding the level of remuneration of thebottom-level civil servants can only be discussed in the light of the generalmacroeconomic framework and the Government's social policy.

3. Personnel Issues

4.21. Specific points regarding personnel issues are:

a) At oreoent there is little coordination across ministries on oersonnelmatters. Ministries have a great latitude regarding recruitment, jobspecifications and work rules. A single system should be adopted over the civilservice as a whole. In sharp contrast, most decisions relating to personnel

I The forthcoming Capacity Building Study could help defining the precise magnitude and location of overstaffing In the civilservic.

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managqment at the Provincial/local level require approval from Maputo. Greaterautonomy should be given to local decision makers. To this end, local personnelmanagement should be strengthened. However, it is recognized that during thetransitional period, it will be necessary for Central Government to maintain asubstantial degree of control.

b) A redefinition of responsibilities and oroanizational structures isnuded. The Civil Service Reform Project (CSRP) has generated a specificproposal to redefine the responsibilities and organization of the variouspersonnel offices within the structure of central, provincial and localgovernment. If adopted, this proposal would enhance the role played by thepersonnel offices, by enabling them to execute personnel functions that arecurrently the responsibility of other government agencies. This would improveconsistency in decision-wnking across the personnel management system. Theproposal also makes provision for greater communication and coordination betweenpersonnel offices. It is recommended that the proposal be adopted.

c) Decisions regardina oromotion should be the outcome of a formal reviewiprocegs which. inter alia. would include performance criteria. This shouldimprove self discipline among staff. The present system does not generate thisfunction (e.g. it does not encourage promotion based on performance evaluation)as it relies substantially upon a queuing process. While salary incrementsshould, in general, be granted automatically, they could be withheld in caseswhere disciplinary measures are warranted.

d) The role of workina a half-dav on Saturdays should be reconsidered.civen the cost of transOortation for lower level workere.

e) Information and Communication Svstema should be strenothened. Thedevelopment of information and communication systems has been an importantcomponent of the Civil Service Reform Project. Some progress in this respect hasbeen achieved since the inception of the Project: (a) a database on the upperand upper-medium management and technical staff (Ouadro T6cnico Superior e deDir gao) has been prepared) (b) the personnel records corresponding to eachemployee are being organized in accordance with a centrally-adopted methodology;and (c) a system for the preparation and circulation of reports (intra and inter-departmental) has been designed as part of a redefinition of the functions andresponsibilities of the personnel offices. The government is still far, however,from having the information and communication systems that it needs in policyformulation, programming, budgeting, staffing, and personnel management. Highpriority should be accorded to initiatives in this area, such as: the trainingof personnel, the preparation of guidelines and manuals, the interfacing ofpersonnel data, and the acquisition of equipment. Technical assistance may beneeded in these areas.

f) Job classification should be standardized across aovernment agencies.The Government is currently adopting a standard job classification system to beadopted alongside the civil service pay increase. The new syatem will reduce thenumber of job categories and titles, and alleviate some of the most seriousexisting inequalities of the old system. While this represents a major stepforward, the process of improving job classification within the civil serviceshould be both ongoing, and sensitive to the changing needs of the system ofpublic administration.

g) The size and occupational structure of organizational subdivisionswithin the civLl *ervice (e.a. directorates. delartments, etc.) should bedetermined not only in the licht of the oerceived needs of such subdivisions, butalso in th- light of the future needs of the covernment as a whole. InMo:ambique, the ministries and other main agencies have had much autonomy inestablishing their staff plans. Such autonomy has often contributed to anunequal distribution of positions, and prevented the detection of both redundantpersonnel and staff shortages. The responsibility for approving or modifyingstaff plans should be centralized, and it is recommended that this practice beadopted in the Mozambican civil service. Actually, staff reallocations are

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underway under the Three-Year Financial Plan. This process will be dicatated bya re-evaluation of the size and functions of the State apparatus.

4. The Suplv of SkLiled Manpower

4.22. Specific points regarding this critical issue are:

a) The need for an expansion of trainino and hioher level education is ofoaramount importance. The Government's efforts in this direction deserve thefullest support. Technical training, at both medium and higher levels, am wellas an improved design of university programs and priorities, could enable asubstantial increase in the inflow of local skilled personnel into publicadministration. In view of the low level of education of most of the country'scivil servants, training programs should provide a mix of remedial education(elementary, secondary or post-secondary) and training in specific skills.Moreover, such initiatives should be linked to career development plans. Civilservants in Mozambique frequently attend courses, either in the country orabroad, that have little or no relation at all to their current functions orcontemplated careers. This seems a very inefficient utilization of scarceresources.

b) Trainina should be coordinated by a central directorate (for examplewithin the Ministry of State Administration and resulting from an internalreorganization). Considering the urgency and size of this task, it isrecommended that it be centrally institutionalized and closely linked with thecentral personnel office. The directorate would: a) identify and "prioritize"needs; b) prepare programs and instructional materials, or, at least, coordinateand control their preparation; c) execute programs, and coordinate and controlprograms to be executed by other institutions, both public and private; d)evaluate the results of training efforts and follow up on personnel trained; e)serve as the central office for the distribution and administration offellowships and scholarships provided to public servants.

c) Mozambiaue has maintaLned an unusual dearee of openness in its labormarket for skilled manpower. Though this approach needs to be well coordinated.in the short and medium term it should be maintained to meet the needs of thearowina private sector. A temporary expansion of the supply of foreign skilledpersonnel to meet the needs of future rehabilitation and resettlement programswould need, however, to be guided by, and to be consistent with the Government'srules regarding technical cooperation.

C. WAGE ISSUES IN OTHER PARTS OF THE ECONOMY

4.23. It would assist the authorities when reviewina wage levels in thecivil service, if lecally-stioulated fixed basic rates aoolvina to other sectorsof the economy were abandoned. Under existing legislation, firms have a widelatitude in setting wage rates. This is desirable. However, the extensive useof various, legally-permitted allowances by employers makes it difficult tomeasure total levels of remuneration. However, the authorities may wish toretain minimum wage rates as a device to protect the most poorly paid.

4.24. The oractice of both oavina staff and sellina aoods at dollar or randorices (i.e. at duty-free shoRse needs to be discontinued. The existence of wageand consultancy payments in foreign exchange stems from the overvaluation of themetical. The donors need to re-evaluate the practice of USD payments. It wasinitially introduced by the donors in 1985 as a short-term measure, but has sincebecome commonplace in the private sector. The source of the problem has beenchronic overvaluation of the Metical, and the need to restrict legal access toforeign exchange. In terms of income-tax revenues, the Central Government is

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unable to collect taxes on dollar earnings, largely because donors and othermployers have often failed to notify such payments. When such taxes arecollected, they tend to be paid in Meticais, and to be assessed at the officialexchange rate. The persistent use of foreign exchange payments thus impedesincome-tax collection. Donors should therefore seek to limit the scope of USdollar payments and reverse this practice where possible. Notification, whereapplicable, should be compiled with. The Government has already pursued activepolicies to narrow the gap between the parallel and official exchange rates underthe ERP, and further efforts will doubtless narrow the gap further. Adoptingthese measures would further strengthen existing Government's policies.

D. MANAGING CIVIL SERVICE WAGE INCREASES

4.25. The long term solution to deteriorating conditions of service inpublic service, and growing disparities between salaries in the public serviceand the donor community, rests ultimately in the hands of the Government. The6.0 percent annual growth in GDP anticipated over 1990-1994, combined with bothimproved revenue-raising measures and the re-orientation and prioritization ofpublic expenditure, should place the Government in a better position to improveconditions of service over the medium-term. However, the overriding objectiveof containing recurrent expenditure over the medium term requires a delicatebalance between:

(a) a cautious wage policy and restraint on budgetary subsidies; and

(b) the provision of incentives for scarce skills and increasingexpenditure on human resources development, particularly education.

4.26. In the light of the constraints facing Government in improvingconditions of service, it would be useful for Government to explore with donors vother possible solutions to this seemingly intractable problem. Some suggestionsare described below.

a) The imoact of the Aoril salary reform on the Government's wage billshould be carefully examined. Given the lack of a comprehensive data base on allindividuals employed within the civil service, it is difficult to calculateexactly the impact of a given salary reform on the Government's uwage bill. Theexisting centralized computer salary system covering Central Government employeesshould be extended to the rest of the civil service. A linkage between thissystem and personnel management files would be a valuable asset when assessingfuture pay awards.

b) The size of any admissible increase in the waae bill can only be iudaedin the licht of orevailing and future macroeconomic conditions. While theoverall increase in the wage bill targeted for 1991 is positive in real terms,further increases will be needed over future years with significant decompressionof salary scales.

4.27. To finance future increases in the wage bill, in principle, Davmentsin for-ian currency to resLdents should be subiect to income tax collected in away to match the value of the oriainal oayment currency. Given the weaknessesof the tax collection system and also some donors' unwillingness to reporttaxable payments made to local staff, legally-taxable wage and consultancypayments in foreign exchange are not fully reported to the Tax office. Wheresuch payments can be identified, income tax should be levied in a way that itsmetical value corresponds to the real purchasing power of the payment made.Clearly, pressure needs to be applied upon employers to withhold income tax where

@ In addiion to presing donors to roach a cooperatv agreement for their support ta wage policy.

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applicable. However, income tax schedules should be calculated followinastandard rules of vroaressiveness and eouitv considerations.

4.28. In applying income tax, it is important to distinguish betweendifferent groups of residents. Among those paid by the donor community, threedifferent groups may be identified. These are: i) those paid throughdisbursements of grants and concessional loans (e.g. by projects); ii) thosedirectly employed by donor establishments (e.g. resident missions); iii) those,not employed directly by donor establishments, but paid from generaladministrative and research budgets. Of these three groups, only those in iii)can be considered unamiguously eligible for income taxation. In general, ifincome tax were deducted from those paid through projects, disbursements woulddrop correspondingly, as the agreements governing aid flows generally exclude theimposition of any form of taxation. Similarly, the establishment agreementsbetween the Government and donors may preclude the deduction of income tax fromdonor employees. Foreign exchange payments made to residents in the privatesector are, however, fully eligible for income tax. To the extent that thecollection rate can be improved, Government could find a source of revenue tofinance improved conditions of service in the civil service. For this course ofaction to succeed, however, it would require a great deal of cooperation from thedonors.

4.29. Similarly, avenues could be explored through which donors couldreallocate funding toward the civil service wage bill. Some donors could bereceptive to the idea of shifting finance from capital expenditure to the civilservice wage bill. A case can a be made for shifting some technicalassistance into direct recurrent zupport. Some donors are clearly prohibitedfrom doing this under the regulations of their own institutions. In general,however, donor receptivity to this approach is likely to improve if visibleefforts can be made by the Government to cut military expenditure as the peaceprocess develops. While this approach would have some inflationary effect ifdonor expenditures were reallocated away from foreign items to domestic wages,it may be offset by donor savings on their own wage bills through a cooperativeagreement, and otherwise should be beneficial to the external account. There aresome promising possibilities for wage bill finance:

a) Establishment of a Consolidated Fund. One approach to improvingconditions of service in Government calls not only for donors' cooperation, butalso for a great deal of understanding. It entails establishing a consolidatedfund by donors that would partially finance the recurrent cost of the Government,and, in particular, and its wage bill. This possibility was raised with a numberof agencies. With some exceptions, there seems to be strong opposition to theidea. However, some donors are, to some extent, supporting such an arrangementthrough their contributions to the Personnel Incentives Fund. The resistance ofother donors to the idea, is based not on its merit, practicability orappropriateness, but rather on their assessment that their home governments arelikely to be against the idea on doctrinaire grounds. Budgetary support, theargument runs, is not tolerated at home and would not be encouraged abroad. Whenthe issue was put differently and specifically in terms of establishing aconsolidated fund in meticais, some donors reacted more constructively. Somegenerators of counterpart funds in Mozambique, expressed the view that they wouldrecommend such an initiative to their headquarters, if other donors weresimilarly inclined.

b) Counterpart Funds. Several other donors with counterpart funds,contribute a large part to budgetary support. In 1990 a sum total of USD 130.Omwas pledged, but only USD 90.Om in counterpart funds was generated. Half wasintended as budgetary support, of which about a quarter was earmarked foreducation. It must be remembered, however, that the USD 45 million or so forbudgetary support finances the fiscal deficit, while the remainder finances muchof the Government's contribution to donor-funded activities. Clearly, the formercannot be diverted, while diversion of the latter to finance wage and salaryexpenditure would automatically reduce the flow of external grants andconcessional loans, unless donors agreed to a straight transfer of their financefrom capital to recurrent expenditure. However, as noted above, most donors are

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currently unwilling to support such expenditure reallocation. The only feasibleapproach is to reduce the substantial existing leakage from the counterpart fundschemes. If such savings were to be put into a consolidated fund, substantialfunding for wages and salary expenditures could become available to ease thepressure on Government. It is possible that the donors would support this,indeed, one donor already channels about USD 5 million per year to partially fundrecurrent expenditures in the Ministries of Education and Health. The funds areused in part to pay salaries.

E. CONCLUDING COMMENTS

4.30. Obviously, there are no easy answers to the problems outlined in thisreport. However, some efforts could be made by donors to discuss theirrespective practices with a view to better ordering their recruitment drives andremuneration packages. A framework with guidelines could be established whichwould permit maximum flexibility to each donor, yet eliminate excesses. Thisreport could serve as basis for the exchange. The Government in cooperation withthe UNDP could initiate a meeting at the appropriate time to discuss the issuesraised in the report with a view to reaching some consensus on issues of donors'remuneration packages and incentives (both monetary and non-monetary), andharmonizing their practices. In addition, the donors may wish to enter into aconstructive dialogue with the Government to see how best both parties could seeka common ground, and work towards a long term solution to improving conditionsof services in the civil Service.

4.31. Whatever developments are to take place in Mozambique by way ofinstitutional upgrading of the public services, a principal focus will have tobe on the provinces. Once the country becomes reintegrated, the focus of donorswill have to shift away from Maputo. A major development thrust will have to beplaced upon the restoration of the rural economy and the key provincialadministration. Donors should begin to devise special programs to re-equipregional administrations for the tasks ahead. Resources and attention should notbe focused exclusively on the civil service in Maputo but on administrativecapacity across the country.

4.32. While the adoption of measure along the lines of those suggested inthis report should temporarily relieve some of the pressure on the Government'sadministrative capacity, it must not be forgotten that the central problem isthat skilled labor is in extremely short supply. In the long run, the onlysolution is to expand the country's skill base.

AMNEX 1

A DIAORAMATIC PRESENTATION OF SOME ARGUMENTS.

A. Background.

1. The Mozambican economy is currently heavily dependent on resources flowsfrom abroad. Net official transfers account for about 50% of the country'.current account deficit before official grants. However, development-orisnted projects have low implementation rates due mainly to the securitysituation and poor absorption capacity. This, in turn, reflects a pooradministrative performance which is, inter alia, due to the small number ofskilled personnel in the country's civil service. However, the need torestrain domestic spending under Government's stabilization policies islimiting the access of skilled personnel into the civil service.

2. On the one hand, there has been a substantial increase in the level ofdemand for skilled labor arising from both the growing number of developmentprojects in the country and the progressive recovery of the economy under theEconomic Reform Program. One the other hand, domestic supply of skilledlabor able to conduct administrative and development-related tasks is limited(Western technical assistance has not been able to fill the gap left by therelative decline of Eastern European technical assistance since the mid-19809). Moreover, while the Government is heavily constrained in its abilityto raise the remuneration paid to its employees, donor agencies and otheremployers have much less difficulties in setting wage rates to compete forskilled labor. As a result, skilled wage rates rose substantially in non-Government sectors with an associated shift of some highly qualifiedpersonnel away from Government employment. Also, as a result of non-cooperative behavior between non-Government employers, economic rents paid tosome skilled employees have emerged.

3. The resulting situation is far from optimal, and this is illustrated bythe Government's difficulties in implementing donor-funded projects. Theprevailing situation is still characterized by low disbursements rates.Since most donors have identified the Government's administrative capabilityas the obvious bottleneck, some have attempted to partially remedy thissituation through the provision of salary-toppings and other fringe benefitsto civil servants.

4. Though this Situation and its adverse consequences are now wellunderstood by both the donor community and the Government, the solution thathas been presently envisaged emphasizes a reduction in wage differentialsbetween the two sectors through a general pay raise in the civil service.However. settina Government's wages to comDete with that of the orivatesector might be only a second-best solution. This is true particularly ifthere are negative externalities within the private sector's activities (i.e.if the private sector's marginal product curve differs substantially from itscorresponding social marginal product curve). Therefore, the objective ofthis annex is to assess the Mozambican case in terms of the theoreticalarguments underlying possible policy recommendations. Section B. describesthe functioning of the labor market for skilled employees in Mozambique andattempts to explain the emergence of the wage differentials between publicand private sectors. Section C. reviews some of the solutions proposed bythe Mozambican authorities. Finally Section D discusses optimality issues insetting wage levels.

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B. How does Mozambicue's skilled labor market function?

5. The two main characteristics of Mozambique's market for skilled laborare its inelastic supply of skilled labor and the Government's fiscally-constrained demand curve.

(a) The first and more important characteristic of Mozambique's labormarket in that it has an inelastic supplv of gkilled labor. In the shortterm, neither the number of local graduates nor the number of on-the-jobtrainees will be sufficient to substantially increase the supply. Therefore,the total number of skilled employees that can be hired is fixed in theshort-term. In Figure 1, this feature is captured by the fixed width of the"box" representing, along the horizontal axis, the total available supply ofskilled labor in the economy 1/.

(b) The second characteristic of this market is that there are twosectors comRetino for skilled labor. At time t, the demand curve for skilledlabor in the private sector as a whole (i.e. the Mozambican private sectorDlus the donors' agencies) is DP,. This curve is represented in the right-hand side of Figure 1. For the private sector, labor units ;/ on the X-axis are read from right to left. At time t, the demand curve for skilledlabor in the public sector as a whole (i.e. the Government plus theparastatals) is DG,. This curve is represented in the left-hand side ofFigure 1. For the public sector, labor units on the X-axis are read fromleft to right. For both sectors the vertical Y-axis represents wage unitspaid.

The private sector demand curve is negatively sloped and can be assumedto roughly equal this sector's marginal product curve (MPP). The publicsector's demand for skilled labor is constrained by the available budgetaryresources; in other words, the Government (assumed here to include theparastatals) determines its allowed wage bill and the resulting number ofhigher level staff it can hire. Its demand curve is actually an isocostcurve DGt (i.e. a rectangular hyperbola) along which any combination of thenumber of employees and the wage rate will give the same wage bill 2/.

6. As the width of the "box" represents total available supply of skilledlabor, the intercept of DPt and DG, gives --reading it from left to right--the level of employment LGt in the civil service and --from right to left--the corresponding level of employment LPt in the private sector. Initially,the Government sets its wage bill, and this is represented by the rectangularparabola, DGt. The demand curve for skilled labor in the private sector isinitially represented by DPt. The private sector's wage rate is at WP,, whereDG, intercepts DP,. The Government can afford to hire skilled labor up to LG,--given its budgetary constraint-- making its level of remuneration matchthat of the private sector 4/. The civil service wage (WGt) thus equals

1/ The rest of the labor market is considered exogenous to our problem. There is anunlimited mugply of unskilled labor in the economy which does not influence this particularsemnent of the market. ln addition to that, the inflow of Mozambique's expatriate workers(elther from South Africa or former East Germany) will consist mainly of skilled manualworkers who do not influence this particular market.

2/ A similar discussion could be carried out with labor efficiency units Instead of laborunits.

3/ The Goverment's wage bill was set to unity here.

4/ We assume that the Government's demand curve takes into account job stability and otherTringe benefits.

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WPt. The intercept of the two demand curves gives simultaneously the levelof employment in both sectors.

Figure 1.MOZAMBIOUE t SIMPLIFIED VIEW OF THE LABOR MARKET FOR SKILLED LABOR

THE INITIAL SITUATION

7

G

o _ t = ,WPt~~~~~DP

4-3-

2

0.

0GOV -i t t PRIVLAMO EFFICISNCYr UNITS

* -- -LG + LP

7. We now examine the effects of some recent developments (see Figure 2.).Suppose that there is an increase in the private sector's demand linked toboth the recovery of the economy and development-related donor activity.This is represented by an upward shift in DP, to DP,,,. The Government nowfaces a dilemma. Given the new demand curve in the private sector, thecompetitive equilibrium wage between the two sectors would be WPt,l -- a muchhigher wage than before. The number of skilled personnel that the Governmentcan afford to hire would be smaller than before (LGt is reduced to LGa,,).Alternatively, if the Government maintains its previous wage policy, eitherpart of it. higher level staff will shift to the private sector or,alternatively, its level of employment -- measured in efficiency units-- wouldbe reduced because of moonlighting and/or absenteeism.

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Figure 2.MOZAMBIOUE : COMPETITION WITHIN THE LABOR MARKET FOR SKILLED LABOR

w

S DG~ P+

7- t. .40 _ - DP

3-wt+ 1

3- I

t- | ~~~~~~~~~~~WPt2 I~~~~~~~~~~

fG ~~LG Lt+1 LAWR EFACIENC UNITS

C. Short and lono-term policv implicationsof the oresent constraints affectina Mozambiaue's labor market.

8. In the short term, this situation requires policy modifications in threesets of variables (see also Figure 3.):

(a) Donor coordination in restricting their emploment of skilled laborin needed. Coordlnation among donors could push downwards the privatesector's demand curve (from DPt,l to DP.,2). This, in turn, would diminish therequired increase in the public sector's wage bill. Initiatives aimed atimproving the phasing of projects and/or increasing the hiring of expatriatesinstead of local consultants may also contribute to the relaxation of thecountry's supply constraint. Therefore, less demand for skilled labor wouldbe created. Among other measures one can also think of, the donor communitycould contribute to the Government'c financing needs for pay raises in thecivil service.

(b) Income tax enforcement in the consultancy business and for theprlvate sector's higher level employees is obviously an issue. It isreported that the level of income tax collection is low and most --if notall- private consultants are not paying the due amounts to the Government.Enfore ment will simultaneously contribute to rais fiscal revenues --whichcan then be used to fund the increase of the clvil service payroll-- and toshift downwards the private sector's demand curve (from DPt.l to DPt.a)4

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Figure 3.

l0 -

DG D +

I~~~~~~~~~~~~~~~~~~~~~~~~

§WG~-DG t-2

3-

2-

I

0.a ~~~I LGt 22

LABOR EFFICIENCY UNITS

(c) A civil service pav raise seems inevitable under the circumstancesand given the present wage differentials between the two sectors. Althougha pay raiue may contribute to reduce the drain of skilled personnel from thecivil service to the private sector, the magnitude of the increase that wouldput Government's wages close to those of the private sector is definitelyunsustainable given the Government's budget constraint.

9. In the lonaer-torm, the critical requirement is that the supply ofskilled labor be increased. In terms of the box diagrams this would beequivalent to an increase in the width of each diagram, and would potentiallyboth accomodate an increased demand for skilled labor by the private sector,and ease the pressure on the Government through a lower wage rate. This canresult from measures aiming at favoring recruitment from abroad and/orincreasing on-the-job training. The increase in the domestic supply ofuniversity graduates should also be encouraged. Once the rigidity of thesupply curve is circumvented, the Government's wage constraint will berelaxed giving more room for setting adequate levels of remuneratlons andallowing it to compete on a more equal footing with the private sector.

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D. What could be the optimal lev-l of the pay raise in Mozambiaus?

10. In the situation depicted in Figure 2, the Government is likely to losepart of its higher lovel staff to the competing sector unless it takesaction. Should wages in the public sector be raised to compete with those ofthe private sector? The answer to this normative question will depend on theassessment we make of both sectors' marginal product curves and ultimately ofthe resulting social marginal product curve.

11. Figure 4 shows the marginal product curve for both the private sector(MPP) and the public sector (MPG). At first glance, the optimal policy wouldbe to raise the Government's wages so DG (the corresponding rectangularhyperbola) crosses the intercept of MPP and MPG at point Z. The optimallevels of employment in the civil service and the private sector would be Logand LP3 respectively, where marginal productivity is equal in both sectors.

Figure 4.MOZAMBIOUE : SHOULD PUBLIC SECTOR'S WAGES BE RAISED?

"a

7- ~MPG

t2

2-MPP DI S~MP D

0 1 2 2

LAMPA UFICIE4CY UNITS

12. However, suppose now that there are negative external effects withinthe private sector. This could arise lf donors assess only partially thenegative effects of (the externalitLes arising from) thelr employment policyon their own sector. While each donor realLses that by diverting an employeefrom the Government it affects negatively the Government's implementatLoncapacity, lt does not take into account the the marginal negative effect onother donors. In Figure 4, the social marginal product curve (SMP) is drawnequal to the marginal product curve for the private sector (MPP) down to

9- 5 -

point ED. Subsequently, however, it is drawn below MPP with a more pronouncednegative *lope. Consequently, the corresponding social optimum would not beat E (see Figure 4) but rather at E*. The necessary pay raise for theGovernment is then smaller than that calculated with the "competitive"optimum (i.e. the optimum with no externality assumption).

13. The optimal pay raise in this situation will therefore be the one whichwould allow the Government to raise civil servant wages up to W3 .. If theprivate sector maintains its pay level at W., it will be overpaying its staffin terms of efficiency units of labor (because of the externalities it iscreating).

ANNEX 2

CURRENT INITIATIVES IN PERSONNEL AND 5RAINING

Introduc&J9M

During the last two years, the Government of Mozambique has beenengaged in a comprehensive program aimed at reorganizing its civil serviceadministration. The program is directed by the Ministry of State Administration,through its National Directorate for the Public Function, and is assisted by theFoundation for Administrative Development (FUNDAP)1/, a Brazilian institution.External financing is provided by the Sweden Agency for InternationalDevelopment.

Obiectives

The specific objectives of the program are as follows:

a) The creation of a single, national system for the administrationof the civil service. This will be achieved through a new definition of thefunctions and responsibilities of personnel management, and through theestablishment of new channels of communication and cooperation .

b) The introduction of new regulations relating to programming,position classification, salaries and non-wage benefits, staffing, performanceevaluation, and other personnel functions.

c) A rationalization of operational procedures and thedecentralization of authority.

d) The establishment of both a national data base and a reportingsystem on the civil service and its management.

A number of agencies were selected to serve as a testing ground fortraining programs, and data collection. Those selected were: three ministries -- State Administration, Health and Commerce; a state secretariat, and aprovincial government agency, the Provincial Directorate for Support and Controlin Sofala. The program has included a number of courses and seminars related topersonnel management.

The Main ProDosals and Activities in Proaress

The Ministry of State Administration and FUNDAP have jointly issuedover 40 progress reports on the program. Together, they contain a comprehensiveanalysis of the present state of the country's civil service administration anda well-articulated set of proposals.

As discussed in Chapter II, personnel administration offices havecreated their own rules, and to a great extent, function independently. Thereis little communication and cooperation between them. The central personneloffice has limited authority. The proposals developed under the program envisagethe creation of a single coordinated system.

The main proposals are:

1/ Acronym for the title in Portuguese -- Fundacao oara o Desenvolvimento Administrativo

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of key functions. The latter include: the personnel planning process; theprovision of advisory services; the formulation of basic administrative standards'-nd norms for the entire system; and the control and auditing of the civilservice administration.

b) Through the revamping of operational processes, new channels ofcommunication and coordination would be established between the central personneloffice and the sector human resources directorates/departments at the central andprovincial levels.

c) The functions and responsibilities of the relevant personnel-management directorates and departments would be redefined in line with a) andb) above.

Under the program, much attention has been given to the need tocreate departmental and central systems of information. One of the first stepstowards this goal is the establishment of updated files on civil serviceemployees. The creation of a central data base has started with a nationalcensus of high, mediu.n-high, and managerial and technical personnel, i.e., theOuadro Tecnico Sunerior e de Direcdo. These data have been processed. It isplanned to create further data banks on all civil service employees withindividual personnel histories.

In addition to the establishment of a single set of salary scales andthe job reclassification exercise, both of which were discussed in Chapter IV,a number of other personnel areas are being re-evaluated. These include policiesand procedures relating to recruitment, internal transfers, performanceevaluation, attendance, and retirement.

Training

Numerous efforts are aimed at providing additional general andtechnical education to public servants. The State Secretariat for Technical andVocational Training, a division of the Ministry of Education, has listed over 60such initiatives. At the forefront of these, is that of the Escola de Estado epirecto (founded in 1980), which offers a combination of high-school remedialeducation and some technical training. Another initiative is a series of courseson public finance. IDA is financing seminars at the headquarters of the Ministryof Agriculture and "subordinate" agricultural enterprises. With IDA support,some 500 public servants will attend an accounting training program, and otherswill follow a course on contract law. Donors finance, in fact, a considerableamount of education and training to medium and high level public servants. TheUNDP's activities in Mozambique include a series of workshops for provincialgovernors and district administrators, and a long-term training program on localgovernment. The Ministry of Labor contains a School of Labor Studies, thatof fers both specialist and remedial courses. In addition, there is thecomprehensive training program on civil service reform conducted by the Ministryof State Administration with the assistance of FUNDAP and SIDA.