Mozambique News Agency

No.117, 8th September 1997


OXFAM calls for faster and bigger debt relief

The British-based charity Oxfam has warned that the debt relief targets for Mozambique, under the HIPC (Highly Indebted Poor Countries) initiative of the World Bank and the IMF, are far too modest.

An Oxfam paper on the Mozambican debt argues that "the HIPC framework will need to reduce the debt of Mozambique deeper and quicker than that of other countries".

The HIPC initiative seeks to bring debt down to a "sustainable" level. But the IMF/World Bank measure of sustainability would still leave countries such as Mozambique paying unacceptably large amounts year after year to creditors.

Currently the ratio of debt service to export earnings regarded as "sustainable" under HIPC is 20 to 25 per cent, while the "sustainable" ratio of the debt stock as a whole to exports is 200 to 250 per cent.

Oxfam notes that these figures derive from the experience of Latin American countries dealing with debt in the 1980s - but these counties "had far more diversified economies, better infrastructure and a labour force with a more diverse range of skills" than is the case in Mozambique.

Debt mountain grows

"Debt alleviation must free resources to allow the government to increasingly invest in the lives and productivity of the population", the paper says. "If saving lives and helping Mozambique achieve economic sustainability are the international community's priorities, then a 12 to 15 per cent debt service to exports ceiling is more appropriate".

The current situation is that Mozambique is only able to pay off per annum a quarter of what it owes. The rest is rescheduled or is simply added to a mountain of arrears. Despite this the amount paid is still high, and amounts to around 25 per cent of export earnings. In 1995, had Mozambique paid in full the debt service owing, it would have come to 97 per cent of export earnings.

Mozambique's total debt stock, at the end of 1995, was equal to 980 per cent of its exports of goods and services - which is almost four times the figure that the IMF and World Bank regard as sustainable.

Oxfam states that "endless rescheduling and the accumulation of arrears were short-term measures that expanded the debt overhang and deepened the debt crisis over the long term."

Without HIPC, the Mozambican debt crisis can only worsen, with scheduled debt service payments rising from $207 million in 1997, to $295 million in 1998, and more than $400 million by the year 2000.

Export growth not enough

IMF economists paint a rosy picture of Mozambique's potential for export-led growth: they project exports growing at an average of 14 per cent a year from now until 2001. But even this will not prevent a deterioration in the ratio of debt service to export earnings, warns Oxfam.

Not only is the amount of debt relief important, so is the timing. Oxfam sees no reason for any further delay in Mozambican access to HIPC, thus rejecting some World Bank/IMF scenarios which only envisage Mozambique benefiting from the initiative at the turn of the century.

Oxfam argues that Mozambique should enter the initiative no later than September 1997, and should reach the completion point, the point at which it actually receives debt relief, no more than one year later.

Oxfam warns that certain donor governments may try and hold the debt relief process up, on the grounds that the country's "track record" is not exemplary. But the paper argues "breaks in performance on the IMF's Enhanced Structural Adjustment Facility (ESAF) were due to difficulties associated with managing post-conflict change in several areas simultaneously, rather than an unwillingness to reform".

Had it not been for problems in calculating the debt owed to the Soviet Union (due to such factors as the rouble exchange rate), Mozambique "would have been among the first countries to be considered for the HIPC initiative because of the magnitude of the debt and the long period of reform", says Oxfam.

Whatever the time frame, there is bound to be an interim period between accession to the HIPC initiative, and the implementation of significant multilateral debt relief.

Oxfam argues that, in this period, donors should support the government's own Foreign Debt Alleviation Fund (FDAF). Contributions to this fund began last year (from Holland and Denmark).

The money is used to pay off debt falling due to the IMF, and in return the government invests the funds saved from the state budget in health, education and water supply.

Oxfam wants an arrangement from creditors whereby the FDAF could be allowed "to pay all debt, not just IMF debt".

Oxfam concludes that Mozambique "needs a true exit strategy from debt", and that the HIPC initiative could provide this - but only if the terms Mozambique receives reflect its real situation, and that such key indicators as the ratio of debt service to exports are not set unrealistically high.

Growth rate up to seven percent

Planning and Finance Minister Tomas Salomao on 29 August said that the Mozambican economy is on course for a growth rate of seven per cent this year, considerably higher than the initial target figure of five per cent.

The government's tentative estimates were that manufacturing industry would grow by 18 per cent, the transport and communications sector by 19 per cent, and agriculture and livestock by five per cent.

The Minister attributed the industrial growth rate partly to adjustments which the government has made this year in the customs tariff list, at the request of industrialists. This has led to certain merchandise used by Mozambican industries, but originally classified as finished goods, to be reclassified as raw materials or intermediate goods. These changes automatically cut the tax and import duty burden on the companies concerned.

Precisely the opposite tactic was used to benefit the cement industry. Cheap South African cement was being dumped in Mozambique, undermining national production. The government reacted by slapping a surtax on imported cement, bringing the total tax on these imports up to 25 per cent. This had led to strong growth in the Mozambican building materials industry.

Exports up

Exports were up by three per cent when the first six months of 1997 were compared with the same period last year. Exports are always stronger in the second half of the year, and Salomao expected the final export figure to reach $280 to $300 million (compared with around $210 million in 1996).

It now looks as if the government will have no difficulty in meeting the 1997 inflation rate target of 14.2 per cent. Currently prices are falling (because the harvest is coming in, pushing down food prices). Salomao said that January to June inflation rate was only 3.7 per cent, and the January to July figure fell to 3.2 per cent.

The Mozambican currency, the metical, has remained stable. In the first six months of the year the devaluation of the metical against the US dollar was only 0.3 per cent.

As for the country's foreign debt, Salomao said that the government was complying with its payments (of both interest and capital). It was helped by the debt relief fund set up towards the end of 1996 by Holland and Denmark, under which these two countries pay off some of Mozambique's debt to the IMF, and funds released from the state budget are channelled to health and education.

Salomao was optimistic that in September the World Bank and the IMF will announce that Mozambique is eligible for the HIPC (Heavily Indebted Poor Countries) debt relief initiative.

The first country to benefit from the HIPC initiative was Uganda, whose access to HIPC terms was finally announced in July. Salomao said this decision was worth around $700 million to Uganda.

Machel calls for reintegration programmes

Former education minister Graca Machel on 1 September called for specific social reintegration programmes aimed at vulnerable groups, as part of the promotion of a culture of peace, social justice and the prevention of conflict.

Machel was the keynote speaker on the first day of a UNESCO International Conference on the Culture of Peace and Good Governance.

She stressed the moral and psychological effects of conflicts in which children are turned into soldiers, and women are raped en masse as a matter of deliberate policy.

The purpose of the "systematic rapes" that had taken place in Bosnia, Cambodia, Rwanda and Mozambique, she said, was to "attack the basis of the family unit". Such organised rapes are "a weapon of war to leave the seed of destabilisation within the family and the community".

Machel noted that the sexual abuses that had taken place during the Mozambican war are ignored nowadays. "Since we signed the peace agreement, these problems are totally taboo: nobody wants to talk about them", she said. "But the wounds are still unhealed among the victims, and they suffer silently".

She condemned vigorously those who force children to take up arms and commit atrocities. She warned that, without a serious programme of social reinsertion, former child-soldiers "will never know the value of human life, will never respect principles and norms".

Turning children into military instruments "is the greatest crime one can commit", Machel declared. "It is a way of transmitting the conflict into the future".

She noted that to date no-one has a solution. "There is no example of any successful programme for the re-integration of child soldiers", she pointed out.

Reintegration of the victims of conflict must go beyond rebuilding shattered institutions, resettling refugees, and resuming production. Machel argued that it must also include restoring value systems.

"This aspect is forgotten", she said. "We see that people are producing again, so we think that everything is all right. But it is necessary to reconstitute basic values. It is necessary to rebuild self-confidence and self-esteem, and an understanding of what is acceptable in society and what is not".

Machel called for a return to "basic principles of social solidarity and of fairness in the distribution of wealth", rather than the "every man for himself" philosophy that has come to characterise Mozambique in the 1990s.

She insisted that without an attack on poverty, "There can be no complete programme of reintegration", and warned against the deepening chasm "between the wealthy and the excluded".

News Round-up

International trade fair opens

Prime Minister Pascoal Mocumbi declared in Maputo on 1 September that the enterprising and innovative spirit of the Mozambican business class is the driving force for the country's development.

Mocumbi, who was speaking at the official opening of the 33rd annual edition of the Maputo International Trade Fair, FACIM, said he was very impressed by the number of Mozambican companies exhibiting this year, and with the quality of goods on display.

Only six other countries took part - three from Africa (South Africa, Zimbabwe and Kenya), and three from Europe (Portugal, Norway and Britain). Gone are the days of the 1980s, when sometimes 20 or more countries participated, with a heavy presence from SADC, and from both eastern and western Europe.

But the decline in foreign stalls is more than compensated for by the rising number of Mozambican companies taking space at the fair. This year 144 of them are exhibiting.

AMODEG chairman dismissed

The chairman of the Mozambican Association of Demobilised Soldiers (AMODEG), Julio Nimuire, has been removed from his position, following the disappearance of various items belonging to the association.

The AMODEG secretary in the northern province of Nampula, Eugenio de Fatima, announced the dismissal of Nimuire at a Monday press conference in Maputo. He said that among the missing property was a vehicle (stolen within the past fortnight), a computer, and ten bicycles.

Appeal for Ilhe de Mocambique restoration

A project for the restoration of Mozambique Island, drawn up by the United Nations Educational, Scientific and Cultural Organisation (UNESCO), was presented at a meeting in Maputo on 2 September. Restoring Ilhe de Mocambique, the first colonial capital, to its former glory will cost about $11 million.

UNESCO has declared the island, located three kilometres off the coast of the northern province of Nampula, a world heritage site. Restoration work is aimed not only at rehabilitating historical monuments, but also at improving the living conditions of the 7,000 or so people who live on the island.

The government and UNESCO are appealing jointly to the international community to finance the project. UNESCO general director Federico Mayor, currently visiting Mozambique, announced that an international donor conference will be held next year to raise funds.

Last state-owned commercial bank privatised

Malaysian and Mozambican private investors on 3 September took possession of 60 per cent of the People's Development Bank (BPD), the last Mozambican commercial bank still in state hands.

Under the new ownership structure, the Southern Bank Berhard (SBB) of Malaysia has 30.6 per cent of the BPD's 900,000 shares, and a Mozambican private company, Invester Ltd, has 29.4 per cent. 20 per cent of the bank is still owned by the state, and the remaining 20 per cent is reserved for the BPD's workers and managers.

Invester is a recently formed grouping of Mozambican companies and individuals, headed by former Industry Minister Octavio Muthemba, who becomes the new chairman of BPD.

CDC finances container terminal

The Commonwealth Development Corporation (CDC) on 4 September signed an agreement in Maputo with the company MIPS (Mozambique International Ports Services) under which it will provide a long term loan of $2.5 million for the rehabilitation of the Maputo Port Container Terminal.

MIPS is a joint venture formed by Mozambique's publicly owned ports and railways company, CFM, Rennies of South Africa, and P & O of Australia. MIPS took over management of the container terminal in 1995, under the CFM strategy of farming out terminal and railway lines to private management.

The rehabilitation project, costed in all at $8 million, involves the refurbishment of two container handling gantry cranes and other equipment. It will restore the terminal's handling capacity to over 100,000 TEUs per year.

The CDC country manager in Mozambique, Edward Farquharson, said "we see this as an important first step in CDC's strategy to assist financially in the rehabilitation and expansion of Mozambique's transport corridors through private sector involvement. This project will be a key component of the Maputo Corridor initiative, and CDC is proud to be associated with it".

The CDC is a British development finance institution, specialising in providing long term finance for the private sector in developing countries.

Study finds World Bank was wrong on cashew

The long-awaited study into the impact of liberalisation on the cashew nut trade has come down in favour of the cashew processing industry and against the export of unprocessed raw nuts.

It has admitted that the original demand for liberalisation from the World Bank was based on faulty statistics, and did not lead to the promised benefits for peasant farmers.

The study was carried out by the consultancy firm Deloitte Touche, and paid for by the World Bank, after mounting protests at its attempts to strip the processing industry of all protection. The first draft of the study was delivered to the Mozambican government on 20 August.

Liberalisation of raw nut exports followed directly from a World Bank study of 1995 which argued that Mozambique actually lost money by processing the nuts. It claimed that the 1993-94 price for a tonne of raw cashews was $750 a tonne, and that when this was converted into less than a quarter of a tonne of cashew kernels at the most efficient of the Mozambican processing plants, it brought in only $729. Thus the Bank claimed that, by exporting processed rather than raw nuts, Mozambique was losing $21 a tonne.

The World Bank's figures were used as the intellectual underpinning for an onslaught on the protection that the processing plants enjoyed. In April 1995, that protection took the form of a heavy surtax on the export of raw nuts.

Under World Bank pressure, the surtax came down to a flat rate of 20 per cent for the 1995-96 marketing campaign, and to 14 per cent for the 1996-97 season. The World Bank made the liberalisation a condition for Mozambique continuing to receive loans.

Study shows Bank statistics wrong

Now the Deloitte Touche study has vindicated the processing industry, showing that the World Bank's 1995 statistics were wrong. The study says that the average price of a tonne of raw cashews is $756: but when converted into processed kernels, the price goes up to between $887 and $983.

This is good enough reason for the government to support the processing industry, and to discourage the export of raw nuts, says the study, thus completely overturning the World Bank's 1995 conclusions.

The study agrees with the processing industry that exporting raw nuts is a short-sighted strategy. There is only one market for the raw nuts, India, and the Indian government is committed to replacing imported nuts with ones grown in India.

Deloitte Touche points out that, under its Eighth National Development Plan, India intends to increase its domestic production of nuts to 600,000 tonnes a year, which will eliminate the need to import nuts.

In 1995, the World Bank claimed that liberalisation would benefit the peasant farmers. Deloitte Touche, however, found that the bulk of the benefits had gone to the trading companies who bought up the raw nuts and sold them on to India.

Consultants call for raised minimum prices

The minimum producer price for cashews established last year by the government was 3,500 meticais (about 30 US cents) a kilo. Prices offered to the peasants rarely rose above 4,000 meticais a kilo, Deloitte Touche found.

The only peasants likely to benefit significantly from liberalisation were those with storage conditions allowing them to stock nuts until the end of the marketing season, when prices rose to around 6,000 meticais a kilo.

Deloitte Touche suggests continuing with the surtax at a rate of between 14 and 20 per cent. It also wants the government to enforce a minimum producer price for raw cashews of 4,500 meticais a kilo for two years, rising to 5,000 meticais a kilo thereafter. It believes that these two factors would discourage the export of raw nuts.

The study estimates that the existing processing plants can deal with 54,500 tonnes of nuts a year. Annual production of nuts varies between 25,000 tonnes in a bad harvest and 60,000 tonnes in a good one. Thus any export of raw nuts will automatically deprive factories of their raw material.

Cashew trees degenerating

The study also sounds the alarm about the physical state of Mozambique's ageing stock of cashew trees. Hit by fungal diseases and insect pests, the trees have shown a sharp decline in productivity - from five to ten kilos of nuts per tree in the 1970s, to between one and 1.5 kilos today. Furthermore, on average a million cashew trees aged 30 or over are dying every year.

To halt the decline 1.5 million new trees should be planted annually. But the government's current goal is only to plant 350,000 a year, and even this target is not being met.

Large sums of money have been poured into planting cashews: over $47.6 million dollars was spent over the last 12 years, but there is precious little to show for it. The money, notes Deloitte Touche, did not result in planting even ten per cent of what is required.

So what did the State Secretariat for Cashew do with the money ? At a seminar held in August, trade unionists in the cashew industry suggested that much of this money had simply been stolen.

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