Mozambique News Agency

No.197, 18th December 2000


Prime Minister delivers economic review

Thanks largely to the floods that devastated much of southern and central Mozambique in February, the main macro-economic indicators for this year are much worse than the government had initially planned, Prime Minister Pascoal Mocumbi told the country's parliament, the Assembly of the Republic, on 15 December.

Summarising the development of the economy over the year, he said that the government expected a final figure for growth in the Gross Domestic Product (GDP) of 3.8 per cent, rather than the six to eight per cent expected before the full extent of flood damage was known.

He said that devaluation of the country's currency, the metical, against the US dollar, is likely to reach 18 per cent by the end of the year, against an earlier forecast of just 10 per cent.

Prime Minister Mocumbi expected inflation to reach 12 per cent, instead of the targeted figure of 10 per cent. He gave the inflation rate for the January-November period as 9.9 per cent. Thus 12 per cent would only be reached if there are some sharp price rises during this festive season.

However, the re-establishment of the transport links that were disrupted by the floods, a reasonable harvest in much of the country, and the declining value of the South African rand have helped keep price rises down.

Mocumbi reported an increase in exports of 15 per cent over the 1999 figure. The total value of exports had reached $315 million, some $17 million more than expected. The main factors behind this are the export of power from the Cahora Bassa dam to South Africa, and the export of aluminium ingots produced at the MOZAL smelter on the outskirts of Maputo. MOZAL production came on stream in June, some six months earlier than initially planned.

Foreign investment declined to $488 million from the figure of $742 million reached in 1999 - but the high 1999 figure was due almost exclusively to MOZAL, since most of the investment in the smelter was realised in that year.

When production is broken down by sector, it can be seen that agriculture grew by just 2.8 per cent compared with a growth of nine per cent in 1999. After growth of 21.3 per cent in 1999, livestock production fell by 4.3 per cent. These disappointing figures are due largely to the floods.

Transport and communications was another sector that contracted. After growth of 10.1 per cent in 1999, the sector shrank by 3.6 per cent. Mocumbi attributed this to the many months of closure of the railway between Maputo and Zimbabwe, parts of which were washed away by the gigantic flood on the Limpopo, and to the many cuts in the main north-south highway also caused by flooding.

Mining declined by 4.2 per cent: this was not a flood- related phenomenon, but was caused mainly by the paralysis of the graphite mine at Ancuabe, in the northern province of Cabo Delgado.

Manufacturing industry grew at the healthy rate of 10 per cent (excluding MOZAL), or 18.2 per cent (including MOZAL).

After growth of 37.5 per cent in 1999, the building industry contracted by 22.5 per cent: but this is mostly due to the MOZAL effect. Most of the construction of the enormous smelter, far and away the largest private sector investment ever in Mozambique, took place in 1999. With no other mega-project under construction it was inevitable that 2000 would see a fall in building industry production.

In education, said Mocumbi, there was an 8.1 per cent increase in the primary school network, and an 11.4 per cent increase in pupils attending these schools. This year 90.7 per cent of children of primary school age were attending grades one to five.

The number of health units increased by six per cent this year. 95 per cent of pregnant women had at least one ante-natal consultation, but only 45 per cent of births took place in health units.

The health ministry continued its strikingly good record of vaccinations: 95 per cent of children received the main vaccinations (against tuberculosis, measles and polio).

Economic and social plan for 2001

The Mozambican government is aiming at a nine per cent growth in the country's Gross Domestic Product (GDP) next year, Prime Minister Pascoal Mocumbi told the Assembly of the Republic, as he unveiled the Economic and Social Plan for 2001. The government also hopes to bring inflation down to between six and seven per cent.

Prime Minister Mocumbi warned that the impact of last February's floods would still be felt in 2001, and so the government only expected growth rates of three per cent in agriculture, and 0.4 per cent in livestock.

Manufacturing production, however, is targeted to rise by 32.9 per cent. This is because the MOZAL aluminium smelter on the outskirts of Maputo will reach its full production (of 250,000 tonnes of ingots a year) in January. Without MOZAL, growth in manufacturing would be only 11.9 per cent.

Now that most of the damage done to roads and railways by the floods has been repaired, the transport and communications sector is expected to grow by 9.9 per cent.

Fisheries production is projected to grow by 10.2 per cent, trade by 5.3 per cent, and financial services by 15.9 per cent.

Construction will shrink by 10.8 per cent - this is a result of the conclusion in 2000 of the MOZAL smelter. If the MOZAL figures are omitted. the building industry from 1999 to 2001 shows an expansion of 9.9 per cent. Mining remains in crisis, and production in this sector is likely to fall by a further 14.1 per cent, despite a limited revival of coal mining in Tete province.

Exports are projected to more than double - from $315 million to $685 million. Once again, this is entirely due to one factory, MOZAL.

Since imports are expected to run at $1.19 billion, the trade balance will show a deficit of $507 million. But this is still a considerable improvement - in 1999 the deficit on the balance of trade was $982 million, and the likely figure for this year's deficit is $865 million.

Plans for the agricultural sector in 2001, Mocumbi said, include consolidating and expanding rural extension operations in 49 selected districts, assisting about 140,000 peasant households.

Extension agents and peasant farmers will be trained in improved production and post-harvest technologies, and access to improved seeds and other quality inputs will be facilitated.

Prime Minister Mocumbi said the government plans to improve the agricultural marketing system by creating facilities for greater private investment in this area. It would also speed up the sale of state-owned rural shops and warehouses (many of which are in ruins) to private businessmen, in the hope that this will revive rural trade.

The plan stresses that rehabilitation of primary, secondary and tertiary roads will continue, with the use of local resources, and labour intensive methods. It promises improved inspection so as to guarantee quality and reduce maintenance costs.

The plan for education is to increase the number of first level primary schools (teaching grades one to five) by 6.2 per cent (from 7,072 to 7,513 schools), and the number of pupils attending them by 12 per cent, to 2.56 million. This means that pretty well every child aged between six and 10 will be at school.

But after fifth grade, the likelihood of attending school drops dramatically. Even with the planned 20.9 per cent increase, there will only be 670 second level primary schools (grades six and seven) in the country, with about 260,000 pupils.

As for secondary schools, their number is scheduled to rise by 12.9 per cent, from 93 to 105. The number of children attending them will rise by 18 per cent - but will still only reach 93,000.

There will be 23 rather than 20 pre-university schools, and they will be teaching just 12,249 pupils.

Budget still reliant on foreign aid

The Mozambican state remains dependent on foreign aid for around half of its public expenditure, according to Finance Minister Luisa Diogo.

Introducing the 2001 budget in the Assembly of the Republic, Diogo said that of total public expenditure in 2000 of 17,292 billion meticais (slightly more than a billion US dollars, at current exchange rates), 8,282 billion meticais (47.9 per cent) was met by foreign aid.

The state's own revenue (mostly from taxes) only amounted to 7,471 billion meticais (43.2 per cent).

631 billion meticais (3.6 per cent) was transferred from the central bank: this was money that had been earmarked for debt servicing, but which could be released into the state budget thanks to the HIPC (Heavily Indebted Poor Countries) debt relief initiative. For the other 908 billion meticais (5.3 per cent), the government had to resort to its own bank savings, reversing the trend of previous years in which small amounts of domestic revenue have been sterilised within the banking system.

The 2001 budget will also depend heavily on foreign aid. Total expenditure is estimated at 20,700 billion meticais ($1.2 billion). But the state's projected internal revenue of 8,481 billion meticais will not even cover the recurrent budget of 10,502 billion meticais.

The deficit before grants is 12,219 billion meticais. Some of this gap is plugged with HIPC transfers from the central bank (474 billion meticais), and rather more (1,814 billion meticais) with "net domestic financing" (bank savings). The rest must depend on foreign grants and credits: but even when these are written in there remains a primary deficit of 4,282 billion meticais.

The largest item of recurrent expenditure is wages and other staff expenses, amounting to 45.2 per cent of the entire recurrent budget, followed by goods and services (26.9 per cent).

Debt servicing, thanks to HIPC, is only five per cent of recurrent expenditure. Diogo said the government has used HIPC debt relief to strengthen the budget for "priority sectors", notably education and health. Thus education will receive 49.2 per cent of the total 2001 recurrent budget (up from 47.5 per cent in 2000), and health 22.1 per cent (a slight decline from 22.6 per cent in 2000).

In nominal terms the education budget increased by 18.5 per cent in 2000, and a further 10.4 per cent increase is planned for 2001. For growth in expenditure on health, the equivalent figures are 48.4 per cent and 12.6 per cent.

As for the 2001 capital budget, 26 per cent is allocated to education, and 10.6 per cent to health. The transport and communications sector will absorb 20.7 per cent of the capital budget, mainly on road rehabilitation and maintenance.

Debt servicing continues

For the first time, domestic debt servicing is becoming a significant factor in the Mozambican budget.

The budget for 2001 envisages total payment of interest on debts of 456 billion meticais ($26.5 million at current exchange rates).

This is a sharp increase on the 121 billion meticais (not much more than $7 million) spent on interest payments in the 2000 budget.

The rise is partly explained by the fact that some creditors reacted to the catastrophic flooding of February by offering a moratorium on debt servicing - in effect, payments were suspended for a year. So foreign debt interest payments under the budget, after falling from 319 billion meticais in 1999 to 106 billion in 2000, is set to rise again to 260 billion in 2001.

But the really startling rise is in domestic debt servicing - from 15 billion meticais in 2000 to 196 billion in 2001. This is a rise of over 1,200 per cent.

As Diogo admitted, the only cause for this is the government's role in rescuing the two privatised banks, in which the state still holds a major stake - the Commercial Bank of Mozambique (BCM) and the Austral Bank. The BCM in particular recorded disastrous losses (the equivalent of around $127 million) in 1999.

The greater part of the money required to recapitalise the two banks will be raised by the majority shareholders (private consortia headed by the Portuguese BCP, in the case of the BCM, and by the Malaysian Southern Bank Berhard, in the case of the Austral Bank). But the state will still need to find the equivalent of around 80 million dollars to meet its commitments to refinancing the banks.

The government is raising the money through issuing treasury bonds this year, and again in 2001. It is the payment of interest on these bonds that accounts for the 196 billion meticais of domestic debt servicing written into the 2001 budget.

Since the government is pursuing contacts with foreign creditors for further debt cancellation, and since it is almost certain that Mozambique will qualify for the "enhanced" version of the HIPC (Heavily Indebted Poor Countries) debt relief initiative, sponsored by the World Bank and the IMF, in March 2001, it is quite possible that by the end of 2001 the Mozambican government will be paying more in interest on its domestic debt than on its foreign debt.

When capital repayments are included, foreign debt servicing in 2001 amounts to $73.54 million. Without the first instalment of the HIPC initiative, for which Mozambique qualified in 1999, the figure would have been $172.54 million.

If Mozambique does, as expected, qualify for HIPC-2 by March 2001, this will bring total foreign debt servicing for the year down to $54.54 million.

Thus for 2001 HIPC should release $118 million to be used in poverty alleviation programmes.

The total effect of HIPC is to cancel 72 per cent of Mozambique's debt stock, or $1.9 billion in net present value terms.

Rice cultivation in Gaza slashed

Production of rice at Chokwe, in the southern province of Gaza, in the 2000-2001 campaign will be less than 20 per cent of what was originally hoped.

The irrigation system at Chokwe, in the Limpopo valley, is the largest in the country, and Chokwe is usually considered Mozambique's main rice-producing area.

But not only was the irrigation system severely damaged by the February flood on the Limpopo, but there has also not been enough rice seed available.

According to Joaquim Cuna, coordinator of the emergency programme in the Ministry of Agriculture, the area to be sown with rice has therefore been reduced from 6,000 to 800 hectares. Furthermore, all the rice produced at Chokwe this campaign will be used to build up stocks of seed, so that production can be normalised as from the following year.

On 14 December government officials met with Chokwe farmers, said Cuna, "and the consensus reached was that priority should be given to producing seed".

The government had hoped to obtain 600 tonnes of rice seed for the flood-affected areas - but so far only 80 tonnes has been made available. The decision has been taken to use all 80 tonnes in Chokwe: it should be enough for about 500 hectares.In addition the seed company SEMOC has enough rice seed available for a further 150 hectares.

"Our struggle is to reach 800 hectares", said Cuna, "just so that we can ensure enough production to have sufficient seed for the next campaign".

Prime Minister calls for action on Montepuez prison deaths

Prime Minister Pascoal Mocumbi stressed on 14 December that anyone involved in the deaths of at least 83 prisoners last month in a police cell in the northern town of Montepuez would be held responsible and would face legal action.

The Prime Minister said action would be taken against such officials regardless of whether they were working at district, provincial or central level. He pledged that the government will give full cooperation to the country's judicial bodies in investigating the Montepuez slaughter.

The Prime Minister stressed that Montepuez had been in a completely anomalous situation, following the riot of 9 November, when demonstrators organised by Renamo had clashed with the police, leading to the deaths of at least 25 people (18 civilians and seven policemen).

"Order in Montepuez was destabilised", he said. "For two days there was no state order in Montepuez. Only after that period were the administration and police command re-established". The Renamo looting of administrative and police buildings had been comprehensive.

The Prime Minister suggested this provided the conditions under which the police failed to open proper case files on the people they detained, and did not even possess a list of the names and addresses of the people in the death cell.

As for what measures the government could take to improve the performance of the police, Prime Minister Mocumbi said "We shall continue training and upgrading the police, and we shall punish those who violate norms. We shall not confuse the violations committed by some policemen with the entire police force. They must be held individually responsible and taken before the courts".

New tariff for Cahora Bassa power

The South African electricity company ESKOM has agreed to pay a tariff of 3.7 South African cents (about 0.5 US cents) per kilowatt/hour for the power it purchases from the Cahora Bassa dam in the western province of Tete.

The Chairman of the Board of the dam operating company, Hidroelectrica de Cahora Bassa (HCB), Veiga Anjos, told reporters in Maputo on 11 December that an agreement to this effect was signed recently in Durban at a meeting of the Standing Joint Committee on Cahora Bassa between Portugal (which still owns over 82 per cent of HCB), Mozambique and South Africa.

The new tariff will be in effect for all of 2001, said Anjos. Up to now, ESKOM has only been paying two South African cents per kilowatt/hour, which is the price agreed in 1988. The meeting also agreed that the arbitration process that HCB had initiated in order to force ESKOM to pay more will be suspended against a lump sum payment by ESKOM to HCB of 165 million rands (about $22 million).

HCB's resort to arbitration followed ESKOM's refusal to implement a 1998 agreement which would have increased the tariff by 50 per cent. The Portuguese state, as majority shareholder in HCB, is clearly not satisfied with the deal. Anjos pointed out that the compensation HCB had been seeking was rather higher: it had asked for 174 million rands.

Currently tripartite discussions are under way over restructuring HCB. The Mozambican government has made clear that it wants to acquire the Portuguese shareholding, but it certainly does not wish to acquire responsibility for HCB's debt (of at least $1.6 billion) to the Portuguese treasury. The current round of meetings on restructuring the company "will determine the future of Cahora Bassa in the medium and long term, and the relations between HCB, Mozambique and South Africa", said Anjos.

As for Zimbabwe's debt to Cahora Bassa, Anjos said this has been declining since June. "Zimbabwe has been paying every week without fail since June for the energy we are supplying", he said. "Additionally, it has been paying $250,000 a week to pay off the debt".

Cashew nut prices collapse

The head of the National Cashew Institute, Clementina Machungo, has confirmed that the producer price for cashew nuts has more than halved when compared with the 1999 figure.

Last year, prices in the main cashew producing area, the northern province of Nampula, oscillated between 6,000 and 11,000 meticais (36 to 66 US cents at current exchange rates) a kilo. But now, according to a report in Wednesday's issue of the Maputo daily "Noticias", the prices are between 3,000 and 4,500 meticais a kilo.

Machungo said that last year Mozambique could sell raw cashew nuts to Indian companies for $700 a tonne. Today the price is around $415 a tonne. According to Machungo, this reduction is because India no longer needs to import large amounts of cashews.

Peasant income from cashews would therefore drop this year, and Machungo feared this could cause peasants to lose interest in the crop.

LAM monopoly over domestic routes ended

The privatised light aircraft company TTA has finally won its battle for the right to operate passenger flights on Mozambique's main domestic routes.

The busiest, and hence most profitable, routes inside Mozambique are along what is described as the air traffic backbone, linking the cities of Maputo, Beira, Quelimane, Nampula and Pemba. It has long been a monopoly of Mozambique Airlines (LAM).

According to a report in "Metical" on 5 December, Transport Minister Tomaz Salomao has authorised the "immediate granting" of the routes TTA requested, and the National Civil Aviation Directorate has been instructed to take the measures necessary to put this decision into practice.

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