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This document is from the archive of the Africa Policy E-Journal, published by the Africa Policy Information Center (APIC) from 1995 to 2001 and by Africa Action from 2001 to 2003. APIC was merged into Africa Action in 2001. Please note that many outdated links in this archived document may not work.

Mozambique: Cashew, Sugar Concessions

Mozambique: Cashew, Sugar Concessions
Date distributed (ymd): 010219
Document reposted by APIC

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: Southern Africa
Issue Areas: +economy/development+
Summary Contents:
This posting contains two articles by Joseph Hanlon, as well as several related news reports from the Mozambique News Agency, on new IMF/World Bank concessions on Mozambique's export policies for cashews and sugar, two of the country's principal exports. The cashew issue in particular has long been a subject of dispute and protest (see from 1997 'Can Mozambique Make the World Bank Pay for Its Mistakes?' - http://www.africafocus.org/docs97/moz9711.php, and, recently 'Price of Cashew Nuts Collapses'
http://allafrica.com/stories/200011220025.html).

International institutions insisted on removing protection from Mozambique's cashew-processing industry, in favor of theoretically available gains from exporting raw cashew nuts. The recent concessions come after years of criticism and protest from Mozambican business, labor, media and government. Nevertheless the new policy does not address the issue of compensation to Mozambique for the damage resulting from the failed policies imposed at creditor insistence.

+++++++++++++++++end profile++++++++++++++++++++++++++++++

Mozambique Wins Long Battles over Cashew Nuts and Sugar

Mozambique Bans Raw Cashew Exports after IMF Allows Cashew and Sugar Protection

articles and clippings by Joseph Hanlon (j.hanlon@open.ac.uk)

January 30, 2001

Mozambique has banned the export of unprocessed cashew nuts, ending a five-year battle with the World Bank and International Monetary Fund. Meanwhile, the IMF has allowed Mozambique to protect its expanding sugar industry; IMF directors overrode opposition from their own staff.

Allowing Mozambique to protect its two most important agro-industries is a remarkable reversal by the international financial institutions. It results from intense pressure from the Mozambican government, trade unions and business, taken up by international campaign groups.

Cashew became a symbol of mindless trade liberalisation when in 1995 the World Bank forced Mozambique to allow the unrestricted export of unprocessed cashew nuts to India. The World Bank argued that peasant producers would gain higher prices from the free market. But it did not happen -- as a monopoly buyer, India pushed down the price; transfer pricing also lowered the price paid to Mozambique; and traders within Mozambique pocketed larger margins. So the peasants lost out, while nearly 10,000 industrial workers (half women) became unemployed.

For five years Mozambique has campaigned against the ban. Finally, on 18 December the IMF Executive Board agreed a policy under which some cashew factories will be closed, but the rest will be protected. The protection is two-fold, an 18 percent export duty on unprocessed cashew nuts, plus the local industry given the right of first refusal -- to purchase nuts before they are exported. In light of this, the government banned the export of raw cashew nuts in mid-January.

Clippings reproduced below set out the recent events. The long history of the cashew saga was published last year in "Review of African Political Economy" no 83, pages 29-45. The article is also on the web, at
http://www.jubileeplus.org/analysis/reports/roape100400.htm

Meanwhile, the IMF Executive Board rejected a demand from its own staff, and agreed that Mozambique can protect its sugar industry, which is now being rehabilitated with major foreign investment. IMF staff had argued that since Mozambique could import sugar cheaper than producing it, it should allow duty-free import of sugar. Investors had demanded protection and were backed by the government. On 18 December, the IMF board agreed with the government and not its own staff.

Cashew and sugar are both about similar issues: Mozambique wants to create and protect tens of thousands of industrial jobs (cashew and sugar are the country's two largest industries). On the other hand, the international financial institutions (IFIs) argue that free trade and globalisation will bring more long-term benefit, outweighing the cost and disruption of massive unemployment. The IFIs believed they could impose their policies, but the international outcry over cashew made them rethink, and accept that they had to listen more closely to elected national government.


IMF Relents on Cashew and Sugar
by Joseph Hanlon, 30.01.01

The IMF has quietly accepted a compromise in which some of Mozambique's privatised cashew nut processing factories will be closed and the rest will be protected. This interpretation comes from a close reading of a set of documents issued by the IMF in December and January. The decision to ban exports should be seen in this context.

IMF directors also accepted Mozambique's rejection of IMF staff demands on sugar.

CASHEW

On the surface, the IMF continues to take a hard line on cashew. Notes of the 18 December Executive Board meeting, published 17 January, say: "Directors welcomed the authorities' commitment to trade liberalization. They urged them to stay the course of trade liberalisation, and to resolve the problems of the cashew processing industry."

However, the line in the joint IMF/government Memorandum of Economic and Fiscal Policies, published 19 December, is more subtle: "The government is making progress in addressing the problems of the cashew sector. Thus, the government has accepted in principle the liquidation of several nonviable processing plants. It has also decided that the export tax on raw cashew nuts remain at 18 percent for the coming crop year, and that acceptable modalities for the first-right-to-purchase -- granted by the law to local processors -- be worked out by the exporters and processors themselves under the auspices of the Cashew Institute. The government has also endorsed the Cashew Institute's recent master plan for the promotion of farm production of cashew nuts". The government expects to pay Mt 100 billion (about $6 million) to cashew processing companies to pay accumulated back wages to the workers, according to the memorandum.

The IMF staff report on Mozambique was published on 17 January 2001, and on cashew it notes that in October 1999 parliament (Assembly of the Republic) "passed a law providing for an increase in the export tax on raw cashew nuts from 14 per cent to 18-22 percent and for a first right to purchase raw nuts for the benefit of indigenous processors. In the wake of this law, the World Bank sponsored an assessment of competitiveness and employment in the cashew-processing industry in Mozambique. This study recommended the liquidation of several non-viable processing plants, with financial support from the government for the settlement of outstanding wage claims. The study also found that newer factories, using a more labor-intensive technology, did not require any special assistance. Following these recommendations, the government decided in September 2000 on a new policy for the cashew sector. It set the export tax at 18 percent for the current crop year, invited the cashew exporters and processors to agree among themselves on possible modalities for the first right to purchase, and accepted in principle the liquidation of unviable processing plants. The government also expressed support for the Mozambican Cashew Institute's efforts, formalised in a master plan, to stimulate farm production of cashew nuts, which, for reasons of inadequate tree maintenance and plants, remains near a historical low. The staff welcomed these decisions, in particular the emphasis on expanding cashew production and solving the problems of the processing industry."

I read this to mean that in exchange for closing some factories, the IMF now accepts the concept that the local industry must be given a first right to purchase and that, as has happened, the government can ban the export of raw nuts until the local industry's needs have been satisfied. That was, in practice, what Mozambique has been demanding for five years.

SUGAR

Sugar has been an issue, with the government wanting to impose an import duty to protect the domestic sugar industry. It argued that virtually all sugar producers do this (including the EU), and that it was essential to protect the tens of millions of dollars in investment planned for the industry. IMF staff had in late 1999 called for Mozambique to be the first big producer not to protect its industry, but Mozambique has now won the battle to maintain protection.

The joint Memorandum of Economic and Fiscal Policies says "Acting on the recommendations of a recent study by the Food and Agriculture Organization (FAO) for the sugar sector in Mozambique, the government has decided to maintain the level of import protection for sugar granted in September 1999, and it will review this policy annually based on domestic and international sugar market developments."

The staff study notes that "The government remains determined to support the rebuilding of the sugar industry in Mozambique and has therefore decided to uphold the increase in import surcharges for sugar granted in September 1999. At that time, the staff had viewed the increase in protection as troubling evidence of an inward-oriented industrial police, quite apart from its running counter to the government's commitment not to adopt new, or increase existing, general import surcharges under the programme. In the face of the authorities' wish to maintain the higher import surcharges and raise them further according to a preannounced schedule, the staff suggested that at least the further increases be put on hold, pending the outcome of a cost-benefit analysis of the intended policy, including its impact on the poor. At the invitation of the government, the Food and Agriculture Organization (FAO) undertook this analysis, coming out in support of the government's approach. The staff accepted this position but recommended that the additional protection granted in September 1999 be cut back again over a preannounced period of five years, broadly in line with the time investors thought necessary for the rebuilding of the industry. The government did not accept the staff's recommendation and instead retained discretion to review annual the level of protection based on domestic and international sugar market developments."

With FAO support, government has rejected IMF staff views on sugar, and IMF directors have backed this. Notes of the 18 December Executive Board meeting say "A few Directors also stressed the need to avoid increasing protection of the sugar industry". Thus only "a few" directors backed their own staff in opposition to the government.

The relevant documents are:

http://www.imf.org/external/NP/LOI/2000/moz/02/INDEX.HTM

Letter of Intent and Memorandum of Economic and Financial Policies of the Government of Mozambique for 200001. Dated 1 Dec 2000, published 19 Dec 2000 following Executive Board meeting of 18 Dec 2000.

http://www.imf.org/external/pubs/ft/scr/2001/cr0117.pdf

Mozambique: 2000 Article IV Consultation and Second Review Under the Poverty Reduction and Growth Facility--Staff Report; Staff Statement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Authorities of Mozambique, 17 Jan 2001

http://www.imf.org/external/np/sec/pr/2000/pr0073.htm

IMF Completes Second Review under PRGF for Mozambique and Approves Second Annual PRGF Loan


Finally, Raw Cashew Exports Banned

Maputo, 26 Jan (AIM) - The Mozambican authorities have slapped an embargo on the export of raw cashew nuts to India, reports Friday's issue of the independent newsheet "Metical".

For years the local cashew processing industry has been demanding a total ban on raw nut exports, arguing that the exporters compete unfairly with the industry, and deprive it of its raw materials.

Liberalisation of the trade in cashews was one of the conditions imposed by the World Bank in 1995, in exchange for access to soft loans.

The government was forced to dismantle protection for the processing industry, much of which had only recently been privatised.

When it became evident that liberalisation was killing off the processing industry, the government, with a reluctant World Bank go-ahead, in 1999 raised the surtax on raw nut exports from 14 to 18 per cent. The industry said this was insufficient to save the factories, and demanded the total prohibition of raw nut exports.

The industrialists have been proved right: currently the great majority of cashew processing plants are closed, and over 8,500 workers have lost their jobs.

The sudden embargoing of raw nut exports does not mean, however, that the government is making a last ditch attempt to rescue the industry. Nor is the move likely to arouse the ire of the World Bank and the IMF.

For, according to "Metical", the government moved because it suspected massive underinvoicing on the part of the exporters. The government could not believe that the export prices (on which the companies would have to pay the 18 per cent surtax) could be as low as the exporters claimed.

They alleged that this season's export price varied from 355 to 440 US dollars a tonne.

The government, however, does not want the nuts exported for anything less than an FOB price of 650 dollars a tonne.

The exporters claim that the price is low because of the poor quality of the Mozambican nuts, which have supposedly been assessed by the Indian buyers and by a pre-shipment inspection company.

Mozambican customs does not believe this story. On 19 January the customs service ordered that 8,000 tonnes of raw nuts currently in the port of Nacala, should not be exported at the rock bottom prices quoted by their owners.

Customs based its decision on the world market price of cashew as cited by Mozambique's Export Promotion Institute (IPEX).

The IPEX bulletin for January gave the world market price of raw cashews as between 660 and 800 dollars a tonne - about twice the price the exporters say the Indian companies are paying them. (AIM)

IMF Agrees to Protect Sugar but not Cashew Industry

Maputo, 27 Dec (AIM) - Mozambique has said that it will not remove the surtax that protects its sugar industry for the next five years.

This is in line with the International Monetary Fund, which initially had told the government that the protection for the domestic sugar industry must be reduced drastically.

According to Wednesday's issue of the independent newsheet "Metical", in a letter sent to the IMF, the Mozambican government says that following the conclusions of a study conducted by the United Nations Food and Agriculture Organisation has decided to maintain, for next year, the level of protection tax that had been established for September 1999, and adds that this policy will be reviewed every year taking into account the changing prices of sugar.

The new positions of the government and the IMF could well be predicted if one takes into account recent statements by IMF director Horst Kohler.

In September, Kohler aknowledged, in an interview to the Financial Times, the importance of the protection to the sugar industry in countries such as Mozambique.

He said then that the high customs duties applied on imported sugar would end up being covered by the less well off people, but this would not affect the macro-economic stability.

"I do not want to have the IMF indirectly being an instrument of the rich countries to maintain the protection of their levels of protection, while we continue saying to the poor countries to speed up their structural adjustment.

Recently, Mozambican Prime Minister Pascoal Mocumbi was against any impositions of policies by foreign powers. He thought that the protection on the sugar industry was essential for the sector's recovery.

However, the IMF still insists in not changing its policy towards the cashew industry.

Because it is going to increase its public expenditure for 2001, the government justified this by saying that money has to be transferred to the cashew industry to compensate the workers who lost their jobs as a consequence led to the closing of nearly all cashew factories.

There are about 5000 such workers.

The document notes that these are just the social aspect of the debts iuncurred, but one should also take into account all the money the new owners invested to rehabilitate the factories.

The government also accepts the IMF principle to liquidate the non-feasible factories, but does explain how this will be done, and this leaves the factory owners apprehensive about whether the government will return about 32 industrialists are owing to the banks. (AIM)

More Workers Fall Victim to IMF Structural Policies

Maputo, 3 Jan (AIM) - Some 5,930 Mozambican cashew workers lost their jobs in 2000, largely thanks to the International Monetary Fund structural policies being followed by the country.

The country's cashew and shoe trade union branches said that the biggest burden fell on the northern Nampula province which saw 3,000 workers be made redundant.

Maputo contributed with a further 1,200 workers, while the southern provinces of Gaza and Inhambane collectively came up with 1,730.

If added to those who lost their jobs between 1997 to 1999, the figure rises up to 8,800 - meanwhile, the cashew processing industry is completely paralised.

Boaventura Mondlane of the cashew trade union branch, SINTIC, blamed the paralisation of the sector on the liberalisation of the export of raw nuts, mainly to India.

The farm-gate price has gone down, he said. India has driven the price of raw nuts, and Mozambique is reeling under the impact of low prices - it has no alternative but to sell at whatever price India chooses. (AIM)

Most Cashew Workers Now Unemployed

Maputo, 20 Jan (AIM) - About 6,000 workers in Mozambique's cashew processing industry lost their jobs in 2000, according to the general secretary of the Cashew Workers Union (SINTIC), Boaventura Mondlane, cited in Saturday's issue of the Maputo daily "Noticias".

This brings to 8,500 the number of workers who have definitively lost their jobs since the crisis in the cashew sector began to bite in 1997. In other words, the great majority of workers in this industry are now unemployed.

"We have just ended a dark year for the cashew sector", said Mondlane. Prospects for the future looked no better - he said there was no money available to reopen factories that have closed because of the liberalisation of the trade in cashews imposed on Mozambique by the World Bank.

Since 1995, the World Bank had insisted that protection be removed from the local processing industry: in effect, this meant that raw cashew nuts were exported to India, for processing by child labourers who shell the nuts by hand, rather than sold to the Mozambican factories.

Liberalisation, the World Bank insisted, protected the interests of the peasants who harvest the nuts, who would receive a greater percentage of the cashew price.

But as the industrialists predicted, the opposite has happened. With next to no competition from the local factories, the exporters of raw nuts have been able to push prices down.

"The result of liberalisation, which we are now witnessing, is a fall in the marketing price", said Mondlane. "The producers are earning less and less, contrary to the arguments of the World Bank and the government. Now that the industry has been put out of action, prices are tumbling".

This year's cashew marketing campaign in northern Mozambique looks good, but the bankrupt industries are unable to purchase nuts and reopen their plants.

With the fading of all hope for the industry, workers who had been kept on the books even though they were producing nothing, have now been made definitively redundant.

The sacked workers are receiving their wage arrears and their redundancy pay. "We are not satisfied at the payment of redundancy money", said Mondlane. "Our objective is employment, and not the laying off of workers". (AIM)


This material is being reposted for wider distribution by the Africa Policy Information Center (APIC). APIC provides accessible information and analysis in order to promote U.S. and international policies toward Africa that advance economic, political and social justice and the full spectrum of human rights.


URL for this file: http://www.africafocus.org/docs01/cash0101.php