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Africa: World Bank and Africa Policy
Africa: World Bank and Africa Policy
Date distributed (ymd): 010405
Document reposted by APIC
Africa Policy Electronic Distribution List: an information
service provided by AFRICA ACTION (incorporating the Africa
Policy Information Center, The Africa Fund, and the American
Committee on Africa). Find more information for action for
Africa at http://www.africapolicy.org
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Continent-wide
Issue Areas: +political/rights+ +economy/development+
SUMMARY CONTENTS:
This posting provides two brief notes on issues where World Bank
policy continues to clash with alternatives proposed by African
civil society organizations and governments. The first, from
Jubilee 2000-Zambia, concerns the use of loans rather than grants
to address the HIV/AIDS pandemic. The second is an update from Joe
Hanlon reporting that the IMF and World Bank are still resisting
Mozambican efforts to protect its cashew industry, despite apparent
concessions earlier this year (see
http://www.africafocus.org/docs01/cash0101.php> for earlier
posting).
The posting begins with a brief cover note from Africa Action
executive director Salih Booker.
+++++++++++++++++end profile++++++++++++++++++++++++++++++
Who Pays for Damages?
The documents below are two examples among many of specific policy
areas exposing the 'democracy deficit' in the World Bank and other
multilateral institutions which in practice make many key decisions
for African countries. The balance of power in making decisions is
tipped decisively towards decision-makers in Washington, yet those
who pay for policy failures include patients seeking health care
from impoverished health systems and unemployed cashew workers.
An internal Operations Evaluation Department report of the World
Bank's health projects concluded that the Bank 'has performed
poorly in analyzing the factors that lead to ill-health among the
poor.' (Cited in John Gershman, The World Bank and Health -
http://www.bicusa.org/ptoc/htm/gershman_health.htm). Bank-imposed
user-fees (required in nearly 75% of the Bank's health projects in
Africa) have driven the poor away from health care, thereby fueling
the HIV/AIDS pandemic. More than three years ago, Mozambican and
international critics identified the damages from Bank policy to
Mozambique's cashew industry and called for the Bank to pay
compensation
(
http://www.africafocus.org/docs97/moz9711.php)
Who owes whom? The precise figures may be hard to calculate, and
the international legal system does not yet provide for juries to
award damages as in domestic civil suits. But can there be any
doubt that those who imposed failed policies should be liable to
pay?
Salih Booker
P.S. In response to the most recent developments on the cashew nut
policy, Representative Cynthia McKinney has initiated a
congressional letter to U.S. Treasury Secretary Paul O'Neill on the
issue (http://www.africapolicy.org/adna/moz0103.htm). Along with
several other organizations in Washington, I am writing to
the Department of Treasury to request a meeting to ask that the
U.S. use its influence against this continuing pressure on
Mozambique.
###############################################################
Jubilee 2000 - Zambia
3 April 2001
PRESS RELEASE
NO! LOANS: NOT A SOLUTION TO THE AIDS PANDEMIC IN ZAMBIA
For more information:
Chrispin Mphuka
Coordinator, Jubilee 2000-Zambia Campaign
Jesuit Centre for Theological Reflection
P.O BOX 37774 Lusaka, Zambia.
Tel: 260-01-290410 Fax. 260-01-290759
E-mail: debtjctr@zamnet.zm Web: http://www.jctr.org.zm
Loans will not solve the AIDS/HIV pandemic that Zambia is currently
facing. As Jubilee-Zambia, we are concerned with the World Bank's
insistence that Zambia should acquire loans to tackle the AIDS
problem. The World Bank should realise that Zambia is actually
losing more lives as a result of servicing debts for the loans that
we are being encouraged to borrow.
Responding to press article in which World Bank Country Director
for Zambia and Zimbabwe Yaw Ansu justified the need to borrow in
order to overcome the problem, Jubilee-Zambia Acting Co-ordinator
Charity Musamba explained that if indeed the World Bank is
concerned about AIDS in Zambia, then it should change its approach
to this crucial matter - HIV/AIDS.
Loans are not the main option especially if "thousands of people
are dying" as Mr Ansu noted. Instead, it would be important to
empower countries such as Zambia to tackle this problem in a more
sustainable way. The most critical question the World Bank must
respond to is "why are thousands of people dying of HIV/AIDS in
Zambia today?" Secondly, if the World Bank's concern is true, the
solution to this problem should be "people-centred" as opposed to
the current strict "monetary and commercial" approach the Bank is
promoting.
It is true that Zambia needs an urgent solution to the AIDS crisis
but the solution is not "more loans." We are all aware of how loans
affected our country today and one of the major results is that we
are now failing to deal with the crisis. More loans will only
continue to undermine the prosperity and opportunities of Zambia to
deal with the AIDS crises and the related challenges such as
poverty.
Zambia is poor and heavily indebted to effectively deal with the
problem at hand. Zambia needs grants and other non-exploitative
forms of external assistance. World Bank can play a key and
positive role by facilitating debt cancellation for poor nations so
that they are empowered to take charge of challenges such as
AIDS/HIV. Only when this is done will Zambia confidently acquire,
effectively utilise and repay loans.
As partners in development, let us show commitment to true human
development by encouraging sustainable approaches in dealing with
the crises that heavily indebted poor countries are facing.
Serious and real assistance to Zambia will aim at avoiding any
chances of worsening the country's debt problem. Let us fight AIDS
by avoiding debt traps!
Charity Musamba Acting Co-ordinator: Jubilee-Zambia
MOZAMBIQUE FORCED TO REVERSE CASHEW EXPORT BAN WHILE WORLD BANK
DEFENDS ITS CASHEW POLICY
article and clippings by Joseph Hanlon j.hanlon@open.ac.uk 17.03.01
Mozambique has been forced to back down somewhat on its ban on
cashew export ban. In January we reported that "Mozambique has
banned the export of unprocessed cashew nuts, ending a five-year
battle with the World Bank and International Monetary Fund." But we
appear to have been over-optimistic.
According to Mozambican sources, the IMF was "furious" and demanded
that Mozambique deny the that a ban existed. In late February,
UTRA, the agency in the Ministry of Planning and Finance
responsible for customs, told the press that there really never had
been a ban, and that exports were permitted with restrictions.
The World Bank and IMF had forced Mozambique to allow the free
export of unprocessed nuts if India was prepared to pay a higher
price than local industry. As predicted, once the factories in
Mozambique closed, the Indian price plummeted to less than half the
earlier price. But UTRA concluded that there was under-invoicing,
and that traders were reporting export prices well below the real
price, and were putting the difference in foreign bank accounts
(and not paying local taxes on the difference). So UTRA agreed to
allow exports only if exporters, in effect, allowed an independent
adjudication of the export value.
Nearly all of the cashew factories are now closed, and 8500 of
10,000 cashew processing workers are unemployed. while peasants are
earning less than they were before. So, despite claims by the World
Bank that making 10,000 cashew workers unemployed would bring
higher earnings, both peasants and workers are now worse off.
Meanwhile, last year there were two articles in US newspapers. In
the New York Times economist Paul Krugman claimed that those of us
who oppose World Bank cashew policy say that "the World Bank is
evil, then, because it tried to end a policy that not only made
Mozambique as a whole poorer, but directly hurt millions of
impoverished small farmers."
The response came in an article in the Washington Post, by a
journalist who actually visited Mandlakaze in Mozambique, rather
than writing from a US university, and generally supported the
critics, calling the World Bank policy "a less than helpful hand".
The Statistical Assessment Service (STATS) then gave the Krugman
article one of its "Dubious Data 2000 Awards" for "The Top Ten
Silliest, Most Misleading Stories of the New Millennium". It wrote:
"Cashew, Cashew, We All Fall Down New York Times columnist Paul
Krugman found another way to criticize anti-globalization
protestors in his April 19 column, "A Real Nut Case." He claimed
that the World Bank's intervention in Mozambique's cashew industry
benefitted the country's poor farmers, who had suffered compared
with the nation's 10,000 nut processing workers. Unfortunately for
Mr. Krugman, and for Mozambique as well, investigations later in
the year by the Washington Post ("A Less Than Helpful Hand; World
Bank, IMF Blamed for Fall of Mozambican Cashew Industry," Oct. 18)
and Knight Ridder ("World Bank Policies Had Mixed Results in
Mozambique," Sep. 17) found that the World Bank's policies had not
only put over 7,500 factory workers out of a job in one of the
world's poorest countries, but that the farmers who were supposed
to have benefitted had lost out to nut speculators, many of them
foreign."
But the World Bank jumped to defend its policies, issuing on 13
November 2000 a "Briefing Note on Cashew Policy in Mozambique"
which used Krugman's article to defend itself against the
Washington Post article. The briefing note contained a number of
errors.
The background to the cashew dispute is detailed in an article
"Power Without Responsibility: the World Bank and Mozambican Cashew
Nuts" published in the Review of African Political Economy 83 March
2000. The article is on the web at
http://www.jubileeplus.org/analysis/reports/roape100400.htm (Copies
of my 30.01.01 note - see
http://www.africafocus.org/docs01/cash0101.php>) are available on
request from j.hanlon@open.ac.uk)
EXPORTS OF RAW CASHEWS RESUME, UNDER CONDITIONS
Maputo, 23 Feb (AIM) - The Mozambican government has once again
authorised the export of raw cashew nuts, but the exporters, who
are suspected of evading the export surtax on the nuts, must pay a
deposit while customs investigates the real export price being
paid.
In late January, the independent newsheet "Metical" reported that
the government had slapped an embargo on the export of raw nuts
because it could not believe the low FOB prices that the exporters
were quoting.
Raw nuts pay an 18 per cent export surtax - a measure designed to
protect Mozambique's near moribund cashew processing industry.
There is therefore an incentive for exporters to lie about the
prices paid for their nuts (all of which are exported to India).
Exporters shipping unprocessed nuts out of the northern port of
Nacala were quoting FOB prices that varied between 335 and 440 US
dollars a tonne. But the current FOB price for raw cashews on the
world market should not be less than 650 dollars a tonne.
On Friday "Metical" reported that, after lengthy negotiations,
UTRA, the customs restructuring unit in the Finance Ministry, has
allowed the nuts to be exported - but only against a deposit, which
takes the form of a banker's guarantee that will not be cashed if
UTRA eventually concludes that the exporters are not trying to
defraud the state.
The traders will pay the 18 per cent surtax on the declared FOB
prices - but they must also provide a banker's letter of guarantee
pledging payment of surtax on the difference between the declared
price and 650 dollars a tonne.
The exporters claim they are paid low prices because the quality of
Mozambican nuts is "very poor". Customs clearly finds it hard to
believe that the nuts are so bad that the exporters can only pick
up between a half and two thirds of the normal market price for
them.
So studies to ascertain the real price are to be undertaken. If the
conclusion is that the nuts really are worth no more than the price
the exporters have declared, then the banker's guarantee will not
be claimed. If, however, customs concludes that the nuts have been
underinvoiced, then the money will be claimed.
A senior UTRA spokesman objected to "Metical"'s original use of the
term "embargo", which had doubtless annoyed the IMF and World Bank
ideologues who object to effective protection for the cashew
processing industry. (AIM) pf/ (396)
[[JH COMMENT: The World Bank document below is seriously
misleading. In some places I have added my own comments, like this
one in brackets. Joseph Hanlon]]
INTERNATIONAL DEVELOPMENT ASSOCIATION
FROM: Vice President and Secretary
November 13, 2000
Briefing Note on Cashew Policy in Mozambique
Following publication of a recent Washington Post article on World
Bank involvement in the cashew sector in Mozambique, the Africa
Region prepared the attached note on cashew policy in Mozambique.
Distribution:
Executive Directors and Alternates
President
Bank Group Senior Management
Vice Presidents, Bank, IFC and MIGA
Directors and Department Heads, Bank, IFC and MIGA
The Republic of Mozambique Briefing Note on Cashew Policy
1. The cashew industry is the main source of income, and an
important source of food security, for over one million small-scale
farmers in Mozambique. It is also the second largest traditional
source of export earnings after shrimp.
Policy background and developments
2. In response to a request of the Mozambican Government, the World
Bank initiated analytical work in the cashew sector in the early
1990s, when the industry was already in serious decline. By the end
of the civil war in 1992, marketed production of raw nuts had
dropped dramatically, from 200,000 tons a year in the 1970s (when
Mozambique was the world's leading producer) to about 32,000 tons
a year. This was due mainly to the collapse of the rural marketing
network and war-related damage to the cashew tree stock ( estimated
at 25 million trees). In addition, the domestic processing industry
had failed to keep pace with international change in the industry.
Using outdated technology and poor management practices, it was too
inefficient to be viable at world prices for raw nuts. By 1993/94,
only one of nine operable mechanized processors in Mozambique
(viz., a private firm employing about 1,500 workers) was actually
operating. Of the eight remaining operable processors, seven were
controlled by Caju de Mozambique, the state-owned company which
accounted for 80% of Mozambique’s processing capacity, and they had
not been operating for at least a year pending their sale to the
private sector.
3. As early as 1978, the Government had provided protection to the
industry by placing restrictions on the export of raw cashew nuts.
Initially, these restrictions took the form of an outright ban on
exports, but by 1991/92 the ban had been replaced by a regime which
permitted limited exports of raw nuts, subject to a 60 percent tax.
These restrictions forced farmers to sell their raw nuts cheaply,
at less than world prices, to domestic processors. In effect, the
restrictions depressed farmers' incomes to protect jobs in the
processing industry . Survey data from the Ministry of Agriculture
show that in 1993/94, the last agricultural season before
significant liberalization of cashew marketing, Mozambican farmers
received only 19 percent of the international value of the cashew
nut (by contrast, Tanzanian farmers received 50 percent). The
beneficiaries of this protectionist policy were the owners of the
industry and their employees. By 1995, the processors formerly
owned by Caju de Mozambique were in private hands and operating
again, and the industry as a whole employed about 6,800. By 1997,
as the new owners continued to add capacity under the liberalized
regime, the number of employees rose to about 10,100.
4. From the time of its initial engagement in the sector, the Bank
has consistently recommended that the Government liberalize cashew
marketing to improve farmers' incomes. In the early 1990s, when
Mozambique was in the first stages of conflict recovery, this
initiative was one of few available to improve the lot of the poor.
As Princeton economist Paul Krugman noted in an April 2000 New York
Times article (A Real Nut Case), the Bank's advice was appropriate
to Mozambique's political economy:" In poor countries organized
urban workers (and factory owners) typically have far more
political clout than much more numerous but illiterate and
unorganized farmers; the result is an often extreme policy bias
against the countryside. Governments frequently tax the rural poor
to subsidize urban industries. ...This case-in which peasants were
forced to sell their crops cheaply in order to protect the jobs of
10,000 processing workers-fits right into the pattern."
[[JH COMMENTS:
- The World Bank and Krugman have consistently missed the point
the cashew nuts are a tree crop and peasants cannot change crops
when the price falls. Thus they would prefer a guaranteed but
stable market price, even if lower than the world price in some
years.
- Cashew factories tend to be in rural areas and workers tend to
be part of extended families, so their salaries add to peasant
earnings. This is not an appropriate industry in which to claim a
fight between an urban industrial elite and the rural poor.
- The World Bank notes below the point made by the Deloitte &
Touche report that Mozambique would increase its total export
earnings by processing cashew nuts. So it is not just workers
against peasants.
- Privatisation was to domestic rather than foreign capital, and
it can be argued that domestic entrepreneurs deserve some initial
protection.
- Evidence so far is that, Krugman notwithstanding, everyone has
lost -- peasants, workers, entrepreneurs and government.
]]
5. In addition to recommending liberalization in cashew marketing,
the Bank recommended as a subsequent step that the Government
privatize the processing industry that it had nationalized some
years before. On many occasions, the Bank has also offered to
provide technical assistance to improve production efficiency in
both the agricultural and processing areas of the sector. To date,
the Government has used Bank resources to finance programs aiming
to increase farmer productivity and evaluate marketing and
processing practices, but it has not yet used Bank resources to
support restructuring of the processing industry.
6. The Bank's Operations Evaluation Department endorsed these
policies on several occasions in 1997 and 1998 ( see Mozambique
Country Assistance Review, December 2, 1997 (paragraph 8.7);
Mozambique: Taxation of Cashew Nut Exports, February 25, 1998; and
Cashews: Contention in Mozambique, May 8, 1998). These policies are
also consistent with the Bank's agriculture development strategy
for Mozambique, which aims to increase production incentives to
small-holders through gradual liberalization of marketing and
prices. This strategy was presented to the Board in the November
1995 CAS (see paragraph 37).
7. From the beginning, the Bank and the Government agreed that
liberalization and privatization were appropriate, with the Bank
favoring immediate elimination of the export tax followed by
privatization and the Government favoring privatization followed by
phased elimination of the tax. (The processing industry, by
contrast, favored a phased reduction of the tax to 8 percent.) In
the end, the Government view prevailed. Although the 1995 CAS
stated that failure to liberalize cashew marketing, exports and
licensing could trigger the low case scenario (which proposed
lending of $240 million as opposed to $665 million in the base
case), the CAS did not set out an explicit schedule for
liberalization. Moreover, liberalization of cashew marketing was
initiated well before presentation of the 1995 CAS. Already in
1991/92, the Government had replaced the export ban with
quantitative restrictions on exports subject to a 60 percent tax.
Then, in 1994/95, it had eliminated the quantitative restrictions
and introduced a graduated export tax which had the effect of
reducing the tax to about 30 percent. In 1995/96, following
agreement with the Bank, the Government lowered the export tax to
20 percent; and in 1996/97, it lowered the tax further to 14
percent.
[[JH COMMENT. This paragraph is extremely misleading.
- Government sources claim that elimination of the export tax was
only demanded after the industry was privatised to domestic
capital, rather than to foreign capital as the World Bank had
expected.
- Note that this paragraph admits that if the government failed to
liberalise, the Bank would have halted $425 million in loans -- a huge
political penalty.
- Although the CAS did not set an explicit schedule for
liberalisation, the IMF Policy Framework Paper did. If this
schedule was not followed, all aid, not just World Bank loans,
would have been cut off, because all aid is conditional on having
World Bank and IMF programmes.
- This paragraph contains the central point of the whole debate,
which the World Bank always tries to avoid. The 1995 CAS made
cashew liberalisation a "necessary condition". The Bank and IMF
imposed a policy without debate or discussion, even overriding the
elected parliament, and remained unwilling to debate that policy in
public. Even if the policy is correct, it was clearly wrong to
impose it, in secret, and over strong opposition. This showed the
World Bank and IMF at their most arrogant. If the World Bank was so
sure of its policy, why was it unwilling to try to convince
parliament?
]]
8. Although a number of senior Government officials strongly
supported the new cashew policy, many of the newly-privatized
processors strongly opposed it, as it exposed their inefficiencies
and reduced their economic returns. They mounted a well-organized
political and mass-media campaign, arguing that lower tariffs were
destroying the processing industry in Mozambique. Following
contacts with the Bank , the Government decided in early 1997 to
freeze the export tax at 14 percent-the rate at which it then
stood-until a study of the cashew policy was completed.
[[JH COMMENT:
- There is no evidence that more than a few senior officials
supported the new policy, while most clearly opposed it, as World
Bank President Wolfensohn found when he visited Mozambique.
- The newly privatised processors did, indeed, oppose the policy
because they had been promised protection long enough to modernise
factories which everyone, including the government, agreed were
inefficient and out of date. The imposed liberalisation had the
perverse effect of making new investment and modernisation more
difficult.
- Well organised campaigns are the heart of civil society
participation in decision making -- and the World Bank is clearly
not accustomed to this in Africa.
- Much of the opposition was because the policy was imposed and
put 10,000 people out of work, when a smoother transition with more
profit and less pain was clearly possible. But the World Bank would
not permit discussion.
- The freeze at 14 per cent occurred because President Wolfensohn
ordered it, over the advice of his own staff.
]]
9. This study, commissioned by the Government and prepared by
Deloitte & Touche, was issued in October 1997. It found that
liberalization had increased farmers , incomes, stimulated
development of a rural trading network, and increased production
and efficiency in the processing industry. It also called attention
to the critical state of the cashew tree stock, observing that an
estimated one million trees were dying or going out of production
each year because of age, disease or neglect, while only 300,000
were being planted to replace them. Even so, the study found that
the net foreign exchange earned by exporting processed nuts
exceeded that earned by exporting raw nuts by some $130 to $220 per
ton and so it recommended protecting the processing industry from
Indian competitors for raw nuts by freezing the export tariff at 14
percent for at least three years, after which a reassessment would
take place. The Government therefore maintained the tariff at 14
percent.
[[JH COMMENT: Deloitte & Touche said the World Bank's previous
policy on cashew "should be abandoned". The Bank rejected this
conclusion.]]
10. Nonetheless, pressure from the industry and the media to ban
raw cashew nut exports continued. As a consequence, in 1999, a bill
was introduced into the National Assembly to restore the export
ban. Several members of the executive branch opposed the bill. With
their successful intervention, a compromise bill was passed. This
bill, which is still in effect, raises the export tax from 14
percent to a range of 18 to 22 percent, to be decided annually by
the executive branch. The executive branch has maintained the
export tax at 18 percent.
[[JH COMMENT: 14 per cent had never been acceptable, but was the
cap imposed by the World Bank and IMF after the Wolfensohn
intervention. Deloitte & Touche recommended 20 per cent. The rise
to 18 per cent was the most the Bank and Fund would accept.]]
The impact of cashew policy on farmers and processors
11. As Professor Krugman noted in his April article, Bank advice in
the cashew sector in Mozambique has been decidedly pro-poor.
Eliminating the export ban and reducing the export tax has put more
money into farmers' hands. Prices for raw nuts, after inflation,
rose from 10 cents per pound in 1994 to 18 cents this year. The
farmer's share of the export value of the nut also rose over that
period, from 28 percent to 58 percent. Higher prices also
encouraged farmers to increase production. Since the 1993/94
season, farmers have brought an average of about 48,000 tons of raw
nuts to market each year, compared to an average of about 32,000
tons a year in the five years before liberalization. In addition,
export earnings from raw nuts more than doubled, from $19.3 million
in 1993/94 to $40.7 million in 1997/98.
[[JH COMMENT:
- Although the Bank and Krugman claim that the Bank is "pro-poor"
and the government is not, the whole dispute is about this
assertion.
- The World Bank seems to have confused pounds and kilograms. The
present price is about 18 US cents per kilogram, which is 8 cents
per pound, compared to the correct 1994 price of 10 cents per
pound. In other words, by the World Bank's own data, peasants earn
less after liberalisation, not more.
]]
12. Since liberalization, the Government has given the processing
industry substantial assistance to help it to adjust to
international competition. This assistance includes several tax
breaks, reduced customs charges for imports of capital equipment,
and deferment of payments due to the Government for the purchase of
factories. In addition, the National Cashew Institute (INCAJU),
created to help rehabilitate the industry, receives all of the
proceeds of the 18 percent export tax.
13. Even so, the larger antiquated factories are experiencing
difficulties. As the industry resumed production and added capacity
after liberalization (it rose from 20,000 tons in 1994/95 to 60,000
tons in 1996/97), operational processing capacity came to exceed
the supply of locally-produced nuts. As a consequence, firms were
required either to operate below capacity, or to pay world prices
to import raw nuts to operate at full capacity. Some factories
(mostly those using outdated capital-intensive technology, such as
automated cutters and/or mass decorticators) found that they could
not make a profit under these conditions. Poor nut quality also put
pressure on profit margins. . As a result, many factories have
simply closed their doors. By contrast, a few small labor-intensive
processors have shown themselves to be highly competitive already,
and cost analyses show that they would remain competitive even if
required to pay substantially higher prices for nuts.
14. In 2000, the International Finance Corporation (IFC), made a
$580,000 loan investment ($300,000 disbursed) in Cabo Caju, a small
manual processor in Pemba (2,000 ton per annum capacity) which
produces high-quality niche products for export; Cabo Caju is using
the IFC loan to expand its already profitable operations. In
addition, in 1996, the IFC loaned $2,350,000 to Caju Mocita, a
rehabilitated processor in Xai Xai owned by the Anglo-American
Corporation and Oltremare, which manufactures the highly-automated
cutter technology used in the factory (8,000 ton per annum
capacity); this loan was fully repaid in May 2000.
15. Although liberalization has exposed the serious inefficiencies
of the processing industry, in the long-run it is expected to help
restore the industry to prosperity. Higher producer prices,
sustained over time, will encourage farmers to revitalize an aging,
unhealthy, and low-yielding tree stock, which is the root cause of
the calamitous decline in the industry. An improved and enlarged
tree stock will lead over the medium-term to higher production of
raw nuts. It will also improve the quality of raw nuts, thus
enabling processors to derive significantly higher profits from the
same output.
[[JH COMMENT: liberalisation did not "expose serious
inefficiencies" -- everyone knew they were they when the factories
were privatised. Instead, liberalisation prevented the new buyers
from correcting those inefficiencies. Also, it is an assumption (so
far unproven) that higher producer prices will lead farmers to make
the long term investments needed in new trees. Indeed, it is widely
assumed that some government or industry subsidy will be needed for
new trees, and this is not possible under a totally free market.]]
Rehabilitation of the processing industry
16. To help rehabilitate the sector, the Government created INCAJU,
which is linked to the Ministry of Agriculture. Under its
leadership, master plans for improving the production, marketing,
and processing of cashew nuts have been prepared and funded. The
master plan for improving orchard productivity ($16 million over 5
years) is already being implemented with support from the Bank and
other donors. This plan, carried out through NGOs and the private
sector, entails two immediate lines of action: (i) replacing the
tree stock (400,000 new trees a year); and (ii) treating the oidium
anacardium fungus and the helopeltis insect, which have severely
reduced productivity. These treatments, which can more than double
productivity in a season, have been initiated in Nampula and Cabo
Delgado. In addition, a research program is being put in place,
building on successes achieved in Tanzania.
17. Trade in raw cashew nuts has increased since the liberalization
of exports. As the Deloitte & Touche study indicates, "growth in
this area suggests that liberalization has clearly provided an
impetus for ambulant traders to penetrate deeper into the interior
of rural districts in an effort to procure stock, and this is
breaking down the isolation felt by rural communities and bringing
'the market' closer to the farm gate in many areas." Under the
master plan for improving the marketing and processing of cashew
nuts, the Government is engaged in (i) organizing farmers using the
extension service and NGOs to enable farmers to facilitate the
process of collection and marketing; (ii) promoting the idea of
quality-based premiums for nuts; and (iii) expanding the rural road
network.
18. Using Bank funding, the Government also retained Abt Associates
to assess the processing industry. Completed in November 1999, the
study (Assessment of the Status of Competitiveness and Employment
in the Cashew Processing Industry in Mozambique) assesses the
economic and financial performance of each processing factory with
a view to establishing its competitiveness profile, identifying
sources of inefficiency, and designing strategies to overcome them.
The Government is using the results from this study, and others, to
develop and implement its master plan for the processing industry.
Features of this plan include (i) promoting labor-intensive
technologies to be used in small factories located close to
production sites, thus providing employment in rural areas and
reducing transport costs; (ii) assisting factories that are unable
to compete under the liberalized marketing regime to close down and
retire their employees; and (iii) assisting factories that have the
potential to become competitive to restructure their operations.
Costs associated with retiring employees or changing their status
from permanent to temporary are currently estimated at about $7.5
million. Future assistance may include support for studies and
training as well as access to a line of credit, for example under
the Bank-funded Enterprise Development Project.
Conclusion
19. Going forward, the Bank will continue to offer support to the
Government for the cashew sector both through our agricultural and
private sector development programs and through our analytical work
on rural poverty in general.
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