Mozambique’s Extraordinary Journey from War to

Development

Presentation to Association for International Agriculture and Rural Development 40th Annual Meeting

June 6-8, 2004

Partnership to Cut Hunger and Poverty in Af r ica

Outline

1. Introduction

2. Mozambique in 1975, 1992 and 2004

3. Key factors in Mozambique’s recovery

4. The continuing challenge of agriculture and rural poverty

5. Conclusions

 

1. Introduction

Partnership to Cut Hunger and Poverty in Africa

President Chissano co-chairs An independent US-Africa coalition

formed in 2001 to generate public and private support in the U.S.

for increased levels of assistance to AfricaTo create consensus among Africans and

Americans about steps needed to increase the effectiveness of assistance and bring about real progress in the fight to end hunger

MSU Food Security Project

USAID-funded Technical assistance to Ministry of Agriculture and

Rural Development Major focus on training Mozambican policy analysts Key research areas include

• Market information systems

• Constraints to technology transfer and agricultural input market development

• Agricultural survey development, implementation, data analysis and policy implications

2. Mozambique in 1975, 1992 and 2004

1975

1975: Independence from Portugal Colonial rule characterized by low investment in

economic, social, human development 1976-92: Devastating civil war largely fueled by

outside interests By the end of the war, most rural infrastructure had been

destroyed or disabled, rural food processing and industrial plants were non-functional, roads and railways damaged

> 4.5 million people (25% of the population) were internally displaced or refugees in neighbouring countries

During the 1980s est. 80% of food needs met through imported food aid

1992

1992: Peace Accords signedMozambique considered the poorest

country in the world Per cap. annual income <$75 Per cap. GDP grew at 0.6% per year 1987-96

1994: first democratic multiparty elections held

2004 GDP growth of 7-8% annually 1997-2003 80% of pop. living in absolute poverty in 1989-94

69% in 1997 54.1% in 2003

Domestic food production supplies 78% of needs; food aid 5%; commercial imports supply the rest

1 of 8 African countries eligible for MCA assistance

Venue for African Economic Summit because Mozambique is “an excellent case study”

Pres. Chissano will step down following December 2004 elections

3. Key factors in Mozambique’s recovery

Extensive and sustained economic policy change

Other than South Africa, no country in Southern Africa has reformed and stabilized its economy like Mozambique

Gov’t adopted policies to open the economy and make it more market-oriented, while maintaining some form of economic and social safety net for the poorest

Inflation over the past six years has averaged 8.5%, lowest in the region

Exchange rate is fully liberalized In agriculture

Sustained commitment to open borders – Mozambique benefits by importing maize for the south, exporting from the north

Minimum producer prices were abolished in the mid-1990s Grain marketing parastatal disbanded in the 1990s

Investments in infrastructure

Gov’t began to rebuild rural infrastructure that had been destroyed or neglected during the war

E.g.,in 2003 gov’t met over 75% of road building/rehab target. 827 km of roads were constructed or rehabilitated, mostly rural access roads.

HIPC and PARPA

1998 -- debt reduced from US $5.6 billion to $1.3 billion--Between 1996-2000 annual inflation rate declined from 47% to 2%

Successor HIPC 2 promised further debt relief if 4 conditions met--Elaboration of PRSP (PARPA)--Implementation of set of measures related to social development, public sector reform,

legal and regulatory framework for economic activities--Maintenance of stable macroeconomic climate --Participation of other creditors in debt relief

Mozambique qualified for HIPC 2 in 2001--External debt reduced to US $750 million --Debt service declined from US $100 million/yr (1988) to US $56 million/yr 2002-2010 --Savings allowed an increase of state disbursements toward PARPA – US $130 million/yr

PARPA public expenditures projected 2001-056% agriculture32% education29% infrastructure19% health12% governance

Active civil society

Land Campaign. Mobilization around the Land Campaign. Diverse group of urban and rural organizations united in late 1990s to ensure that mechanisms of land management rooted in custom would be recognized

State corruption. Following assassinations of Cardoso and Siba-Siba, and Montepuez prison killings, various factions of civil society united “to demand the moral regeneration of the state and an end to corruption.” Journalists, socio professional associations and urban elites joined. As a result, a Law was approved by which civil society is responsible for the selection of three candidates for the Presidency of the National Elections Commission, unique in Africa.

Poverty Observatory. To compensate for weak consultation during the PARPA formulation, civil society organized the Poverty Observatory to oversee the implementation of the PARPA. 3 groups of actors – gov’t donors, and civil society. Representatives from religious denominations, trade unions; private sector associations; other membership organzations

Mutual donor-government confidence has allowed an unusual level of experimentation in institutional structures and programs

PROAGRI Historically donor projects in agriculture have been highly fragmented. In 1997

of $48 million in Min. of Ag and Rural Development (MADER) budget public expenditures, only $5 million came from the government – rest from donors in 42 different projects.

PROAGRI conceived as a consultative process to combine donor contributions into single funding mechanism and reduce admininistrative/strategic overload on MADER. Aimed at shifting from donor-driven project mentality to a more integrated and coordinated planning system – oriented towards common objective of alleviating poverty and increasing food security.

Conceived as 15-20 year program. Donor support contingent on institutional reforms. Initial funding 1999-2003 was $202 million; $30 million from Gov’t.

Response to 1999/2000 floods – GOM played very strong role in conceiving, implementing coordinated response USAID’s Resettlement Grant Activity

Cash grants of US $92 were distributed to women of more than 106,000 affected rural families Dec 1999-April 2000.

• Families chose for themselves which goods or services were their highest priority • Grants were primarily spent on household goods and spent near local distribution points. • Thus program contributed to the revitalization of retail distribution networks in affected areas.

Extra income allowed local retailers to restock their stores and repair damage caused by the floods.

Mega-industrial projects

Mozambique’s strong real GDP growth is driven by output from industrial mega-projects.

Mozal aluminum smelter outside Maputo. Now produces half a million tons of high quality aluminum ingots per year

Completion of gas export pipeline by South African synthetic fuel company, Sasol

Mozambique’s largest exports are now aluminum (53%) and electricity. By end of 2004, gas will become the third largest export

Traditional agricultural and seafood exports have been overtaken by rapid growth of exports from the capital-intensive sectors

In 1999 traditional exports made up 87% of total exports of US $280 million. By 2003 -- 32%; 2004 -- 19%

4. The continuing challenge of agriculture and rural poverty

Mozambique’s two-speed economy?

Growth of new capital-intensive sectors, aided by large inflows of foreign direct investment masks faltering economic activity in traditional sectors

Agriculture and fisheries are underperforming, leading to weak growth in purchasing power in rural areas

Three-quarters of Mozambique’s population lives and works in rural areas. Rural income data reveal the persistence of income poverty in rural Mozambique.

Robust economic growth is disguising serious supply-side constraints in the economy, including high transaction and unit costs caused by bureaucratic obstruction, weak competition, low sales volumes, the small domestic market and a generally adverse domestic operating environment.

Very low levels of agricultural technology adoption

Huge increases in post-war production due almost entirely to expansion of cultivated area after farmers were able to return to their land

With the exception of cassava, yield trends for major food commodities have been flat over the past decade

Fewer than 10% of farmers use improved seeds Mozambique has one of the lowest fertilizer use rates in the

world 1.84 kg/ha of NPK vs. 16.6 kg/ha average in West

Africa and 8.89 kg/ha throughout sub-Saharan Africa

Traditional cash crops are declining in importance, others taking their place

During 1960s and 70s Mozambique was the largest cashew exporter in the world.

Today it has only 6% of the world market due to production constraints, market issues

Cotton production peaked in 1998/99 at 117,000 tons seed cotton but has declined sharply since

Strong growth in tobacco, sugar cane Emerging cash crops: paprika, pigeon pea,

sesame seed Mozambique’s research and extension services

are extremely weak Extension services reach only 18% of farm households How will smallholders adapt?

5. Conclusions

How can Mozambique and Its Partners Bring the Rural Poor into the Boom Economy?

Strengthening public institutions and functions

Increased, sustained investments in public institutions that will help rural households increase agricultural productivity and access to markets

Research, extension and support for input market development to bring technology within reach

Investment in rural communications and transport infrastructure to bring down the costs of marketing

Training and education – primary, secondary but also technical and university training and institutional development to train tomorrow’s teachers, extensionists, health workers, businessmen and leaders

Removing barriers to regional and international trade of raw and processed agricultural goods

Investments to bring down the cost of starting and doing business in rural areas Streamlined registration process and regulations An effective judicial system that can enforce contracts Investment in education at all levels Improved access to credit and savings programs

Broad-based or bimodal development?

Mozambique’s progress is very impressive, but it faces serious capacity constraints in the ability of public institutions to carry out priority tasks efficiently

How well it is able to redress this in the future may determine whether Mozambique will have broad-based or bimodal economic development