«Industrial Policy in Mozambique Matthias Krause Friedrich Kaufmann Industrial policy in Mozambique Matthias Krause Friedrich Kaufmann Bonn 2011 ...»
28 One-stop shops are government service centres where enterprises can complete different bureaucratic regulatory procedures (e.g., register a business, obtain a license, pay taxes, etc.) at one place.
29 To give just one example: The public administration in the provinces is often not informed about reforms and follows outdated laws and regulations.
34 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Industrial policy in Mozambique 5.6 Preliminary conclusions The major strategy documents presented and discussed above are very recent, so little can be said about their successful implementation and impacts. When judging the strategies on paper, the first thing to note is that there are important lacunae: Despite the factual importance of mega projects, no strategy paper exists about how to use the mega projects to boost broad-based development,30 and despite the potential acknowledged by experts and the Government, there is also no comprehensive strategy document on the tourism sector (APRM 2009, 165, 170). In addition, concerns about the possible negative impacts of industrial development on environmental sustainability are not addressed in the strategy papers. It should be noted that most strategy papers say little about how to design monitoring and evaluation tools. This means that during the implementation of the respective strategies, ‘learning cycles’ – which are necessary to achieve a ‘welfare-enhancing’, ‘efficient’ and ‘up-dated’ industrial policy – are not really considered and reflected. A notable exception is the Strategy for Improving the Business Climate, which has a specific monitoring tool that was designed during the implementation. But in all cases, there still is no evaluation of impacts. Finally, the major strategy papers (Industrial Policy, SME Policy and Business Climate) would benefit from a greater elaboration of the link between the policy approaches that are outlined and the overall goal of poverty reduction. This could contribute to raising the awareness of key actors about the crucial role of economic and industrial policies in reducing poverty.
In terms of the mix of selective and non-selective industrialpolicy approaches that the major strategies propose, the balance tends to be in favour of the non-selective approaches.
From a historical perspective, this can be explained by the fact that Mozambique did not fare well with its socialist economic policy, which was abandoned in the late 1980s, and that the major donors, who became very influential in the 1990s, were very inspired by the Washington Consensus, and thus reluctant to selective industrialpolicy approaches. Nevertheless, the strategy papers discussed contain important elements of selective approaches – most notably, the Industrial Policy Strategy, and to a lesser extent, the SME Policy Strategy. Some objectives mentioned in this respect are maximization of the value added by promoting sectors that use local resources and labour-intensive technologies (such as the food industry); the promotion of export-oriented SMEs; and the promotion of linkages and cluster creation. However, overall, the strategy papers discussed do not present a coherent picture, do not address some important areas (see above), and lack a clear ‘vision’ (see also Castel-Branco 2008).
This raises the question about the process of elaboration of these strategies, and their relation to the main industrialpolicy players’ interests and economic realities. Given the lack of capacity of the respective ministries and national stakeholders such as business associations, most of the strategy documents were produced with considerable technical assistance by donors (among others, United Nations Industrial Development Organization [UNIDO], the World Bank, the African Development Bank [AfDB], and the GTZ). This fact partially explains their lack of coherence and calls into question the effectiveness of the big efforts of donors and the GOM in terms of harmonisation and coordination (see Section 4.3 above).
30 There is, however, one linkage programme in place that promotes linkages between SMEs and the MOZAL aluminium smelter and other multinational enterprises (see Section 6.2).
More important than the incoherence of the industrial development strategies on paper, is the question whether the actors involved in implementation manage to make good and practical industrial policies to create and coordinate measures and incentives relevant for addressing the economy’s structural deficiencies and are effective in promoting productivity, competitiveness, and income generation. In this regard, it can be said that the institutional capacity to design and coordinate such approaches – that typically require cooperation across ministries or sectors and between different government levels, as well as by public and private actors – is generally low. Since colonial times in Mozambique, there has been a marked tendency towards sector and vertical planning, and far less for horizontal coordination and integration.31 Moreover, the political elite’s willingness and incentives to implement welfare-enhancing industrial policies that promote broad-based growth is also in question: at least a part of this elite seems to care primarily about their own business interests; institutions and actors that could check this elite and prevent corruption are weak (see Chapter 4).
These questions related to the implementation and effects of practical selective-industrial policies are analysed in more depth in the following two case studies.
6 Two case studies: the cashew industry and linkages promotion This chapter describes and assesses in detail the policies and policy management in two cases in which selective industrial policies are applied: the promotion of the cashew industry and the promotion of linkages between the huge aluminium smelter, MOZAL, and local SMEs. The economic challenges, as well as the industrial policy approach, are described for each case. An assessment of the success of the promotional measures and the quality of the industrial policy management follows.
The promotion of the cashew industry326.1
The promotion of the cashew industry is relevant to this study for the following reasons:
first, Mozambique is abundant in both fertile land and rural labour, which is why the agroindustry as a whole is considered a potential growth sector (see Section 3.4). Second, the country has a tradition in raw cashewnut (RCN) production and processing.33 For a brief period in the 1970s, Mozambique was the world’s largest RCN producer and processor.
Third, the characteristics of the cashew sector suggest that expansion would lead to broadbased growth since smallholders grow most of the cashew trees: one million peasant families produce RCNs (INCAJU s. a., 3). Moreover, RCNs can be processed into cashew kernels by using a labour-intensive technology. Therefore, expansion of the cashew industry 31 Interview with John Barnes (Table A4).
32 This subchapter is an abridged and revised version of the paper “Industrial Policy in the Cashew Sector in Mozambique“ (Krause / Kaufmann 2010).
33 Here ‘processing’ means the transformation of RCNs into cashew kernels. This basically involves:
(i) roasting the RCNs, which is necessary to be able to cut the outer shell; (ii) cutting the outer shells and retrieving the cashew kernels; (iii) peeling away the thin skin around the kernels; and (iv) package ing. For more details see Cramer (1999).
36 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Industrial policy in Mozambique could potentially directly reduce poverty by generating cash income for farmers and also creating a significant number of jobs in processing factories (Benfica / Tschirley / Sambo 2002, 4).
The rest of this case study is organised as follows: first, the specific challenges for the structural transformation of the cashew industry are discussed (6.1.1, which includes a brief review of the recent history of the cashew sector). Then the cashew-policy framework and the industrial policy management are assessed against this background (6.1.2).
6.1.1 Specific challenges to the development of the cashew industry The current state of the cashew industry During the last decades, Mozambique’s cashew sector was hit by several shocks, including the exodus of the Portuguese entrepreneurial know-how after independence (1975), the civil war (1982–1992), and the rapid liberalisation of the formerly highly protected processing industry in the 1990s. Today, Mozambique’s farmers produce just around 33 percent of the historic peak of RCN production, and the domestic processing industry produces just 10 percent of the 1973 historic peak cashew-kernel production (see Box 2 for a historical overview of Mozambique’s cashew industry and policy).
Conversely, the world market for cashews has expanded considerably during the last decades. The supply side is dominated by India, Vietnam and Brazil, which combined account for 90 percent of cashew-kernel exports, and Western African countries, which make the bulk of RCN exports (Technoserve, Inc. 2009; EDE Consulting 2005, 13–14).
India, the USA and the EU dominate world demand. Because the USA and the EU do not have processing industries to transform RCNs into cashew kernels, they import all the cashew kernels consumed, or 65 percent of world imports (EDE Consulting 2005, 14).
India, in contrast, has the world’s biggest processing industry and is the world’s biggest RCN importer; India’s processing capacity doubles domestic RCN production.34 Indian processors meet their huge domestic demand, and 40 percent of the international demand, for cashew kernels.
Although nowadays Mozambique is an insignificant player in the world market (see Box 2), domestically, the cashew sector is still important: in 2007 an estimated one million farmers were involved in RCN production, with around 6,000 workers employed in approximately 20 processing plants; cashew exports (both RCNs and cashew kernels) yielded a revenue of around USD 35 million (INCAJU 2008b), equivalent to about 2 percent of the country’s export revenue, making cashews the sixth most important export good after aluminium at 61 percent (electricity is 7 percent; prawns, 6 percent; tobacco and sugar, 3 percent each; Condon / Stern 2009).
34 India’s processing capacity is 1.2 million-metric tons of RCNs, equivalent to roughly 300,000 metric tons of cashew kernels (The Hindu Business Line 2009).
Box 2: The history of Mozambique’s cashew industry and policy In the 1970s, Mozambique was the world’s largest cashew producer, producing 40 percent of the world’s RCNs and providing 30 percent of the world’s cashew-kernel exports (see charts below). According to McMillan, Rodrik and Welch (2002, Annex), RCN production peaked in 1973 with 240,000 metric tonnes, of which around 210,000 tonnes were processed inside the country in big mechanised factories. Around that period, RCN production involved millions of peasant growers, the processing industry employed more than 10,000 workers (making it the fourth largest employer after railways, sugar, and textiles; Hanlon 2000, 29), and cashew products represented 21.3 percent of Mozambique’s total exports (Leite 1999, 3). Today, Mozambique is a small player in the world cashew market. Global RCN production (3.2 million metric tonnes in 2007; Technoserve, Inc. 2009) has expanded rapidly over the last two decades, thanks to dramatic production increases in Vietnam and Western African countries, while Mozambique’s production has declined to 78,000 metric tonnes (the yearly average from 2006 to 2008) – which is just about 33 percent of the 1973 production. The volume of RCNs processed domestically has declined to 22,000 metric tonnes, around 10 percent of the volume processed in 1973 (our calculation based on INCAJU 2008b, 12).
Source: Technoserve, Inc. (2009) Mozambique achieved its dominant market position in the 1970s because of an industrial policy of the colonial Portuguese government that ‘stimulated’ – through obligation – the replanting of cashew trees and small farmers’ output (Technoserve, Inc. 2009); developed a mechanised national processing industry using tariffs to protect it from Indian processors; and regulated producer prices and margins throughout the cashew marketing chain (Leite 1999, 3; McMillan / Rodrik / Welch 2002, 4–5). After independence, the cashew industry declined because of the exodus of Portuguese managerial know-how and the adoption of central-planning-like policies. This situation was exacerbated by the civil war that caused the destruction of infrastructure facilities and a subsequent lack of reinvestments (INCAJU 2008a).
From the late 1980s on, Mozambique gained access to external finance through the Bretton Woods Institutions, which in turn meant that economic policy – including its cashew policy – began to be dominated by a ‘structural adjustment philosophy’. Under pressure from the World Bank (Hanlon 2000, 36), the Government dismantled the protections for the cashew processing industry. It lifted the ban on RCN exports that had been introduced in 1978, and substituted for it a tax on RCN exports that was stepwise reduced from 60 percent in 1991 to 14 percent in 1996–1997 (McMillan / Rodrik / Welch 2002, 6). Along with these trade reforms, in 1991 privatisation was begun. By 1994 all formerly State-owned processing plants had been sold to private investors. One consequence of the RCN trade liberalisation was the almost complete collapse of the privatised national processing industry, meaning a loss of around 8,000 jobs according to McMillan / Rodrik / Welch (2002, 22–23) or even 10,000 jobs, according to Hanlon and Smart (2008, 39). For farmers, liberalisation had a positive effect since it increased the farm-gate price for RCNs, and RCN traders were able to increase their mark-up. McMillan / Rodrik / Welch (2002, 1–3) estimate that on balance the reforms’ efficiency gains were insignificant and the increase in income for farmers (USD 5.30 per year per household) very modest.