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Mozambique’s Extraordinary Journey from War to Development

Mozambique’s Extraordinary Journey from War to Development Presentation to Association for International Agriculture and Rural Development 40 th Annual Meeting June 6-8, 2004. Introduction Mozambique in 1975, 1992 and 2004 Key factors in Mozambique’s recovery

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Mozambique’s Extraordinary Journey from War to Development

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  1. Mozambique’s Extraordinary Journey from War to Development Presentation to Association for International Agriculture and Rural Development 40th Annual Meeting June 6-8, 2004

  2. Introduction Mozambique in 1975, 1992 and 2004 Key factors in Mozambique’s recovery The continuing challenge of agriculture and rural poverty Conclusions Outline

  3. 1. Introduction

  4. 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 Africa • To 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

  5. 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

  6. 2. Mozambique in 1975, 1992 and 2004

  7. 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

  8. 1992 • 1992: Peace Accords signed • Mozambique 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

  9. 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

  10. 3. Key factors in Mozambique’s recovery

  11. 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

  12. 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.

  13. 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 2001-05 6% agriculture 32% education 29% infrastructure 19% health 12% governance HIPC and PARPA

  14. 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

  15. 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.

  16. 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%

  17. 4. The continuing challenge of agriculture and rural poverty

  18. 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.

  19. 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

  20. 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?

  21. 5. Conclusions How can Mozambique and Its Partners Bring the Rural Poor into the Boom Economy?

  22. 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

  23. 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

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