Do Bicycles Equal Development in Mozambique? 1847013198, 9781847013194

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It has 7 per cent a year growth rate and substantial foreign investment. Fifteen years after the war of destabilisation, the peace has held. Mozambique is the donors’ model pupil, carefully following their prescriptions and receiving more than a billion dollars a year in aid.

The number of bicycles has doubled and this is often cited as the symbol of development In this book Joseph Hanlon & Teresa Smart challenge some key assumptions of both the donors and the government and asks questions such as whether there has been too much stress on the Millennium Development Goals, and too little support for economic development; if it makes sense to target the poorest of the poor, or would it be better to target those who create the jobs which will employ the poor; whether there has been too much emphasis on foreign investment and too little on developing domestic capital; and if the private sector really will end poverty, or must there be a stronger role for the state in the economy?

This book is about more than Mozambique

Joseph Hanlon is Senior Lecturer at the Open University and the author of Beggar Your Neighbours, Mozambique: Who Calls the Shots? and Peace without Profit which have all made influential interventions in the development debate; Teresa Smart is Director of the London Mathematics Centre, Institute of Education Contents: I IS THERE DEVELOPMENT IN MOZAMBIQUE? – Introduction: more bicycles, but.... – A brief history: war, peace & slow recovery – Can peasants pull Nampula out of poverty? – The Manica miracle is over – Cashew: from disaster to export model – Tobacco: hard choices – Has poverty decreased? – Is there development in Mozambique? II ACTORS & CONTEXT – Frelimo & the democratic one-party state – Corruption, rent-seeking, reform & a divided elite – Aid dependence & subservience: carrots & sticks – On the edge of the world III ALTERNATIVES & THE DEVELOPMENTAL STATE – Questioning the cargo cult – Increase demand to kick-start the economy – Agriculture & the new role for the state – Finance & a development bank – The developmental state builds capitalism – Can Mozambique stop putting its hand out & become a developmental state? – Appendices Cover photographs by the authors

James Currey www.jamescurrey.co.uk

An imprint of Boydell & Brewer Ltd PO Box 9, Woodbridge, Suffolk IP12 3DF www.boydell.co.uk and 668 Mt Hope Ave, Rochester, New York 14620, USA www.boydellandbrewer.com

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Do Bicycles Equal Development in

MOZAMBIQUE? JOSEPH HANLON & TERESA SMART

MOZAMBIQUE?

Mozambique is an apparent success story that is used to justify the present post-Washington consensus development model. Here, the case of Mozambique is situated within the broader development debate

HANLON & SMART

DO BICYCLES EQUAL DEVELOPMENT IN

Is Mozambique an African success story?

JAMES CURREY

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Do bicycles equal development in Mozambique?

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Other titles by Joseph Hanlon published by James Currey Beggar Your Neighbours (1986) South Africa:The Sanctions Report (1990) Mozambique:Who Calls the Shots? (1991) Peace Without Profit (1996) Mozambique & the Great Flood of 2000 (2001) (with Frances Christie) Civil War, Civil Peace (2006) (edited with Helen Yanacopulos)

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Do bicycles equal development in Mozambique? JOSEPH HANLON & TERESA SMART

JAMES CURREY

    James Currey www.jamescurrey.co.uk  is an imprint of Boydell & Brewer Ltd  PO Box 9,Woodbridge, Suffolk IP12 3DF, UK  www.boydell.co.uk  and of Boydell & Brewer Inc.  668 Mt Hope Avenue, Rochester, NY 14620, USA  www.boydellandbrewer.com      © Joseph Hanlon & Teresa Smart 2008    First published 2008    All rights reserved.  No part of this publication may be reproduced, stored in any retrieval system, or  transmitted in any form or by any means, electronic, mechanical, photocopying,  recording or otherwise, without prior permission of the publishers.    British Library Cataloguing in Publication Data  Hanlon, Joseph  Do bicycles equal development in Mozambique?  1. Economic development ‐ Mozambique 2. Mozambique ‐  Economic conditions ‐ 1975‐ 3. Mozambique ‐ Economic policy  I.Title II. Smart,Teresa  338.9´679    ISBN 978‐1‐84701‐319‐4 James Currey (Cloth)                      Typeset in 10/101⁄2pt Bembo  by Avocet Typeset, Chilton, Aylesbury, Bucks

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Contents Acknowledgements The authors Money & measurements Abbreviations, acronyms & glossary

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Part I IS THERE DEVELOPMENT IN MOZAMBIQUE?

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1 Introduction: more bicycles, but …

1

2 A brief history: war, peace & slow recovery

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3 Can peasants pull Nampula out of poverty?

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4 The Manica miracle is over

27

5 Cashew: from disaster to export model

36

6 Tobacco: hard choices

51

7 Has poverty decreased?

57

8 Is there development in Mozambique?

71 v

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Part II ACTORS & CONTEXT

CONTENTS

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9 Frelimo & the democratic one-party state

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10 Corruption, rent-seeking, reform & a divided elite

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11 Aid dependence & subservience: carrots & sticks

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12 On the edge of the world

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Part III ALTERNATIVES & THE DEVELOPMENTAL STATE

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13 Questioning the cargo cult

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14 Increase demand to kick-start the economy

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15 Agriculture & the new role for the state

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16 Finance & a development bank

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CONTENTS

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17 The developmental state builds capitalism

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18 Can Mozambique stop putting its hand out & become a development state?

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Appendix 1: Aid Appendix 2: Investment & other tables

209 215

Bibliography

217

Index

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Acknowledgements During a year of research, more than 250 people helped us, talked to us, debated with us, and showed us the reality of Mozambique. Many of you are quoted in the book; some of you preferred not to be quoted. Some of you gave us reports, both confidential and open, which provided important background. Rather than identifying people by omission, we are not giving a list of all those who helped us. But many of you will see your ideas and comments. Some of you forced us to think again, change our approach and ask different questions. More than a dozen people read a first draft and made thoughtful comments. We have been working in Mozambique for 30 years and never cease to be amazed by the insight of Mozambicans and their dedication to building a better place for themselves and their children, and we are humbled that so many people took their valuable time to help us.We hope you feel this book is worth your time and effort. We would like to thank especially Julie Cliff, without whose friendship and hospitality this book really would not have been possible.And also thanks to several people who took time and made special efforts to smooth our path and support our research: Barbara Plavcˇak, Domingos Nicala, Ricardo Limua, Joaquim Oliveira, Vincente Paulo, Joao Ferrão and Alberto Garcia Muchave. Four Nampula journalists did special research for us, giving us a picture of development in the districts before we travelled there: Herminia Francisco, Júlio Paulino, Luís Alberto Rodrigues and Domingos Sabonete; they are an important reminder of the high quality of journalists outside Maputo. Finally, research like this cannot be done without money, and we would like to thank those institutions that were willing to fund a book that would probably challenge some of their own thinking: Irish Embassy (Maputo), Royal Danish Embassy (Maputo), ActionAid International, Swiss Agency for Development and Cooperation, Trócaire, Christian Aid, and the Netherlands Minister of Foreign Affairs. Joseph Hanlon and Teresa Smart

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The authors JOSEPH HANLON is a journalist and is Senior Lecturer in Development and Conflict Resolution at the Open University, Milton Keynes, UK. He has been writing about Mozambique since 1978 and is the author of Mozambique: The Revolution Under Fire; Mozambique:Who Calls the Shots?; Peace without Profit: How the IMF Blocks Rebuilding in Mozambique; Guia Básico Sobre as Autarquias Locais; and Mozambique and the Great Flood of 2000 (with Frances Christie). He is the editor of the Mozambique Political Process Bulletin, published by AWEPA. In other areas of work, he is co-editor of Civil War, Civil Peace (with Helen Yanacopulos), and has done extensive research on international debt, especially the concept of illegitimate debt. TERESA SMART is Director of the London Mathematics Centre based at the Institute of Education, London. She is also collaborating with the Minister of Science and Technology in Mozambique building a new programme ‘creating the young scientists of tomorrow in Mozambique’. From 1980 to 1985 she worked in Mozambique as a teacher of mathematics at the Industrial Institute and then as mathematics coordinator for the State Secretariat for Technical and Professional Education. Teresa Smart is the author of Livro de Matemática – Ensino Técnico, and co-author (with Joseph Hanlon) of BeggarYour Neighbours and Apartheid’s Second Front. She has worked on mathematics education in Britain as well as in Brazil and South Africa.

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Money & measurements Money The Mozambican currency is the metical (MT, pl. meticais). The metical has been steadily devalued against other currencies, but since 2003 the US $ has also been steadily devalued. Charts are shown in Appendix 1. In this book, unless noted, rates of exchange are applied at the time of the event. For more general conversions, we use the following approximate rates of mid-2007. 25 MT = $1 (US dollar; ‘$’ always means US$)) 35 MT = €1 (Euro) = SAR 10 (10 South African Rand) 50 MT = £1 (UK pound sterling) ¢ = US cent = $0.01 = 1/100 of a $; 1 MT = 4¢ p = UK pence = £0.01 = 1/100 of a £; 1 MT = 2p In 2006, the metical was replaced with the ‘new family’ of the metical, which simply dropped three zeros (divided by 1000).The temporary notation for that was MTn. But most people in conversation and daily trade had already done this, so the change was quickly accepted and went into common usage. All figures in this book are now quoted in new meticais.

Numbers million = m. = 1,000,000 billion = bn = 1,000 m.

Sources Where no source is cited, material is based on interviews by the authors. Translations from Portuguese to English are by the authors, except for documents published in both languages. All photographs are by the authors.

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Abbreviations, acronyms & glossary Adelna

Agência de Desenvolvimento Económico Local de Nampula, Nampula Local Development Agency Agricom Grain marketing board, Mozambique Agritex Department of Agricultural and Extension Services, Zimbabwe AIA Agro Indústrias Associados,Associated Agro-industries AICAJU Associação dos Indústrias de Caju, Cashew Industry Association Amoder Associação Moçambicana para o Desenvolvimento Rural, Mozambique Rural Development Association ANC African National Congress (South Africa) ANE National Roads Administration ANPF Autoridade Nacional da Função Pública, Public Service Commission AR Assembleia da República, the Parliament ARV Anti-retroviral (treatment for HIV/AIDS) BCI Banco Comercial e de Investimentos, Commercial and Investment Bank, later renamed BCI Fomento BCM Banco Comercial de Moçambique, Commercial Bank of Mozambique BCP Banco Comercial Português, Portuguese Commercial Bank BdM Banco de Moçambique, Bank of Mozambique BIM Banco Internacional de Moçambique BNDES Banco Nacional de Desenvolvimento Económico e Social, National Development Bank of Brazil BPD Banco Popular de Desenvolvimento, People’s Development Bank BSTM Banco Standard Totta de Moçambique BWIs Bretton Woods institutions, the World Bank and IMF, founded at Bretton Woods in 1944 cabrito Goat, Mozambican expression for corrupt official cabritismo Expecting an improper share of projects (see Chapter 10) CAS Country Assistance Strategy (World Bank) cashew nut The hard outer shell with the kernel inside cashew kernel The edible inside of the cashew nut CC Conselho Constitucional, Constitutional Council CC Conselho Consultivo, Consultative Council (District, etc.) CCC Civilian Conservation Corps (USA) CG Consultative Group of donors CCL Conselho Consultivo Local, Local Consultative Council CCM Chama Cha Mapinduzi, Party of the Revolution (Tanzania) CENE Comissão Executiva Nacional de Emergência, National Executive Commission for the Emergency CEPAGRI Centro da Promoção da Agricultura, Commercial Agriculture Promotion Centre CIA Central Intelligence Agency Clusa The Cooperative League of the USA CNCS Conselho Nacional de Combate do Sida, National AIDS Council CNE Comissão Nacional de Eleições, National Elections Commission CNSL Cashew Nut Shell Liquid cooperante Foreigner working for the government in the 1970s and 1980s CPIA Country Policy and Institutional Assessment

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xii CSO CTA DAC DEL DfID DPA EDM EIB EMBRAPA FAO FDC FONGA Frelimo G6 to G19 G20 GAPI ganho-ganho GDP GoM HIPC IAF IDASA IFAD IFC IFI IIAM ILO IMF IMG INAS Incaju INE INGO ISPU JFS KNMI LDCs LSE MDG MLT MPD

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ABBREVIATIONS, ACRONYMS & GLOSSARY Civil society organisation Mozambican business association OECD Development Assistance Committee Desinvolvimento Económico Local, Local Economic Development agency Department for International Development (UK) Provincial directorate of agriculture Electricidade de Moçambique European Investment Bank Empresa Brasileira de Pesquisa Agropecuária, Brazilian state agricultural research agency UN Food and Agriculture Organization Fundação para o Desenvolvimento da Comunidade, Community Development Foundation Fórum das Organizações Não Governamentais em Gaza, NGO forum in Gaza Governing party. Previously the winning liberation movement, Frente de Libertação de Moçambique The group of budget-support donors, also known as Programme Aid Partners, which began with 6 members in the 1990s and had increased to 19 by 2007 A platform of Mozambican civil society organisations Gabinete de Apoio à Promoção de Pequenos Investimentos, Office to Help Small Industry, Mozambican investment promotion agency Casual or day labour, often on a neighbour’s farm Gross Domestic Product Government of Mozambique Heavily Indebted Poor Countries Inquérito aos Agregados Familiares, family consumption survey The Institute for Democracy in South Africa UN International Fund for Agricultural Development World Bank International Finance Corporation International financial institution.The IFIs include the BWIs plus the regional development banks Instituto de Investigação Agrária de Moçambique, Mozambique Agricultural Research Institute International Labour Organisation International Monetary Fund Independent Monitoring Group Instituto Nacional de Acção Social, part of the Ministerio da Mulher e da Acção Social,The National Social Action Institute Instituto de Fomento do Caju, Cashew Promotion Institute Instituto Nacional de Estatística, National Statistics Institute International non-governmental organisation Higher Polytechnic and University Institute João Ferreira dos Santos, a Portuguese industrial group Royal Netherlands Meteorological Institute Least developed countries London School of Economics and Political Science Millennium Development Goals Mozambique Leaf Tobacco Ministério de Planificação e Desenvolvimento, Ministry of Planning and Development

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ABBREVIATIONS, ACRONYMS & GLOSSARY MT MTn NATO NGO Norsad ODA ODI OECD OIIL ONUMOZ OTM PAFs PAPs PARPA PFP PPFD PRE PRI PSD PSI PSOM Renamo RFC SADC SAP SEBRAE SIDA/ASDI SMEs SNV SOAS SPI STAE SWAp TIA UN UNDP UNICEF UNCTAD UP USAID

xiii

Metical, unit of currency temporary symbol for metical (new family) after removal of 3 zeros from currency North Atlantic Treaty Organisaiton Non-Governmental Organisation Nordic-SADCC development fund Official Development Assistance Overseas Development Institute (London) Organisation for Economic Co-operation and Development Orçamento de Investimento de Iniciativa Local, Local Investment Initiatives Budget United Nations Operation in Mozambique, 1992–5 Organização dos Trabalhadores de Moçambique, Mozambican trade union federation Performance Assessment Frameworks Programme Aid Partners Plano de Acção para a Redução da Pobreza Absoluta,Action Plan to Reduce Absolute Poverty – Mozambique’s Poverty Reduction Strategy Paper Policy Framework Paper Programa de planificação e finanças descentralizadas, Planning and Finance Decentralisation Programme Programa de Reabilitação Económica, Economic Rehabilitation Programme Institutionalised Revolutionary Party (Mexico) Private sector development Policy Support Instrument Dutch development bank, Programma Samenwerking Opkomende Markten Opposition party, former guerrilla movement Resistência Nacional Moçambicana Reconstruction Finance Corporation (USA) Southern African Development Community, which in 1993 replaced SADCC, the Southern African Development Coordination Conference Structural adjustment programme Serviço Brasileiro de Apoio às Micro e Pequenas Empresas, a small business promotion institute Swedish International Development and Cooperation Agency Small and medium enterprises Dutch government agency, Schweizerische Normen-Vereinigung School of Oriental and African Studies, London Frelimo party holding company Secretariado Técnico de Administração Eleitoral,Technical secretariat for election administration Sector-Wide Approach Trabalho de Inquérito Agrícola, rural income survey United Nations United Nations Development Programme United Nations Children’s Fund, its name shortened in 1953 from UN International Children’s Emergency Fund UN Conference on Trade and Development Universidade Pedagógica, Pedagogic University United States Agency for International Development

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ABBREVIATIONS, ACRONYMS & GLOSSARY World Health Organisation Zimbabwe African National Union, governing party in Zimbabwe Zimbabwean trade union federation

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I

IS THERE DEVELOPMENT IN MOZAMBIQUE?

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Introduction: more bicycles, but … Felito Julião is carrying two bundles of sugar cane on his bicycle.This bright young man earns a living with his bicycle, and has found a way to carry two bundles of cane instead of just one, like the others But the two bundles of tall cane are unstable and he has to walk slowly up the many hills. It takes more than half a day to travel the 23 km from Rapale to Nampula and, in practice, he has to travel with a friend who carries only one bundle, and who can help him if a bundle comes loose or help him back when they are forced off the narrow dusty road by a passing car.They earn 30 MT (£0.60, $1.20, €.86, R8.60) for each bundle.Thus the two men earn 90 MT for one and half days of work, roughly 30 MT per man per day to support their families. Felito Julião is an example of the changes that have happened to Mozambique since the war ended in 1992.A rapid expansion of education means that he can read and write. He has a bicycle, which a decade ago was very uncommon. And he is bright and inventive, finding a way to carry more sugar cane and increase his income by a third; he now earns 30 MT for a day’s work compared with the 20 MT he would be paid if he worked on a neighbour’s field or carried just one bundle of cane. He is a Mozambican success story. On the other hand, Felito earns less that the legal minimum agricultural wage of 40 MT a day. He and his family – and nearly everyone else in Nampula province – remain desperately poor. He and other school leavers cannot find jobs so they earn a living as best they can, through unskilled labour. In the 16 years since the end of the war, Mozambique has received $11 billion in aid, yet it has done little to raise incomes and rural living standards. At the end of the war, roads were reopened and people returned to their old land and opened up new fields.The post-war gains came mainly from farming more land and working harder, not from new technology and more productive methods. By 2000, this ‘peace dividend’ had been exhausted.The early 21st century has seen real social gains – in health, education, and some genuine empowerment through associations and decentralisation. But there is a broad consensus that 7% a year growth rates are not working their way through to the rural areas, and most people are just as poor as they were five years ago. In several parts of the country, we heard the same phrase:‘Mozambique is changing for the better, but the problem is the speed of change; it is not happening fast enough.’ In this book, we look at development in Mozambique and ask why it is taking place so slowly. It is possible to dismiss this as a glass-half-empty/glass-half-full sort of question. Felito Julião is poor but he is better-off than he was before. Instead we see the question as more fundamental – where will Felito be a decade from now? Has the 15 years since the war created a base for a rapid economic take-off which will substantially improve the lives of all the Felitos? Or has the economy, after the post-war gains, reached a plateau, and will Felito still be on his bike a decade from now?

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IS THERE DEVELOPMENT IN MOZAMBIQUE?

The title of this book reflects the response we received when we told people we were writing a book about Mozambican development. Everyone responded in the same way: there are more bicycles.That is true.We saw bicycles everywhere and each chapter of this book is headed by a photo of someone using a bicycle, often to carry other people or large loads. But are bicycles an accurate measure of development? There are more cars, as well. But most people still walk. Houses are another measure of development. In Maputo, there is a surprising number of houses costing hundreds of thousands of dollars, and it looks as if there is development. Driving through rural Nampula province, we certainly saw many villages with one or two improved houses, built of blocks or bricks and with metal sheets or tile roofs. But most people live in mud or wattle and daub houses with thatched roofs. Bouncing along the terrible road from Nampula to Ribáuè, we saw much less development.

Outline of this book In Part I of this book, we try to draw up a balance sheet, and find an answer to the question: Is there development in Mozambique? Chapter 2 gives a brief history of Mozambique’s rapid changes – colonialism, independence, socialism, war, peace, capitalism and structural adjustment. It makes the point that Mozambique was the victim of a Cold War ‘proxy war’ and that aid, since the end of the war, has been only enough to repair half the damage.We made extended visits to two provinces said to be developing, to see for ourselves. In Nampula (Chapter 3) we saw many problems and some successes in small-scale production. In Manica (Chapter 4) we saw that a much touted boom in larger-scale commercial farming had collapsed. In both provinces, we saw major problems of lack of support for small business people, especially farmers. In our travels, we found two success stories, which we look at in more detail. Cashew nuts (Chapter 5) had been famously destroyed by the World Bank a decade ago but have now become a success story because of the broad support of an entire value chain and the quiet rejection of World Bank policies. Tobacco (Chapter 6) has done more than any single thing to reduce rural poverty, but should Mozambican peasants have to depend on growing poison to lift themselves out of poverty? However, tobacco works because farmers are given inputs on credit, extension services and a guaranteed market, and this provides a potential system for other crops. Some economic development is happening and we can point to successes, as we shall in the next chapters. But the picture is complex; Angoche was once a thriving port and industrial city but now it is dead, while an hour up the road the dusty market town of Nametil is thriving, although still very poor. In this book we shall try to draw some lessons from both the successes and the deepening abject poverty. After this look at the reality on the ground, Chapter 7 draws on a range of studies to make some broader conclusions about economic development. We find that poverty is not being reduced as rapidly as is often claimed, and that the lives of people just above the poverty line are very fragile and they are easily tipped back into poverty. We also find widening gaps between the poor and the very poor, with perhaps half the population slipping deeper into poverty and being unable to feed their families adequately. Lack of cash is a central problem, and most people are too poor to be able to use the free market mechanisms to pull themselves out of poverty. Present economic strategies seem to benefit only those who are already relatively better-off. Finally, Chapter 8 looks at development more broadly and especially at non-economic aspects.The past 16 years, since the end of the war, have seen investment in infrastructure – roads, electricity and water – and social services, including a huge expansion of education and improvements in the quality of health care. Money and food are essential but development is also about people taking increased control over the changes in their lives. Decentralisation and the growth of a wide range of local groups and associations have in-

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INTRODUCTION: MORE BICYCLES, BUT …

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creased the power and control that women and men at local level have over their lives and made them more active participants in a development process. But if you ask people about their highest priorities, they tend to cite economic rather than social needs – jobs and increased income.And here the gains are less obvious. Muecate district in Nampula province has 69 schools, but only two functioning shops. In interviews, we were told repeatedly,‘yes my children can go to school, but my wallet is still empty.’ Part II looks more closely at the actors and context of development. Chapter 9 considers Frelimo and its role as a predominant party, while Chapter 10 delves into the fraught issues of corruption and rent-seeking and divisions within Frelimo on how to balance personal gain and development. Chapter 11 considers the other side of the balance, the donors and BWIs whose presence and power are overwhelming, and how Frelimo and the state cope with this. Chapter 12 looks at Mozambique as a small, weak country at the mercy of global forces, but argues that there is space for manoeuvre and choices can be made. Finally, Part III looks at possible ways to move forward. Chapter 13 challenges the currently accepted development strategy, which, we argue, has at its core a belief that, if the right conditions are created, private investors will fly in, develop the economy, and end the poverty.This is a myth; it has not happened and will not happen.After 16 years, some alternative thinking is called for. Increased aid should not continue to be poured into the social sectors, despite the obvious need, but rather should be put into the economic sectors to promote growth and reduce aid dependence. Chapter 14 looks at the assumption that the poor are poor because they are stupid or lazy, and argues instead that the poor are poor because they lack money. Giving the poor money through jobs, input subsidies, or grants would kick-start economic development.The vast majority of Mozambicans still depend on agriculture and agricultural exports will be important in the future (as argued in Chapter 12), so transforming agriculture should be a central focus of development policy. Chapter 15 lays out the key problems in raising subsistence farming to small-scale commercial agriculture, and considers the implications of some successes. Development of private and commercial sectors depends on a broad spectrum of support, including business and technical training, marketing and finance, and Chapter 16 considers the issues around the creation of a development support agency. In the contemporary world, development tends to be capitalist in some form. But capitalists do not simply grow like weeds; like any fragile plant, they must be nurtured, and it is the state that builds capitalism, we argue in Chapter 17. Finally, Chapter 18 cites President Armando Guebuza’s repeated statements in the rural areas that people must stop putting out their hands begging for aid.We argue that Mozambique’s development policy is just that – putting out its hand begging for foreign investment.The President’s message to rural communities is correct and applicable: Mozambique cannot wait with hands outstretched for mythical foreign investors, but must create, support and promote its own business people.

More stress on economic development Internationally, in the 1960s and 1970s the emphasis in aid was on promoting economic development in poor countries. Then the pendulum swung over to social development – particularly as characterised by the Millennium Development Goals (MDGs).This change corresponded to the ‘Washington Consensus’, the neo-liberal ideology which stressed the small state and leaving economic development to the private sector.The ‘post-Washington consensus’ modified this to argue that donors and the state should create the ‘human capital’ (through health and education) and infrastructure, but that, from that basis, the market would miraculously create economic growth for all.

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IS THERE DEVELOPMENT IN MOZAMBIQUE?

This new MDG approach was important for donors for two very different reasons. First, it reflected the ideology of the end of the 20th century; while allowing an increase in aid pushed for by international campaigners, extra aid could be directed to the social sectors and infrastructure, thus keeping the government out of economic issues. But it also came at a time of the major shift in aid management, to put more emphasis on accountability and results.This, in turn, laid more stress on quantifiable actions, shifting the emphasis to projects – building roads and schools – and things that can be counted and measured, such as children in schools. Part I of this book agrees that there are more bicycles and that there has been development, but not enough of either.There has not been as much development as should be expected in 16 years, and development is not benefiting the majority of Mozambicans, many of whom are becoming worse-off. Private-sector and market-led development is not ending poverty. Most Mozambicans are too poor to take advantage of the free market and expanded human capital and infrastructure. The response, in part, has been to blame the poor for their poverty.The international community sees the problem as the fault of poor-country government for not doing enough to create the right business climate.The IMF calls for a ‘second wave of reforms’ to ‘enhance the trickling down of growth to the poorest segments of the population’ (IMF 2006a: 7). In turn, some in government blame the poor for being lazy, not working hard enough, and not taking advantage of what is on offer. This book raises questions about Mozambique’s development strategy. Human capital and infrastructure are essential for development, but they are not sufficient on their own. In 30 years of writing about Mozambique, what strikes us is that so many Mozambicans are hard working, honest and skilful people who can make things work under the most difficult conditions and who are desperately trying to build something for their community and for the nation – people who regularly give something extra.This was underlined in the interviews for this book, with peasants, NGO workers and civil servants striving to make a difference in the face of terrible difficulties.This is especially true in economic areas. And what became increasingly clear was the lack of support – credit, marketing, and technical help. Skilled farmers, both individuals and associations, could be productive and profitable if they received the support that is normally available to farmers in many other countries. The present approach looks to two groups to drive the development of Mozambique: foreign investors taking the lead, followed by a handful of wealthy individuals with party links. Somehow taking care of themselves are millions of people working individually in the so-called ‘informal sector’, like Felito Julião. But that omits the biggest and most dynamic group – small business people as well as associations engaged in commercial farming, building and other activities that bring together people like Felito.The emphasis needs to be on medium-sized businesses creating jobs and associations bringing people to work together. ‘Joined up thinking’, ‘systems approaches’ and ‘value chains’ have all become popular concepts, but what will also become clear in this book is that both donor and government policies and practices make it almost impossible to apply integrated thinking to economic development issues. There are a few examples of joined-up approaches, such as cashew nuts and Nametil peanuts, which we cite in Chapters 3 and 6. But there is a need for some radical rethinking. In particular, where the IMF and donors argue that the state should stay away from economic development and leave that to the private sector, we argue the opposite – that the state must be directly involved in the economic sphere and must actively intervene to build a successful private sector. But the state must act in a new way – supporting, nurturing and promoting business people and associations, rather than owning and controlling industries and farms as in the past. This involves a turnaround in government and donor thinking and a direct challenge to the Bretton Woods institutions – the World Bank and the IMF. The failure of the

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present model is clear in Mozambique. In the rest of this book, we look more closely at the actors and context in which policy change needs to take place, and we begin to think about the kinds of changes that would start the process. It is not the purpose of this book to write a development policy for Mozambique. Rather, we want, first, to argue that change is possible and essential, and that it must involve a more direct government role in promoting economic development, and second, to show that there are many different avenues and ways in which government and donors can work together to do this. We have written this book to provoke debate and hard questions.We know how much has been invested by donors and Mozambicans in the present development policy, and vested interests will continue to argue that poverty is falling and GDP rising. Change will be difficult and will need to be subtle and cautious. Choosing new ways forward will be even harder and will require substantial local debate. But in writing this book, we have met and interviewed some amazingly creative and experienced people, with visions of developing their community, province and country. A common thread, however, was of frustration – of a lack of support in a hundred different ways.This book is an attempt to raise questions about how to harness the skills and energy of these people.We hope it can assist an ongoing debate, and help people at all levels to challenge the unquestioned assumptions about development in Mozambique. Norman Tebbit, British Secretary of State for Employment under Margaret Thatcher, responded in 1981 to complaints about rising unemployment by telling how in the 1930s his unemployed father ‘got on his bike and looked for work, and went on looking until he found it’.This ‘on your bike’ view of job creation still largely characterises the donor and World Bank attitude towards developing countries. But Mozambique will not be developed by a million people like Felito Julião, on their own with their bicycles.There are more bicycles, but there is not much development, and there will not be without a change in approach. ‘Mozambique is rightly considered one of the great success stories in modern Africa,’ said the British Secretary of State for International Development Hilary Benn on 4 December 2006 at a signing ceremony in London of a long-term agreement for aid to education. ‘Mozambique sets an example across Africa and the developing world.’Thus this book is about more than Mozambique – the donor darling that seems to justify the present ‘post-Washington consensus’ development model. Raising questions about Mozambique also raises much broader ones about donor and BWI development strategies.

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A brief history: war, peace & slow recovery In the 33 years since independence Mozambique has gone though a bewildering series of rapid changes, reflecting not only local events but those in southern Africa and the wider world. It has seen great hope and immense suffering.Too often, its fate has not been in its own hands.And outsiders still play an overwhelming and overweening role, as will be clear in this book. But Mozambicans have proved to be a remarkable people, adapting to the changes and building a nation against fearsome odds. President Armando Guebuza fought in the decade-long liberation war which not only brought independence to Mozambique, but helped to overthrow the fascist dictatorship in Portugal. But only four other ministers fought in the liberation war – Tobias Dai (Defence), Feliciano Gundana (Veterans’Affairs), Isabel Nkavandeka (Parliamentary Affairs) and Cadmiel Muthemba (Fisheries). Much of the rest of the government are among the relatively few Mozambicans attending school at the time of independence. Most eventually took degrees from Universidade Eduardo Mondlane, often studying part-time or at night. Prime Minister Luisa Diogo, Finance Minister Manuel Chang and Interior Minister Jose Pacheco have undertaken advanced degrees through distance education from the University of London. Development and Planning Minister Aiuba Cuereneia was one of thousands of young people to do primary schooling in Cuba.These are a bootstrap generation who have made their way through intelligence and hard work, and who gained an education only because of Frelimo and independence. They remember colonialism and are committed to transforming their country. Most had been working and studying in a time of war. The 1947–90 ‘Cold War’ between the then Soviet Union (the ‘East’ or Socialist bloc) and the United States (the ‘West’) and their respective allies cast a long shadow over Mozambique. From 1981 to 1992 the country was subjected to a particularly brutal Cold War proxy war, in which it was attacked and destabilised because it had been receiving support from the ‘East’ and thus was accused of having aligned itself with the ‘wrong’ side. The cost of that war was massive; from a mid-1980s population of 13–15 million, 1 million people (7%) died and 5 million (one-third) were displaced or made refugees in neighbouring countries. Damage was estimated at $20 billion (Hanlon 1996: 15, 150).1 Total useable post-war aid has been only $11 billion, so the former ‘West’ has not even given MozamBased in part on UNICEF (1989) which estimated losses at more than $15 bn and deaths at more than 500,000 at the end of 1988, and in part on my calculations at the time for SADCC and Reginald Green’s for UNICEF. Deaths include not only those directly killed in the war, but also children who died from lack of medical care, people who died of hunger, etc. Hanlon (1996:Appendix 1) has a detailed calculation, including data on returned refugees, etc. Based on my estimate of 1 million deaths, I predicted that the 1997 census would show a population of 17.5 million compared with the official projection of 18.5 million.The actual census found 16.57 million, even lower than I predicted, meaning that 2 million people were missing.We shall never know for sure, but the evidence strongly suggests that 1 million extra people died. 1

6

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constant 2000 US$, 3 year aveage

230

War

220

Adjustment

210 200 190 180 170 160 150 140

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

130

Chart 2.1 Mozambique household consumption expenditure per capita, 3-year average Source: World Bank QuickQuery, household final consumption expenditure per capita (constant 2000 US$), accessed 28 Nov. 2006.

bique enough to repair the damage.Travelling through rural Mozambique, one still sees destroyed shops and government buildings.The Cold War may now be a dim memory in the US and Western Europe, but it is still a very real presence in Mozambique. Structural adjustment was imposed by the World Bank and IMF on Mozambique in 1987, and Chart 2.1 shows – using the World Bank’s own figures – that even the end of the war did not end the economic decline. Donor protests in 1995 led to an easing of the adjustment squeeze and finally a period of growth. But the cost of 16 years of war and adjustment has been huge, and as the World Bank figures show, Mozambicans are only now returning to levels of spending they experienced before the war.Thus, in reading this book, it is essential to remember something which is all too obvious to Mozambicans: economically, the past two decades have been lost decades and the country is only now back to where it was before the proxy war and structural adjustment. And the controlling factors – war and adjustment – were imposed from outside.

Colonialism, Cold War & globalisation Portuguese colonialism was poor and crude; most settlers were illiterate and came from the impoverished parts of Portugal.2 Many recent settlers assumed that they would retire back to Portugal, and at independence in 1975 they did, albeit perhaps sooner than they expected. Their flight was propelled by government and church propaganda painting Frelimo as Marxist monsters who would massacre white people.They created havoc before they left, killing cattle and destroying machinery and even maintenance manuals. But as a liberation movement Frelimo had become inclusive, fighting against ethnic, tribal and racial divisions; at independence it welcomed those Portuguese who wanted to stay. Many families were divided, with some staying and seeing themselves as Mozambican, while their brothers and sisters returned to Portugal.This disparate group of guerril2 The 1955 census showed that only one-third of Portuguese in Mozambique could read and write (Hanlon 1984: 21).

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las and people who stayed tried to pick up the pieces of an economy already fractured by the costs of the colonial war and then largely abandoned by those who had controlled management and administrative posts. Black Mozambicans had been largely excluded from business and civil service jobs, and even lower-level posts such as ticket collectors on trains. The economy continued to decline but after two years was turned around and began to grow. Meanwhile Frelimo gained widespread popularity by pushing an expansion of health and education. By the end of the 1970s, it was hugely popular and widely trusted, and development looked possible. At the same time, it faced white minority governments in Rhodesia and South Africa that were not happy to see a socialist, non-racial government in Mozambique. Frelimo followed the then fashionable policy of creating a one-party state, and it took an increasingly socialist and then Marxist line. It nationalised health, education and rented property, but not business. In practice, many businesses were simply abandoned and taken over by the state in a form of bankruptcy administration called ‘intervention’. But a private bank, private sugar and tea estates, and other private businesses continued to operate, and in the late 1970s Frelimo tried to encourage foreign investment. In 1978, President Samora Machel told the Central Committee that ‘the state does not sell needles’ and began the re-privatisation of ‘intervened’ small businesses. In a mark of confidence in the new government, private business people took over shops and small businesses abandoned only five years before. Subject to outside forces Globalisation is not new to Frelimo and Mozambique, which have been subject to forces outside their control for four decades. Portugal’s resistance to decolonisation was backed by its NATO partners, so Frelimo had to turn to the Eastern bloc for help. Unusually, it maintained support from both China and the then Soviet Union, despite their mutual hostility. It also built up support in Western Europe, often linked to groups opposed to the dictatorships in Portugal and Spain. After independence, Mozambique was helped not just by the Soviet Union and Cuba, but also by the Nordic states and Italy.Thousands of doctors, teachers, engineers and other skilled workers from the socialist East, capitalist West, and Latin America came as cooperantes (co-operators). Unlike ‘technical assistance’ from the aid industry two decades later, cooperantes worked directly for the government, filling many of the gaps left by the departing Portuguese and supporting the expansion of health and education. Independent Mozambique agreed to impose the UN’s mandatory sanctions against white-ruled Rhodesia which responded by creating an anti-Frelimo guerrilla force, eventually named Renamo (Resistência Nacional Moçambicana, Mozambique National Resistance). Recruitment was initially from veterans of the flechas (arrows) and Grupos Especiais (Special Groups), two particularly brutal fighting units of black Mozambicans set up by the Portuguese colonial authorities (Flowers 1987; Hall andYoung 1997; Johnson and Martin 1986). Independence in Zimbabwe in April 1980 brought peace, excitement, and a promise of development, but it was not to last. In retrospect, despite the problems with its white-ruled neighbours, Mozambique came to independence in a relatively benign period of global politics.The defeat of the US in Vietnam in 1975 made it, temporarily, less of a global player.The human rights policy of US President Jimmy Carter in the late 1970s proved an important check on apartheid South Africa. And in 1974 the UN General Assembly approved the ‘New International Economic Order’ which was capped by the Brandt Commission report of 1980. But Ronald Reagan’s election as US president in November 1980 on a vociferously anti-communist and US-focused platform ended any discussion of a new North-South economic order. Reagan intensified the Cold War through a series of proxy wars in Angola, Nicaragua and Mozambique, where the US backed and helped to create, openly or covertly, armed opposition forces. He saw white South Africa as a bastion against com-

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munism in the neighbouring states. On 30 January 1981, just ten days after his inauguration, lorryloads of South African commandos came over the border and raided the Maputo suburb of Matola, killing 14 people. Following Mugabe’s victory in Zimbabwe, Renamo had been quickly handed over to the South Africans, with the tacit approval of the British government. (Johnson and Martin 1986). From 1981 they were given training and shipped into Mozambique, with extensive air and sea support.The proxy war, detailed in other books (Hanlon 1991 and 1996), did not end until the end of the Cold War. A peace accord between Renamo and the government was signed in Rome on 4 October 1992. This was followed by UN-monitored demobilisation and then elections on 27–29 October 1994, which were won convincingly by Frelimo. The decade-long war had been a heavy assault on Mozambique’s social and economic infrastructure. Renamo used brutal tactics, such as burning bus passengers alive, to scare people from travelling and using schools and health posts. By the end of the war, Renamo controlled 23% of the land area and about 6% of the population, according to UN estimates.3 The cost of the war was huge. UNICEF (1989) estimated that Mozambique’s Gross Domestic Product was only half of what it would have been without the war.The number of first-level health posts had been increased from 326 at independence to 1195 in 1985, but 500 of these were closed or destroyed by Renamo; 60% of all primary schools were destroyed or closed. More than 3000 rural shops were destroyed or closed, and most never reopened (Hanlon 1996). The war is over With the end of the Cold War, peace came to most of southern Africa. Nelson Mandela was released from prison on 11 February 1990. On 8 July 1990 peace talks between the Frelimo government and Renamo opened in Rome, leading to a peace agreement on 4 October 1992. Proxy wars ended in Namibia, South Africa and Mozambique, and came to a temporary end in Angola, while a US-backed dictator was overthrown in Malawi. US-backed forces lost elections in all five countries. Mozambique’s war was a ‘civil war’ in the sense that Mozambicans were doing most of the fighting and there were local issues around traditional authority and rural economic policy, but it never developed a momentum of its own like the similar proxy war in Angola. Fighters on both sides no longer felt they were fighting for a cause, and simply wanted to go home. During the peace talks there were local truces. Most striking was the fact that there were few cease-fire violations.At the time of the peace accord, there were 105,000 soldiers, and the accord called for a new army of 30,000 made up equally of the two sides. But it had to be voluntary, and only 12,000 decided to join the new army – and most of those were officers.4 Guerrillas and soldiers voted with their feet, and went home, which was fortuitous for Mozambique, which since then has maintained only a small and largely ineffective army and a tiny military budget. Demobilisation of 93,000 fighters was smoothed by a particularly effective package. They were given their salary for two years, the first six months paid for by the government and the next 18 months by donors through a $35.5 m. UN trust fund. Half the group were ordinary soldiers who received $7 per month, 35% were junior officers with salaries of $10–24. Demobbed soldiers were given transport to anywhere in the country and were provided with a book of cheques or vouchers which could be cashed every two months at a branch of the People’s Development Bank (BPD, Banco Popular de Desenvolvimento).5 Lundin et al. (2000) claimed that these cash payments gave ‘a new impetus to social life, especially in rural areas’.The key to the success seems to have been the two years – long enough to find a wife, have a child, and establish a farm. Despite this success, the Mozambique Political Process Bulletin (MPPB), 14 Feb 1995. Ibid. Branches then existed in 68 of 128 district capitals.With the privatisation of BPD, most rural bank branches were closed.

3 4 5

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Mozambican demobilisation has not been repeated elsewhere because it was considered too expensive; more commonly after other wars, soldiers have received only six months’ pay or a single lump sum, which has proved ineffective. There was no truth commission and few people talk about the atrocities of the war (largely, but not entirely, on the Renamo side – perhaps inevitably for guerrillas in an opposition explicitly trying to terrorise the population into abandoning support for the government). Yet the level of reconciliation and the lack of retribution and vengeance have been truly remarkable, and Mozambique has never suffered the level of violence that plagues South Africa. Ending the war and not returning to violence and suffering seems to have been the universal overriding goal. Better not to open Pandora’s Box with a truth commission. But, in our view, the reason is the general acceptance that this was an imposed proxy war.Yes, the fighters did horrible things, but on both sides they were press-ganged into a war pursued by far-away leaders for their own reasons that had nothing to do with Mozambique. Starting again means putting that horrible past behind them. But the end of the war brought a new killer, HIV/AIDS. Already endemic in Malawi and Zimbabwe in the 1980s, the lack of movement during the war meant it did not cross into central and northern Mozambique. With peace, the epidemic spread to the whole country.

Aid & economic growth As the war intensified in the early 1980s, falling exports and rising oil prices and interest rates led to the collapse of the economy. Mozambique looked to the international community for help.The US and other donors demanded a ‘turn towards the West’, and in 1983 there was a donor ‘strike’; despite a severe drought, donors withheld food aid, only relenting when Mozambique joined the World Bank and IMF in 1984 and signed the unsuccessful Nkomati peace accord with apartheid South Africa (Hanlon 1996: 16, 90). Aid increased sharply. European donors were not prepared to challenge the US at the height of the Cold War, but they were willing to bind the wounds of the victims of the proxy war. And as Chart 2.1 shows, the economic decline was quickly reversed. But aid came with conditions. Mozambique had always required that foreigners work as cooperantes and had never allowed in international non-governmental organisations (INGOs), but in 1984 the US insisted that two of its INGOs, Care and World Vision, be allowed in. Both were controversial, Care for its alleged CIA links and WorldVision for its use of aid for evangelism (Hanlon 1991: 49–52).6 Within five years, 180 NGOs were working in Mozambique (ibid: 207). The second condition was that Mozambique move away from socialism and toward capitalism.This trend had already been under way but had been stopped by the war, and by the mid-1980s the role of the market was widely accepted. But Frelimo wanted a mixed economy, whereas Western donors demanded a total withdrawal of the state from commerce, industry and banking, and the opening up of health and education to the private sector. The third condition was that Mozambique adopt the then fashionable World Bank and IMF structural adjustment policies, involving smaller government, devaluation of the currency, deregulation and privatisation. Mozambique moved reluctantly, and there was another donor strike in 1986, when food aid was again held up, until the government announced a structural adjustment programme (SAP).After that, there was little resistance and aid increased. The shift in aid patterns occurred slowly: Care collected detailed information on military activity during the war, which allegedly became available to the US embassy. In 2006,We met a man still working in Mozambique who told us he set up Care’s secret radio system in the mid-1980s. 6

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A B R I E F H I S TO RY: WA R , P E AC E & S L OW R E C OV E RY Table 2.1 Official Aid to Mozambiquea annual average 2000-04 $ m. $ m. Total per year 1257 of which Debt cancellation 249 Technical assistance 196 Emergency & food aid 88 Available for use in Moz. of which, estimated budget support social sectors infrastructure productive sectors

724

Table 2.2 Mozambique & its neighbours: Aid per capita, ($)a % of total

20 16 7 58

200 300 150 50

11

16 24 12 4

Mozambique Zambia Malawi Tanzania Swaziland South Africa Zimbabwe

53 44 36 32 29 12 10

Average aid 2001–4 excluding debt cancellation and emergency aid Source: DAC, accessed 1.12.2006 and 15.03.2008

a

Based on OECD DAC data, see Appendix 1. Based on Tables A1.1 andA1.4. The data used for Table A1.1 do not have use categories and are based on actual aid, while the data for A1.4 do not include technical assistance and are based on pledged aid. Therefore the top half of the table is actual data from A1.1, while the bottom half consists of estimates based on A1.4.

a

• In the difficult years 1985–6, the former Soviet Union was the biggest donor, followed by Sweden, and they kept Mozambique alive in the face of the Western donor strike. • In the first three years of structural adjustment, 1987–9, the top three donors were all traditional supporters of a progressive Mozambique – Italy, Sweden and the Soviet Union. In fourth and fifth place were the European Commission and the United Nations, which could now move into Mozambique in a bigger way with the approval of the ‘West’. Only, in sixth and seventh place were the new Western lenders and donors, the World Bank and the United States. • Aid peaked in the first three years after the war, 1992–4, with Italy (which brokered the peace accord) as the biggest player, closely followed by the UN with its peacekeeping and election-monitoring mission, ONUMOZ.The World Bank and Portugal followed. • For the post-war period, aid followed the global pattern. For seven years, 1995–2001, it was slowly declining; then there was a major increase starting in 2002. Big donors were the World Bank, followed by the US, the European Union, the UK and Germany. The Nordic states, the Netherlands, and increasingly Ireland were all important donors. Appendix 1 gives more details, including aid by donor.Table 2.1 shows average official aid to Mozambique for the five years 2000–04. It makes the following point: • 20% is debt cancellation. Donors are allowed to treat this as aid. • 16% is technical assistance.This is controversial, and is often alleged to be less useful to Mozambique than other forms of aid because donors determine the nature of the assistance and choose the consultants, often from their own countries. • 7% is emergency and food aid, particularly around the time of the floods of 2000 and 2001. • This means that only 58% is development assistance actually available for use in Mozambique. Official development assistance for the 15 years 1993–2007 inclusive was $17 bn, reduced to $14 bn excluding debt cancellation. Of that, $11 bn could actually be used in Mozambique and in this book we take $11 bn as the aid for this period.This amount is

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Chart 2.2 Aid to Mozambique Source: Data from Appendix 1.

small compared to need and the war damage, but Mozambique is actually a favoured aid recipient, receiving significantly more than its neighbours, as Table 2.2 shows. Chart 2.2 depicts the changes in aid, the lower bars are aid which can actually be used for Mozambique’s development, after subtracting debt cancellation, technical assistance and emergency and food aid. The 2002 spike was caused by debt cancellation by Italy, Germany and France . Finally, Appendix 1 and Table 2.1 show that the nature of aid is changing.The shares going directly to the state budget and for infrastructure have remained roughly constant over the past 16 years. But the share going to the social sectors has increased sharply, while that for productive sectors of the economy has fallen to a negligible 4% of the total.This largely reflects the new stress on the Millennium Development Goals, with their emphasis on health and education. Structural adjustment and the 1995 crunch An explicit condition of aid was that Mozambique adopt Structural Adjustment Programmes (SAP). These were imposed by the Bretton Woods institutions as part of the ‘Washington Consensus’ view of what poor countries needed to do to develop and integrate into the globalised capitalist world.They were a mix of two strands. First, the earlier support of growth led by ‘developmental states’ was replaced by ‘free market’ policies and the belief that the ‘market’ would promote growth and end poverty. Second, monetarism put the stress on restraining inflation by controlling the money supply, largely by curbing state spending and keeping interest rates high (which had the contradictory effect of making it harder for those in the new free market to invest).The BWIs imposed a series of policies on Mozambique which were common to all SAPs: • Cut government expenditure, by cutting wages and social services. • End state involvement in the economy; access to credit must be determined purely by the market. • Privatise state-owned and -controlled businesses and services. • End price controls and subsidies. • Devalue the currency. • Cut regulations and restrictions on private companies. • Free international trade by eliminating trade barriers and minimising import and export duties; domestic production cannot be protected. • Encourage foreign investment and exports. Mozambique’s first SAP in 1987 was designed by the government without formally consulting the World Bank and IMF, and did not go as far as the BWIs wanted.7 It made 7

Much of this section is taken from Hanlon, (1996).

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a series of necessary economic changes, which curbed inflation and stabilised the local currency, the metical. Industrial production increased and there were goods in the shops, albeit at much higher prices than before.The changes stimulated economic growth, despite the war.There was a free market with traders on most street corners of Maputo; the first independent newspapers were published in 1992. But the IMF demanded much harsher conditions. From the 1988 peak, the economy declined for nearly a decade, even after the war had ended. We tend to think of the two BWIs as twins, and both, for example, were pushing hard for privatisation. But there was a fierce battle between them on government spending. The World Bank called for ‘a pay rise in the civil service’, arguing that the wage bill in Mozambique was very low compared with that of other sub-Saharan countries.The Fund totally disagreed, and in 1991 demanded massive cuts in government spending and civil service wages. Nurses and teachers fell below the poverty line in early 1992 and below the abject poverty line in mid-1993.The squeeze had two immediate effects.Any civil servant who could leave and work for an aid agency or INGO did so, stripping the best people out of government, and making it much harder for the government to meet donor demands. And civil servants who stayed had to take bribes (‘privatised user fees’) or steal time (to do other jobs) or goods or money in order to survive.This created a climate of petty corruption that continues to the present day, even though civil service wages are now reasonable. The IMF imposed strict curbs on credit, in the belief that this would curb inflation, and between 1991 and 1993 credit to the economy was halved, hitting agriculture and industry particularly hard. By 1995, both industrial production and exports were only 40% of what they had been in 1991, during the war. More than 500 companies had been privatised, the big firms going to foreign companies and the small ones being largely given to the Frelimo elite. Privatisation has put tens of thousands of people out of work,8 and many fewer jobs were created. The IMF also took the line that post-war reconstruction was inflationary, and it prohibited increases in aid to repair war damage; so with few roads there was little improvement in rural trade. Despite peace and successful elections, the economy continued to decline and in 1995 there were increasingly outspoken comments from donors and business people.The minimum wage had fallen from $40 a month in 1991 to $15 in 1995, and the new government raised it to $20.The head of an IMF delegation to Maputo in September 1995 condemned the increase and warned that the IMF would suspend its programme and declare Mozambique ‘off track’.At that time, all donors made aid conditional on Mozambique following IMF and World Bank programmes, so the IMF would have suddenly ended all aid. On 6 October, a group of donors issued an unprecedented statement backing the government and criticising the IMF. The Fund’s initial response was bluff and bluster, but it largely backed down. Caps on the economy and on the spending of aid were eased, although not fully removed. Chart 2.1 shows a rapid recovery from the following year. It seems 1995 was the peak of the BWI hard line, and in Chapters 5 and 10 we note some harsh (and, in retrospect, totally wrongheaded) impositions on cashew and bank privatisation. In 2003 Paul Collier finished his tenure as Director of the World Bank’s Development Research Group with a book which fiercely attacked BWI policy in post-civil-war countries, and argued that what they had done in countries like Mozambique (and were subsequently to do in Sierra Leone) was counterproductive (Collier et al., 2003). In particular: • ‘Returns on early rehabilitation of key infrastructure destroyed during the conflict can be extremely high’ – up to 40%.The IMF had blocked rebuilding transport links like bridges in Mozambique on the grounds that the rate of return was low and such building would be inflationary. 8

The railways alone reduced their workforce by 13,570. Notícias, 15 May 2007.

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• The BWI emphasis on the priority of macroeconomic stability is wrong and damaging. Social stability and confidence are much more important in creating investment confidence, and this comes from increased government investment, for example in health and education, even if it is inflationary. • In the short term, reliance on the free market is wrong. A high priority is to move resources and investment into poorer and rebel areas, which have suffered the worst damage. These are precisely the areas of least interest to business in the free market era, so the government needs to step in.With Mozambique, this can be seen clearly in places like Angoche, Nampula, which have never recovered from the war. So a major World Bank report states, in effect, that the IMF did delay Mozambique’s postwar recovery. But there was no admission of error and no suggestion of compensation. Investment Easing of harsh BWI policies in 1996 brought an economic transformation, in particular encouraging investment, as Chart 2.3 shows. Since 1998, foreign investment worth $2 billion (according to UNCTAD, Chart 2.3) or $4 billion (according to the IMF (2006: 12)) has flowed into Mozambique, although less than to neighbouring Tanzania (see Appendix 2,Table A2.2). Of the foreign investments, the biggest creator of employment has been sugar. Rehabilitation of the four sugar estates by South African and Mauritian companies at a cost of $300 m. means that 30,000 people are employed; further investment of $177 m. is expected to create 8000 jobs in 2009. Nearly all the other big foreign investments have been in the minerals-energy sector and have contributed little to the Mozambican economy. They are capital-intensive and create few jobs, or contracts for local firms beyond catering and cleaning.The IMF initially demanded major tax and fiscal exemptions to attract these ‘mega-projects’, but now comChart 2.3 Foreign direct investment UNCTAD Foreign Direct Investment data base, plains that ‘their contribution to the state accessed 25 November 2006 budget has been marginal’ (IMF 2006a: 12) and that lost taxes are equivalent to 3.6% of GDP, about one-quarter of the total present tax take or $200 m. per year (Manoel et al., 2005: 61). Much of the foreign investment is borrowed, and ‘only a small fraction of the foreign exchange proceeds are actually repatriated in Mozambique’, says the Fund (IMF 2006b). The mega-projects account for 7% of GDP and 65% of exports. The IMF says future exploitation of natural resources should provide more gains for Mozambique. The biggest of the mega-projects is the $2 bn Mozal aluminium smelter,9 opened in 2000 and enlarged in 2004. It uses imported South African electricity to smelt imported alumina; the resulting aluminium is exported to Europe where Mozambique has duty-free access. Benefits to Mozal include exemption from all taxes, except a 1% corporate income tax. It employs about 1000 Mozambicans. Economist Carlos Nuno Castel-Branco estimates that, from this massive project, the Mozambican economy gains only $45 m. per year in wages ($17 m.), purchases from the domestic economy ($14 m.), social programmes run by Mozal ($4 m.), and taxes and fiscal gains ($10 m.) (Castel-Branco 2004a). In 2003 an 845 km pipeline began taking gas from the coast of Inhambane to South The Mozal project in 2003 was owned by BHP Billiton (47%), Mitsubishi Corp (25%), the Industrial Development Corp of South Africa (24%) and the Government of Mozambique (4%). Most of the cost was funded by loans, of which $145 m. came from the World Bank’s International Finance Corporation, which claims it is one of its largest investments in sub-Saharan Africa. 9

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Africa.10 It was built at a cost of $1.5 bn and employs 200 people; little of the gas is used in Mozambique. Mozambique has significant titanium reserves, and two large open mines are being developed. One at Moma in Nampula province opened in 2007, with an investment of $460 m. and creating 450 jobs (Noticias 19 June 2007). Development of the second, at Chokwe in Gaza, has been slower; the project is projected to cost $700 m., employ 500 people and displace 4000 people (Noticias 28 Nov. 2006 and 1 June 2007). Both have an exemption from all taxes, and pay 1% corporate tax only after 7 years (Manoel et al., 2005:31). In 2007 Mozambique also bought the Cahora Bassa dam from the Portuguese government, and has been negotiating with China about building another dam 75 km downstream.The Moatize coal mines, which have quite large reserves, have been taken over by Brazil’s Companhia Vale do Rio Doce, the world’s largest iron-ore producer; investment is expected to be $1.5 bn and production is due to begin in 2010. Beyond the mega-projects, there is some other foreign investment. Approvals for 2003 and 2004 (not all of which have been carried out) were for $243 m., of which 34% was for transport and communications, 26% for tourism, and 14% for agriculture and agro-industry; of these, 62% were in Maputo city and province.This reinforces the development focus on the south and links to South Africa, which is already the largest foreign investor. South African investments in gas, electricity, the Maputo toll road, sugar, beer and soft drinks, and the retail sector are increasingly integrating southern Mozambique into the South African economy. Beaches and game parks mean that tourism has the potential to create jobs, but so far it has been plagued by cowboy operators and low standards. Orlando Candua, chief inspector for tourism, reported in mid-2007 that 100 tourist operators had been fined $250,000 for operating illegally (Noticias 10 June 2007). Growth or stagnation Formally, GDP is growing by 7% a year, driven in part by increasing aid and investment in mega-projects.The central question of this book is whether this growth is bringing development. Castel-Branco, one of the foremost economists and an expert on industrial policy, has warned that, other than the mega-projects, industry and the economy in general are stagnating (Castel-Branco 2003a). He argues (2004a) that it is ‘obvious’ that these projects are not making the necessary linkages to other sectors of the economy and are not helping to solve the critical unemployment problem. The mega-projects are concentrated around the mineral-energy complex, but Mozambique’s economy needs to diversify, with both government and private sector investing in areas neglected until now (Castel-Branco 2005a). At the beginning of this chapter, we noted how Mozambicans have gone through a rapid series of political and economic changes, and remained committed to developing their country.Two wars and a harsh period of adjustment have meant three lost decades, from which people are only now emerging. Colonialism, the Cold War, and then BWIimposed restrictions have meant outsiders playing an overwhelming role. Now that the worst is over, Mozambique’s leaders seem to have decided simply to take the small gains on offer. Is the leadership rightly cautious about offending powerful outsiders, or is it just tired? For whatever reason, we argue in Chapter 11 that Mozambique has been passive and accepted policies from donors that cannot be a base for development. Castel-Branco argues (2006a) that Mozambique has simply waited for foreign investors, and that mega-projects are not a base for development. History informs the understanding of Mozambique and influences how Mozambicans go forward. Remembering recent history, this book is an attempt to think about future development and the choices to be made, and argues for a less passive and more interventionist course. The pipeline is 75% owned by Sasol Gas Holdings and iGas, South Africa’s state-owned pipeline development company, and 25% by the Mozambican government.

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Can peasants pull Nampula out of poverty? We were told we could get sunflower seeds if we formed an association, so in 1999 we did.And a trader came from Pemba and bought our sunflower. But he paid such a low price that we realised this could not be our ‘struggle against absolute poverty’. So in 2002, we decided to try paprika, because an INGO, Care, gave us seeds, fertiliser and extension support, and said they had a buyer funded by Dutch aid. But no one ever came to buy our paprika. So we had a meeting and decided to try onions. Now all 33 of us produce onions – some people take them to the local market to sell and a few traders come here. But that is limited.We hope to produce 40 tons of onion this year, but can we sell them? We have no transport to take onions to bigger markets like Nampula; no one will help us with transport. (Jaime Agostinho, treasurer of Associação de Ehiquite-Iapala in the west of Nampula province.)

We were in Iapala as part of extended visits to two provinces, Nampula and Manica, where everyone said there were more bicycles, and so it was believed that development was taking place. We also chose these places because they seemed very different. Nampula is a province with small producers and associations, while Manica was reportedly embarking on a boom driven by medium-sized commercial farmers.This chapter and the next report on our investigations. Associação de Ehiquite-Iapala is a model association: the sort we had heard about and were strongly encouraged to visit by the Ribáuè1 district administrator. Members are accustomed to visitors and have a flip chart ready to give an introductory talk. And they have had substantial support from the district and the provincial directorate of agriculture (DPA). In 2004 the DPA sent some members to Zambézia for training in onion seed production and conservation and they are now selling onion seed to neighbouring associations. The following year it used them for the multiplication of orange sweet potato and in 2006 for jatropha (also jatrofa, used for biodiesel). And they have done trials with improved maize and pineapple. This is a dynamic group, ready to try anything. It is hardly surprising that it is the showcase association for the district. At our meeting, one woman commented,‘it is just better to work in groups rather than on your own’.Then she added,‘the main advantage is that the government helps an association. It brings us things like seeds.And we get fertiliser on credit.’ But as our meeting ended,Agostinho admitted,‘despite the help and what we have done, so far, not much has improved.’And the woman commented:‘Women especially are still poor.There is no improvement.’ We also visited another association in Ribáuè, Portadores da Horticola da Nameconha (literally, Carriers of Vegetables from Nameconha). Agostinho Sulala, the president, explained: ‘We formed the association in 2004 because of our poverty.We knew that as an 1

The spelling of Ribáuè is totally inconsistent even in Mozambican government reports.

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association we would get more help, and the district department of agriculture did give us technical help.We decided to grow cabbage because we know how to do it, and because the growing cycle is short, only three months.’ One member,Abilio Nahura, added ‘At first, an INGO said it would buy from us. So we collected all of our cabbages for them. But they only took a dozen.We were left with the rest.There is no market because there is huge competition.’ Finally, Abilio said, ‘Production is falling, and we are poorer than when we started.’ Sitting in the thatched open-walled warehouse and meeting room, one after another of the dozen people present all agreed with him He went on: ‘As a group, we have enthusiasm to continue and we want to produce. But the cost of fertiliser is so high and our vegetables earn too little, we cannot make a profit.’ Manuel Ernesto added:‘Isn’t there someone who can tell us what we can grow that has a client who will buy?’

Give a man a fish … The associations we met seemed willing to try anything to increase their cash income.As part of the external support, in 2004 the Associação de Ehiquite-Iapala was encouraged to take up fish farming, as part of a joint project by the DPA and Care. In Alto Molócuè in neighbouring Zambézia province the DPA was already supporting a project to grow talapia; it provided training and had organised the supply of fingerlings (small fish, fry; alevim) locally.Working with the DPA, Care transported the fingerlings and provided some money and further training.The Associação started with 120 fingerlings in 2004 and by 2006 had 24 fish tanks. But Jaime Agostinho admitted that ‘it is really difficult to sell the fish because they are hard to catch because we don’t have a net’. The district administrator borrowed a net from a teacher and bought 11 kg, and the nuns up the road borrowed this net and bought 9 kg. But that was the total sales, and they also seemed not to be eating the fish. Iapala is far from the sea or any big river and has no tradition of fishing, so these people have no experience of nets and do not really know what they need or how much it would cost. ‘We think you can buy nets in Nacala’, 300 km away by the sea, said Agostinho, ‘but it would be too expensive for us to send someone there.’ ‘We are not in the business of providing Figure 3.1 Feeding the fish people with fishing nets,’ explained Tim at Associação de Ehiquite-Iapala Russell of Care, in the provincial capital. Care giving fish but no nets seemed an exact reversal of the old Chinese proverb used by Oxfam a few years ago:‘Give a man a fish and he will feed himself and his family for a day but give a man a net and teach him to fish and he will feed himself and his family for a lifetime.’ But as Russell also admitted,‘I don’t think anyone thought about nets. I never did.’ Care and the Nampula DPA have expanded fish farming quite rapidly. In Nametil we met a Care extensionist who said that this was also a problem for the associations they worked with.When an association wanted a net, their solution was to give money to one of the extensionists to buy window screening when he went home to Nampula city for the weekend. But he admitted that it was only a partial solution, because the mesh of a window screen is meant to keep out mosquitoes, so it is much too fine; none of the associations was yet selling fish.

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Later we talked with Care’s fish technician,Aly Garcias, who confirmed that nets were a problem. Initially, they had not been sure what to do, so they looked at the kinds of nets fishermen in the Rio Ligonhas used.They then went to Nacala and bought 50 m of net (for 10,000 MT, $400) and cut it into lengths which were then handed out to forums of associations, with instructions that the net should normally be kept in the forum office! Another problem was that Care had been working in Ribáuè district, which includes Iapala, on an EU contract which ran out soon after the fingerlings were delivered to the Associação. Care left the district and could do no follow-up. Similarly, in Nametil, Care was finishing its project just a few days after we interviewed its extensionists, and no further support for the fish associations seemed likely, even though they were still not selling fish.

The missing market Onions, cabbage and fish are fresh products that have to be sold quickly. In all these cases, and many others we saw, there had been real help to produce, but no help to sell. Markets and marketing are the biggest missing piece in the jigsaw. Both INGOs and the government seem to start from what can be produced rather than what people want to buy, and judge success by production rather than sales. In part, INGOs promote vegetable production because they want to improve the diets of the local people. And in this they are partially successful. Januario Armando, president of FARI, the forum of associations of Ribáuè, commented ‘We thought carrots were something you sold to white people. Now we eat them.We even eat salads.’ But, he added, although their diet had improved,‘we still have little money in our pocket’. Armando is a member of Associação Primeiro do Maio in Pecuari, Ribáuè district. Its history is typical of the region. It was set up, like many in the area, in 1996 with support from Clusa, the Cooperative League of the USA. It was shortly after the war, peasants had returned home and production was increasing, but commercial networks had not been reestablished. In 1996 the association sold 131 tonnes of maize by collecting it from the members and taking it into the nearest town to sell to a big trader.Armando remembers: ‘It was the early years after the war.We had to open the roads and fill the marketing gap. But as the traders started to come into the area, the association was no longer needed as members sold directly to traders who came to them. The last year the association sold maize was 1999.’ But once the association was set up, NGOs began to provide a range of social support, including literacy classes and improved weaning food for infants. Members now see it as mainly a social organisation.Alexander Serrano was Clusa head in Nampula from 1995 to 2000.When he returned to Mozambique in 2005, he went from Nampula city to Cuamba looking for the associations he had helped to set up. He found that most still existed, but that they were doing little marketing. Instead they were engaged in literacy and social activities. They were ‘more empowered and not discouraged’, but he went on to say that, compared with a decade before,‘in the villages you did not see much change; economically, people’s lives had not moved ahead.’ Associação Primeiro do Maio was typical, in not being involved in any economic activities in 2005.When we visited it in 2006, it was clearly the most fashionable association in the area. Seven local and international NGOs were working with it, helping it to register as an association, helping members to register their land, and creating savings clubs. It was also beginning to obtain support for productive assets as well.The initial experiments did not go well.An INGO-backed attempt in 2001 to grow vegetables failed, as elsewhere due to lack of a market. An INGO provided an oil press to make cooking oil from local sunflower and soya, but that, too, was unsuccessful. At the time of our visit, several new economic projects had started.Animal traction was

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being tried and the association had two pairs of oxen. It received an INGO loan for a maize mill; although formally a commercial venture, this was justified as saving the time of women who previously had to walk several kilometres to the nearest mill.With a grant from a German INGO, it was also building a warehouse, the idea being to store maize and onions to sell after the rainy season had started, when the seasonal prices had risen to triple or more those at harvest time. Even well stored onions lose half their weight, but if it is done correctly, the increased profit is still significant, and there is more of a market than when everyone is trying to sell onions. Maize, too, brings much higher prices. Linked to the warehouse was a small shop selling agricultural inputs and a few basic necessities. Associations across Nampula, with the support of local NGOs, are combining the installation of warehouses, shops and mills. If managed well, this could significantly raise local income. And in 2006 Associação Primeiro do Maio returned to collective maize marketing. At the time, traders coming to their village were offering 2 MT/kg (8¢,4p) which the association thought too little. So it organised a contract with a trader in town to deliver maize at 2.75 MT/kg; it paid the farmers 2.5 MT/kg and still made a profit, so everyone was happy.Two other associations in the Ribáuè forum were also marketing maize collectively in 2006. Perhaps the strongest point to be made about Associação Primeiro do Maio is that it does now look viable, both in personal and commercial terms. But it has taken a decade of intensive support to reach this stage. And the association needs a lot more support – credit to buy maize, training in management and bookkeeping to run its warehouse and mill, and technical support for the new crops it would like to introduce such as beans. Iapala and Ribáuè Iapala is a bustling market town along the railway, and when the daily train stops dozens of people rush up with bundles of onions, carrots and cabbages, which are bought. Iapala clearly has a reputation among passengers for its vegetables. It also has a thriving market and, yes, there are bicycles for sale. But an economy is not built on a few bunches of onions, or on the few hundred extra meticais that a hoe farmer can earn if she sells her maize through an association. Even in Iapala, we are talking about tiny amounts of money changing hands in the market. Ribáuè district is lush farming country and should be the breadbasket of Nampula, but it is hardly exploited. Ribáuè town, the district capital, has no shops and there are more goats than cars on the main street. Driving through western Nampula province, we saw many buildings which had been destroyed in the war and never repaired.There are more bicycles and a handful of better houses, but 16 years after the end of the war almost everyone walks and lives in a traditional mud block and thatch house.And the people who work in the fields still work with a hoe.There are few oxen and no tractors. Productivity is low and vast tracts of land remain unused. There are changes. Ribáuè has electricity now, on a grid linked to the giant Cahora Bassa dam. Electricity means that it has a local radio station and a disco. It also means that there are street lights and the school can function in the evening, and women now feel safe to go to night school. With electricity, NGO staff and local officials do not rush off to Nampula every weekend. Julio Paulino, a journalist from Nampula city who did research in Ribáuè for us, was surprised by a friend telling him she had asked to be transferred to Ribáuè:‘in five years, this will be a real city,’ she said. But looking at the herds of goats on the main street, we’re not sure.

Nametil: is long term-support impossible? There are no goats on the main street of Nametil, the district capital of Mogovolas, be-

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cause there is too much traffic.This dusty town seems to be thriving, with a big market and a regular minibus (chapa) service taking 90 minutes to get to Nampula city; vendors sell chicken and peanuts to the bus passengers.The lack of a bank, shops or a restaurant and the relatively small stock in the market stalls and the tiny size of the bars speaks of a very low economic level; nevertheless, the contrast with Ribáuè is stark. On the bicycle scale, Nametil scores relatively well.The market has vendors selling new bicycles and at least two stalls selling a wide range of spare parts.At the entrance to the market is a welding shop where a main source of business seems to be repairs and modifications to bicycles, such as a second seat and footrests.The welders use electric equipment linked to the national grid and the Cahora Bassa dam, a tiny example of how electricity can stimulate economic development. Nametil’s neat market also points to another debate. In general, the shops on the main street never reopened after the war. But the market illustrates the phenomenon of ‘improved stalls’ (barracas melhoradas).Although most remain simple structures of poles with a small shelf and thatched roof, a few successful stall holders have rebuilt their tiny stalls with blocks and metal roofs, so they can hold more stock and lock up at night – still not proper shops, but a significant step up from the rough stalls around them.The damaged shops on the main street are a visual reminder that Nametil has still not returned to pre-war economic levels.Yet, as the bicycle test shows, stock at each stall may be small but the market sells nearly everything that local people want to buy, and the improved stalls show that some accumulation is taking place. Does it matter that people have to go to a dozen stalls instead of one shop to buy what they need? Nuts have made the difference – cashew and peanuts. Cashew will be discussed in detail in Chapter 5, and Nametil has a new cashew factory employing 1000 people. Cotton is also important. But the big new crop is Nametil peanuts, and its success shows what can be done when attention is paid to the entire value chain from production through marketing to export. It also shows how much time, energy, money, and outside support is needed to promote economic growth – and how cooperation between agencies is essential for success. Nametil peanuts are small and oily, which makes them less good for snacks but excellent for cooking, so there was already a significant market in Maputo.There is a potential export market for peanut butter. Growers like them because they are highly disease-resistant. The chain started when Tim Russell of Care found a better variety of peanuts in neighbouring Malawi and introduced it to Nametil.The new variety and improved techniques raised the yield by 50%, with peasants producing an average 600 kg/ha of raw (unshelled) nuts. But, in contrast to fish, a huge effort has been put into marketing, both domestically and for export, which has involved collaboration between four foreign and three Mozambican organisations.The next step was to raise standards and begin producing seed peanuts, which earn an extra 50%. Several associations have now been certified as seed producers. Attention inevitably turned to possible export. It is always easier to try to export a crop which has a strong domestic market; production which cannot be exported for higher prices can still be sold locally. For example, broken peanuts can still be sold in Mozambique for cooking. Exporting is not easy.‘European buyers have become very sophisticated and European Union standards are increasing rapidly,’ explains Martin Mason of Clusa, which has been a major supporter of peanut marketing. The first step in making the peanuts more marketable and exportable was to prevent an important health hazard.Aflatoxins produced by mould growing on peanuts is believed to be a cause of liver cancer. In Mozambique there is an above-normal incidence of the disease and the presence of aflatoxins had prevented the export of peanuts to Europe. Investigation showed that traditionally, peanuts were soaked before being shelled, and the soaking seems to have encouraged mould growth.As part of the project, Care insisted that the nuts be shelled dry.This worked, and production from Nametil was certified as afla-

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toxin-free in 2005. But it is hard work. Shelling is done by the entire family, including children, often in the afternoon and evening after other work.Typically it can take a week for a family to shell a 50kg sack of raw nuts, yielding about 17 kg of nuts and earning about $7, according to Cuban-trained extensionist Afonso Chivende, of Care. A typical family earns around $60 from its peanut crop – roughly the price of the cheapest bicycle.This may be its entire cash income for the year, explaining why Nametil still looks very poor.Also, each step requires substantial external support. Mozambique does not have a laboratory which is EU-approved and can test for aflatoxin, so the INGO backers had to find a lab in South Africa. The next step was to gain fair trade and organic status for the peanuts, because each adds about 15% to the price to the producer. Care has experience in organising organic certification, which also requires inspection by a South African company, and 19 associations are now certified as organic.This is potentially a large market because pesticides and chemical fertilisers are not normally used for peanuts in Mozambique; organic farmers are concentrated in Calipo, west of Nametil, which is easier to certify as organic because it is not an area for cotton (which requires non-organic treatments).The first organic peanuts were sold to South Africa in 2006 for peanut butter. Clusa has experience of negotiating fair trade agreements and it worked with Twin Trading, a fair trade organisation in London, to negotiate the first export of fair trade organic peanuts in 2006.2 Twin puts the peanuts in mixed nuts and fruit it packs for supermarkets, and sees a good market for Nametil peanuts. The first farmer-owned cooperative A key element in marketing was the creation in 2003 of Ikuru, a marketing company designed to be owned collectively by farmers. Giant farmer-owned marketing and agroprocessing cooperatives are major players in the US3 and Europe, although Ikuru is apparently unique in Mozambique. Ikuru has grown steadily, from marketing 300 tonnes of peanut, sesame, and beans in 2004 to 2000 tonnes in 2006. It sets a floor price and signs contracts with producers in January, at planting time, and then buys in May and June. Members are guaranteed 0.5 MT (2 US cents, 1 p UK) per kg over the prevailing market price. Ikuru also provides seed on credit, and in the marketing period advances money to its member associations to buy from their farmers. For centuries, farmers all over the world have complained about being cheated by traders, particularly through crooked scales, so a key benefit of selling to Ikuru is that it uses its own honest scales to weigh the crops it is buying. Ikuru buys increasingly from non-members, because even without the premium paid to members, it pays slightly more than other traders. Moisés Raposo, Ikuru’s general manager, stresses that this is a commercial company which needs to make a profit. His office is modest and his staff small; warehouses are rented. He notes that the original idea was to market maize because that is more important to peasants, but the margins are too small and there are substantial storage problems. By contrast, peanuts and sesame need to be stored for shorter times. Ikuru is currently owned 45% by the Mozambican investment promotion agency GAPI4, 45% by the Dutch INGO Novib, and 10% by its 21 farmers’ associations whose 8000 members actually raised $21,000 for their 10% share. Ikuru’s rules stipulate that GAPI and Oxfam-Novib can only sell their shares to farmers. 2 One of the founders of Twin was the late Dick Day, who worked in Mozambique in the 1980s. The Day Chocolate Company, which sells fair trade Divine chocolate, is named after him. 3 Producer-owned cooperatives are familiar to US consumers, who often do not know they are co-ops. Land O’Lakes, Ocean Spray,Welch’s, and Sunkist are cooperatives that market products made from the milk, cranberries, grapes, oranges and other raw materials supplied by their producer-members. Land O’Lakes has grown to be the largest feed company in North America. 4 Originally Gabinete de Apoio à Promoção de Pequenos Investimentos, part owned by the government and part by donors, GAPI evolved to become an important provider of technical support to small and medium businesses, as well as a source of credit and investment (see Chapter 17).

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Three ongoing issues are working capital, technical support and integrity. Novib also provided a loan of €200,000 for working capital, and GAPI extends shorter-term credit during the marketing period. But cash is becoming a real problem. Raposo says that he had to stop buying from non-members in 2006 because of lack of money, and he estimated that if he had the cash he could buy $1 million of products in 2007. Clusa, largely with USAID support, has been working in Nampula since 1995, and is providing essential technical support, as well as lending cars and paying for extras like aflatoxin testing. In 2006, Martin Mason was still required to sign Ikuru cheques, and he says technical support for Ikuru must continue for at least another three years. Olipa, a local NGO which is also a spin-off from Clusa, provides training for the member associations. Finally, there is the issue of integrity and the transition from INGO project to a serious business. As Mason comments: ‘INGOs are easy – they can always just give money away. But Ikuru is commercial. Can it be built into a US or Dutch-style farmers cooperative?’ INGOs have large budgets and their staff earn high salaries, and the temptation to siphon off money from INGO-funded projects has too often proved irresistible, causing many initially good projects to crash. Raposo has a good reputation and is willing to work really hard to benefit his member associations; most start-up businesses are dependent on a single dynamic individual. Ikuru itself cannot afford INGO-level salaries; can it create a team of people willing to work hard to benefit farmers, without large salaries for themselves? Extreme poverty creates huge family pressures on anyone with a job, while widening wealth gaps create a feeling of injustice in many being paid an ordinary salary. Ikuru could start to move very large amounts of money; will its staff be able to resist the temptation and pressure to pocket some of it? INGOs and sustainability Perhaps the biggest problem is that donors have very short time horizons and rapidly shifting priorities, yet successful development seems to need a decade or more of support. Ikuru will need 10 years of support if it is to succeed.5 The associations that Clusa helped to set up are only now finding their feet after a decade of small bits of short-term INGO support. But Martin Mason adds:‘All projects have a three-year window. USAID’s support for Ikuru is finishing now after three years, but when Ikuru is only just starting. Now we will have a dead period and lose a couple of years before we can organise a new project. Three years is simply not enough.’ The Dutch government agency SNV set up a network of staff in four districts (including Mogovolas, where Nametil is the district capital) and helped to create 100 local development committees. But then head office in the Hague changed its policy, converting it from a development into a consultancy agency, adding to the plethora of aid workers who advise instead of doing things. SNV local staff were made redundant. Similarly in 2006, Care was coming to the end of its contracts.With a budget larger than that of the provincial department of agriculture, it had developed an impressive network of extension workers in the field, but in late 2006, those who had been with Care six years or more were all made redundant. Both SNV and Care provided support for their staffs to form themselves into companies or NGOs, but they will have to search for money and bid for contracts. Inevitably, support for the farmers’ associations and committees they helped to set up will be reduced; these are still weak and without help many are collapsing. Some local development committees were saved only when other Dutch agencies stepped in.What will be the impact on Ikuru, which counts some of the Care-supported associations as its member shareholders? Marieta Zucas, one of the dismissed extensionists, said: ‘Setting up associations can’t be done in one or two years. It’s not easy to conThe OECD Development Assistance Committee (DAC) recognises that for countries like Mozambique ‘capacity development in core institutions will normally require an engagement of at least ten years’ (OECD DAC, Principles for Good International Engagement in Fragile States and Situations, 2007; as a post-conflict state, DAC treats Mozambique as ‘fragile’). 5

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vince people.You don’t really see much change in the first three years.You only see results after five years or more.’ Change occurs slowly. For hoe farmers, one of the biggest constraints is lack of labour, which restricts the area that can be farmed. (Another is unaffordability of fertiliser, which would substantially increase productivity.) Two linked changes are slowly taking place. One is conservation farming, which involves less tilling of the soil but also digging in organic plant waste.Although profitable in the long term, it requires too much labour in the short term. The other is animal traction, which is being promoted in a small way by many INGOs in Mozambique, and which can substantially increase a farmer’s area.With training, it can also be linked to conservation farming. But animal traction requires long-term support – ongoing training, long-term credit, and veterinary services – and these are not available in Nametil.Without such support, INGO animal traction projects have failed in many places in Mozambique. Not all INGO projects in Nametil have been as successful as peanuts. Sesame is a traditional crop with huge export potential, and a locally based company Export Marketing has been buying in increasing amounts. Tim Russell estimates that peasants can earn $260/ha from sesame, compared with $160/ha for peanuts and $50/ha for maize (and as little as $5/ha for cotton). Black sesame has a market in Japan and China for oil, but white sesame earns a higher price for the confectionery market. Mozambican sesame is small and mixed in colour, which means it earns a lower price, but it has high pest resistance. Clusa imported seed for a larger white sesame from Nicaragua, which was taken up by many peasants, but they suffered major pest losses in 2006. ‘This was not such a good idea.We caused some harm.You have to be careful,’ admits Russell. So the current plan is to return to the more disease-resistant local variety, and use traditional techniques and simply select out the large white grains as seed. Some INGOs have budgets of more than $1 million per year in Nampula province alone, so they have a huge impact on anything they touch. But INGOs quickly move on, and policies change. Local staff must run to keep up with policy changes at headquarters, and there is no job security (increasing the temptation to steal what you can). For peasants there is little hope of keeping up.What about the peasants who produced paprika, sunflower, and sesame they could not sell because INGOs told them to, or who set up associations and local development committees because they expected ongoing support which has now ended? How will they respond to the next outsider with a bright idea? And should they take all the risk? Or should it be shared by the development agencies? Should they compensate farmers who take part in failures? Development is expensive. It has taken a huge investment of time, money and people to get Ikuru off the ground and its success depends on that support continuing for another 3 to 5 years at least. It is not just the very costly INGOs, with high expatriate salaries and relatively high domestic salaries, plus cars, offices, etc. An agency like GAPI will never recover its support costs from the interest on its loans (see Chapter 12). And initial returns are small. Peasants who are successful may double their cash income, but still only earn perhaps $100 to $150 in a year, for the entire family. The most commonly cited poverty line is $1 per person per day.Yet this is a cash income of less than half a dollar per day for an entire family, which means that even those who can really be said to have developed remain desperately poor. Similarly, Ikuru is rightly proud of handling 2000 tonnes in its third year, but this remains tiny compared with the private companies operating in Nampula.

Monapo: furniture & contractors Monapo, 120 km east of Nampula city, is very different from Nametil and Ribáuè. It was an important industrial town in the colonial era, but most factories are now closed.Adri-

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ano Abdallah is president of the Association of Monapo Unemployed, formed by 15 skilled craftsmen made jobless by the factory closures. It undertakes building work, including finishing a school left half-completed by a Nampula contractor. Other contracts come from the municipality. But the association remains precarious, and members also have farms. Abdallah’s own modest, not-quite-completed house is the association office, and for each project they have to buy materials and hire transport. ‘We lack proper tools and proper training,’ he told me.They had sent one member to the provincial capital, Nampula city, for training in drawing up budgets, which was clearly important.‘I went to see if I could get more people trained. But they said we would have to pay all the costs, and it is just too expensive to feed and house people in Nampula – we cannot afford it.’ He ends up:‘I have been to at least a dozen meetings with INGOs, who all say they will help our association, but nothing happens.’ Just down the road from Abdallah’s house is a furniture workshop. A thatched roof of palm fronds supported on poles that look ready to fall over in a gust of wind protects a range of furniture of surprisingly good quality. We arrived late in the afternoon, but a group of seven carpenters and upholsterers were still hard at work. MoraisVictor said they were a collective that had been working together for nine years, and had developed a reputation for quality. But they were totally under-capitalised.With each order, the buyer had to give them money in advance so they could go to the local sawmill to buy wood and to Nampula city to buy cloth and other material. All the work is done with hand tools, but with electricity and a few basic power tools they could raise the quality substantially. Like the unemployed association, the furniture workshop is formally registered as an association and pays local taxes.The mayor of Monapo, Daniel Herminio Bento, says there are several other associations in the town which tender for local projects.‘But the biggest problem for them all is lack of management training,’ he said.The furniture workshop is skilled and hardworking, yet it lacks everything it needs to grow: finance for a permanent shelter, electricity, tools and at least a small stock of wood; it needs training in management and bookkeeping; and, although it has successfully improved its designs, it needs help to develop more modern furniture. This is a small business that wants to do so and could grow, but it does not know where to start and there is no help. The problem goes far beyond Monapo. Starting in 1998, Nampula province was a pilot for decentralisation and local planning (discussed in more detail in Chapter 8). Construction and maintenance were slowly decentralised, although facing strong resistance from the provincial public works department and larger contractors based in the capital. Using local materials, such as locally burned bricks, and local labour cut costs sharply. An independent study for UNDP found that locally built health centres cost only half as much as those built by the Health Ministry, and were of better quality (ECI/African Consulting 2003: 29). But there were too few local contractors who could organise works such a schoolbuilding.And there was a need to turn craftspeople into formal small businesses, which required technical, legal and financial support. Nampula began experimenting with a Local Economic Development (Desinvolvimento Económico Local – DEL) agency, using government procurement to support the formation of local small businesses which could undertake local construction.They started with existing people with construction experience and especially those already using local resources to make building materials such as bricks and tiles. Support and training was given by a local NGO, Adelna (Agência de Desenvolvimento Económico Local de Nampula, Nampula Local Development Agency), one of the most successful of a series of provincial agencies set up by UNDP and ILO. By 2006, Adelna had 16 functioning companies in eight districts and is expanding into other areas. It has a tight set of rules.A small company can be no more than seven people, all from different families; they must have experience and identity cards, and they must put in at least 2500 MT ($100). Herminio Torres Manuel,Adelna’s executive director, says:‘we work

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with real people with skill, not vague communities’. But the small business then hires other people, so that building a school can create dozens of jobs. Key problems are to improve management and to train the small business leaders to go out and look for new clients, not just in the public sector but also private construction work such as houses. Several districts have called on Adelna to try to turn work brigades into small businesses. ‘The biggest problem is to find people with an entrepreneurial outlook. Most people just want to solve their immediate economic problem. Many come wanting Adelna to do things for them. The harsh lesson is that a project is not just a sack of money from a donor.’ In Meconta district, for example, 300 people showed up at an initial meeting, and from that group Adelna selected only 23. We must accept that this is a long term project.These tiny businesses will need ongoing support. But there is growing demand for construction, if the quality is high.These small firms will eventually be sustainable.

A driving force behind Nampula decentralisation has beenVincente Paulo, and he admits that a handful of tiny companies in the largest province in the country is not much to show 16 years after the end of the war. He argues that the state should be paying ‘capacity-building agencies’ that help small businesses to grow – business development centres and business incubators providing a whole range of services from simple training through to help in developing new products and markets, and to give them the capacity to go to a bank.‘The state cannot do this, but it can contract agencies to do this. But those agencies, in turn, must demonstrate their success.’

Conclusion: innovation & collaboration works An overriding impression of Nampula is the way interventions seem to be supply-driven. The government supplies services and builds roads and facilities according to a plan set in Maputo. INGOs supply services according to goals, plans and strategies set in their capitals. And producers grow vegetables or make furniture because that is what they know how to do, not necessarily because there is a demand. Project support is aimed at supply and production – new seed or fish or training to produce a new weaning food – showing people how to produce but without making the market links or looking to see if there is a demand. We attended the provincial ‘poverty observatory’ in Nampula on 18 August 2006.These meetings are called by government so that civil society can present its views on the campaign to end ‘absolute poverty’, and are also part of the consultation process required by the World Bank as part of the preparation of the government’s Poverty Reduction Strategy Paper (PARPA in Mozambique).This meeting of more than 100 people in a marquee was mainly to hear a report of what the various national and international NGOs were doing. One NGO took each subject area and presented a 10–minute report to explain the patchwork of NGO activities. In water, for example, there were 7 NGOs. But 2 districts had 3 NGOs, 2 had 2, 6 had 1, and 8 districts (three of them the poorest in Nampula) had no water NGOs at all. In agriculture there are 9 NGOs with different but overlapping programmes, ranging from giving out goats to supporting savings clubs; some work with the provincial and district agriculture departments and some do not. Governor Filipe Paúnde (subsequently elected Secretary General of Frelimo) closed the meeting with an attack on the NGOs for their overlapping projects and their secrecy:‘the people of Mozambique have a right to be informed about your plans and projects.’ He then went on to point out that a government priority in agriculture is the building of small dams (reprêsas) to collect rain water for later use for irrigation, yet only two of the 8 NGOs working in agriculture were willing to build such dams – it is not their priority or not in

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their programme, despite the government view.6 ‘NGOs must work according to government orientations, especially in agriculture.And they should stop talking vaguely about the number of families helped, and say how much they have actually increased production,’ Paúnde added. We witnessed this problem at the Agricultural Institute in Ribáuè, which is teaching the next generation of farmers and agricultural extension workers on very limited resources. We visited an irrigated area where enthusiastic students were growing vegetables, both feeding themselves and learning the practical skills of irrigation. But there was a shortage of water, and Director Ebifânio Marío Justino turned to the INGOs working in Nampula. He particularly wanted help with a small dam, to give the extension workers experience in small-scale irrigation and also to help feed the students. Only one INGO offered help. Care said it would run a programme on HIV/AIDS, but could not support agriculture training or the small dam. In Nampula, we saw how bureaucratic, paternalistic and charity-focused both government and INGOs can be, offering what is in this year’s programmes rather than what people say they need.The effect is to make them permanently dependent on handouts from government and INGOs, because they do not get the support that will make them independent. Providing the help that people need A second impression of Nampula is of experienced and innovative people desperate to work hard to increase their income.They do not want to be forever dependent on handouts and are willing to do almost anything, but they lack the external support and guidance to help them harness that energy. Nampula has many active groups and associations who want to become profitable businesses that can earn enough money to make poverty a distant memory, but they face numerous stumbling blocks.And each group has different problems. A third impression is of missed opportunities. Ribáuè ought to be the granary of Nampula, with soil and water that should produce a whole range of crops; but it seems poor and unproductive.Why? And yet, our overall impression of Nampula was positive, because we saw what was possible. One thing which stood out was the importance of individuals, and the way creative, committed, honest, hardworking individuals in district administrations, provincial government, associations, and local and international NGOs make a difference.A second point is that development happens when those key people, and their organisations, work together, rather than on isolated projects, and consider the entire value chain. Support is needed at various levels – not just a new crop or small dam, but also new farming methods, improved storage, improved marketing, creation of associations, management training, credit, etc.The need is for interventions that build capacity. As we noted earlier, this insight is as old as ancient China. But in Nampula, as well as teaching a woman to fish, you need to show her how to keep the fish cool, how to sell it, and how to know if she has made a profit. Nametil peanuts, as well as cashew (discussed in Chapter 5), show what can be done, but also show just how rare is such a joined-up approach.These successes have required the cooperation of a large number of organisations – government, NGOs and associations – involved for a decade rather than just two years, and there are a number of dynamic people who do not toe the bureaucratic line.The change is real. For a year’s work families earn enough extra from peanuts to be able to buy a bicycle. Ikuru is the first farmer-owned cooperative in Mozambique and is offering better prices than the traditional private sector. Development is happening – for a few people. But Ikuru and the peanut farmers are still totally dependent on expensive external support; they are only just starting down a very long development road. The United Nations Environment Programme issued a report on 13 November 2006 highlighting the importance of rainwater collection for Africa, and cited Mozambique as a country with high potential for this.

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The Manica miracle is over If Nampula seems likely to grow on the basis of small-scale peasant agriculture, the engine of growth for Manica province was set to be larger commercial agriculture.1 The 2001– 4 Manica boom was triggered by the crisis in Zimbabwe.Tobacco companies encouraged Zimbabwean farmers to migrate to Manica by offering credit and technical assistance; paprika companies also provided support. In the end 42 Zimbabwean individuals and groups settled in Manica and a similar number of Mozambicans (and foreigners already permanently resident in Mozambique) received support.The Zimbabwean farmers alone created 4,385 jobs in 2003 and estimated that they were putting $1.6 m. into the economy annually in wages. Four agro-processing units were opened – to export roses and vegetables to Europe and to produce sunflower oil and milk for local sale – which created hundreds more jobs.At the peak, 3600 peasant families were growing sunflower and more than 3000 growing paprika. Over 100 groups were organised to grow baby corn and other export vegetables. By the end of 2006, the Manica miracle had turned into a mirage. Only 16 Zimbabwean commercial farmers were left and half of these were expected to quit in 2007; employment was down to 600 (Evans 2006). Three of the four agro-processing units had closed. Few peasants could earn even 1000 MT ($40, £20) from paprika, and support was being reduced. Although not a total disaster, serious foreign investment has proved very limited; a new cheese factory linked to milk production, a milling company, and an attempt to revive export vegetable production. And 1500 frozen chickens a week are being produced in an NGO-backed plant, supplied by 24 peasant groups, although with severe difficulties because of lack of a secure supply of day-old chicks. In what should be one of Mozambique’s most productive provinces, commercial agriculture remains insignificant. In 2006 after our research in Manica, we wrote an article with the same title as this chapter (O Pais, 12 May 2006). Roberto Albino, the head of the government agency to promote commercial agriculture (CEPAGRI, Centro da Promoção da Agricultura) was highly critical of the article. He told a public meeting in Maputo on 23 May ‘our policy is to attract investors who bring know-how, access to markets, and capital, and who do not need Mozambican banks.’ The Zimbabweans came with nothing, so it is hardly surprising that they failed. Mozambique needs ‘foreign investors bringing the things we do not have’ and especially money. In this chapter, we argue that this is precisely the problem. Zimbabwean farmers ar1 This is defined in more detail in Chapter 15.We take ‘commercial farmers’ to be those mainly producing for the market, as distinct from those who simply sell some surplus production. Nevertheless, it covers a very broad range from families producing a cash crop such as tobacco or paprika in addition to their own food to large mechanised farms producing almost entirely for the market. Nampula farmers are at the smaller end of the spectrum, and Manica farmers at the larger end.

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rived expecting the wide range of support structures regarded as normal in South Africa or previously in Zimbabwe; they found themselves facing the same lack of government support as Mozambican commercial farmers, and largely failed. There was some racist gloating over this, exemplified by Victor Machirica in his ‘Monte Binga’ column in the daily Notícias (9, 14 and 15 December 2006): ‘The whole world is preoccupied not just with the alleged collapse, but with the fact that the people who are going bankrupt are individuals who, because they are white, are automatically good managers and thus cannot fail.’ In fact,‘they were refugees rather than real foreign investors’, and they came to Manica ‘with a superiority complex in relation to our citizens, laws and institutions, … hoping to regain the privileges and VIP treatment they were accustomed to in Zimbabwe.’ Instead of complaining that the Zimbabweans were ‘asking too much’, as Machirica did, the real lesson is just how hard it is in Mozambique to develop commercial agriculture; both Mozambican and Zimbabwean farmers need the support the Zimbabweans expected. Machirica seemed genuinely shocked that the Zimbabwean farmers expected a special lower electricity rate, yet Mozambican farmers also complain that they cannot expand because they are expected to pay the full cost of any electricity connection. For some, this makes irrigation unprofitable. Machirica seems not to realise that many countries subsidise rural electricity; Mozambique, with the Cahora Bassa dam, should be able to make cheap electricity a basis of development for all commercial farmers. The failure of the Manica experiment demonstrates that commercial agriculture cannot be developed without substantially increased government support at all levels. Foreign investors and INGOs cannot build the base for the take-off that is needed.There are many Mozambicans and a handful of Zimbabwean and other foreign farmers able and ready to increase production, and struggling as best they can to do so. If they had more support they could grow rapidly and create a genuine Manica miracle.

Could Zimbabwean expertise jump-start Manica? White Zimbabwean commercial farmers had a reputation for being highly productive. Colonialism and race are key issues here. The African nationalists only see an arrogant white group with decades of privilege behind them, while the conservative Northern press only sees prosperous white farmers in a sea of black poverty. But Zimbabwe’s famous white farmers were not born good farmers. Colonial Rhodesia (and post-independence Zimbabwe) gave them massive subsidies, training and other support, and it worked. At independence in Zimbabwe, one-third of the white farmers were highly successful and profitable.The experience of both Rhodesia and apartheid South Africa shows that with enough money and support, although it is a long and slow process, it is possible to create world-class farmers – and that is a lesson which has no race. Up to now, the donor community has said that this successful model cannot be used in majority-ruled countries, and, so far, the Mozambican government has accepted that only colonial and Northern governments can support farmers. The white farmers, good and bad, occupied most of the land in Zimbabwe, creating a serious problem of landlessness which did not exist over the border in Mozambique. So when President Robert Mugabe embarked on a major land reform, displacing many white farmers, there was a hope in Manica that it could attract skilled and experienced farmers who might be the basis for growth in commercial agriculture.The migration was facilitated by then governor Soares Nhaca and his team, who made great efforts to reduce barriers to investment. Nhaca was always available on the telephone and he would drop in unannounced for a chat with the Zimbabwean farmers. He never broke the rules, but he worked hard to ensure that customs and other procedures were efficiently carried out – that border officials understood the importance of moving fresh produce quickly and that exporters knew exactly how to fill in all the necessary forms. His stress on investment and

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job creation also promoted a climate which reduced corruption, for example in the transit police. The Zimbabweans were, inevitably, a very mixed group. Some were impressive.They already spoke the local language, Shona, and some saw themselves as Africans making their homes in Mozambique.They worked much harder than the Mozambican elite trying to run farms locally, and they came with a whole range of skills, such as the ability to repair their own tractors, that many Mozambican farmers did not have.At the other end of the spectrum were the con men with little farming experience, who were lazy, and who diverted money into non-farm activities. Probably the most successful Zimbabwean farmer is Brendon Evans, who moved to Manica earlier than most of the Zimbabweans, and was able to bring cattle, machinery and money before Mugabe stopped the export of equipment. Evans established a successful dairy farm and then a $500,000 cheese factory with Dutch aid, a Dutch partner and hightech Dutch machinery. But later arrivals brought only what they could carry in a car and trailer and arrived almost penniless.They immediately faced the lack of money and technical support. Land was available, for example in Catandica, but because of the war it had not been farmed for two decades so it had to be cleared. Loans were not available to hire the heavy equipment needed, so most of the successful Zimbabwean farmers had to rent land which was already cleared and had some infrastructure, often left over from state farms, but which had been allocated to the local Frelimo elite which was making little use of it. Several farmers complained that both Mozambique Leaf Tobacco and HighVeld paprika pushed them to try to grow too much in the first years, so they had no time to adapt to local conditions and built up large debts.There was an assumption by both the companies and many of the farmers that they could simply grow the same crop varieties as they had grown in Zimbabwe. But Manica is 700 metres lower and 3 to 5 degrees hotter than Harare. Crops grow faster, which leads to thinner tobacco and maize, so less total production. ‘We made some monumental errors,’ admitted Willem Coetzee, one of the Zimbabwean farmers.‘We stormed in here thinking we could do just what we did in Zimbabwe, and it cost us dearly.’ The best of the Mozambican and Zimbabwean farmers quickly realised that they could not make money with tobacco, paprika and maize varieties brought in from Zimbabwe. But they also discovered that Mozambique lacks the agricultural research infrastructure taken for granted in Zimbabwe and South Africa; locally adapted varieties of seed and technical advice were not available. Mozambican officials were often even surprised by the requests, and responded that they were supposed to know better than the state how to farm. In fact, the best white Zimbabwean farmers were very good at the day-to-day running of the farms, but they were neither business people nor technical experts. Dimon Tobacco, for example, effectively managed the finances of some of their Zimbabwean farmers in Manica to whom it had given loans, checking the books every six weeks and handing out the next tranche of money only if the farmer was following the conditions imposed.There are also anecdotal reports of misconduct and possible fraud: using money for other purposes and even transferring funds abroad. In many other countries, including Zimbabwe, land is cleared and dams and basic irrigation infrastructure built by the government, usually on very long-term soft loans, but with quite tight monitoring to see that the money is used properly. Mozambique is one of the few countries where this is all the responsibility of the farmer, and there is no credit. Roses and baby corn Foreign investors have not been all that successful in Manica.The two biggest and most highly publicised investments, to export roses and vegetables to Europe, both failed.Vilmar Roses started in 2001 as a partnership between Dutch and Zimbabwean companies,

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Flodac and Vilmar, with €677,203 (then about $725,000) from PSOM, the Dutch government agency which finances investment in emerging markets. By 2003 it had 300 employees and was exporting roses via Harare to the Netherlands. But the project was already in trouble.A PSOM evaluation showed that sales were only 15% of forecasts. Ownership passed to two new companies, Finflower in the Netherlands and the Derek Hinde Consortium in Zimbabwe. Norsad, the Nordic-SADC development fund, then stepped in with a further €1 million loan and new management. But the project closed in early 2006, when the Dutch and Zimbabwean owners apparently walked away, leaving 244 workers, $17,000 in unpaid taxes, and substantial debts to suppliers and Norsad. What went wrong? First, there are real disputes about the viability of the project.TechnoServe, a US NGO which says it helps ‘grow businesses and industries in the developing world,’ is active in Mozambique and played a role in the revival of the cashew industry (see Chapter 5), but in other sectors it has been less successful. In two studies for the International Finance Corporation and USAID, it promoted Manica for flowers and horticulture, in one stating thatVilmar ‘demonstrated the potential’ of Manica,2 and in the other praising the owners of Vilmar as ‘true visionaries’.3 But a World Bank study in 2005 said ‘Mozambique isn’t one of the cheapest or best places to grow roses’ and argued that it could never break into the world rose market (Sergeant and Bjerg 2005: 17).Technoserve reported that ‘the quality of the roses being produced is exceptional’, but the World Bank study argued that ‘flower quality is poor’ because the climate in Manica province is too warm and humid for most types of roses, and that in these unsuitable conditions bud size and stem length were too small.Technicians have also raised serious questions about the design of greenhouses, which the World Bank study considered to be inappropriate. Former manager Bryan and Kathryn Saunders said that the project was ‘fraudulent’ and that Norwegian aid money stayed in the Netherlands and only ‘a small percentage’ was ever transferred to Mozambique.4 Not only was there insufficient money for salaries, but there was none for electricity for the cool room and for sprays, so flower quality deteriorated, leading to the closure.They also state that a proper cooling system was never installed, and that an evaluation of the project was falsified. Although both Norsad and PSOM are donor agencies in countries which pride themselves on freedom of information, both refused to give more details on their failedVilmar investments. PSOM did release an evaluation dated 30 March 2006 which looked at a sample of 47 projects in five countries. Four were in Mozambique, including Vilmar, and all four failed.The report notes, in particular, that project design was poor and the potential of the Mozambique investments was overestimated (Klaassens et al. 2006). Vilmar had been a flagship project of exaggerated importance. Mozambique had finally broken into a highly competitive market exporting to Europe, and everyone wanted to take the credit. More than a year after its closure, USAID still bragged on its websites that ‘USAID helped Mozambique’s first cut flower producer,Vilmar, expand its operations after breaking ground in the town of Messica in Manica Province. Manica’s climate is perfect for growing flowers year round, giving it a huge competitive advantage over other locations. … Today,Vilmar is one of the largest private-sector employers in the region.’5 The other horticulture disaster was an attempt to produce baby corn, mangetout, chill2 TechnoServe for the World Bank International Finance Corporation, Assessing the Competitiveness of the Horticultural Sector in Manica Province (undated but apparently 2003). Of four ‘key horticulture SMEs’ promoted in this study, two (includingVilmar) closed and one never opened, while the fourth in 2006 was running at only onefifth the projected level. 3 TechnoServe for IFC,W K Kellogg Foundation, and USAID, Assessing the Competitiveness of the Horticulture Sector in the Beira Corridor (undated but apparently 2004). 4 Bryan and Kathryn Saunders,‘Chronicle of Events’ and letter to Norwegian Embassy in Harare, both dated 17 March 2006, and letter to us, 30 Oct. 2006. 5 http://www.usaid.gov/stories/mozambique/cs_mozambique_flower.html, downloaded 6 June 2006 and 28 May 2007. On 6 June 2006, well after the closure,Techoserve stated on its website that ‘Another TechnoServe client paving the way for future growth in rural Mozambique isVilmar, the country’s first cut flower company’, but this had been removed by 28 May 2007, http://www.technoserve.org/africa/mozam-other.html.

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ies and other vegetables to be air freighted to European supermarkets, competing with major industries in Kenya and Zimbabwe. A new company Waluru set up in Vanduzi in 2003 with a $25,000 grant from the US Department of Agriculture, intending to be largely a packing plant, with peasant outgrowers producing the vegetables.The project was not successful. Sergeant and Bjerg (2005: 1, 9) noted that: the temperatures in and around Chimoio are neither cool nor constant enough for all year-round production of the more profitable, high-value air freighted products, e.g. roses, beans and peas. … it may prove difficult to get acceptable returns on investments in vegetable exports. … Chillies and baby corn are regarded as low profit and small volume items.The wide seasonal variation in temperatures means that some of the more profitable vegetable items could only be grown for a very short season, e.g. mangetout. Most African vegetable exporters make the most of their profits by combining a range of vegetables in either multipacks or in prepared mixtures. Mozambique will always be disadvantaged because it cannot grow a wide enough range of vegetables.

In 2005 theVanduzi project was taken over by Moçfer, a company owned by Aquifer and Kobus Botha.Aquifer, in turn, is an African investment and development company set up by charitable foundations linked to Lord Sainsbury of the British supermarket family. It has up to $200 m. to invest in Mozambique and hopes to kick-start agricultural development by stressing agro-industry and smaller commercial farmers. It says it will take no profits out of Mozambique, but will instead reinvest, and eventually wants its companies to be owned by local producers and managers. Aquifer believes that its deep pockets will allow it to overcome the three constraints on Mozambican agricultural development – lack of money, research and training. Because it is in Mozambique for the long haul, it can afford to experiment with new varieties and methods, and can hire Mozambican graduates to train as technicians and managers. Moçfer’s initial target is mainly rice. Botha sees Moçfer producing 1 million tonnes a year at prices competitive with imported Thai rice. But this will require new varieties to be developed in partnership with the International Rice Research Institute as well as changes in irrigation management, new techologies to evaluate soils, new processing factories, and improved marketing – in other words, revolutionising the entire value chain.6 For Moçfer,Vanduzi is a relatively small project, but it follows its larger model – to do the experimentation first and develop a system that works, then open up to others. It has opened a large packing plant, but has abandoned outgrowers and instead has its own farm to produce vegetables.When the whole chain is working, it then hopes to bring in peasant outgrowers. But, for a few years at least, the outgrowers organised by Waluru are left high and dry. Trees – fruit and nuts There is a very broad consensus of Mozambicans, Zimbabweans, Moçfer and the World Bank that Manica is best for sub-tropical tree crops, particularly mangoes, lychees, citrus fruits, avocados, and macadamia nuts.The December to February mango season in Manica is precisely when South Africa, India and Pakistan do not produce, and a South African producer has already invested in Manica.7 Grapefruit could be exported to Japan and other citrus to the Middle East. Moçfer has decided that its future in Vanduzi is fruit, not vegetables. Trees grow particularly well in Manica – the land and climate are suitable, and there is Kobus Botha argues that the much derided East European model of using mechanisation such as combine harvesters is correct, and that Mozambique is wrong to look to China and smallholder agriculture, when a more sensible model is the extensive agriculture of South America, particularly Uruguay. Interview, Maputo, Hotel Polana, 2 May 2006. 7 Sergeant and Bodil Bjerg argue that Peru, Brazil and Australia produce at the same time as Mozambique and will continue to dominate the European market, but if varieties are chosen correctly, Mozambique could have a substantial export market in the Middle East, India and South Africa. 6

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adequate irrigation water – and their production seasons give them a wide range of domestic and export markets. If this is so widely accepted, why do so few commercial farmers grow trees? The main reason is lack of credit. Fruit and nut trees take five years to begin producing, and the costs of establishing a plantation are high, so it can be seven years before a plantation breaks even. But there is no long-term credit, and even if there were, interest rates of over 20% would make any tree project unviable. Only the tobacco and paprika companies provide credit, and that is for annual crops. Even Joao Ferreria dos Santos, a large Portuguese company with a long history in Mozambique, could not obtain funds to replant its old citrus groves in Manica and instead pulled up the trees and planted tobacco. The problem is not just credit, as we shall argue throughout this book.To create an export mango industry requires creating a whole value chain. It starts with research and development to find the different varieties that will grow well in Manica and satisfy the various tastes of India, the Middle East and South Africa. Growers must be supported to learn modern irrigation and tree farming methods and to maintain high export quality. Marketing, packing, storage and shipping systems will need to be developed. It would cost millions of dollars. But mangoes are a good outgrower crop; large peasant farmers with one or two hectares of trees could work together in associations. Incomes could be created for thousands of families. Canada provides a good example of how a government can promote and subsidise tree crops. In the decade 1994–2003, exports of maple syrup jumped from $53 m. to $147 m., and more than 10,000 farmers produce maple syrup. Over more than 20 years, government scientists have worked to improve sap gathering and processing methods and tree varieties. In 2005 the national government gave the Quebec maple sugar industry a further $380,000 to promote innovation. Between 1998 and 2005 it spent $1.5 m. in promoting and marketing maple syrup, including a successful campaign to expand the Japanese market. At one point supply exceeded the market and the national government collaborated with the Quebec provincial government and the maple industry to finance holding back stocks to avoid price collapse.8 It seems unlikely that fruit production in Manica will grow without a similar level of government support.

Mozambican commercial farmers There are more than 100 small commercial farmers in Manica who are skilled and experienced and could expand rapidly if they had credit and technical and business assistance. On a visit in 2006 we met Marcos Mainato, a peasant farmer with seven years of primary schooling and a bit of extra training. He has 2 ha of irrigated land and was supplying vegetables to the local branch of the South African supermarket Shoprite. With a notebook and pencil, he led us round his field, telling when each row had been planted. Shoprite does not buy large quantities, he said; he was ready to expand but needed marketing help.With 22 other farmers, he formed an association linked to several other associations near Chimoio airport.They meet regularly to share information, for example about pest problems. Most have received horticulture training from INGOs.As elsewhere, the aid industry will help peasants with production, but not other parts of the value chain such as identifying market niches and actually selling. João Ferrão is a consultant and teacher with 2 ha of irrigated land near Sussendenga; he has a truck and sells vegetables in Beira. He told us he wants to be a full-time fruit farmer – ‘I could make more money from farming than from teaching’ – but he cannot find the capital. Indeed, the Mozambicans who are expanding almost all work for the aid industry and have high enough salaries to permit some investment and slow growth of what remains Canada Agriculture and Agri-Food (2004) and personal communication from Rémi Gagnon of CAA, 30 March 2007.

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part-time farming. Luis Fazenda Manhangadzi has a group of businesses at the crossroads at Munhinga, Sussendenga.There is no electricity, but when we met him in 2006 he had recently bought a solar panel to generate electricity to show videos and run a disco. He started after the war with petty trading, then with a stall at the crossroads, then bought a truck, next built a permanent shop and then the bar. He also expanded into commercial maize farming, with a maize store which allows him to hold his crop until January when the price is highest. Modest and successful, he clearly reinvests a significant part of his profits, but after a decade of building up his businesses, he still only employs 10 people. Manhangadzi has done impressively well on his own; what could he do with more support? Mainato, Ferrão and Manhngadzi are Mozambican commercial farmers, who are as skilled as the Zimbabweans. They have already shown that they are experienced, hard working and profitable, and they face the same lack of support as the Zimbabweans.They need credit, extension services, and especially help with marketing and identifying crops that have a market. Maize has potential if there was local storage and competing food aid was reduced. In addition to tree crops, soya, oilseeds and some exotic crops have potential. Off-season vegetables have markets, but require irrigation and technical support to choose the best varieties. Many of these crops also have potential for the family sector, especially grouped around commercial farmers who could do the marketing. Dr Joaquim Langa, provincial director of agriculture in 2006, recognised both the potential and the problems. He said there were extension agents in only five of nine districts; they were funded by projects, and the government had no money to hire more. He agreed about the lack of research and appropriate seed, but offered no solution. He also agreed about the need for land clearance and irrigation infrastructure, but said the state had no money for this. He cited the lack of credit as the main problem, but added:‘The state cannot resolve this. We can only try to persuade the private banks to provide agricultural credit.’ The good Mozambican and Zimbabwean farmers say that, despite citing agriculture as the basis of development, the government seems to have no policy to promote commercial agriculture.And they all point to state-backed agricultural and development banks in neighbouring countries. In place of a policy has been a belief that, if Mozambique creates the right conditions, foreign investors will fly in and develop the country.The debacle of the ‘Manica miracle’ shows the belief is not working. Sussendenga is the perfect example of its failure.There is a good road and Chimoio is less than an hour away. Sussendenga has electricity, mobile telephones, a good district administrator, available land (de Sousa 1999) and water, and a good business climate – all the right conditions have been created, but there is little development. Foreigners are not flocking in to invest, and local commercial farmers cannot make the leap.

The other Zimbabwe lesson With all the emphasis on a handful of white farmers, most Mozambicans missed a much more important lesson from the other side of the border. Rural development policies in Zimbabwe in the 1980s doubled peasant maize production and created a rural economic boom.9 With the restrictions imposed on land reform by the Lancaster House agreement at independence, Zimbabwe decided to stimulate peasant production in the existing ‘communal areas’. A parallel goal was to increase food self-sufficiency.Within five years, peasant production of maize doubled to over 1 million tonnes a year, and marketed production increased six-fold, from 60,000 tonnes per year to over 350,000. 9 It is important to remember that Robert Mugabe and his government were very different in the early postindependence period.

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At independence, peasant use of fertiliser and improved seeds was as low as it is in Mozambique today, but this had totally changed by the late 1980s. Mette Maast, now Norway’s head of cooperation in Mozambique, did her PhD on the way the active intervention of the government raised living standards (Maast 1996).The first step was a conscious attempt to push peasants to use more modern technology. For the 1980/81 season, most peasants were given free seed and fertiliser packages sufficient for one acre (2.47 acres = 1 hectare).This was the first time many had used fertiliser and improved seeds. Maize productivity jumped from 655 kg/ha to 1000 kg/ha (1 tonne/ha).This was so spectacular that many peasants wanted to continue to use fertiliser and hybrid seed. According to Maast, four government interventions led to further increases in production: higher prices, guaranteed markets, extension, and credit and inputs. Peasant prices had been kept low by the white government, so the new independence government deliberately raised prices to make maize more profitable and increase peasant food production. In fact, after the initial large jump, real prices10 drifted lower, but it proved a useful kick-start and production continued to rise. Equally important was the rapid expansion of the government’s Grain Marketing Board into peasant areas, and its promise to buy grain at a guaranteed price. Meanwhile, the government merged various extension services into a Department of Agricultural and Extension Services (Agritex) with the instruction to concentrate on peasants rather than white farmers. Agritex focused on farmer groups and simple messages, such as putting a thimble or teaspoon of fertiliser on four hybrid maize seeds. In Kadare village, Mount Darwin, where Maast did her fieldwork, more than two-thirds of households had contact with extension workers. Research before independence had already developed an appropriate hybrid seed and fertiliser package, which could be made available to peasants after independence through local shops. Initially, credit was available to small farmers to buy inputs. Over time, subsidies were reduced and many farmers had trouble repaying loans, and moved over to buying inputs in cash.Virtually all used hybrid seed (which must be bought each year, rather than open pollinating seed from the previous crop, as is still common in Mozambique) and continued to use fertiliser, although less than recommended by Agritex.The process was always opposed by the World Bank, which forced cuts in government spending which reduced extension services in the mid-1980s. Guaranteed prices ended in 1991 and most of the peasant gains had disappeared by the 1990s. Not everyone benefited, and this has positive and negative lessons for Mozambique. The package worked best in the better agricultural zones. Manica has exactly the agricultural conditions in which the Zimbabwean package worked best, so it would be expected to have a similar effect there. But better-off households earned substantially more money from crop sales than poorer ones, leading to increased differentiation within the peasantry; this is already an issue in Mozambique, as we note in Chapter 7. Perhaps most interesting for Manica and Mozambique as a whole, Maast discovered some unexpected effects of the policy. First, the strategy created a new group of commercially-minded farmers, who, when faced with falling real maize prices, shifted into more profitable commercial crops. Second, and most dramatically, it actually reversed urban migration. Men who had worked on casual, low-paid, unskilled or semi-skilled jobs in the bigger towns or Harare found they could now make more money farming, and actually returned to their villages.Third, the rise in rural income stimulated the local economy and created a whole new range of local jobs, particularly for semi-skilled builders constructing improved houses and latrines, as well as in new shops and services.

10

‘Real prices’ are the prices taking into account inflation.

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Conclusion: risks & agendas The failure of a ‘Manica miracle’ based on a handful of white Zimbabwean farmers and a few misguided donor-funded projects raises a series of issues. Jobs were created and then lost, leaving relatively little behind. New investments are inevitably risky and most new businesses fail; development involves taking chances and accepting many failures. But there needs to be more openness and more hands-on technical support. There is a development policy issue here. By leaving the development choices to foreign companies, Manica province has been producing two crops subject to world-wide criticism — tobacco which is the subject of worldwide anti-smoking campaigns (Chapter 6 has a fuller tobacco discussion), and roses which require extensive pesticides and must be air freighted to European markets at a time of rising concern about the impact on global warming. Perhaps for a poor country these are rational development options. But there is no discussion; the decision is made by foreign investors. The problem is compounded when the investors are donor agencies.They all run their development banks from a distance and in secret, with little Mozambican input. Neither PSOM nor Norsad has an office in Mozambique. Mozambique and Mozambicans had no say in the investments inVilmar; a Dutch agency funded a Dutch company and a Nordic agency lent further money to foreign companies.They seem unable to evaluate the technical quality of projects or to prevent fraud; their secrecy prevents learning from their mistakes.Yet these same donors are trying to stop Mozambique from setting up its own bank, on the grounds that it would not be technically competent or transparent (see Chapter 16). As Vilmar Roses makes clear, a Mozambican development bank is not likely to do worse than PSOM or Norsad. Manica’s potential is huge, and the human capital is there; Mainato, Ferrão, Manhangadzi and a 100 other experienced farmers know what is needed, have the basic skills, and are ready for hard work. The failure of the Manica miracle of 2001–4 shows the danger of waiting for foreign investors and NGO and donor projects. Instead, Mozambique could invest its own money to clear land, build dams, plant trees, do research and develop appropriate crops, and create the technical and business support structures. It could follow the 1980s Zimbabwe model and support peasant farmers to turn Manica into a huge maize producer.This is not cheap: the cost would be in tens of millions of dollars. But the government could provide the basis for real economic take-off and a real economic miracle in Manica.

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Cashew: from disaster to export model Warren, who runs the nut stall in our local street market in London, sells Mozambican cashew nuts. ‘Better quality than the ones from other countries,’ he told us. And therein lies a tale of an industry destroyed and resurrected, with perhaps some lessons as to how Mozambican peasants can survive in a globalised world. Mozambique was the world’s largest producer of cashew nuts until 1977, and the nut seems ideal for a poor country since it is grown by millions of peasants on poor land and processing employs thousands of people. In this chapter we look at three overlapping phases of cashew: • 1972–98:The industry was declining due to lack of investment even before independence, and was largely killed by the war.Then in the mid-1990s it was resurrected by privatisation, with a peak of production and employment in 1998. • 1995–2001. Despite renewed hopes, the industry was killed again by World Bank and IMF zealotry in imposing a free trade policy. Cashew became one of the emblematic examples of harmful policies imposed on poor countries by the BWIs. By 2002 all but four tiny factories had closed. • From 2001. A new government policy rejecting the World Bank line and supporting local industry was adopted in 2001. Combined with support for the entire value chain by INGOs and local institutions, this created an entire new cashew industry. By 2006 there were 18 factories and 6,000 workers, and the sector is continuing to expand rapidly.

1972–98: Decline & false dawn Cashew is grown by peasants and usually shelled in factories. Cashew was the main export every year from independence in 1975 until 1983 (when prawns gained the top spot). Production peaked in 1972 and fell after that, which suggests that peasants were losing interest even before independence. But it was the war which had the biggest impact. Some of the most productive areas were badly affected by the fighting; peasants often fled to towns or were afraid to go to their trees.The war also destroyed the marketing network, so there were no buyers. Cashew kernel exports fell from 21,000 tonnes in 1976 to just 900 tonnes in 1994. Cashew is grown in coastal areas, with half the production in Nampula province. It is rarely the main cash crop and most farmers have relatively few trees. Cashew is unusual compared with other tree nuts, since the nut is outside the fruit; it hangs below an edible false fruit. Each kidney-shaped cashew kernel is contained in an acid hard

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shell.1 The fruit can be eaten or made into a delicious beer (which is sometimes distilled). So peasants use the fruit and some of the nuts for their own consumption and sell the rest; a typical peasant family will earn only 375 MT ($15, £7.50) from cashew – not enough to buy a bicycle.Trees produce much more if the area beneath them is cleared of grass and if they are pruned and sprayed with a fungicide, but many peasants simply do not bother because the return is small and declining as most trees are now old and less productive and ought to be replaced. Once harvested and sold, cashew was traditionally processed in large factories.The processing steps are as follows: boil or steam the nut and then leave it to dry to make the shell more brittle, cut or crack the shell and take out the kernel by hand,2 sort whole from broken kernels, oven dry the kernel, peel off a paper-like skin by hand with a knife, sort the kernels into 26 different grades, then vacuum pack into 25lb plastic bags for export.3 At the peak, processing employed more than 10,000 people – 5% of the formal-sector nongovernment workforce. Half the workers were women. At independence, Mozambique had 13 large factories using mechanical methods to break open the hard shell, in part because workers were reluctant to damage their fingers with the acid in the shell. Eleven of these factories were abandoned in the early years of independence, although Anglo-American gave up its factories only in 1981.4 The state took over the factories and ran them for 15 years, attempting to turn some of them into model factories with good working conditions and wages, crèches, maternity leave and literacy classes. By the end of the war, there was an urgent need for investment to replace old machinery, so there was a consensus that factories should be privatised. Five were taken back by the former owners, most of them local but including Anglo-American. In 19945 six cashew factories were unexpectedly bought for $9.1 m. by six local businesses – mainly trading companies (some controlled by families of Asian origin) moving into production. Investing money they had accumulated during the war, they planned to process products they bought as traders. For Mozambique, this was a bright spot in the privatisation process. For the first time there was to be a link between trade and production and the new owners had business experience (unlike the generals and party elite who took on many smaller privatised businesses). The colonial government had allowed raw (unprocessed) cashew to be exported for shelling and processing in India, but by independence peasant production had already fallen below the capacity of the factories, so the new government banned the export of raw nuts to protect local industry and jobs. Peasant production is very dependent on the weather and thus very variable; in 1992 production doubled and exceeded the remaining processing capacity, so export of raw cashew was again allowed. But this time, as a continued form of protection, an export duty was imposed. Owners of the newly privatised companies were promised a period of protection while they rehabilitated factories and replaced machinery, and also because many of the factories were in areas badly affected by the war and costs would be higher until electricity supplies were restored and roads rebuilt.The duty on raw nuts was 26% for the 1995/6 season (the harvest runs from October to February), falling to 8% in 1999/2000, where it would remain (see Chart 5.1). Based on this, the European Investment Bank and the World Bank’s The shell contains Cashew Nut Shell Liquid (CNSL), which in its natural state is about two-thirds anacardic acid and the rest made up of curdanol, cardol, and 2–methyl cardol. If CNSL can be extracted from the shells, it has a market directly as a fungicide and insecticide and to be made into resins which can be used in friction applications, such as automobile brakes. (Lubi and Thachi, 2000). 2 It is important to underline the distinction between the ‘nut’ as picked off the tree (castanha in Portuguese), which includes the hard shell, and the ‘kernel’ (amêndoa), the inside part which one eats. 3 Until the mid-1980s, local factories also roasted the kernels and added spices, increasing the local value added, but this is now done in Europe and the US. 4 This was directly linked to apartheid South Africa’s attack on Mozambique, which began in earnest in 1981 with a green light from the newly inaugurated US President Reagan.Anglo-American chairman Harry Oppenheimer had already pledged his support to the apartheid government of P.W. Botha at the Carlton Conference in 1979 (Hanlon, 1986: 14, 15, 135). 1

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Chart 5.1 Cashew export duty proposed by government

Chart 5.2 Cashew export duty as demanded by IMF

International Finance Corporation both agreed loans to privatised factories. Mocita in Xai-Xai was owned jointly by Anglo-American and Oltremare, an Italian company which made sophisticated automatic cutting equipment for shelling cashew. It resumed activities in 1996 and invested $13 m. in new equipment, partly with a $3 m. loan from the IFC. One reason given by IFC for the loan was health and safety – ‘to minimise employees’ exposure to [acid], the facility will be equipped with mechanical shelling’.5 Privatisation stimulated the industry; export of kernels rose from 1,863 tonnes in 1994 to 4,888 tonnes in 1998 and employment returned to 10,000. But the boom was short-lived.

1995–2001: World Bank destroying the cashew industry The World Bank intervened in 1995 in what has become one of the most notorious examples of its imposition of ideologically-driven policies on poor countries.The previous year it had commissioned a secret study of the industry by Hilmar Hilmarsson (1995). Its findings were caustic.The industry was using the wrong technology and was so inefficient that the country lost export earnings by processing. Further, it was claimed that ‘Mozambique’s smallholder producer has the distinction of being the poorest paid cashew producer in the world.’.The only option was to liberalise exports completely.‘Some factory employees will lose jobs … but increased cashew production and multiplier effects will more than make up for that.’ Peasant income would rise five-fold in five years (by 2001). The recommendation fitted precisely the ideological bias of the World Bank at that time, namely, for total free trade in agriculture, which it said would raise peasant incomes. When the industry finally saw the study, it complained that Hilmarsson had never consulted it and was wrong on nearly all points. But by then it was too late; the Bank had accepted the report and decided to impose the policy. In that period, all donor assistance to poor countries was conditional on their adopting World Bank and IMF programmes, which meant having an agreed World Bank Country Assistance Strategy (CAS) and an IMF Policy Framework Paper (PFP).This gave the IMF and World Bank dictatorial power.As I reported in a an article in 2000: Phyllis Pomerantz, the World Bank’s Washington-based country operations director, was in Maputo in 1995 to negotiate the details of the CAS. She met with several Mozambican ministers around the dining room table of the World Bank house in Maputo; cashew was high on the World Bank, IFC project 7008: http://www.ifc.org/ifcext/spiwebsite1.nsf/2bc34f011b50ff6e85256a550073ff1c/498246f9fdedc8798525688e007 86830?opendocument, downloaded 22 Jan. 2007. 5

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agenda. Finally, Pomerantz said, after ministers put up stiff resistance, if ministers did not accept a free market in raw cashew, she would refuse to submit the CAS to the World Bank executive board. Since this would have halted aid to Mozambique, ministers caved in. (Hanlon 2000 based on confidential interviews with participants at the meeting.)

When the CAS was finally issued in November 1995, it was extremely heavy-handed. ‘Cashew marketing, export and licensing liberalisation’ was a ‘necessary condition’. It was the only ‘necessary condition’ linked to a detailed policy point, and contained the threat that failure to carry out ‘any one’ of the necessary conditions would lead to a cut in the World Bank programme.6 The international financial institutions hammered home the point. The IMF’s 1996 PFP imposed maximum levels for the export tax: 20% in 1995/6 falling to zero in 1999/2000 (see Chart 5.2). In October 1996 when a World Bank delegation was in Maputo, the vice president for Africa, Callisto Madavo, told a press conference:‘We have an agreement with the government on cashew, and we expect that agreement to be followed. We believe the export tax on cashew should be removed.’There was an outcry led by the industry, the trade unions, and particularly the daily business newsletter Metical, edited by Carlos Cardoso.They argued that it was a myth that the peasants would gain, that the EIB and the International Finance Corporation had accepted the government view that the industry could be profitable, and that it was foolish to be dependent on India which was the only buyer of unprocessed cashew. World Bank President James Wolfensohn came under heavy pressure in Maputo in February 1997, and when he returned to Washington he suspended cuts in the export duty, ordered a new study, and publicly criticised staff for their handling of the issue.The new study, by international consultants Deloitte & Touche, stated that the Bank’s policy on cashew ‘should be abandoned’, that improved management was increasing factory efficiency, and that peasants were not gaining because traders took all the extra profits from liberalised exports as was happening elsewhere in Africa( Deloitte & Touche and Deloitte Touche Tohmatsu Sisteconta 1997). Bank staff rejected and misinterpreted the study,7 but agreed that the export duty could remain at 14%.This satisfied no one: it was too low to allow the industry to invest but was also not a free market. Privatisation had revived the industry, but then the new policy began to bite and factories closed.The export duty was pushed up to 18% in 1999/2000, but it was too late; the industry was largely destroyed and more than 10,000 people had lost their jobs.8 The modernised Mocita plant finally shut in April 2001, dismissing 1400 workers, because it could no longer buy enough cashew in competition with the exports of unprocessed nuts.9 In 2002/3, 95% of production was exported raw and exports of kernels fell to 339 tonnes. The demise of the processing industry had been predicted in the original Hilmarsson study, but it forecast very large benefits for the peasants. However, these did not materialis. Any overall gain was, at best, ‘puny’; farmgate prices remained the same, the cost to the economy from workers’ lost income was more than any gains to peasants, and traders captured any benefits that came from the higher export price, according to McMillan et al. (2002). Furthermore, farmers refused to plant new trees because they did not see a secure future market. 6 This was much more heavy-handed than expected, perhaps reflecting the strong opposition by the government. The draft CAS had included a cashew condition, but not the ‘necessary condition’ nor the threat to cut the World Bank programme. 7 Briefing the Bank’s Nordic-Baltic office on 20 November 1997, Phyllis Pomerantz said the Deloitte & Touche study showed that peasants would gain if the export tax was reduced, whileVice President for Africa, Callisto Madavo, wrote on 17 December 1997 that the study showed ‘that there already have been considerable benefits of market liberalisation’, when in fact it stated precisely the opposite. 8 By 2001, the debt of factories amounted to $34 m.. Notícias, 19 June 2001. 9 Notícias, 29 March 2001; Savana 27 April 2001.

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In pursuing its ideologically pure line, the World Bank missed four important issues: • First, cashew is a tree crop, which means that there is a much slower response to market signals; if the price of cotton falls, the farmer can choose a different crop next year, but that is not possible with trees.To some degree, peasant farmers are therefore more concerned with a guaranteed market than with a higher price in some years. • Second, most factories were in towns with large rural hinterlands and most factory workers were part of extended families. The World Bank view was that it wanted to support rural farmers rather than urban factory workers, but it failed to acknowledge the extent to which urban wages went back to rural areas. • Third, despite its stress on gender, the Bank failed to note that half the factory workers were women.10 Nazneen Kanji et al. (2004: 17) found that when the factories in Angoche were privatised and then closed ‘women were more seriously affected because a high proportion were heads of households and because cashew factories provided one of the few sources of employment for unskilled women’. • Finally, the Bank ignored both the political and physical impacts of the war.Three of the cashew factories were in the Renamo-supporting coastal city of Angoche.War damage meant irregular electricity, bad roads and destroyed bridges which temporarily increased costs.The factories needed subsidising until post-war rebuilding was finished; without a subsidy their costs were too high, and they all closed.We visited Angoche in 2006 and the city had still not recovered.11 Why the hard line? The battle over cashew was hard fought and acrimonious, and Mozambican ministers did not feel they could resist.When cashew was finally debated in parliament (Assembleia da Republica) on 24 November 1997,Trade and Industry Minister Oldemiro Baloi reminded parliamentarians that the cashew restrictions were ‘a condition to obtain funds’ and that supporting the cashew industry would have a high cost for Mozambique. He then asked: ‘what power do we have to storm that rampart?’ Four days later, Prime Minister Pascoal Mocumbi stated that, if Mozambique asked for money ‘from the World Bank, then the Bank imposes its condition. But sometimes we have to accept things that are not in our interest, because there is no other way out.’ President Chissano went further in a television interview on 25 June 2001, stating that Mozambique sacrificed its cashew industry in order to gain debt relief, which eventually came in 1998 under the Heavily Indebted Poor Countries (HIPC) initiative.‘We could not say no,’ he said. Liberalisation was harmful and ‘caused factories to close and made their workers unemployed. But matters would have been much worse if we had not achieved debt relief of around $3 billion. Many more factories would have closed then.’12 Perhaps the core question is why the World Bank and IMF took such a hard line on this issue, over what was a really very small difference (see Chart 5.3); both accepted a rapid 10 Indeed, when the Bank in 1996 commissioned a study of cashew and women, it instructed the researchers to look only at women peasants, who might have gained, and not at women workers, who clearly lost. 11 The Bank also did not understand how cashew related to the political impact of the end of the war. Many of the cashew growing and processing areas of Nampula province supported Renamo and were badly hit during the war. Paul Collier, who subsequently became director of the World Bank Development Research Group, studied the economics of post-war periods and in 1994 wrote an important paper stating that after a civil war, the winner must make a ‘public gesture of redistributive expenditure … in the form of compensation to the loser.’ (Collier, 1997).This would have meant extra expenditure in Nampula, which Frelimo wanted to do anyway because it targeted Nampula as a province it wanted to win in the 1999 elections. Nampula voted strongly for Renamo in the 1994 elections (see de Brito, 1995). Thus everything pointed to extra support for the Nampula cashew factories, yet World Bank policy was just the opposite.The political fallout was that Frelimo and not the World Bank was blamed for the closure of the factories. 12 Mozambiquefile, July 2001, Maputo:AIM, Mozambique News Agency. In fact, the outcry had been so great that the IMF had backed off; nevertheless, debt relief in 1998 was conditional on not increasing the then 14% export duty.

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decline and the main difference was a small 8% duty in the end compared with zero demanded by the IMF. And as Chart 5.3 also shows, the final outcome was worse for the BWIs than accepting the original government proposal – an 18% duty compared with 8%. The first reason for the hard line was the zealous belief of Bank and Fund officials in the free market, and that liberalisation of the cashew trade would benefit peasant producers, raising incomes and stimulating increased production. Faced with Mozam- Chart 5.3 Cashew export duty in practice bican opposition, they concluded that only they were defending the peasants and that the Frelimo elite was acting in a self-interested way (which had some credibility, see Chapter 10). This is directly linked to the second reason, sheer arrogance. As Phyllis Pomerantz noted later,‘it felt that this was one strokeof-the-pen reform that could bring some immediate benefit to more than 1 million rural poor.’13 Third, and also linked, was a failure to listen. Bank officials from Washington did not believe that Mozambican technicians and business people had anything sensible to say. A decade later, when Pomerantz attempted to defend herself, she noted that ‘the government had given little thought to the medium-term prospects of the cashew industry,’ when precisely the opposite was true. Opponents of the Bank policy on cashew were dismissed as ‘powerful elites who oppose some reforms’ in the 1997 CAS. Pomerantz later admitted that ‘the Bank’s country team, including myself, had little understanding of the dynamics or politics in Mozambique’. In particular, she admits, ‘we did not understand that cashews were an emotional lightning rod’. Fourth, and perhaps most important, was a show of power that the government was not allowed alternative strategies.The war was over and the United Nations, which had been a dominant presence in the two years between peace accord and elections, left.There was a growing backlash against IMF austerity policies. Frelimo had won a highly praised election which gave it substantial legitimacy and was flexing its muscles with respect to development policy.Were Bank officials worried that the new government was asserting an unacceptable degree of independence, and wanted to stress their authority? The government had a clear strategy different from that of the World Bank, so by taking a hard line on cashew the Bank was asserting it would brook no challenges. It was a breathtaking show of power for Phyllis Pomerantz to give the government the choice of throwing 10,000 people out of work or having aid cut off. It was also a high stakes poker game:Who would crack first? In the end, the government team did. In retrospect, it seems likely that the it could have held out and that Pomerantz was bluffing; her bosses in Washington would not have backed her in refusing to submit the CAS. Surprisingly, she recently suggested that this was true. ‘The government ministers were [young technocrats and] not politicians; new to their jobs, they were also relatively inexperienced in dealing with the Bank.’ She writes that one minister later told her ‘he did not understand that the Bank would have been capable of flexibility had he and his colleagues been able to present a convincing argument about the extent of the opposition.’ Finally, as Pomerantz ruefully admits,‘neither the Bank’s team nor the government really understood that the policy decision was being made just as a worldwide movement protesting against globalisation was getting under way.’ She notes that ‘the cashew factory owners made common cause with the political left in Mozambique and orchestrated an Phyllis Pomerantz has now left the World Bank but she refused to be interviewed for this book.The quotes in this section come from Pomerantz (2005). 13

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increasingly vocal national and international campaign.’ The Mozambican cashew story ‘became one of the poster children of the anti-globalization movement, essentially demonstrating how the international financial institutions supposedly blackmail governments with their conditions and ruin industries with disastrous policies.’14 On the surface, it seemed the policy had failed. Not only was there bad publicity, but the final cashew export duty was 18%, much higher than the 8% offered by the government and rejected. Perhaps, however, that did not matter, because the show of force was effective; the government never again confronted the BWIs so openly.

From 2001: Rebuilding the cashew industry From this gloomy picture, cashew was transformed into a widely cited success story in only five years.Two elements were key. First, in 2001 the government adopted an explicitly interventionist strategy, and second, a wide range of agencies have been working together to support marketing and new factories. The core failure of the World Bank strategy was its assumption that an atomised free market would resolve the problem, that thousands of individuals acting independently would maximise profit and production. Success has come from a policy half-way between central planning and the totally free market, by understanding that everything is connected. Thousands of individual actors are taking their own decisions, but their success is dependent on the success of all the others in the chain; instead of fighting each other to get to the top, there is a need to cooperate so that everyone gains, and there is a need to balance self-interest with collective industry interests. Cashew in Mozambique is now being cited, for example in UNCTAD’s Least Developed Countries Report 2006, as a successful example of the ‘value-chain’ approach. There are four components in the chain, and all have to be transformed to make the system work: • production – peasants produce too little cashew and nuts are too small and of poor quality; • processing – creating a system of factories that work in a Mozambican context; • commerce – ensuring that traders buy nuts from peasants and that factories are supplied, and regulating the export of unprocessed nuts; • finance – often forgotten, but a critical issue in Mozambique for the other three components in the chain. The fact that Mozambican cashew nuts are on sale in London shows the success of the chain approach, of consciously dealing with each link in the chain.An ongoing process of trial and improvement continues, with a number of notable failures along the way. In this section, we look more closely at the spectacular turnaround of the processing industry, and in the next we look at the rest of the value chain. From virtual collapse in 2001–2, with four tiny factories and a handful of workers, by 2006 there were 18 factories with 6000 workers and the processing sector was expected to double in only a few more years.As well as linkage to the rest of the value chain (discussed below), Carlos Costa, president of the Cashew Industry Association (AICAJU,Associação dos Indústrias de Caju), cites two problems: technological and managerial. Mechanical shell-cracking machinery left over from the colonial era really was obsolete, while the newer mechanised cutting systems were highly sophisticated and required skilled technicians. But, Costa argues, it was lack of management skills that proved fatal. Some of those who bought privatised facto14 The campaign even included a letter dated 26 April 2001 from 21 members of Congress to US Treasury Secretary Paul O’Neil objecting to the World Bank and IMF putting pressure on Mozambique over cashew which they said was ‘an abuse of the authority and resources granted to the IMF’.The letter was organised by Representative Cynthia McKinney.

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ries ‘thought it would be simple’, but in fact they had no experience in dealing with large numbers of workers and complex organisations. Unfortunately, some would-be Mozambican entrepreneurs have inherited from the Portuguese colonists the belief that being a business person is about fancy cars and offices. They want to give orders and not dirty their hands in the factories.Also, cashew factories are often in rural areas, which the new owners assumed they only needed to visit and could leave someone else in charge. Productivity and quality invariably suffered, and the factories were not profitable. On the other hand, foreign-owned companies with good management and cashew experience, like Anglo-American and Entreposto, also closed, suggesting that there were problems with the more mechanised systems and/or elsewhere in the value chain. Changing technology The industry that was developed in the colonial era used highly mechanised nut crackers and then hand labour for cleaning and sorting; factories typically employed 1000 people or more. As well as the market liberalisation debate in the early 1990s, there was also a technological and organisational debate. Some critics, including Hilmarsson, said these big factories could never be competitive with small-scale production in India and elsewhere: mechanised shelling breaks too many kernels, and even running three shifts factories cannot cover the capital cost of new machinery.The industry argued that a mechanised system could be made to work and that breakage could be reduced. Several firms were also planning to rehabilitate existing machinery and in parallel introduce more labourintensive low-tech methods. But without protection, this was impossible. India is now the world’s largest producer of cashew. A simple manual device was developed there and imported into Mozambique. It is a cutter operated by a foot pedal and hand lever to shell individual nuts. Small factories may have just a few operators, while large factories may have 200 or more (see Fig 5.1–5.4).They protect their hands with castor oil, which reduces the damage caused by the acid in the shells. A useful aspect of the simpler technology is that virtually all operations in the factory – cutting, cleaning and sorting – are done by individuals working at their own pace. It also allows substantial flexibility. Factories find that 20% absenteeism is normal, because workers also have farms and families and many other things to attend to, so factories simply have a larger core workforce. Payment is by piece rate for most jobs. In general, output per worker is about 3 tonnes of kernels per year.The new technology was first introduced in a new large factory set up in 1995 in Geba by João Ferreira dos Santos (JFS), a Portuguese group which had been involved in Nampula for more than a century. JFS brought in a manager from India, Shakti Pal, and production rose to 3,000 tonnes a year. But JFS faced substantial financial problems and pulled back sharply in Nampula, closing its factory in 2001. At this point there was a lucky combination.TechnoServe, a US NGO which provides technical support to promote agro-business, was looking for a new project in Mozambique; Shakti Pal had the enthusiasm and experience and was looking for a way to promote the Indian manual cashew sheller as part of rural development; and Antonio Miranda, a South African Mozambican who had managed a construction company and been an executive for Coca-Cola, wanted to start his own business. Pal and TechnoServe helped Miranda open his first factory in 2002. By the 2004/5 season, there were seven factories producing more than 1000 tonnes of kernels a year, most of them assisted by Pal. Hands-on management There seems broad agreement on two points: the central role of Shaki Pal and the need for experienced, hands-on management. Miranda set a good example by living near his factories, not in the city. Factory owner Ali Deroua commented:‘Miranda and I live cashew. The problem with Mozambican managers is that they lack experience and won’t live in

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IS THERE DEVELOPMENT IN MOZAMBIQUE? Figures 5.1 and 5.2. Cashew is shelled by hand. Each nut is put between the posts in this simple device, then using foot and hand pedals the spring releases the blade, cutting open the shell. The operator lifts out the kernel, and puts it in one of the bowls.

Figures 5.3 and 5.4. After the kernel has been dried, a fine skin is removed from each kernel, by hand with a knife. The kernels with skins are in front and clean white kernels behind.

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the bush without electricity, water, or schools.’ Several Mozambicans who set up factories thinking it would be easy have already closed them or sold out to one of the more successful companies with foreign links. Deroua comments: ‘For me, the capital is human. The machinery is simple, so the real investment is in staff.’ The seven most successful factories are all run by foreigners or Mozambicans with outside experience. Four are supported by TechnoServe: Miranda (with two factories); Ali Cherif Deroua, an Algerian long resident in Mozambique; and Condor, a group of Portuguese businessmen in Nampula involved with hotels and construction. Condor hired a US-trained Indian manager who lives in the factory compound in Nametil, and employed many experienced workers from the closed JFS Geba plant. Three others opened with foreign support but without the TechnoServe link. By far the largest is operated by Olam, a major Indian-owned international trading company which expanded into Mozambique with help from the IFC and which exports both kernels and unprocessed nuts.15 Processing capacity is now close to 25,000 tonnes with more than 6,000 workers, and the industry view is that this can be doubled in future.To increase their market power, the six largest Nampula factories (other than Olam, which is already a major world trader) formed an association (AIA,Agro Indústrias Associados,Associated Agro-industries); they market their kernels collectively, under the ‘Zambique’ brand, and enforce quality control. Clearly collective marketing is the way forward. Meanwhile, exporting processed nuts is not straightforward, and here aid agencies are playing a role.The Dutch government agency SNV initially introduced the buyer Gerard Klijn of Global Trading to Miranda, and Global now buys all Zambique cashew. (It is these which Warren sells on his stall in London.) The groups involved in fair trade peanuts (see Chapter 3) are now also looking at cashew, which could provide another outlet. Under pressure Factories are under severe cost and quality pressure. More countries are producing cashew and the world price has been falling. In recent years there has been a sharp rise in European food standards, which require processing factories to use metal tables and have insulated roofs, with staff provided with proper toilets, and health and safety standards observed. In addition, there is pressure for higher-quality kernels.To be profitable a factory should produce kernels that are at least 20% of the initial weight of the nuts, and 70% must be whole nuts (Deloitte & Touche and Deloitte TTS 1997). All of this requires investment, training and close management control. And it is hard work.The men working the cutters must produce 260 kg of kernels a month to earn the legal minimum wage. After a few months, they become quite skilled, but to shell 260 kg a month often requires working six 10–hour days a week.The cashew workers union16 and Labour Minister Helena Taipo both say this breaks the minimum wage law.17 There is a huge demand for the jobs; 1000 people applied for 70 jobs in Miranda’s first factory. But there is also quite a high turnover and significant absenteeism. Quality and productivity are higher with experienced workers, so factory owners in Nampula are increasingly providing additional benefits, including a free meal and a building to serve as a crèche, as well as relative flexibility about not working every day.These benefits are particularly advantageous to women, who make up a majority of the peelers and almost all the sorters. (In Nampula, cutters tend to be men, as are most of the higher-paid supervisors.) Nonetheless, Kanji (2004) notes that wages are lower and working conditions in the factories are worse than before liberalisation and privatisation; the old state-run factories Two smaller factories were opened in Cabo Delgado. Export Marketing, a new and effective agricultural trading company run by an Argentinian, Guillermo Machado, opened a factory, Korosho (which means cashew in Swahili), with €833,000 from PSOM, the Dutch development finance agency, and Jurg Reiser, a Swiss former marketing manager from 3M, opened Cabo Caju with $533,000 from the IFC. 16 Sindicato Nacional dos Trabalhadores da Indústria do Caju. 17 Notícias, 27 Sept 2006, 3 Oct 2006, and 13 July 2007. 15

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had crèches with trained child-care workers, literacy classes, good maternity provisions, and other benefits not provided by the new operators.This is, she says, a classic case of liberalisation and privatisation leading to lower wages and poorer working conditions.18 Small is not beautiful By 2006, there were 18 operating factories, of which 10 were in Nampula; only 8 of them could process more than 1,500 tonnes a year, and by far the largest were Olam at 5,000 tonnes and Condor at 4,000. However, there is a growing consensus in the industry that the optimum factory size is to process about 2,500 to 5,000 tonnes of cashew a year, with 1,000 to 1,800 workers.This can be run by a single skilled manager and produces enough profit to be worth the time and attention of the owner. Deroua commented: ‘I quickly found that 300 workers is too few for an entrepreneur.The profit is less than I can earn as a consultant. It needs to be big enough to be more important than your other activities.’ Aid agencies and INGOs, believing that small is beautiful and that jobs should be created in the most rural areas, have been trying for more than a decade to create very small factories, with 200 or fewer workers, using the new manual shelling equipment.This was also seen as a way of stimulating local business, on the grounds that small factories would be easier to manage, and that they could be in rural areas near producers rather than in towns. Several small factories opened in the late 1990s, but they were not successful.19 A more recent project, with Dutch and World Bank support, tried to create very small local processing units doing 24 tonnes a year, so that villages could process their own cashew. The local units shelled and peeled their nuts, and then sold them to a big processor to sort and pack.The hope was that these very small firms might be incubators for new entrepreneurs, who would learn their skills in these tiny businesses.A first experiment with 13 failed; small factories had to pay more for raw nuts than big factories, and they could never get more than 18% by weight of kernels and the quality was low, so they lost money.‘The project designers took it for granted that the owners would be the managers’, note Luis Artur and Nazneen Kanji (2005) in a study of the experience, but most owners were not in fact in direct contact with their enterprises, and employed a manager who was responsible for its operation, even in very small units employing fewer than ten people. As well as an extra unnecessary salary, this meant that production was never acceptable. Another problem is that it is harder to guarantee EU standards in these tiny units.The experiment was tried again in 2006, but the prospects do not look good.TechnoServe originally promoted the idea of small processing units, but has now shifted its policy, arguing for units above 2,500 tonnes per year and against tiny units.

From 2001: Building a cashew value chain Factories and new technology are essential, but the rest of the value chain, including growing and marketing the nuts, is equally important. By the turn of the millennium, peasant cashew production had stabilised at around 50,000 tonnes a year, most of it exported unprocessed and the rest traded and processed locally. A new Cashew Promotion Institute (Incaju, Instituto de Fomento do Caju) began work in 1999 and in 2001 the government adopted an explicitly interventionist strategy.20 Announcing the strategy, Agriculture and Rural Development Minister Hélder Muteia made clear that this was reversing the pre18 The article argues that corporate responsibility cannot operate on a voluntary basis.There must be regulation, legislation on minimum wages and equal wages for women, and support at the producer end, as well as regulation at the buyer end, to reduce the pressure on producers from increasingly powerful food processors and supermarket chains. 19 One small factory which failed was owned byVeronica do Rosario, the wife of the Agriculture Minister 1992– 9, the period in which the World Bank was promoting small factories. It reopened in 2006. AIM News 13 Apr 2001, 60401E; Incaju,‘Indústria de Caju – Situação em Maio de 2006’. 20 Incaju, Plano director do caju, 5 July 2001.

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vious World Bank-imposed policy: ‘The liberalisation of cashew is impossible. The government believes it is necessary to rehabilitate the industry, so that we can complete the value chain and take more profit from our cashew nuts.’21 The 18% export tax was to remain and the industry would have the first right to buy, but in response to concerns from peasants that if the industry was a monopoly buyer it could push the price down, he established a joint commission of the various stakeholders. He also announced programmes to support peasant producers and new smaller labour-intensive factories.The government also decided to close permanently some of the unviable factories and pay off the workers. Incaju director Clementina Machingo commented:‘It seems that the World Bank and IMF saw the errors they had made and came to agree with us.’22 Indeed, the IMF in its 19 December 2000 Memorandum of Economic and Fiscal Policies completely reversed its earlier position, endorsing the new cashew plan, the 18% surcharge, and the decision to give first purchase option to local factories – in effect a ban on exports until local demand had been satisfied. ‘The national interest, for us, is to maximise local processing, create jobs, and increase revenue. I hope one day we can prohibit the export of raw cashew because we have the capacity to process all we grow,’ Raimundo Matule, deputy director of Incaju, told me. Producing more cashew One reason for low cashew production and poor quality is that increasingly since 1980 trees have been affected by powdery mildew (Oidium anacardii) and the Helopeltis insect, which cut productivity sharply. So Incaju began a major spraying campaign, covering 3 million trees in 2006. It has created more than 2,000 contractors to do this; individuals can buy the sprayer on three-year credit and obtain the chemicals free from Incaju, and then charge $1 per tree. An average tree without any maintenance will only produce 3 kg of cashew, worth less than $1. Keeping the area around the tree clean already reduces disease and pests, and production rises to 7 kg ($2.10). Spraying can increase this to 11 kg ($3.30), so it is only just worth the cost, even at a subsidised price, except for younger and more productive trees. Spraying can only be a short-term measure and the main goal is to replace the entire 25 million trees with new varieties which are more productive and disease-resistant. Since 2000, Incaju has distributed more than 6 million seedlings, half of which should now be producing.23 One problem is that even the heavily subsidised price of seedlings and spraying is a substantial amount of cash for very poor peasants who simply cannot afford it; many peasants failed to pay for spraying, causing problems for the small contractors. Also INGOs and Incaju sometimes provide these services for free and at other times charge, creating confusion and leading many peasants to not buy seedlings or spraying services while they wait, hoping to receive them free. Production has been steadily rising, from 50,000 tonnes in 2001/2 to an estimated 75,000 tonnes in 2006/7. But the goal had been 100,000 tonnes; with the kernel roughly one-fifth of the weight of the unshelled nut, this would still not match the record exports of 1976. Matule argues that Mozambique can no longer depend on peasant production, so Incaju is to promote commercial plantations as well – 5–10 ha for big peasant farmers and up to 500 ha for larger farmers.This will involve a special package of credit and extension services.Two factory owners already have plantations and several more are planning them to supply their own factories; one reason is the hope that plantations will produce better-quality nuts than the peasants. But large-scale plantations will require soft loans; projections by TechnoServe say that plantations can only break even in the seventh year and make a profit in year eight. No bank will lend for that, and interest rates are simply too high. 21 22 23

Notícias, 6 and 7 July 2001; Domingo, 8 July 2001. MoçAmbiente, June-Aug 2001. Traditionally, cashew trees take five years before they produce, but the new varieties take only three.

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A study by Nazneen Kanji and others noted that cashew trees are often owned by women24 who are also the main domestic users of the fruit and nuts, yet women tend to be excluded from interventions. Few women are involved in spraying – indeed in one survey few women were even aware of the spraying programme – and men tend to dominate training courses (Kanji et al. 2004;Vijfhuizen et al. 2003). Perhaps production would increase if Incaju paid more attention to women. Trade and export Allowing the free export of unprocessed cashew was the main demand of the World Bank in 1995, and a core issue has remained the need to balance three conflicting demands: for enough cashew for the factories, the export of cashew the factories do not need, and a fair price for peasant producers.The need for a mix is shown most clearly by the large investment by Olam, which buys unprocessed cashew both for its local factory and to export to factories in other countries. Opening up the export of unprocessed cashew in the mid-1990s led quickly to exporters under-invoicing (claiming an unrealistically low value for the cargo), both in order to avoid the 18% duty and as a way of transferring money out of the country. In early 2001 the government found that they were claiming a value of $400 per tonne compared with the world market price of $650, and slammed a temporary ban on exports.The IMF intervened immediately; it was said to be ‘furious’ and forced the ban to be lifted.25 Statistics of that period also show 17,000 to 25,000 tonnes of unprocessed cashew simply disappearing,26 and officials realised that exporters were also significantly under-declaring the weight of containers. They were also said to be labelling cashew as other products which had no duty, and there were media reports of their failing to pay the duty at all. Another problem was that traders sometimes exported the better quality nuts, leaving the smaller ones for the local factories. In part there was collusion; bribes were paid and some exporters had Frelimo links. For the 2005/6 season, Incaju took steps to control exports. Matule claimed that customs officials were not checking and simply accepting the declarations of the exporters. It was therefore made obligatory to weigh all containers of cashew passing through Nacala port; when it was discovered that Nacala had no scales, an agreement had to be reached with the local cement factory to use its scales. Secondly, proper quality tests of the cashew were begun.Third, the world market price was checked much more carefully, to ensure that the 18% was paid against the proper value of the cargo. ‘This squeezed out some of the dishonest traders, and created more stability,’ Matule reported. Corrupt exporters realised that the new regime applied only in Nacala, so they sent their containers of unprocessed cashew 1500 km to Maputo where they would not be inspected. In January 2007 Incaju and the customs authorities began applying the new system in Maputo port as well.27 A further step was to prohibit the export of unprocessed cashew before 1 January of 2006 and 2007, which gave local industry three months in which to buy, with less competition from big exporters.‘And it worked.Without this, some factories would have closed,’ Matule told us. Meanwhile, buying from peasants had been done by small traders and was quite irregular, with varying prices. Producers therefore formed associations which allow them to collect together larger quantities of nuts and obtain a better price; some Nampula associations now sell nuts through Ikuru (see Chapter 3). And some of the factories buy directly from the associations, rather than through intermediaries, in order to ensure supply, as well as to try to work with the associations to improve nut quality. 24 This is contested. A SNV study claims 60% of trees in Namige are owned by men, 10% by women, and the rest by the family in general. Personal communication from Pedro de Carvalho, Nampula, citing António Quinze (SNV MALIFA Adviser) ‘Avaliação do impacto socio-económico das actividades dos camponeses produtores de caju de Namige’, no date. 25 Personal communication and AIM news, 23 Feb. 2001 115201E. 26 Incaju,‘O subsector do caju: 2000–2005’, Maputo: Ministério da Agricultura, 2006. 27 AIM 24 Jan. 2007, 98107E.

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Finding the money ‘Unfortunately, the Mozambican financial system is still a major obstacle to the development of an effective private sector.This is especially true in rural areas, from where all the major Mozambican banks have withdrawn in recent years,’ notes a study of finance for the cashew sector (Fivawo et al. 2005). Interest rates are high and banks do not support production.The rapid expansion of cashew marketing and processing would not have been possible without GAPI (Gabinete de Apoio à Pequena Indústria, Office to Help Small Industry) which is both a funding agency and a business support centre, and which in 2007 finally succeeded in establishing a rural bank. GAPI works on both the demand side – by providing borrowers with business and financial skills – and the supply side – through innovative loan systems. GAPI’s innovative approach was, instead of demanding collateral for loans, to lend against future earnings with a good recommendation from Clusa and TechnoServe, who identified borrowers in the cashew sector. It lent at different points in the value chain, to private traders and associations like Ikuru who were buying the nuts, and to the factories which were buying nuts from traders.And GAPI, Clusa and TechnoServe have all provided advice and training that are essential to successful business development.28 (GAPI is discussed in more detail in Chapter 16, Clusa in Chapter 3). Exporters of unprocessed cashew are the larger trading companies that can fund their purchases or obtain bank credit. But factories have to buy their year’s supply of cashew in just a few months, which ties up substantial capital – $500,000 for 3,000 tonnes – and they cannot obtain or afford traditional bank credit. By law, one-fifth of the 18% export duty must go to the industry, so Incaju used this to set up a guarantee fund.This is run by a commercial bank (BCI) which makes the loans, but Incaju guarantees 80% of the loan and deposits the money in BCI, which, instead of paying interest, cuts the interest it charges borrowers to half the base rate – around 10%. But the industry was expanding rapidly. GAPI depends on donor money and it could not obtain new funds quickly enough, so TechnoServe phoned friends in the US embassy and at short notice USAID guaranteed $5.5 million to the more established companies, while Incaju guaranteed $660,000 to new firms. Incaju’s loans had an 85% repayment rate – very good for new businesses. Matule feels that the future need will be for longer-term loans, say for five years and $250,000 per factory, to allow existing operators to expand and modernise to raise quality and meet health and safety standards.The hope is that USAID will continue to provide a guarantee fund.

Conclusion: value chains & active support The rapid revival of the cashew sector is remarkable. In five years, thousands of jobs have been created and peasants are seeing an expanding market for their nuts. This is only a beginning and the industry should double in the next five years. Most importantly, it shows that Mozambique, rejecting externally imposed policies but drawing judiciously on outside technical support, can promote rapid development. There are still problems: falling world prices and the increasing power of international supermarket chains; increasing production in other countries; and the need to improve quality, labour standards, and plant pest and disease (phytosanitary) conditions – which will continue to squeeze Mozambican producers. On the other hand, world cashew consumption is rising and Mozambique has excellent production conditions. 28 Several other INGOs have had cashew projects in Nampula, and all failed.The main reason seems to be the wrong starting point.They all start with what they think will ‘help’ the peasants, and thus end up with projects that can only survive with ongoing INGO support, and which die when the INGO changes policy or ends its ‘pilot’ project. Clusa,TechnoServe and the backers of GAPI have been relatively more successful because their starting point is more concerned with the commercial viability of what they support. Nevertheless, they, too, have made misjudgements and suffered failures, which underlines the importance of trial and improvement as part of any innovative process.

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The key to the success has been substantial support from government and donors along the entire value chain: support for growers, creating associations of growers and factories, providing appropriate technology, controlling supply, supporting entrepreneurs to enter a new sector and use new technology, innovative financing, and effective collective marketing. The role of GAPI in ‘value-chain lending’ for cashew was sufficiently innovative to be highlighted in UNCTAD’s Least Developed Countries Report 2006 (p. 245).The report stresses the way GAPI built on existing capabilities by ‘forming partnerships with expert organisations which provide “islands of competence”’ and then built local centres of competence to replace the initial expertise provided by INGOs.Two other aspects were also important: attention to quality which gives Mozambique a competitive edge, and spatial clustering so that the various members of the value chain are close to each other and can cooperate. The success of cashew has led some associations and factory owners to look at diversifying, for example to produce macadamia nuts which have a similar hard shell, grow well in Mozambique, and earn a higher price than cashew.The factories have also had a clear impact on the local economy, as we saw in Nametil (see Chapter 3). Almost every part of the initial World Bank prescription was wrong.And in struggling to overcome that imposed straitjacket, Mozambicans have established two important benchmarks for future development thinking. First, they proved the importance of challenging imposed development ideas. Second, they developed a strategy for cashew which can be a model for other sectors. Matule points out that small factories have not worked and that the new owners are moving to establishments of a similar size to the old ones; they accept the argument made to me by the owners of the privatised factories more than a decade ago that it is easier to manage one large factory than several small ones, at least up to 5000 tonnes a year. Far from adopting the World Bank hands-off approach, the government has had to return to an interventionist model. And on the core issue of exporting unprocessed nuts, all participants agree that the success of the new model is due to the government regulating exports and ensuring that local factories are supplied. In place of World Bank atomisation, producers have realised that they must market together to create a visible brand if they are to make a global impact.A key was subsidised flexible credit provided by NGOs, donors and the state, rather than leaving it to the ‘market’. Finally, establishing the cashew sector has required substantial subsidies, by TechnoServe and GAPI which do not fully charge for their support, by GAPI and Incaju which subsidise credit and take greater risks, and by Incaju providing support to growers.These subsidies, in turn, are funded by donors and government.The outcome looks like a network of many individual and associative entrepreneurs all working for their own profit, but cooperating in an environment of government support and regulation. Just as cashew became the icon of World Bank arrogance, now it has become a demonstration that there is an alternative development model.

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Tobacco: hard choices Tobacco is Mozambique’s largest agricultural export, rising from $11 m. in 2003 to $109 m. in 2006, and now exceeding sugar, prawns, cotton or cashew (see Table 6.1). Mozambique has become the world’s fifth largest producer of burley tobacco.1 Promotion of tobacco growing by international companies has done more to raise peasant incomes than any similar post-war action. But tobacco is highly controversial, on grounds of health and long-term potential, because of the way it also squeezes peasant households, and because of a complex local trade-off between industrial and agricultural development.

Profiting from death ‘Tobacco is the second major cause of death in the world. It is currently responsible for the death of one in ten adults worldwide (about 5 million deaths each year)’, says the World Health Organisation.2 By 2030 it is expected to kill 10 million people per year, most of them poor and in developing countries. Mozambique was one of the first countries, on 18 June 2003, to sign the WHO Framework Convention on Tobacco Control, although it has never ratified it.The Convention requires signatories to take ‘measures to reduce the demand for tobacco’. Signatory countries agree,‘as a minimum, [to] prohibit all forms of tobacco advertising’. Legislation to do this was introduced in 2007.3 But Article 17 of the Convention commits all signatories to cooperate to promote ‘economically viable alternatives’ for tobacco growers. Since Mozambique signed, the number of growers has increased substantially and this rapid growth is continuing, as tobacco has become one of the most profitable peasant cash crops. Even the World Bank has joined WHO in the campaign against tobacco. ‘Increasing tobacco taxes in developing countries could save hundreds of millions of lives’, and the Bank in 2006 gave this as what it called its ‘best health buy’.4 Independent of the ethical issue of building a peasant economy on something which is ‘World Leaf Production Summary’, Universal Leaf Tobacco Company, 22 March 2007, www.universalcorp.com; downloaded 10 April 2007. WHO ‘Tobacco Free Initiative’ http://www.who.int/tobacco/health_priority/ en/index.html, downloaded 26 March 2007 3 In June 2007 the government announced strict new regulations, due to be enforced by the end of 2007, including prohibiting nearly all advertising and a ban on smoking in all state institutions, and in any ‘closed collective or public space’ such as public transport, hospitals, schools, theatres, cinemas and restaurants. Bars, restaurants, railway stations and airports can set up closed smoking zones which cannot be more than 25% of their total area.Taxes will be increased on cigarettes and imports restricted.‘Proibido fumar’, Notícias, 2 June 2007;‘Tobacco regulation details’,AIM, 1 June 2007. 4 ‘“Best Health Buys”Address the Most Deadly Global Health Problems’,World Bank press release 2 April 2006. 1 2

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Table 6.1 Exports, 2006 Export Aluminium Electricity Gas Tobacco Prawns Sugar Cotton

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Table 6.2 Family tobacco production, Tete, by yield per hectare

Share (%) 59 8 5 5 4 3 2

$m. 1401 178 109 109 83 65 42

Source: Notícias, 15 March 2007.

1 Production & quality Yield (Kg/ha) 97 Area (ha) 2.7 Tobacco produced (kg) 256 Price received ($/kg) 0.65 Profit & loss Gross revenue ($) 201 To company for inputs ($) 99 Cost of hired labour ($) 370 Net profit ($) –267

Yield quartile 2 3

4

270 2.4 647 0.94

473 4.5 2042 0.83

1267 2.4 2782 0.77

605 286 317 30

1648 575 643 430

1983 489 583 911

Yield quartile = farmers divided into four groups according to tobacco per hectare (ha), 1 is the quarter with the smallest yields and 4 is the quarter with the highest yields. Source: Benfica et al. (2005: Table 16).

so harmful,5 there is a worry about longer-term sustainability. If WHO and the World Bank are successful, the rise in tobacco consumption could slow and even be reversed. China, the world’s largest consumer of tobacco, ratified the WHO Convention in 2005 and has begun to restrict the sale of cigarettes. Meanwhile, Mozambique is not alone, and world tobacco production is rising;increased supply is already causing a decline in prices,which could worsen if anti-smoking campaigns succeed.The World Bank warns that there could be job losses. UN Food and Agriculture Organization projections are that tobacco consumption will rise independent of the anti-smoking campaigns, but that if the campaigns are successful, world consumption will be at least 10% less.6 In the short term, tobacco production will remain profitable. But even if Mozambique continues to not ratify the WHO tobacco convention, and thus not commit itself to reducing use and production, prices are likely to fall and this may not be a good long-term development bet.

Peasants & companies Although peasants in Mozambique have grown tobacco for many years and sold it in local markets, large-scale commercial production began only after the war, and was promoted by four large companies.They followed the cotton concession system, and each company is granted areas where it has exclusive rights to promote tobacco. It provides inputs and extension services on credit, and peasant farmers must sell their tobacco to that company. Tobacco production is relatively complex and labour-intensive. Tobacco is an annual crop, planted first in seed beds and then transplanted to the field. Pesticides and fertiliser must be applied at the right time.The crop must be weeded. Mozambican production is almost entirely burley tobacco which is air cured in barns (which does less environmental damage thanVirginia tobacco, which is cured with wood fires), and the leaves must be harvested and hung carefully. They are then sorted by quality and baled and taken to a market, where the tobacco company sets the price. About 150,000 peasant families produce tobacco; one-third are in Tete and they produce more than half the national crop. Niassa is the next largest tobacco province, followed by Nampula, Manica and Zambézia.7 (By contrast, 100,000 peasant families produce 5 An alternative crop could be cannabis. An article in the prestigious medical journal Lancet by four of Britain’s leading drug experts argued that cannabis was less harmful than tobacco, because it was less addictive and did less physical harm (Nutt et al. 2007). 6 FAO,‘Projections of tobacco production, consumption and trade to the year 2010,’ Rome, 2003. 7 ‘2006 Crop Estimates’, Moçambique Leaf Tobacco Lda, October 2005, www.universalcorp.com; downloaded 10 April 2007.

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cotton, and prices and production are falling, largely due to US subsidies of its own production.) A comparison of rural household income surveys in 1996–7 and 2002–3 (discussed in more detail in the next chapter) showed that tobacco was the only crop that contributed to rural growth (Boughton et al. 2006: viii). In the first survey,Tete had the lowest mean income of any province; in the second, it had jumped to second after Maputo province.8 The increase was entirely due to tobacco.The other province to make big gains was Niassa, also a tobacco producer. Not only has tobacco been the only crop to raise peasant income, it has also been the only one to raise the technical level of peasant farmers. Between the two surveys, fertiliser use increased only for one crop – tobacco – and in two provinces – Tete and Niassa. Onethird of tobacco farmers use fertiliser compared with less than 3% of other farmers. But fertiliser use did spread to neighbours; in the tobacco-growing areas of Tete 29% of both tobacco growers and non-growers used fertiliser on their maize, ten times the national average (Boughton et al. 2006: 30, 32; Benfica et al. 2005: 19). A team led by Rui Benfica of Michigan State University carried out a detailed study in 2004 of 180 farm families (144 growing tobacco and 36 which did not) in the four lush, high districts of northern Tete.This showed a huge variation.Table 6.2 breaks the tobacco farmers up into four equal sized groups, with group 1 having the lowest yields per hectare and group 4 the highest. Starting with the bottom line, it is obvious that half the farmers should not have bothered; one quarter lost money and the next quarter only broke even. In 2006, Mozambique Leaf Tobacco (MLT) took 130 farmers in Macanga district to court because they had not paid for the inputs they received (Notícias, 19 July 2006). But the other half did well; all of group 4 and about half of group 3 will be above the official poverty line and in the highest income group nationally.9 (See the next chapter for more on this, especially Table 7.3.) The Benfica study shows that tobacco also benefits non-tobacco-growing neighbours. In particular, it appears that tobacco producers buy maize from neighbours to feed their workers. In the bicycle test, 87% of growers and 81% of non-growers in the tobacco areas have at least one bicycle (Benefica et al. 2005: 39, 57). Tobacco profits are dependent on exploitation of family labour.Tobacco growers were less likely to send their children to school and those who did go to school were more likely to miss classes (ibid.: 11–13, 56).10 Female-headed households were unlikely to grow tobacco and were ‘not reaping the benefit of the cash cropping boom’ (ibid.: 12). Twothirds of tobacco growers hired full-time workers; 24% came from the same village, but 44% came from Malawi. Benfica et al. found ‘that many of the permanent workers, especially those from Malawi, are provided with food (maize etc.) throughout the season and then paid a specified amount of cash at the end of the season.’Temporary labour is hired at peak times, but at very low rates, the lowest being $0.41 (about MT 10) per day for tobacco drying (ibid.: 23, 31) which is half the normal rate on farms elsewhere in the country. The study also looked at cotton, and found it much less profitable. On average, members of tobacco farming families earned $2.55 (64 MT) a day, while those of cotton families earned only $0.80 (20 MT) a day – about what they would earn doing ganho-ganho (day labour) on other people’s farms. But the difference was most striking for the top 8 Comparing Tete with the rest of Mozambique, in 1996, 41% of Tete households were in the poorest 20% of rural Mozambican households and only 3% in the best-off 20%, while six years later, the position was reversed and 35% of Tete households were in the best-off 20% nationally. 9 Referring to the next chapter, the official ‘flexible basket’ poverty line for rural Tete is $0.29 per person per day, which is $529 per family per year. But from the TIA we can estimate that on average $105 of this comes from food produced and eaten by the family, so $424 per family per year is needed in cash income to be above the poverty line.This is exactly the mean profit of the group 3 families. Benfica et al. (2005,Table 18) shows much higher levels of retained food, which is a reminder that all of these numbers need to be treated with considerable caution. 10 This is also true of the cotton growers in the study.

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quarter of each group; members of the most successful tobacco families earned $7.65 (MT 191) a day while the best cotton farmers could only earn $1.50 (MT 38), below the legal minimum agricultural wage.

Priority for industry or peasants? A mark of the growing importance of tobacco is the fact that in 2006 MLT opened the first processing factory. Built in Tete city at a cost of $53 m., it employs 1,600 workers and can process up to 50,000 tonnes of tobacco.11 Until it opened, all Mozambican tobacco was processed in Malawi and Zimbabwe.The government put heavy pressure on the companies to open factories and process in Mozambique to earn more and to create jobs. There was also a fear that, when Zimbabwe returns to normal, the tobacco companies will have less interest in Mozambique. Building a processing factory is a commitment to stay. However, the factory exposed sharp contradictions between agricultural and industrial policy, and also raised questions about the basis of the concession system. Initially there were four concession companies – three US firms, Universal (operating as MLT), Dimon, and Standard Commercial (Stancom), and the Portuguese colonial company João Ferreira dos Santos. But this was reduced to two as JFS ran down its activities and Dimon and Stancom merged to form Alliance One. To encourage the companies to build factories, Mozambique offered other benefits.Alliance One was not prepared to build a factory, but MLT was. In exchange, the concession for Chifunde district, which grows more tobacco than any other district in Mozambique, was taken away from Dimon and given to MLT for the 2005–6 season. But this, in turn, provoked protests from both industry and peasants. Chifunde represented 40% of Dimon’s production.Alliance One responded by announcing that it would not stay in a country which unilaterally withdrew its biggest concession, and would leave Mozambique after the 2005–6 season. It also logged a claim of $10 m. against Mozambique for lost investment, claiming the withdrawal of the concession was improper. The USMozambique Chamber of Commerce entered the dispute, at first trying to negotiate a settlement and then through various public statements, warning that the sudden cancellation of the licence would discourage foreign investment and that Mozambique would lose international credibility because decisions ‘are not based on law but on the whim of a high official’.Taking away the licence would show foreign investors that they had no legal protection, and giving a monopoly to one company would lead to that firm pushing down the price it paid to peasants for tobacco.12 Meanwhile, in Chifunde the local peasants were angry.They pointed out that Dimon was much more supportive of the community than MLT, and also complained that MLT was harsher in its grading than Dimon; more tobacco was graded as low quality and earned a lower price. They claimed that tobacco given a low grade by MLT could be sold as a higher grade in Malawi, but that MLT’s exclusive rights to buy in Chifunde prevented them from doing this.There were public protests and when the governor visited he was barracked by the crowd. Finally President Guebuza went to Chifunde where he addressed a hostile crowd on 5 May 2006.As Daniel Kassamala told the President,‘If we could vote, I guarantee that Mozambique Leaf Tobacco would not get one vote from the people of Chifunde.’ Peasants angrily told the President that MLT had not continued Dimon’s work Mozambique Business – Daily Investor Intelligence, MB373, 18 March 2004, CPI Maputo Notícias, 30 Sept., 4 Nov. 2005. In the dispute that followed, the government alleged misconduct by Dimon (which was the formal reason for revoking the concession), while the US privately claimed that bribes had been passed. But it seems clear that the real issue concerned the factory. Indeed, in one of its articles, the Chamber of Commerce admits this, claiming that ‘the situation inTete shows the tendency for MLT to use its economic power to imprison the government and force it to give concessions allowing market dominance… based on the argument that it is industrialising the country’. 11 12

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improving roads, building classrooms, and maintaining water supplies.13 The President appeared surprised and poorly briefed, and his reply was disingenuous. He said Alliance One was withdrawing from Mozambique voluntarily, which was technically correct, but what he did not say (and may not have been told) was that Dimon did not leave Chifunde voluntarily; the concession was taken away and given to MLT in exchange for building a factory. Arguments over grading and price are normal in any concession system. But the discontent with MLT is much broader. MLT and Dimon had totally different approaches to the peasants. MLT sees itself purely as a tobacco company; it provides inputs and technical support for tobacco, but no other support. Dimon saw itself much more as a development agency, giving much broader agricultural support. It also made substantial community contributions and supported teaching at the Instituto Agrário de Chimoio. The two promoted totally different farming methods. Dimon said peasants should intercrop in the traditional way, and grow tobacco alongside beans and maize. MLT opposed this, pushing mono-cropping, but in rotation, which meant a field was used for tobacco only once every four years.These are commercial choices; Dimon and MLT both expect to make profits. MLT did invest a substantial amount of money to build a factory in Tete. But the peasants clearly prefered Dimon, and were right to do so; it had worked for 10 years in Chifunde and some peasants said it was considered ‘the father of development of local families’.

Conclusions: finding a balance Several points can be drawn from the tobacco saga. Most important, comparison of rural household income surveys showed that tobacco was the only crop that contributed to rural growth.‘As shown by the rapid growth of household incomes in Tete province, a high value cash crop like tobacco can be a powerful engine for rural economic growth, both through increased crop income and the resulting increased demand for additional locally produced goods and services’ (Boughton et al. 2006: viii). But tobacco is the one success story because it is the only crop that international companies were prepared to promote. Even within that, the difference in approach by MLT and Dimon had developmental impacts, and the peasants had a real preference. MLT made money, while Alliance One has been losing money, which suggests that the narrower strategy of MLT may be more profitable. The system of concessions, intensive extension, inputs on credit, and a guaranteed market clearly works; it is popular and some peasants can lift themselves out of poverty. But Mozambique’s strategy of depending entirely on foreign investors means that it is forced to grow a toxic crop with no long-term future and to accept a harsh and narrow developmental strategy for peasant farmers. The obvious question is this:Why do the government and donors not use the example of Dimon’s support for intercropping export and food crops and apply it to other export crops? In his tours of the country, President Guebuza says that Mozambicans must stop standing with their hands out waiting for help from foreigners.Yet the development policy seems to be to wait, with hands outstretched, for foreign investors – and if only tobacco companies are interested, we have to accept that.Why not take the initiative and apply these techniques to other crops, even if there are no big multinational companies waiting to invest? Ironically, the US-Mozambique Chamber of Commerce is right. By being purely dependent on foreign investors, the government is held hostage by their economic power. Priority for industrialisation and agro-processing is essential. But by leaving everything else to the foreign investors, peasant development has to be traded for industrial development – surely an unnecessary compromise. 13

Domingo, Maputo, 7 May 2006.

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Thus tobacco yields two lessons.The first is that foreign investors can bring new ideas and new ways to develop that can improve the lives of peasants. But the second is that Mozambique cannot depend solely on foreign investors. Perhaps President Guebuza needs to give his own government the same message he is giving to the peasants; don’t just stand there with your hand out, but play an active role in your own development.

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7

Has poverty decreased? Poverty is said to be falling, but malnutrition is rising. How can that be? This chapter explores what UNICEF calls ‘a central paradox in the Mozambican development trend’ (Dupraz et al. 2006: 18).Two key reports agree on the depth of poverty, but disagree on the trend. Poverty ‘levels remain high. More than half the population fails to attain even the very basic standard of living represented by poverty lines,’ according to a 2004 report (Massingarela et al. 2004a: v).‘Children have poor nutrition in the overwhelming majority of Mozambican households,’ reports UNICEF in its 2006 report (Dupraz et al. 2006: 18). But is it getting better? UNICEF reports that child malnutrition is actually increasing, while Massingarela et al. claim that the number of people living below the poverty line decreased dramatically from 69% in 1997 to 54% in 2003.These headline figures are used by ministers and donors alike to prove that, although Mozambique remains very poor, development is taking place and poverty is being reduced. Indeed, Massingarela et al. argue that ‘the goal set out in the PARPA of a poverty headcount rate of 60% has, in all likelihood, already been reached’ and that ‘progress in reducing poverty rates has been impressive’. In this chapter we shall argue that assertions of a decline in poverty are exaggerated and are much less ‘impressive’ than claimed. Instead, we shall show that differentiation (albeit between the poor, very poor, and abjectly poor) is increasing and that only a relatively small group of Mozambicans are significantly improving their living standards. In particular: • The better-off are slowly rising out of poverty. In rural areas, the gap between rich and poor is already wide and becoming wider; the best-off fifth has 20 times the income of the poorest fifth. As well as higher income and often wage income in the family, this group also has more assets; those in rural areas have contacts in town, while those in town have access to micro-credit (see Chapter 16).This group is the only one able to make productive use of the ‘free market’ and of the package of changes taking place – more open commerce, better roads, mobile telephones, electricity, improved education, etc. • A middle group near the poverty line are struggling to keep their heads above water.Any shock such as sickness or a family death, a bad crop season, or failure to find casual work drives them back below the poverty line. • A larger group of very poor, perhaps half the total population, is falling deeper into poverty. It has few assets, mainly grows its own food, and depends on tiny amounts of cash earned from casual labour or petty trading. It is so poor that it does not have sufficient food.

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Table 7.1 People’s perceptions of economic change When asked: “Has your economic situation improved, stayed the same, or deteriorated compared to three years ago’, as part of the 2001–02 TIA, people gave these repliesa Reply

% of replies

Mean household annual income of group giving this reply

32 28 40

$392 $284 $217

Improved Stayed the same Worsened

When asked ‘How do you compare the economic situation of your family to that one year ago’, as part of the 2002–03 IAF, people gave these replies (according to income group)b Income group

Much worse

Worse

Same

Better

Much better

Quintile 1 (very poorest) Quintile 2 Quintile 3 (middle) Quintile 4 Quintile 5 (best off)

42% 32% 27% 24% 20%

18% 22% 24% 24% 21%

27% 30% 30% 30% 29%

12% 14% 17% 21% 27%

2% 2% 2% 1% 3%

All

28%

22%

29%

19%

2%

Sources: a) Walker et al. 2004. b) Instituto Nacional de Estatistica 2003.

Two surveys asked people if their economic situation had improved, and the answers are given in Table 7.1. In their replies, 40–50% said their living standards had fallen, and they were the poorest people, while 21–32% said their economic situation had improved, and they were the already better-off. In this chapter, we argue that these answers correspond to reality. These are contentious claims.There are not many studies of the economic positions of Mozambicans, and those that exist are often contradictory or not easily compared. Statistics are of varying quality. Reports often use significantly different definitions, even for basic concepts such as ’poverty’, ‘consumption’ and ‘income’. Statistics can prove many contradictory things, but we believe our conclusions correspond to reality. Here the bicycle test is important. Going through Manica and Nampula provinces in 2006 (Chapters 3 and 4), we saw more bicycles and a few improved houses. But most people were still walking and living in houses no different from 30 years ago when we first travelled around Mozambique.1 Our personal image is of more bicycles, electricity and mobile telephones, but also of a deep and worsening poverty for most people.And we shall argue later in this book that the present development strategy of the government and donors will not lift that majority out of poverty; there are more bicycles but not a lot of development. In the rest of this chapter, we shall look at six sets of research and draw some conclusions: (i) Global data on ‘real’ GDP per capita.These figures show a period of decline, with incomes in 2002 lower than at any time since the start of the war, but recovery since then. (ii) Malnutrition and child poverty.These data show no reduction in poverty. (iii) Family consumption surveys (IAF, Inquérito aos Agregados Familiares).These are the basis of the claim of a large fall in poverty, but we show why we do not accept this, and why an alternative number based on the same data but showing less poverty reduction should be used instead. (iv) Rural income surveys (TIA,Trabalho de Inquérito Agrícola).These cover only 70% of the population but present a much better picture of differentiation.Analysis of these surveys shows that the already better-off are gaining while the poor are getting poorer.They also show substantial insecurity, with many people falling below the poverty line while others rise above it. (v) TIA continued, looking at jobs and cash income.These show the importance of off1

Maputo city is different.The reed (caniço) houses of 30 years ago have nearly all been replaced by block houses.

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farm wage income, and that agriculture is not proving a way out of poverty. (vi) Detailed studies of villages and towns in the north.These also point to stratification and the importance of urbanisation and improved living standards in district towns. Because this chapter is unusually data-heavy with tables and charts, we finish each section with what we believe to be the key point illustrated. At the very least, we hope to show that the picture is much more complex than usually presented and the gains to date much smaller than claimed, which has implications for a development strategy.

(i) General measures – decline then recovery

2005

2004

2003

2002

2001

1999

2000

1998

1997

1996

US$

We start by looking at national measures of average annual income. In Chapter 2 (Chart 2.1) we pointed to the economic decline during 1988–96, a period of harsh structural adjustment. Chart 7.1 gives three different measures of per capita income and of what 350 happened next.The upper line in the chart 300 shows simple GDP per capita from the independent National Statistics Institute (InINE, "GDP per 250 capita US$" stituto Nacional de Estatística, INE).2 This INE, "private 200 figure is the one most commonly used in consumption per capita US$" official and donor publications. But it also UNDP, "real per 150 capita GDP includes big projects like the Mozal aluUS$" minium smelter, which the World Bank 100 estimates account for more than 10% of GDP.3 The two lower lines are attempts to Chart 7.1 Rising or falling incomes? measure people’s real income. The dotted line is ‘private consumption’ as calculated Sources: Anuário Estatístico; 1999–2005; Mozambique by the INE and the solid line is UNDP’s National Human Development Report 1998–2001, and Maputo; UNDP. own calculation of ‘real per capita GDP’ as 2005 Note: UNDP no data for 2005. part of its Mozambique Human Development Report. Although they are different, they all agree on three phases: • 1996–8.A period of growth, probably the easing of IMF restrictions leading to a deferred peace dividend. • 1998/9–2001/2. A period of economic decline, perhaps reflecting the decline in aid and the devaluation of the metical. • 2002/3–. Recovery and growth. However, the three sets of data show quite different pictures. Both INE and UNDP say that real income in 2002 was lower than it had been at the low point of 1996, and thus probably lower than at any point since the mid-1980s.The economic decline of the late 1990s seems to have wiped out any peace dividend. After 2002, INE sees significant growth, while UNDP does not. UNDP notes that in 1997 all provinces had an average real GDP per capita of over $100, whereas in 2004 in five provinces it had fallen below $100, implying a sharp increase in poverty. 2 Anuário Estatístico 1985–, published annually in the year after the title date. 1985–1994 Maputo: Direcção Nacional de Estatística; 1995– Maputo, Instituto Nacional de Estatística. 3 World Bank (2005a: 24, 138). INE data show GDP per capita equal to private consumption per capita in 1995, and the gap steadily widening, so that by 2004 GDP per capita is more than 50% greater.

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(ii) People are still hungry UNICEF in its 2006 report Childhood Poverty in Mozambique shows an increase in stunting-chronic child malnutrition, defined on the basis of the height to age ratio.This shows malnutrition resulting from ‘cumulative inadequacies’ in the child’s nutritional status, and is a good indicator for the general well being of a population, the report says. It adds that it is difficult for a child who is stunted to make up their lost growth, and that stunting is also closely linked to impaired mental development (Dupraz et al. 2006: 94). Chart 7.2 shows that chronic child malnutrition actually increased between 1997 and 2003. Chart 7.3 looks at malnutrition and child mortality in a single year, 2003, and by income group, from the poorest fifth (group 1) to the best-off (group 5). Even in the best-off fifth, 20% of the children are malnourished. But what is striking is that for all three lower groups, nearly half of the children are malnourished.The second set of bars are for deaths of children under 5 years of age, and it shows the same thing – the bottom three groups all lose 20% of their children, while in the best-off only 10% die (still very high – under-5 mortality in Britain is 0.6%). These data cover all children, both rural and urban, but it is striking to compare them with Chart 7.4 and Table 7.3 from the rural income survey.They show that the poorest 60% of families are very poor indeed, and have not been gaining much from growth in income, which suggests that they are too poor to feed their families.And the UN and the government agree that Mozambique will not meet the Millennium Development Goal of halving the proportion of people who suffer from hunger. (República de Moçambique 2006a: 14; Dupraz et al. 2006: 38).
CONCLUSION: Malnutrition levels are rising rather than falling and Mozambique will not meet the MDG for reducing hunger, probably because 60% of families cannot afford to eat properly.

Chart 7.2 Change in chronic child malnutrition between 1997 and 2003, under 3 years of age

‘Chronic malnutrition’ is measured through ‘stunting’, a low height to age ratio. Source: Gaspar et al. 1998; Ministério de Saúde 2005a; SETSAN 2006.

Chart 7.3 Child malnutrition and mortality by income group, 2003, under 5 years of age

Malnutrition is ‘chronic malnutrition’ as measured through ‘stunting’, a low height to age ratio. Source: Instituto Nacional de Estatística and Ministério de Saúde 2005a. Child mortality is the percentage of children that die before the 5th birthday. Source: World Bank 2005a.

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(iii) IAF: Consumption & poverty lines A pair of surveys looked at family consumption (IAF, Inquérito aos Agregados Familiares) in both rural and urban areas in 1996–7 and 2002–3.4 The headline figure of the number of people living below the poverty line falling from 69% to 54% is based on a comparison of the two IAFs.5 The key issue here is the definition of the poverty line in a way that reflects the wide variations in prices and consumption patterns throughout the country.A different poverty line was defined in each of 13 areas of the country. Research on the IAF used a ‘basic needs approach’ to define a food poverty line, based on the cost of the amounts of food in a typical diet needed to provide an average 2150 kilocalories per person per day, considered the ‘minimum caloric requirements’ (Massingarela et al. 2004a: 6; Cassamo et al.1998: 19). For 1996–7 for each of the 13 areas, a ‘food basket’ was defined, which reflected what people near the poverty line actually consumed. Next, an essential non-food poverty line was established in each area by looking at the normal expenditure of people near the food poverty line. Spending by these people on clothing and other non-food items ranged from 18% of the total budget in rural areas to 32% in some urban areas.6 Food and non-food were then combined to give a poverty line for each of the areas.With these poverty lines, 69% of the population, 11.2 million people, were below the poverty line. For the 2002–3 survey, the obvious choice was to use the same food basket and the same percentage of non-food spending. If this is done, the share of people below the poverty line falls from 69% to 63%. Because of population increases, the number of people in poverty has actually increased from 11.2 million to 11.7 million. But the authors of the report on the 2002–3 survey note that the cost of the food bundle had more than doubled in most parts of the country, and was well above the official inflation rate of 77%.They further argue that, in reality, poor people will switch, for example substituting cheaper cassava for more expensive maize, in order to reduce their food costs. So they use the survey data from 2002–3 to see what people near the poverty line actually bought and ate. Combined with some quite complex statistical methods, they create ‘flexible food bundles’ which involve some degree of switching to cheaper foods. If this is used instead of the ‘fixed food bundles’, the fall in the number of people below the poverty line is dramatic, from 69% to 54%.7 Despite population increases, the number of impoverished people has decreased from 11.2 million to 10.0 million.Thus two different definitions of a poverty line food basket give two different figures, of 11.7 million or 10 million people below the poverty line.Which is correct? Table 7.2 gives a sample of five of the 13 regional poverty lines, ranging from one of the lowest to the highest, and includes the two provinces discussed in Chapters 3 and 4. Two things are striking about the table: first, the huge variation, with the poverty line in Maputo being more than three times the poverty line of some rural areas, and second, the way in which use of the flexible basket leads to the average rural poverty line (excluding Maputo province) falling from 8.3 MT per day (then 35¢, 17p) to 6.9 MT (then 29¢, 14p). If the poverty line is 17% lower than it was six years previously, it is hardly surprising that In 2002–3 households were interviewed three times in a week in order to get a good picture of daily spending, and then were divided into quarters and each group interviewed at a different time of the year to obtain a picture of seasonal variation. 5 The surveys were carried out by the then Ministry of Planning and Finance.The 1996–7 survey was analysed with the support of a team from the International Food Policy Research Institute in Washington, DC; and the 2002–03 survey with support of a team from Purdue University in the USA, funded by Denmark, Britain, and Switzerland.The second survey involved 8,700 households throughout the country. 6 This should reflect ‘essential’ non-food expenditure, but spending in rural Nampula is only one-quarter of that in urban Maputo province, which suggests some difference in what is seen as ‘essential’. 7 With the fixed food bundle, the decreases in poverty are entirely rural and mainly in Sofala and Tete provinces. With the flexible bundle, poverty falls in both rural and urban areas and in Zambezia as well as Sofala and Tete. Interestingly, with the flexible bundle, poverty increases significantly in Maputo city and province. 4

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Table 7.2 Poverty lines, MT & $ per person per day MT per capita, 2003 prices 1996–97 2002–03 2002–03 (at 2003 fixed flexible prices) basket basket Nampula – rural Nampula – urban Manica & Tete – rural Manica & Tete – urban Maputo City average rural (w/o Maputo) average urban (w/o Maputo)

$ per capita, 2003 prices 1996–97 2002–03 2002–03 (at 2003 fixed flexible prices) basket basket

5.95 8.76 8.34 13.12 15.12

6.44 11.18 8.34 14.90 16.98

5.97 6.66 6.93 9.69 19.52

0.25 0.37 0.35 0.55 0.64

0.27 0.47 0.35 0.63 0.72

0.25 0.28 0.29 0.41 0.82

8.28 9.80

7.75 9.73

6.90 7.68

0.35 0.41

0.33 0.41

0.29 0.32

w/o Maputo = excluding Maputo city and province 1996–7 prices are adjusted for 77% inflation between the two surveys Sources: 1996–7 Cassamo et al. 1998; 2002–3 Massingarela et al. 2004

the number of people below the poverty line has fallen by a similar amount, even if their real income has not risen. The use of the ‘flexible food bundle’ is highly controversial, with knowledgeable Mozambicans taking both sides. Between the two survey dates, maize prices rose significantly while cassava prices declined (Boughton et al. 2006: 34), and the study team makes clear that ‘poor consumers opt to reduce maize flour consumption and increase cassava consumption’. In setting their food poverty line, they look only at calories and not at other nutrients (Massingarela et al. 2004a: 6, 10).The problem is that cassava is a much less nutritious food; it is a poverty food and the poorest eat proportionately more cassava and less other grains (Instituto Naçional de Estatisfica 2003a).This is probably one reason for the increase in chronic malnutrition shown in Chart 7.2.Thus, although the flexible food bundle reflects what the poor are buying, it is not of the same nutritional quality; it is not the same poverty line but a lower one. Nutritionists and researchers we spoke with said that people do switch the food they buy, but they switch to lower quality food only reluctantly. One senior researcher angrily called it ‘cooking the data’. Finally, it is worth noting that the two provinces in Chapters 3 and 4 show some of the biggest differences according to which data are used. With the same food basket as for 1996–7, the change is tiny and less than statistical error (1% and 2%) and than the national average, whereas with the flexible basket 16% and 19% of people are taken out of poverty in Nampula and Manica, respectively – both above the national average. Chronic malnutrition is decreasing in Manica but is increasing in Nampula (Martel and de Oliveira 2006; Ministerio de Saude 2005a) which is a major cassava area and in 2006 had outbreaks of Konzo (a form of paralysis caused by people eating too much cassava with cyanide, which happens only when there is severe hunger).
CONCLUSION: The percentage of people below the poverty line fell from 69% to 63% between 1996–7 and 2002–3; and the number of people in poverty actually increased from 11.2 million to 11.7 million.The often quoted larger fall in the number in poverty is based on people switching from maize to less nutritious cassava, which is probably the cause of the increased malnutrition.

(iv) TIA: earnings & differentiation A second pair of surveys looked at rural income (TIA, Trabalho de Inquérito Agrícola) in the agricultural seasons 1995–6 and 2001–2. In most studies cited in this book,

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Chart 7.4 Share of rural income & income increase, by quintile of household income 1 = poorest 1/5 of households 5 = highest income 1/5 of households The chart shows that the poorest 1/5 of households have only 3% of rural income and received only 3% of the gains between 1996 and 2002. Source: Boughton et al. 2006.

Mozambique is seen as 70% rural, so this includes villages and some small towns.The surveys looked at all sources of income as well as assets including land.8 Comparing the surveys showed an increase in rural incomes, but nearly all of it (73%) went to the 20% of households with the highest incomes and less than 3% went to the poorest 20%. (see Chart 7.4). Even the quite small gains of the poorest are probably not real. First, production of most crops fell per person and per hectare between the surveys, but most prices increased significantly between the two surveys.9 Surveys estimate the value of the food people produce and consume themselves by using the price at which they can sell their crops; so the ‘value’ of the food that rural families produced and ate themselves increased, even though the amount probably decreased. Furthermore, 61% of rural households buy more maize than they sell; higher prices therefore mean that the poor buy and eat less (Boughton et al. 2006: viff, 10). In other words, the poorest probably sank deeper into poverty. At the other end of the spectrum, ‘increases in income for the highest-income households have come primarily from off-farm skilled wage and selfemployment opportunities’, as Table 7.8 shows. The TIAs show huge differentiation in the rural areas, and it is widening rapidly.Table 7.3 divides rural families into five income groups, and shows that the best-off fifth had 23 times the income of the poorest fifth.Table 7.4 shows that the spread at the top is particularly notable; not only does the top fifth earn more than the other four-fifths combined, but it is itself sharply divided, with a small top group that is relatively well-off. To see this, one needs to consider the difference between mean and median.The mean is the arithmetical average. If you have $1 in your pocked, your neighbour has $2, and I have $99, the ‘mean’ amount of money in our pockets is $34 ($102÷3), which makes you sound richer than you are.The median is the half-way point in a list. If people stand in a queue in order of the amount of money in their pockets, the ‘median’ will be the half-way The survey was carried out by the then Ministry of Agriculture and Rural Development and analysed by a team supported by Michigan State University in the US and funded by USAID. The second survey covered 4908 households in 80 districts. 9 Cassava, cotton and tobacco fell in price; maize, groundnuts, pulses and most other food crops showed real price increases. 8

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Table 7.3 Mean income by quintile (fifth) per year $ per capita 1 (poorest) 2 3 (mid) 4 5 (highest)

$ per household

MT (2002) per capita

MT (2002) per household

34 82 138 245 793

159 384 649 1154 3728

796 1920 3245 5768 18641

7 16 28 49 159

Source: Boughton et al. from TIAs

Table 7.4 Comparing mean and median rural incomes, per year $ per capita ALL RURAL INCOMES Mean Median HIGHEST INCOME QUINTILE (5) Mean Median

$ per household

MT (2002) per capita

MT (2002) per household

52 27

258 137

1214 642

6072 3208

159 111

793 556

3728 2613

18,641 13,065

Mean = add all incomes and divide by number of people or households Median = income with half of people or households above and half below Source: Boughton et al. 2006 from TIAs

point in the queue, and the median of the three of us is just $2. If the mean income is much larger than the median, as in the example, it means that there are a few rich people raising the average. This is exactly what happens with rural incomes.As Table 7.4 shows, the median income was 642 MT ($27) per person per year but the mean was 1,214 MT ($52). Chart 7.4 shows the big differences. But it is also a reminder of just how poor the rural areas of Mozambique are, with nearly everyone (including many of the ‘better-off ’) below the poverty lines of Table 7.2; differentiation is between the poor, the even poorer, and those with virtually nothing. Preliminary data from the 2004–5 TIA Table 7.5 Change in rural family income show that differentiation accelerated, with between 2002 and 2005, by quintile the non-poor becoming better-off, but the Change in poorer getting poorer.Table 7.5 shows that Income group median income the poorest half of the rural population ac1 (poorest) –27% tually saw their incomes fall, while the top 2 –14% 20% made another large gain. The widen3 (mid) –4% ing gap between better-off and very poor is 4 11% also shown by the fact that between 2002 5 (highest) 21% and 2005 mean income rose by 18% but TOTAL –3% median income fell by 3%. Source: Pitoro and Mlay 2007 Comparing the 2004–5 survey with that of 2001–2 reveals that the position of people near the poverty line is very precarious. Nationally, half of the rural families considered ‘not poor’ in 2001–2 had fallen back into poverty.Table 7.6 from a study by Raúl Pitoro and Gilead Mlay (2007) shows the high degree of insecurity, nationally and in our provinces of Manica and Nampula. In 2002, 30% of rural families nationally were not poor, but by 2005 half of them had fallen back into poverty, while 18% of the population had been able to rise above the poverty line.The total change is small, just 3%, but that hides a very large movement up and down.

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Table 7.6 In and out of rural poverty between 2002 and 2005 Remained poor Nampula Manica National

Poor in 2002 Escaped poverty

52% 60% 52%

Not poor in 2002 Became Remained poor not poor

14% 15% 18%

19% 10% 15%

15% 16% 15%

Source: Ibid.

Table 7.7 Average (mean) rural income, 2002, by source of income, per year $ per capita

$ per household

Cash income (net) crops, livestock 7 33 wages 10 51 self employment 14 69 total cash 31 Production for self consumption (net) Crops 21 105 total income 52

153 259

MT (2002) per capita 155 239 326 495

720 1215

MT (2002) per household 773 1195 1632 2475

3600 6075

Source: Boughton et al. 2006 from TIAs


CONCLUSION: The very large differentiation in rural areas is widening rapidly, with the top one-fifth becoming much better-off and the poor half getting much poorer.The position of those near the poverty line is precarious, with people often dropping back into poverty.

(v) TIA: cash & jobs Rural cash income in 2002 was tiny, just $31 per person or $153 per family per year. As Table 7.7 shows, most of this comes from self-employment, some from paid work, and only a little from selling crops or livestock. (Total income is cash income plus the value of food produced for family consumption.) Table 7.8 shows that, for the poorest 60%, nearly all income comes from their own farm, but as one gets better-off, more comes from wages and self-employment.The second half of that table also shows that improvements made between 1996 and 2002 largely come from income earned off the family farm.10 For the best-off, there is probably a salary from the NGO or public sector.Table 7.9 shows that more of the better-off hire farm labour, and that the difference has increased sharply, with fewer of the poorer 80% hiring farm labour but more of the top 20%.Thus a key aspect is that the best-off are earning more, largely off the farm, and hiring more people to work their farm, while the poor are becoming poorer and are losing access to jobs and ganhoganho day labour. Self-employment income is divided similarly at all levels. Half was natural resourcebased in 1996 and includes activities such as cutting firewood and producing charcoal. This is work most people can do, but it is not environmentally sustainable without careful management, and thus does not provide a basis for future growth. Natural resourcebased income did not increase between 1996 and 2002, suggesting that environmental limits may already have been reached. Non-resource-based self-employment did increase, moving from half of self-employment in 1996 to two-thirds in 2002.The most commonly Boughton et al. 2006: 18 fn. 7 warns that wages and self-employment income may have been underestimated for better-off groups in 1996, so the increases may be smaller than shown in Table 7.8. Also,Tables 7.7 and 7.8 are taken from different sets of data and do not completely agree in some details. 10

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Table 7.8 Source of income and growth Share of household income by source Quintiles of Net HH Own farm Wage Income Self-employment Income 1996 2002 1996 2002 1996 2002

Share of growth 96–02 Own farm

Wage

Selfemploy

1 – low 2 3 – mid 4 5 – high

94% 90% 82% 81% 77%

89% 88% 83% 73% 47%

3% 1% 2% 2% 2%

2% 2% 5% 11% 25%

3% 9% 16% 17% 21%

8% 10% 12% 16% 27%

83% 83% 88% 48% –5%

–3% 5% 14% 38% 55%

21% 12% –1% 13% 49%

Total

85%

76%

2%

9%

13%

15%

14%

47%

39%

Source: Ibid.

Table 7.9 Hiring labour and doing wage work Quintiles of net HH income 1 – low 2 3 – mid 4 5 – high Total

Hires farm labour (%)

Does wage labour (%)

Has self-employment income (%)

1996 12 12 18 24 28

2002 8 9 14 16 36

1996 16 17 20 26 25

2002 5 8 11 21 37

1996 9 22 36 49 61

2002 27 36 38 48 61

19

16

21

17

35

42

Source: Ibid.

cited is making and selling beverages (Walker et al. 2004: 8; Boughton et al. 2006: 21). The TIAs also show that although households headed by women, and especially widows, are not automatically very poor, they are significantly more likely to be, and this group is increasing.11 Children are beneficial to the rural family.Very young children reduce the household income by about 4%, but children aged 5 to 14 give a small increase to household income. Only 15% of rural heads of households have five years or more of schooling; 42% are illiterate. Education is closely correlated with income, probably because better educated people are more likely to obtain better paying off-farm jobs.12
CONCLUSION: Jobs and income away from people’s own farms are playing a key role in rural differentiation.A relatively better-off and better educated upper group now earns more than half its income off the farm (and hires others to work the farm) or is engaged in commercial farming with hired labour, while the poorest are increasingly trapped on farms that do not support them.

(vi) On the ground Four studies done on the ground to look at poverty and development help to interpret the data from the broader national studies.They are from the north and give a picture which corresponds to what we saw in Nampula province in 2006 (Chapter 3). A study in 2005 by the development institute Cruzeiro do Sul of three villages – one The proportion of female-headed households increased sharply between 1996 and 2002, from 14% to 24%; 45% of these women are widows. Of the poorest quintile, 34% of households are female-headed, while in the richest fifth 16% are headed by women. (Walker et al. 2004; Boughton et al. 2006.) 12 The average education of the head of household increased from 1.9 years in 1996 to 2.2 years in 2002, and the four lower quintiles each showed a similar increase of 0.3 years. By contrast, in the best-off fifth the education of the head of household jumped from 2.3 years to 3.4 years. 11

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each in Niassa, Cabo Delgado and Nampula – confirms the broader picture.The most surprising conclusion was that villages with more infrastructure such as roads, schools, and health facilities were not richer than those with less.‘Development strategies based on infrastructure are not sufficient to develop villages,’ it concludes (Cruzeiro de Sul 2006: 43). The study shows the sharp differentiation (assimetrias) within the villages shown in the national income studies. In the three villages, the best-off fifth of the families had more than 60 times the assets of the poorest fifth. In all three, the best-off families regularly sold some agricultural produce and undertook some artisanal production, typically of traditional drinks and sunflower oil.They hired local people to do day labour (ganho-ganho). Finally, they have more links outside the village. The study looked at ‘coping strategies’ – how people deal with risk and crises – and their development implications.The better-off use strategies of ‘self-protection’, while the poorest ‘depend more on social relationships’.The better-off sell animals (goats, pigs, chickens) or make drinks or oil. By contrast, the poorest ‘look to other individuals to solve their problems’.The poor depend on social networks, particularly clan and family. But this, in turn, means that the limited resources of the poor are used for immediate needs and to resolve the problems of people in the social network.Thus, there is ‘no attitude of investment and therefore of getting out of poverty’. By contrast, the better-off also use their coping strategies and contacts outside the village as development strategies. Indeed, the main conclusion of the report is that it is only links outside the community that help the rural family move out of poverty.The poor are caught in a trap; with no assets they cannot take risks and have nothing to invest.The study argues for the use of social protection mechanisms (cash transfers, see Chapter 14) for the most excluded groups as well as the poorer non-excluded groups, to give them more access to resources and to institutions outside the village. This requires active intervention, and not simply building more infrastructure. Studies by Care in Nampula province find similar results.A 2003 survey of 600 households found that only 12% were in peasant associations.The study concluded that: some significant wealth differences exist before they join the group and that the better off tend to join the groups.This accords with qualitative observation and the opinions of the people working with the groups. However the data also suggests that membership of the groups may create further changes, such as adoption of new crops, accumulation of assets and reduction in hunger – positive impacts of the project and group membership.

Furthermore, ‘the stronger associations have attracted investments by outside NGOs’ (Whiteside and Gouveia 2003). Thus the studies underline two of the points that seem to come from national data and from opinion surveys – the very wide stratification in rural areas, and that it is only the relatively better-off who have been able to pull themselves out of poverty. But the Cruzeiro do Sul study also points to a reason and a problem for planners: the very nature of extreme poverty makes it hard to move out of poverty, because what little surplus one has must be shared with others in the group, clan or social network, rather than productively invested. Some additional money would make a big difference for the poorest. Gunilla Åkesson and Virgulino Nhate (2006) studied the impact of electrification in Ribáuè and Iapala in 1997, 2001 and 2006. They see a general improvement over the decade, including a growth in commercial activity, stimulated in part by tobacco (see Chapter 6).The number of maize mills jumped from 14 to 50 in a decade. But of these, only 14 run on electricity, because the mill owners cannot afford the high cost of an electricity connection. In Ribáuè district at the end of 2005, there were 1,005 electricity connections. Of these 80% were domestic, and most were for people with salaries or self-employment income. People with the greatest resources have benefited most from electricity and other changes, because they have the small amounts of money needed to

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make investments. Åkesson and Nhate say ‘social differentiation is increasing’ and one of the biggest problems of rural families is simply lack of cash.‘While the number of necessities that can only be satisfied with money is increasing, the activities which generate cash are few for peasant families.’ Finally, electricity increases the attractiveness of towns and increases differences between town and country. Commercial activity is increasingly concentrated in the towns, in part because rural people do not have cash. In another study of Mecanhelas district in neighbouring Niassa, the two researchers found that development tended to occur in the district centre. Established commercial agents are withdrawing from rural areas, the rural-urban gap is widening, and the poor feel they are getting poorer (Åkesson and Nhate 2005).
CONCLUSION: Substantial differentiation is confirmed.The better-off have more outside connections – through associations, outside the village, and with INGOs – and they use these to increase income.They are also able to use assets as insurance and to obtain cash to invest. By contrast, the poor are more dependent on close social relationships and are unable to accumulate assets, so they slip further into poverty. Growth is increasingly concentrated in the towns.

A first answer to the bicycle question A comparison of the two rural income surveys in 1995–6 and 2001–2 shows some increase in incomes in all regions of the country and for all income strata (Boughton et al. 2006: 15). As table 7,10 shows, bicycle ownership has risen dramatically, as has radio ownership.13 But most households still do not own a biTable 7.10 Rural ownership cycle, a radio, or a goat.There may be more of bicycles and radios radios, but Armando Ali, project official of Different surveys: 1996 2002 the Civil Society Development Facility, said that in a survey in Ribáuè, three-quarters of TIA, rural households owning bicycle 7% 23% the people did not have batteries for their IAF, rural households owning radios. ‘They only buy batteries in the bicycle 14% 32% month when they sell peanuts. They don’t IAF, rural households owning hear the radio the rest of the year.There are radio 24% 42% improvements, but they are small.’ As Table TIA survey, bicycle ownership 7.10 shows, even in the best-off group, most by income quintile households do not own a bicycle. 1996 2002 Is this claimed reduction of poverty by 1 – low 4% 11% more than a fifth in just six years real? In in2 4% 18% terviews, we were repeatedly told both by 3 – mid 7% 23% peasants and by researchers that they did not 4 7% 30% see this dramatic fall in poverty. Chronic 5 – high 12% 33% malnutrition is increasing. The answer apTotal 7% 23% pears to be that people switched from eating Sources: Boughton et al. 2006 maize to eating cheaper and less nutritious from TIAs; Massingarela et al. 2004a cassava, which in the statistics made them less poor, but also increased malnutrition. The big drop is poverty is not real. One study of rural incomes concluded:‘Our income estimates are very low, so low in fact that the vast majority of households appear to fall below any reasonable poverty line’ (Walker et al. 2004: 36). This is a good example of the large errors in Mozambican data, with the IAF showing many more households with bicycles than the TIA.

13

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What this chapter shows is that there is a huge increase in rural differentiation.14 The better-off 10–20%, although still relatively poor, are improving their economic status rapidly. Through jobs, education and improved access to people and resources, they are able to make good use of the new free market system, electrification, mobile telephones, and improvements in roads.The poorest 50–60% are becoming worse-off, with less income and fewer jobs, and more tied to unproductive farms.A middle group of perhaps 30% is struggling to keep its head above water, pushed below the poverty line by sickness or a poor harvest, or pulled above it by a few days extra paid labour. The biggest changes seem to have been in the market towns and district capitals. Most now have electricity and mobile telephones, and roads are being improved. In many of these towns there is economic growth, with better health facilities and secondary schools. These towns are potential development poles. But the rural areas are stagnating, and the gap between town and village is widening rapidly.The young and more dynamic are moving to the towns, and often not finding work. Returning to the bicycle test and Felito Julião, shown carrying sugar cane on the cover of this book and in Chapter 1, we see that he is typical of the struggling rural group. Earning more than $1 a day, he is doing relatively well. This is self-employment middle income, it is non-resource-based, he has a bicycle, and he has above-average education. But it is very fragile; in good times his family may be above the poverty line, but that income depends on Julião and his bicycle. If he becomes ill or a key part of the bicycle breaks or the competition from other sugar carriers pushes the price down, then his family will quickly fall below the poverty line. Now we can offer a preliminary answer to the question in the title of this book.Yes, there are more bicycles.Yes, there has been economic development for a small group who are better-off. But there has not been enough development, and the majority are getting poorer. Instead of a rising tide lifting everyone out of poverty, only a specific group who are already better-off have gained. In 2002 useable aid to Mozambique was $900 m. (see Appendix and Chapter 2), which was $50 per person – the same level as the average rural income in that year, namely $52 per person, including self-produced food, or cash of just $31 (Table 7.7).Although $1 per person per week is not much aid for one of the poorest countries in the world,15 an effective doubling of income should have had more impact on reducing the poverty of the rural majority. After a decade of post-war aid, something is wrong when most rural people receive an income smaller than the aid per capita, and their income is falling as aid is rising.This suggests a need for a different development strategy, which we shall take up in Part III of this book.Any new strategy must recognise that agriculture has, so far, not been a way out of poverty; increasing incomes of the bulk of the poor must come through increasing agricultural productivity for all. First, any new strategy must recognise the need to raise the productivity of subsistence farming, which feeds the bulk of the increasingly impoverished majority. Second, people’s intuitive response that they are better-off with jobs than as farmers seems to be accurate. The poorest farmers probably are better-off doing ganho-ganho for bigger peasant farmers, even at below the minimum wage, than trying to produce cash crops themselves.This requires a new emphasis on rural job creation. Many of these jobs must be in farming, which means promoting commercial agriculture, including peasant associations and farmerThere was much less national variation in 2002 than in 1996, so that the differences within provinces are much greater than those between provinces, showing the stratification that is taking place.Tete is particularly striking. In 1996 it was probably the poorest province: 41% of Tete farmers were in the bottom fifth nationally and only 3% were in the top fifth. But Tete had by far the largest jump in income, because of tobacco (see Chapter 6), and in 2002 only 18% of farmers were in the bottom fifth and 35% in the top fifth. Nampula was probably the richest province but it was the only one where the rural income fell; from having the highest mean income in 1996 it had the lowest in 2002. 15 In 1996, transitional aid to Ireland as part of joining the European Union, was $11 per person per week, or 11 times the present aid to Mozambique (Hanlon 1996: 157). 14

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owned cooperatives such as Ikuru (see Chapter 3) and larger commercial farms run by better-off peasants. Finally, we need to ask a question that, so far, we have not been allowed to ask: would it be better simply to give money, as a cash transfer or basic income grant, to the poorest peasants? This would allow them to buy modern agricultural inputs and increase subsistence production, and also spend money on local items to stimulate the rural economy. Would this be a better way to use aid money to support the poorest of the poor?

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Is there development in Mozambique? Most Mozambicans are still desperately poor, and raising incomes is the most important developmental objective. But in this chapter we want to look beyond cash, at wider issues of poverty and development, and how Mozambicans are doing against those standards. First, we consider two approaches, one based on rights and the other on children and the Millennium Development Goals (MDGs). Next, we look more broadly at development as a process of change. That leads to considerations of social services such as health, education and water supply, and to questions about power and the extent to which Mozambicans are taking control of their own development process. The Universal Declaration of Human Rights, adopted by the United Nations on 10 December 1948, includes the basic freedoms: ‘the right to freedom of opinion and expression’ (Art. 19); ‘the right to freedom of peaceful assembly and association’ (Art. 20); ‘the right to take part in the government of the country, directly or through freely chosen representatives; the right of equal access to public services; and the will of the people to be the basis of the authority of government … expressed in periodic and genuine elections which shall be by universal and equal suffrage and shall be held by secret vote or by equivalent free voting procedures’ (Art. 21).The Declaration also has some important developmental provisions: • ‘Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control. Motherhood and childhood are entitled to special care and assistance.’ (Art. 25) • ‘Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory.Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.’ (Art. 26) • ‘Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.’ (Art. 23) The Declaration may be 60 years old, but it provides a set of minimum standards that all countries agree to. It is quoted here for two reasons. First, we can define ‘poverty’ quite simply as the denial of these economic and social rights. Second, all the main donor countries voted in favour of the Declaration, which means they are committed to it. In the past decade there has been an increasing stress on a ‘rights-based approach’ to aid, arguing that, in an era of globalisation and unprecedented global inequalities, the development

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provisions are increasingly the shared responsibility of the rich nations and of Mozambique (see Maxwell 1999). The basic freedoms are the responsibility of the Mozambican government, and it can be argued that these requirements are largely, albeit imperfectly, being met. But the three development provisions – standard of living, education, right to work – are not, and every survey puts them at the top of the demands of Mozambicans themselves.Those who take a rights-based approach say that, as long as Mozambicans do not enjoy their basic economic and social rights, it is the rich countries which are not meeting their commitment to the Declaration and are violating the rights of Mozambicans. In 15 years, the donors have given Mozambique $11 bn, which they argue is a large amount of money; however, it is only equivalent to the cost of three weeks of the Iraq war. Is the international community prepared to back up its 1948 commitment? UNICEF’s 2006 report Childhood Poverty in Mozambique (Dupraz et al. 2006) warns that Mozambique is not making progress toward those universal rights. ‘There was no substantive change in the nutritional status of children, childbirth care showed little improvement and all household surveys since 2000 show no increase in the use of safe water and sanitation. In 2003, 49 per cent of children under five years of age experienced severe water deprivation, while 47 per cent experienced severe sanitation deprivation.’ The Millennium Development Goals for 2015 were a more limited version of the universal rights, but the Unicef report says Mozambique will fail to meet five of the key ones: to halve the proportion of people suffering from hunger; to ensure that all children complete a full course of primary education; to eliminate gender disparity in education; to halt and begin to reverse the spread of HIV/AIDS; and to halve the proportion of people without access to safe drinking water and sanitation. Ending poverty and meeting the MDGs is largely about resources. If the rich nations are to meet their responsibilities under the Universal Declaration of Human Rights, they will need to provide substantially more money to Mozambique and other poor countries.

What is development? President Armando Guebuza talks about ‘defeating absolute poverty’, which means meeting basic human rights and the MDGs. But we usually talk about a much broader concept, loosely called ‘development’, which is a social and political process and is both about how one ends poverty and about how to move beyond the basic benchmark. Robert Chambers is perhaps best known for defining development as ‘good change’. We like this definition for two reasons: first, its stress on change; second the recognition that ‘good’ is subjective, political, and varies over time. It is too easy for governments – not just donor governments but also the Mozambican government – to try to define what is ‘good’ for people.To be sure, for people trapped in the deep pit of poverty it is often hard to see over the edge and understand alternative possibilities, but successful change will never be imposed on people. One of the fundamental ‘governance’ problems is that aid workers are in Mozambique for only two years and the Mozambican government is elected for five years; they want change within their tenure, yet, as we are seeing elsewhere in this book, developmental change often takes longer than that.There is a danger that the powerful in Maputo – ministers and advisers to President Guebuza as well as senior officials in embassies, aid offices and the Bretton Woods institutions – are so anxious to ‘develop’ Mozambique on their watch that they feel they do not have time to look and listen. Clichés become shorthand for policies. In defining what is ‘good’, Chambers (2004) notes,‘the realities of the powerful tend to dominate’.This has become more serious in recent years because ‘the polarisation of power and wealth in the world has become even more extreme’.This leads him to stress the need ‘to recognise power and relationships as central issues’, and also points to ‘new lines of

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thinking: to complement rights of the poorer and weaker with obligations of the richer and more powerful, worldwide and between all levels’. His injunction to the more powerful trying to develop the less powerful is important:‘they can do it (i.e. have confidence that people are capable)’. Chambers’ definition of development as ‘good change’ is a fine starting point and others have tried to build on it.The journal Development defines itself as ‘committed to the search for alternative paths of social transformation towards a more sustainable and just world’.We do not have the answers, but we are writing this book to put some alternatives on the table, and to question the ‘development’ strategies proposed by the rich and powerful. Alan Thomas (2006) points out that packed into the Chambers definition are many ideas. ‘Good’ assumes some vision or idea of what would be better. ‘Change’ is about process and can be either natural or deliberate. This leads him to define three very different senses of development:‘a vision, description or measure of the state of being of a desirable society’; ‘an historical process of social change in which societies are transformed over long periods’; and ‘deliberate efforts aimed at improvement on the part of various agencies, including governments, all kinds of organisations and social movements’. Too often, development is seen as only the third sense, and as something done by outsiders. Sometimes it is seen as linked to the second, in that ‘development’ is about cleaning up the messes left by historical processes like colonialism and globalisation, but it is still done by outsiders in a hurry. There is a huge literature showing that imposed development fails.The BWIs cannot successfully impose development on poor governments, and neither African governments nor aid workers can impose development on poor people. People develop themselves, and they must believe that they have the power to do it, and that life can be better for them and their children. Many Mozambicans do believe this, as is shown by the desperate quest for education and the constant demand by peasants for fertiliser, improved seeds and better ways of doing things.The issue, then, is how to give the poor more power over their own development. In the previous chapter we tried to show that, however the figures are looked at, Mozambique and its financiers are failing to overcome absolute poverty; they are not satisfying the human rights of the citizens or meeting the more limited MDGs. In this chapter we look more closely at the social side of poverty and at genuine gains in health, education and infrastructure which are reducing poverty, but also at the compromises which have been made and the challenges which remain.We then look more broadly at development, arguing that decentralisation is the beginning of a shift in power, which helps people develop a vision of a better society and take more control of the process of achieving it.

Education, health, infrastructure After independence, Frelimo correctly saw access to basic services as a key poverty reduction measure, and it put great stress on expanding education and health, including literacy campaigns and a record-breaking vaccination programme. When we talked to Mozambicans in the early 1980s, it was health and education which made Frelimo popular, despite the failures of economic policy. So it was not surprising, that during the war, Renamo targeted schools and health posts for attack, trying to undermine the support base of the government; 3,498 primary schools and 500 health units were destroyed or closed.After the war, reconstruction was a priority, although the IMF initially capped aid in the belief that reconstruction would be inflationary, and also pushed the salaries of teachers and nurses below the poverty line (see, for example, Hanlon 1996). It was the late 1990s before the cap was partially lifted. In 1998 the number of primary schools finally returned to the pre-war level but the number of health posts and centres has never done

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so.1 This reflects different choices made as each sector decided how to allocate scarce resources. Education pushed for expansion even with poorer teaching quality, while health tried to improve quality of care even if much of the population remained outside the system. In interviews in Nampula, one thing highlighted was the rapid expansion of schools, but this was often contrasted with the lack of water and the closed shops and the failure to expand health services. Tripling the number of children in school The number of children in school remained constant at around 1.4 million during the war, and rose only slowly afterwards due to funding constraints. From 1997, however, it increased dramatically, passing 2.4 million in 1998 and hitting 4.1 million in 2005 – three times the number of students at the end of the war.Table 8.1 gives more details.The Ministry of Education and Culture estimates that nearly all 10-year-old boys are in school. Two-thirds of all boys and half of all girls complete the first five years of primary school. There is a long way to go, but the change has been dramatic in just a decade. It is probably the most popular thing the government has done in the past 16 years and shows just what can be done with money and will. But the rapid expansion of education has not come without problems.At all levels, the number of pupils packed into classrooms has increased. In 2005 there were 74 pupils for each primary teacher, compared with 61 seven years before; even in the final two years of secondary school there are 30 pupils for each teacher, up from 24.Weak teachers and large classes mean the quality of education is poor, with low completion rates. Only 10% of pupils get through the 5 years of primary school on time, with more than half dropping out and the others repeating classes. By 2005, 27% of girls and 40% of boys were able to complete all seven years of primary school. But Mozambique will not meet the MDG of universal primary education, or that of gender equality in education, except for the first cycle of primary education. Just 2% of boys and 1% of girls complete secondary school. Even this is three times the rate of 1998, but expanding secondary education to respond to the larger numbers with primary education remains a mammoth task. The challenges and contradictions are huge. Education is largely funded by donors, who set overall policy, and this has been an issue in three overlapping areas. First, during the 1990s the World Bank put all the emphasis on basic primary education, arguing that giving large numbers of people a basic education was relatively cheap and had the best costbenefit ratio. Other donors followed this lead.The MDGs increase this emphasis; PARPA II calls for universal primary education but does not even have targets for secondary education. The result was a shift in funding away from secondary schools and universities. It proved to be a narrow and short-sighted policy. Just when emphasis was increasing on the ‘knowledge economy’ and the need for higher-level skills to compete in a globalised world, and when expansion of primary education was demanding more trained teachers, there were tight restrictions on secondary and university training throughout Africa. Second, the IMF imposed salary caps on African countries which meant that Mozambique was, in effect, barred from hiring enough teachers.An implicit choice was made to use the available money to hire classroom teachers rather than to extend teacher training. But it meant that young people with a relatively poor primary education were thrown into the classroom, often without further training, to teach others.The cap was finally lifted in 2007. In April 2007, Education Minister Aires Aly said he needed an extra $100 m, a year to meet the MDGs. For 2007, the Ministry needed to hire 12,000 new teachers, but the budget allowed only 9000 to be hired. Education officials say that with a larger budget, an extra 300,000 children could have gone to school (Notícias, 15 January, 23 March, 5 April Informação Estatística 1975–84, Direcção Nacional de Estatística; Anuário Estatístico 2000 and 2004, Instituto Nacional de Estatística. 1

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2007). The lack of school places triggers press coverage each January, with parents queuing all night outside schools to register EP1 EP2 ES1 ES2 ET-P their children, and complaints of school staff 1998 1,876,154 168,777 53,693 7,352 18,090 selling places or giving them preferentially to friends. Fees for primary school were for2005 3,393,677 452,888 210,128 25,737 25,000 mally abolished in 2005, but some schools still charge a registration fee (Notícias, 5 Apr % girls 2007) which, while small (3–5 MT, about EP1 EP2 ES1 ES2 ET-P 20¢ or 10p) may still exclude the poorest 1998 42 41 42 41 28 families and serve to ration places. 2005 46 41 42 40 31 In 2005 nearly 12,000 teachers were being Pupils completing school trained, but this is not enough to meet the EP1 EP2 ES1 ES2 needs of expansion and filling the places caused by 2,000 teachers a year dying of 1998 105,672 41,199 5,389 1,558 AIDS.2 Aly admitted in 2005 that teacher 2005 240,506 143,763 23,918 5,626 training institutions could not keep up, and % of those completing on time in 2004 untrained teachers were increasingly being EP1 EP2 ES1 ES2 used. In 2005, 41% of primary and 33% of all 10 39 17 24 secondary teachers had received no educagirls 10 39 15 21 tional training.3 One response to this was to % of children completing cut the length of teacher training; starting in 2007, teacher training was cut from three EP1 EP2 ES1 ES2 1998 24 10 1.5 0.5 years to one. Primary teachers need to have 2005 58 34 7.4 1.4 finished 10th class (first-level secondary) and teachers for first-level secondary must finPupils per teacher ish 12th class (second-level secondary) before EP1 EP2 ES1 ES2 starting the year course (Notícias 22 June 1998 61 39 31 24 2006). In part, this reflects the fourfold 2005 74 41 42 30 increase in lower secondary graduates; % female teachers primary teachers previously only needed to EP1 EP2 ES1 ES2 complete primary school and were given three years of teacher training. But it still 1998 24 18 14 20 2005 31 23 17 18 means that, to maintain the momentum of education expansion, a third of all lower Teacher training students secondary graduates must eventually beStudents % girls come teachers. Perhaps a sixth will get 1998 4,655 53 through upper secondary and on to univer2005 11,833 54 sities. The remaining half is all that are left EP1 = 1st level primary education, classes 1–5 for an economy supposedly hungry for EP2 = 2nd level primary education, classes 6,7 educated people. ES1 = 1st level secondary education, classes 8–10 ES2 = 2nd level secondary education, classes 11,12 However, the job market has not expanded. ET-P = technical and professional education at all levels The tens of thousands who graduate from Source: Data from Ministry of Education and Culture. primary school think of themselves as educated – and they are, compared with their parents – which means that they do not want to go back to hoe farming. Many drift into the towns and cities looking for work, and survive on the margin through day labour, odd jobs and petty crime.‘There is no future there. They can’t get jobs or improve their skills and they become frustrated,’ explained Dr Quitéria Mabote, then National Director of Technical, Professional and Vocational Education. There is even a shortage of jobs for secondary and university graduates, she notes. Table 8.1 Doubling pupil numbers in 8 years Pupils in school

AIDS figure from Health Minister Ivo Garrido,AIM, 19 October 2005,‘Health Minister Gives Latest AIDS Figures’; other statistics in this section from Ministry of Education and Culture. AIM, 4 October 2005,‘Mozambique not training enough teachers’

2 3

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‘About 80% of secondary school graduates and 40% of youth with university training in the capital are unemployed,’ claims the city official (vereador) for youth in Maputo, João Matohombe (Canal de Moçambique, 12 Jan. 2007). Since the increasing number of graduates means that they no longer automatically get a job, they need new attitudes and new versatility ‘They need to be flexible,’ Mabote says. This has led to a rethinking of the curriculum. ‘Schools only prepare people for more school,’ she admits.Yet more than half of those who leave primary and lower secondary schools will not find a place at the next level.‘We need to teach people how to earn a living’ instead of only looking to university or government jobs. The primary curriculum has been shifted to be more practical and useful, teaching some agricultural and very basic economic skills.This might, for example, allow rural primary-school graduates to grow cash crops and earn more money than their parents.‘It is only starting,’ Mabote says, and she stresses that ‘we need to inculcate the vision in children that, after school, I can do something, that I can be economically independent.’ Technical education has special standing in the Declaration of Human Rights, cited above. It says, in particular, that ‘technical and professional education shall be made generally available’. Mabote looks at it from the other end:‘technicians are the motor of the economy – the people who do things.’And a study showed that technical and professional education was very effective – training a basic level technician (secondary school level) cost only $741, while the cost of a technician trained at a post-secondary institute was $2491. Graduates nearly all obtained jobs or went on to further education.4 The Ministry of Education would like to put the emphasis on lower levels and on agriculture. But the World Bank, which dominates the formulation of education policy, prefers to stress post-secondary (institute) level and non-agricultural training. Nevertheless, with help from smaller donors and NGOs, the ministry has now opened 15 of what it calls ‘rural professional schools’, which give two or three years practical training after primary school. ‘We have to teach rural youth that the countryside is the solution to their problems, not the cities. But that means providing resources and useful skills,’ Mabote says. Health – raising quality The health budget more than doubled between 2001 and 2005, to $356 m.The government budget provides only one-third of health spending, while donors provide the rest, including substantial amounts in special funds, particularly for HIV/AIDS, not controlled by the government.A 2006 study showed that lack of donor coordination meant the Ministry of Health having to cope with different donor reporting demands, and both donors and the government having trouble responding to the problems identified in an excessive number of sectoral studies (Martinez 2006). Whereas the government’s five-year programme for education starts with ‘expand the opportunities for access to education’, the plan for health starts with ‘improve the quality of care’ (Conselho de Ministros 2005a: 50, 71). Thus, while education opted for rapid expansion at the cost of quality, the health sector took the opposite approach. The team working on the 2000–4 health plan were told explicitly that, because of the IMF caps on salaries and spending, the plan could not include any expansion of coverage. PARPA II notes that only 36% of the population is within a half-hour of a health facility.The PARPA II goal is to raise this to 45% (Republica de Mozambique 2006b: 103). In the five years 2000 to 2004, the number of health workers increased from 16,000 to 20,000, 300 rural health posts were upgraded to health centres, and new hospitals have been built. But there have been few new rural health units.The stress on raising standards of care rather than expansion of services is definitely popular with the more vocal urban population, who have complained about poor treatment and long waits. However, the poorer and more remote are worst affected. For many people, health care is a higher 4 ‘Estudo de Custos e Eficácia Externa do Ensino Técnico-Profissional em Moçambique’,Austral Consultoria e Projectos, Maputo, 2003.

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priority than education, and many rural people are making a comparison between the two sectors. A National Strategy for Maternal Mortality was introduced, involving better access to health facilities and antenatal care. UNICEF reports that coverage of antenatal care has improved significantly, but that childbirth care shows little improvement.Thus there has been improvement, but not enough. The maternal mortality rate dropped from 1000 per 100,000 live birth in the early 1990s to 408 per 100,000 in 2003.This is still frighteningly high; since most women have more than five children, it means that 2% will die in childbirth, but this is down from 5% a decade earlier.The proportion of one-year-old children fully immunised against the six main vaccine-preventable diseases has increased from 47% in 1997 to 63% in 2003, and the infant (under 3) mortality rate has fallen, from 15% in 1997 to 10% in 2003. But the main killer remains malaria.5 In the late 1970s Mozambique’s rapid expansion of health coverage and its stress on primary health care were effective, popular, and won high praise internationally (Hanlon 1984: 55–71).The post-war period has seen a steady drift away from preventative and primary health care towards an emphasis on curative and health centre- and hospital-based care. Even the training of doctors was changed to return to a more traditional Portuguesestyle curriculum. Donors have become increasingly critical and outspoken. Unicef, in particular, attacked the trend towards more spending on urban and hospital-based care, which means the focus is ‘on less cost-effective curative care, rather than more wide-reaching preventive care’. Mozambique now spends a higher proportion of its health budget on hospitals than do neighbouring countries. And UNICEF warns of ‘the overall poor quality of the primary health care services in Mozambique and … the urgent need for training of mid-level and basic staff ’ (Dupraz et al. 2006: 80, 120). Surgeon Ivo Garrido was appointed Health Minister in 2005. Following the model of Samora Machel, he swept into hospitals unannounced, with the media in tow, and publicly criticised laziness and poor care. He put resources into simple improvements like paint and new furniture, but there were also improvements in hospital and health-centre care, with queues cut and a more patient-centred focus. He won praise from the media, public and party; at the November 2006 Frelimo Congress, he was elected to the party’s Verification Commission. But his autocratic manner and failure to listen to technical advice, his centralisation of all decisions in his office, and his decision to end the salary top-ups that had retained many skilled technicians, led to a drift of skilled and committed staff out of the ministry. In April 2007 the European Commission delegate, Glauco Calzuola, said: ‘[donors] have become preoccupied with the lack of qualified and motivated staff with health professionals abandoning their jobs due to low salaries and poor working conditions’ (Canal de Moçambique, 6 April 2007). HIV/AIDS has become the number one health problem. Mozambique was slow to respond to the rapid spread of AIDS in the early 1990s, from Zimbabwean soldiers guarding the Beira corridor during the war, from refugees returning from neighbouring countries, and from miners and other workers returning from South Africa. It is estimated that 17% of Mozambicans aged between 15 and 49 are HIV positive; 140,000 people a year are dying of AIDS.6 Among health workers, who should know better, 1500 a year are dying. Health Minister Garrido warned that ‘our training capacity is slower than the pace of deaths’.7 In 2004 there were 1.4 million HIV-positive Mozambicans – 80,000 children, 570,000 adult men, and 800,000 adult women.There were thought to have been 109,000 new HIV infections in 2004, of which 34,000 were in girls under the age of 20. Minister of Women’s Affairs and Social Welfare, Virgilia Matabele, warned that the number of children who have lost one or both parents to AIDS will rise to 600,000 by 2010.8 PARPA II; Unicef Report on the MDGs 2005; Dupraz et al. 2006; Anuário Estatístico 2004. Conselho de Ministros,‘Plano Económico e Social para 2006’, 30 Sept. 2005. AIM, 19 October 2005,‘Health Minister Gives Latest AIDS Figures’. 8 AIM 10 November 2005,‘More than 600,000 AIDS orphans by 2010’. 5 6 7

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Antiretroviral (ARV) treatment began in 2001, but in only a small way, because of the cost of brand-name drugs. But in 2002, with the advent of much cheaper generic ARVs manufactured in India and Brazil, plus donor support, the national health service began to roll out ARV treatment.9 By the end of 2006, 44,000 people were on ARVs. But this was less than the PARPA II target of 58,000, and fewer than one-quarter of those who could benefit. Donors have been critical of the slow progress. Under donor pressure, a joint aidememoire of donors and government released on 14 September 2006 accepted that ‘the national response continues to not be proportionate to the magnitude of the HIV/AIDS pandemic’, that there has been ‘sluggishness in the process of providing adequate infrastructure and training personnel’, and that the response to HIV/AIDS requires a ‘significant acceleration’. An issue repeatedly raised by the donor community is prevention of mother to child HIV transmission.This can be sharply reduced by single doses of ARVs, but it has never been a Ministry of Health priority.The National AIDS Council (CNCS, O Conselho Nacional de Combate do Sida) estimated that in 2006 there were 220,000 HIV positive pregnant women, of whom only 8% received ARVs, and that 30,000 children were born HIV positive. AIDS is not just a health issue; it directly impacts on social and economic development. Those dying from AIDS are productive adults and their illness and death have a huge impact on poor families living on the margin. Businesses and government services also have to deal with the death of young trained people. Infrastructure Physical infrastructure is essential to development. It has been argued that Africa’s lack of infrastructure has delayed economic development, and that the much higher population density of Asia made it cheaper to build the necessary roads. But Latin America and Europe have a similar population density to Africa, so it should be possible. Mozambique’s entire road network is only 29,000 km, and many parts of the country remain inaccessible, especially in the rainy season. The war caused huge damage, and in 1996 half the network was considered either in bad condition or completely impassable. In 2001 the government admitted it could only maintain half of it. By 2006, however, roads were much better (see Table 8.2) and it was maintaining and upgrading nearly 20,000 km.10 The electricity grid is being expanded rapidly, as more cities and towns are linked to the Cahora Bassa dam (which Mozambique finally bought from Portugal in 2007).Transmission lines reached Pemba and Lichinga in the north in 2005, but EDM (Electricidade de Moçambique) had only 338,597 customers.This increased by 22% in 2005 but electricity sales only went up by 10%, which indicates the poverty of many of the new customers. In 2006 the electricity grid had only reached 59 of the 128 district towns, but the goal is to wire in 101 by 2010 (Notícias, 5 April 2007). PARPA II calls for diesel generators in the remaining district towns and in all administrative posts not on the grid. Mobile telephones have been one of the biggest changes. Intense competition between the one state operator and one private operator has led the network to be expanded so that all the main cities and two-thirds of the districts (mainly district capitals and transport corTable 8.2 Quality of roads Bad or impassable Good or reasonable (>40 km/h possible)

1996

2001

2006

50% 28%

29% 52%

no data 75%

Source: Data from Anuário Estatística 1997 & 2001; Republica de Moçambique 2006b; 15-22; 2005c. 9

AIM 20 October 2005,‘Health Minister Defends Record of AIDS Treatment’. Anuário Estatístico 1997 & 2001; Republica de Moçambique 2006b; 15-22; 2005c.

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ridors) have some access. In 2005 there were 1.5 million mobile telephone users, while the number of fixed line telephones had fallen from 90,000 in 2001 to 70,000 in 2005.11 Nevertheless, infrastructure remains a critical issue in district towns. In March and April 2007 the new Public Service Commission (ANPF, Autoridade Nacional da Função Pública) attempted to register all civil servants, including teachers and health workers, both to eliminate ‘ghost workers’ and to identify the large number of government workers not properly part of the civil service, as well as to determine details of qualifications etc. to set up a proper promotions system.The exercise involved a sophisticated computer data base and was to take place in the 128 district capitals and 23 cities. But ANPF soon found that 50 district capitals did not have stable enough electricity and telecommunications supplies to do a computer-based registration; tens of thousands of civil servants had to travel hundreds of kilometres to the nearest town that was plugged in (Notícias, 2 and 7 April 2007). Water remains a problem. UNICEF notes that household surveys show that only 36% of the population use a safe drinking water source – 66% in urban areas but only 23% in rural areas – and this is not changing (Dupraz et al. 2006: 113). The target for 2006 was to build 705 new rural wells and boreholes and rehabilitate 625 others, which only keeps up with the rising population. Health Minister Garrido stated that, in some provinces, 70% of the children were infested with intestinal parasites, because most people drank poor quality water and lacked decent sanitation.12 The lack of water supplies also means that many hours are spent, mostly by women and girls, carrying water over long distances; this is time which would be better spent in school or growing more food.The National Water Directorate estimates that 30% of the water supply facilities constructed in recent years are non-operational, due to inadequate maintenance, lack of spare parts, and the failure to create a local demand, both through lack of health education and often by the provision of poor service (Dupraz et al. 2006: 120). The PARPA II target is only 1000 new rural water sources a year, and 800 rehabilitated. Mozambique still pursues a ‘cost-recovery’ strategy in water, which makes it harder to supply the poorest people; water is the only basic need where the government follows this policy. Mozambique will not meet the MDG for halving the share of people without access to safe water and sanitation.

Decentralisation – chaotic but real We opened this chapter by noting the importance both of a local vision of development and of local ownership of the change process. Chambers points to the centrality of power. Genuine development involves a shift in power, to communities and local people who can develop their own vision of a better future and who have the resources to move towards it. Decentralisation is the most important shift in power and in creating the context in which local people make development choices and work towards a development vision. Decentralisation has been going on for a decade, and it was accelerated by President Armando Guebuza’s push to make the district the focus of development. The process has been chaotic, confused and contested, but it is real. Few people give up power willingly.The Maputo-based elite – donors, ministers, Frelimo party officials, and civil servants – are reluctant to cede power over policy and resources. This is reproduced at provincial and local level, down to NGO workers and agricultural extensionists who want to tell peasants what to do.There is also a remarkable paternalism within Frelimo. And both donors and government officials often argue that people in the districts are not trained or experienced enough to be trusted with money, so Maputo must keep tight control. Anuário Estatístico 2006; note that 97% of mobile phones are pre-pay, which means many of the 1.5 million mobile users listed will not have been active. AIM 5 April 2007 ‘High Levels of Intestinal Parasitic Diseases’.

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Feminist writers have come to a much more nuanced model of power, which is useful here. Jo Rowlands describes three kinds of power: power over, namely, power as domination – a zero-sum game with winners and losers; power to, where leadership helps people achieve their goals; and power with, achieved through collective action to tackle problems.13 The power of the ministers, donors, NGO workers and district administrators has always been seen as ‘power over’, yet a growing number of Mozambicans (and a few donors) have come slowly and inconsistently to realise that it is not a zero-sum game. For those who are genuinely developmental in their outlook, using ‘power to’ to promote ‘power with’ at local level is a good end in itself; it promotes Chambers’ good change. But others have come to recognise that if the people under you prosper, your status as a ‘big man’ is actually enhanced.And even some of the corrupt have realised that economic development creates a bigger pie from which to extract a share. Perhaps most importantly, key people in the party, and especially Guebuza himself, have come to understand that a mix of ‘power over’ and ‘power to’ actually increases the overall standing and power of Frelimo; this fits with Frelimo’s general approach of trying to bring its critics and opponents into the party and onto the same side (see Chapter 9). The colonial fascist state and then the one-party socialist state both had vertical systems with rigid hierarchies, operating purely with power over. Lack of experience combined with limited education makes many people in the party and state nervous about taking initiatives; it is much easier to carry out ‘orientations’ from above and keep their heads down. In any large organisation, some people try to figure out what they think their bosses want and do it first – the more Frelimo than Frelimo syndrome – which often leads to misinterpretations and excesses. Orientations become garbled as they are passed down the chain, to the point where an official who cannot make sense of the now distorted instruction still gives it as an order. A new generation of district administrators and other civil servants now want to lead and empower.They do not simply parrot orientations, but attempt to apply central government frameworks in ways that work best locally and empower local people. Civil servants can play a surprisingly important role; for example, a friend mentioned the people in the land registration office in Quelimane who saw it as their job to make it easy for peasants to register land, rather than as having precisely correct forms. Indeed, a key conclusion of our research is that individuals with new attitudes matter more than we often admit.There is a huge variation, for example, between district administrators.Those who understand ‘power to’ and ‘power with’ need to be identified, supported and promoted. There have been three separate moves to decentralise: elected municipal governments; increased power for districts, linked to local consultative councils and a 7 million MT local grant; and a range of special purpose councils for spending the local share of hunting and logging revenues and overseeing schools and community police. All have decisionmaking power. Although the use of that power has been variable, decentralisation has moved it downward. Perhaps most importantly, having power locally has led communities to think about development and begin to create their own visions. Elected municipalities with power over money The 23 cities, plus one town (vila) in each province, have substantial autonomy under a new system created in 1998.They control local services and have authority to set up municipal businesses, take over local water and electricity supply, and negotiate directly with donors over social and economic development projects (Hanlon 1997). The municipal government is a replica of the national government, with an elected mayor (president) who names local ‘ministers’ called vereadores, and an elected assembly. In a further bit of de13 El-Bushra (2006), citing Jo Rowlands, Questioning Empowerment:Working with Women in Honduras, Oxford: Oxfam, 1997.

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centralisation, local citizens’ groups can present election lists; at national elections, lists can only come from registered political parties. Most (but definitely not all) elected municipal governments have been better than the previous appointed ones, because they have paid more attention to local issues – markets, roads, rubbish collection. Simply hiring a few gardeners and planting flowers in previously abandoned local parks changes the whole ambience. Local political pressure in many cities has been on two issues which are formally of national competence: building mortuaries with proper refrigeration (allowing funerals to be delayed for family to return home, which is socially very important) and building extra classrooms. In both cases, local and provincial officials have negotiated, often just informally, so that the mortuary is built on the hospital grounds, and that new schools or classrooms will actually have teachers once they are built. Most striking has been the way successful municipalities have genuinely empowered local people, who come to take an active role. We visited a large market in Maxixe, Inhambane, which was well organised and spotlessly clean – not even a scrap of paper on the ground. Each market commission elects one person paid by the municipality, to work closely with the vereador for markets, and resolve local problems.This market had done a major reorganisation creating straighter and wider aisles between stalls (which were still made of wood and other local materials), had stopped the sale of alcoholic drinks and had built a toilet. A woman in Chibuto told us how tiny actions can make a difference.‘Bananas are very common here and there were banana skins all over the street. So the municipal council set up drums as litter bins, which they empty regularly and now people throw the banana skins in the drums.’ The old appointed council could have done the same thing, but it didn’t.‘The old council was bureaucratic and centralised; it never listened to us,’ said Francisco Mandlante, vice president of Chibuto assembly. It saw its responsibility as upwards, to central government, so ‘we, too, saw the city as the responsibility of the government.An elected council transformed the mentality of the people.We have money and we decide how to spend it.We have assumed responsibility for our city’ (Hanlon et al. 2001). Renamo boycotted the first local elections in 1998, and did not take the second elections in 2003 seriously, winning control over only four municipalities (but including the third and fifth largest cities, Beira and Nacala).There have been conflicts in these four between Renamo local administrations and the Frelimo central government, but the Renamo mayor in Beira, Daviz Simango, has made visible improvements compared with the previous Frelimo administration. And yet, banana skins and contested elections can only be a first step. Equally striking is the fact that the municipalities have not begun to use their power.The municipal legislation assumes that the mayor, council and assembly will be a driving force for development, not just by creating conditions and mobilising popular involvement, but by taking an active economic role, creating municipal businesses and going into partnership with private business, and working actively with donor agencies. So far, this is not happening. A long history of rigid hierarchies and ‘power over’ means that even elected mayors feel they are only allowed to do what they have specifically been told they can do, by state or party, despite the huge space created by the legislation.Also, few officials have travelled and seen other ways of doing things, so it is hard to imagine alternative possibilities. Donors and the World Bank bring in hosts of foreign consultants to study the municipalities, but mayors, vereadores and assembly members are rarely sent to Brazil or Ghana to see how local government works there. Shifting power to the districts Ribáuè is only 138 km from Nampula, but it takes four hours to drive there.This is the main east-west road in the north of Mozambique, but it is narrow and deeply rutted. Just west of Ribáuè town, however, the road to Iapala is wide and smooth and it is possible to

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drive at 100 km/hr. Both are dirt roads, so what is the difference? The poorly maintained main road from Nampula is the responsibility of the corruption-plagued National Roads Administration (ANE) and work is done by big contractors.The road to Iapala is classified as a local road, so it is the responsibility of Ribáuè district. Using labour-intensive methods and hiring local people, a small local contractor repaired it well and now maintains it.As well as being a good road, this provides vital local jobs.And, most importantly, it shows that decentralisation works. Although one-quarter of Mozambique’s population live in the 33 municipalities with elected governments,14 the rest live in districts with appointed governors and district administrators. Starting in 1998, the year of the first municipal elections, the government also began a pilot project in Nampula province for decentralisation and local planning in the districts. Initially promoted by UNDP, the project triggered substantial suspicion. Many in government saw it as taking power away from the central government, and some saw it as pro-Renamo. Some donors saw it as supporting government rather than NGOs, and others saw it as competition with the newly centralised Sector-Wide Approach process.And INGOs, who had more money than the government, did not want to be pulled into a common approach. But both governors of Nampula, Rosário Mualeia and then Abdul Razak Noormahomed, supported the programme and a strong local team was built up, and over five years the process developed local roots. On the ground in Nampula, a driving force behind the Planning and Finance Decentralisation Programme (PPFD) has been Vincente Paulo.15 The first step was the creation of annual district development plans with at least some community participation.Views from the base were passed up to district and provincial level and began to be included in the centrally determined plans and budgets. And local communities did begin to force alternative choices. Local police were never a donor priority and at the turn of the century there was still an IMF cap on increasing health spending which barred new rural units. But under community pressure, both police posts and maternity units were built locally. Ricardo Limua was the leader of district planning in Ribáuè from the beginning, and he tells the story of Cunle administrative post. We thought the priority would be water and a shop. But the women wanted a health post, saying their biggest problem was how hard it was to get to a health facility when they were ill or about to give birth.At the meeting, the women were the majority and were most outspoken. So we went to the provincial directorate of health, who said ‘We have no money to hire more staff for a new health post’. But we decided that since it was what they wanted, we would build the health post any way.A local NGO, Salama, provided a midwife for the first two years.We kept up the pressure, and finally the provincial health directorate provided a nurse.

In 2005, the newly elected President Armando Geubuza announced that the district was to be made the basis of development and he threw his weight behind Nampula-style decentralisation, extending it across the whole country. Over the next two years, there were a range of experiments and changed orientations, but by late 2007 a structure had been agreed.There are to be local Consultative Councils (CCs) at four levels, from the district down through Posto Administrativo, Localidade to Povoação.At each level, they are chaired by the senior government official (district administrator, chefe do posto, etc.) and administered by the government. Selection of members starts at the bottom where members are chosen to represent local forums, community committees, and economic, social and cultural groups.The chefe da povoação is expected to hold meetings with each group to choose their representative.Then each CC selects members to represent it at the next level, up to the district CC. In addition, the local government can invite ‘influential people from civil so14 15

Mozambique Political Process Bulletin, 29 December 2003. Vincente Paulo, O programa de planificação e finanças descentralizadas – Historial, Nampula, nd – probably 2003.

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ciety’ to be members of the CCs. At each level the CCs are supposed to be broadly representative; at least 40% must be ‘community leaders’ and 30% women.16 Formally, then, the CCs are very different from the municipalities.Although they should be broadly representative, they are chosen and are not democratically elected. Furthermore, they have no formal power and are dominated by the district administration. Civil society organisations reacted strongly to what they saw as the marginalisation of the CCs. On 29–30 May 2007 a group of 34 NGOs (20 local and the rest international) met and concluded that the CCs ‘lack capacity, space and credibility to carry out an effective role in local government’.The meeting was concerned about the ‘strong hand of government’ in the creation and running of the CCs, and warned:‘There is a clear fear of retaliation if any criticisms of officials are expressed’.The meeting concluded that ‘to have a real participative and transparent process, there must be elections in which everyone can vote’.The issue, however, is rather more subtle. Outside the cities there remains a strong respect for authority, although people can still be very outspoken.After each CC is selected by government officials, its members must be presented to a public meeting; this is similar to the elections of the 1970s and 1980s, and at meetings in the early 1980s, we saw communities reject candidates. So far the CCs are dominated by the better educated and better-off (a highly relative concept, since they may well be still below the poverty line) and by Frelimo members, although some members are openly Renamo or at least not Frelimo. But rural areas also have a longer tradition of consensus decision-making, there is an informal downward accountability, and quite a large number of people are involved in the CCs at various levels. Much more information, such as district plans and budgets, and CC meetings themselves, are now open, so less can be done in secret.This empowers people even if they are not on the CCs.We attended a locality meeting in Sussendenga, Manica, with at least 50 people just from the town, and with the walls covered with lists of all of the ongoing construction projects – roads, water, schools, etc. – and their status. Unquestionably, the monitoring and decision-making base had been vastly expanded.There were discussions about priorities and what to do about projects that were in trouble.There was a sense of ownership and a growing vision of development.17 These institutions are new and still finding their way; much depends on the quality and openness of the local administrators.There is growing pressure on civil servants at district level to join Frelimo and to follow party guidelines, and Frelimo intends to dominate the new CCs. But local voices will not be stilled, as suggested by an incident in a rural district in Manica province in 2006.At a meeting, two members of the District CC were openly critical of the district administrator.After the meeting, they were visited at home by members of the administrator’s staff, informing them that if they were not willing to ‘participate properly’, they should not attend the CC. Shocked and frightened, they withdrew. But a Frelimo party member in the district heard about it and raised the issue within the party at provincial level. The ‘7 million’ Perhaps the most visible decentralisation was the surprise inclusion in the 2006 budget of 7 m. MT ($280,000) for each district. This was 2% of the state budget, similar to state transfers to the 33 municipalities This is discussed in more detail in Chapter 16, but the key point here is that spending is to be ‘approved’ by the CCs – much stronger than simply commenting on government actions.The amount was increased for 2007 and 2008 for ‘Proposta de Regulamento Sobre Ogranização e Functionameno dos Conselhos Consultivas Locais (4ªVersão)’, Ministério da Administração Estatal, Maputo, June 2007. The administrator of Sussendenga, Francisca Wedmane, who had previously been administrator in Mecuburi and was a strong advocate of making the CCs effective, was killed in a car crash while visiting a remote part of her district on 26 August 2006. She was one of those people we met who showed just how a committed individual can make a major difference. 16

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poorer and larger districts. Formally known as the Local Initiatives Investment Budget (OIIL – Orçamento de Investimento de Iniciativa Local), it is universally called ‘the 7 million’. The money was initially approved with little discussion even inside government, and at first there were no instructions on how it was to be used.A few key people seemed genuinely committed to real decentralisation, and decided just to hand out money and see what happened.They also recognised that attempts to debate and agree rules on any decentralisation matter can take several years, as happened for example with the tax and finance rules for the elected municipalities, so speed required action without reaching a detailed consensus. Initially, the money was used quite conventionally. A survey of 29 districts showed 31% of it used for social infrastructure (water, health, education); 28% for improving district government buildings; 24% for economic projects (mostly agriculture); and 11% economic infrastructure (roads, irrigation). During 2006, policies were steadily refined, both on the CCs and on the 7 m. MT. The frequent changing of rules caused huge confusion at local level and anger on the part of CCs which had to reconsider the allocation of money already decided under previous rules, in some cases even having to cancel contracts already issued for building classrooms. New orientations meant that some CCs had to be reselected several times. By the end of 2006 there was a new emphasis on economic development, and it was announced that the money should not be used for anything that could be part of the normal district budget.This excluded the health posts, wells and bridges that had been a large part of the 2006 expenditure. Finally in April 2007 President Guebuza announced that the money could only be used for projects to generate income, create jobs and increase food production at district level. Money would be given for projects proposed by ‘associations, small businesses, and individuals who have the potential to be local entrepreneurs and whose projects are viable and sustainable, and recommended by CCs.’18 The rapid changes of policy at national level, and the tighter rules, raised an important political question. Job creation is a high priority everywhere, but in some villages people wanted infrastructure more. Initially they were told that decisions were to be local, but now they were told they could not spend on what they really wanted. Agostinho Chelua, administrator of Eráti district, complained at a public meeting that the overriding priority of most people in his district was the poor state of the roads (Notícias, 15 May 2007).At a regional seminar in Nampula in May 2007 some district administrators responded that local communities considered road repairs and water to be equally urgent. For 2008, a second district fund was created for infrastructure, with use to be decided by the CCs. President Guebuza faced some criticism.At a rally in Moginqual, a member of the audience told him. ‘This money is going to people who already have money, but never to us, the peasants.’ Guebuza’s response was two-fold. First, he said that it was not simply a matter of money being handed out, but rather it was going to associations or business people who could convince the district that they could create jobs or increase food production. But he went on to say that ‘Everyone has to know who receives the money. And if they don’t repay on time, the Consultative Council must demand it. Management of the money must be transparent’ (Notícias, 5 May 2007).This creates an unprecedented degree of transparency, which gives the CC and the community at large substantial power. Other councils A range of special-purpose councils have been created.The law gives local communities 18 Ministério da Planificação e Desenvolvimento e Ministério das Finanças (2007).A mark of the rapid changes was that in March 2007 Nampula sent out a circular saying the money could only go to registered associations, and thus, by implication, not to individuals, but this was overridden three months later.‘Reorientação de projectos de investimento público para geração de rendimento’, Direcção Provincial do Plano e Finanças, Nampula, Circular nº 396, 29 March 2007.

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20% of government revenues from logging and hunting. In general, a community council, different from the pyramid of CCs described above, is created to administer the money. Some communities are now receiving more than 1 m. MT a year ($40,000), and the local councils are deciding on the use of the money. By law, every school should have a school council, with representatives of parents, pupils (even in primary schools), the traditional authorities, teachers and management. Formally, they have power over budgets and staffing, and, under the recent revision of the school curriculum, over the portion that is supposed to deal with local needs, issues and resources – effectively agriculture and life skills – and mother-tongue teaching. In most schools, the councils do not yet exist or do not play a serious role, in part because teachers and school heads are very reluctant to cede any power to illiterate rural parents; some councils are only involved in community labour to maintain the school and its grounds. But in towns, some of the councils have become quite active, and deal with teacher behaviour – drunkenness, absenteeism, and sexual abuse of girls.As happens repeatedly, a lot depends on the school director; where a director wants to involve parents in the education of their children, the council can be quite active. Elected provincial assemblies (parliaments) are expected to be elected for the first time in 2009.They lack the real power of the municipalities and mainly have the right to monitor and make recommendations; the provincial governor is still appointed by the President.

Conclusion: Is there development? This chapter opened by stressing that development is about ‘good change’ which in turn involves both a vision and control over that change and active intervention to promote it. In the context of Mozambique, development includes ending poverty, where poverty means the denial of the basic human rights to an adequate standard of living, education, and the right to work. No one can deny that there has been good change. Cited below is part of a circular letter from Mariette Asselbergs, who lived in Lichinga, the capital of Niassa province, in the 1990s, reporting on a return visit in 2006: In 1992 there were only 7 cars; now there are traffic jams. It seems everybody has mobile phones. What will stay with me is this image of elderly Mozambican women sitting with their mobiles in their laps, absorbed in their own world, texting children and grandchildren, sending them a 100 MT on their phone account for their birthdays – by phone! We used to go to the airport to give somebody a message or money to take to Maputo. Lichinga’s outdoor market, where up to last year women were sitting on the ground with their vegetables for sale under an umbrella in the heat or rain, is now covered by a roof, built by the town council.There is even a bicycle parking place where for 5 MT (20¢, 10p) you can safely leave your bike — or anything else you don’t want to carry around. A young man had seen the same in Beira, asked the town council if he could run a place like that and received his licence within 2 weeks. ’I have never lost a bicycle yet’, he said proudly. Almost everybody I asked said things were going well, that there was hope. But the market women, although happy about the roof, complained that there were far too many of them, and not enough customers.And they are right.Who will buy Lichinga’s fabulous production of fruit and vegetables? The charcoal vendors also complain.They cycle with 3 or 4 huge bags of charcoal, easily exceeding their own weight, from as far as 80 kms away, pushing their bikes up the many hills. It is hard work to cut the trees, put them in heaps, cover them in grass and mud, burn them in a very controlled way, then load the bags and get them to Lichinga to sell them for $2 a bag of 25 kg – $6–8 per trip if they are lucky. If there was another way to earn this money locally, they wouldn’t do this, they said.And they knew that the forest was fast being destroyed, moving further and further away, but what to do? As they say:‘Poverty sucks your bones dry’.

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The bicycle park is Lichinga’s version of the bicycle test.There is electricity, mobile phones, more schools, better roads and more business.And yet, people remain desperately poor. Is a bicycle park an indication of development? ‘Good change’ is happening. Many more children are in school; health services are better; decentralisation is taking place and bringing many more people into creating a local vision of development.Although most donors and bureaucrats still think of ‘power over’, many now understand leadership and ‘power to’. Municipalities and consultative councils have given local people ‘power with’ – control over resources and the ability to work with others to resolve problems. Thus, there is development. But how much? More than 15 years have passed since the end of the war; nearly a generation has passed. Driving down the roads of Nampula (Chapter 3) one can see changes, largely brought about by the return to normal after the war, but much more has not changed. Not much progress has been made towards the Declaration of Human Rights’ commitment to an adequate standard of living. As the previous chapter showed, most of the economic gains have been for a relatively small group. Overall, there have been many positive changes since the war.There are more bicycles. There are more children in school. Decentralisation has brought a genuine change in power relations. But on an economic level, the changes have not been as great as they should have been. Surely more people should be better-off.Thus, the deeper questions for this rest of this book are: • Even if poverty reduction has been less than it should have been, has the past decade of economic and social investment created a platform for a take-off that really could end at least the worst poverty? • Will present policies promote that take-off, or does future development and poverty reduction require a change of strategy?

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Part II

ACTORS & CONTEXT

9

Frelimo & the democratic one-party state When Sweden’s Social Democratic Party lost the election in September 2006, it had been in power for all but nine years since 1932. Sweden is one of many democratic countries with a ‘natural’ party of government which is repeatedly elected over decades. In many cases, a liberation movement becomes the dominant party, such as Congress in India and the PRI in Mexico (where PRI actually stands for the Institutionalised Revolutionary Party). Similarly, in southern Africa, it looks increasingly as if the African National Congress (ANC) in South Africa, Chama Cha Mapinduzi (CCM, Party of the Revolution) in Tanzania, and Frelimo in Mozambique are being seen by voters as the natural party of government. The Swedish Social Democrats, Congress and the PRI were all eventually beaten at the polls. In what are sometimes called ‘predominant party states’,1 elections become a referendum on the ruling party – a vote for or against its continuation in power.

Democracy & the predominant party Even in quite conservative US circles, predominant party states are sometimes seen as democratic.The ‘Polity IV’ project originated by Ted Gurr of the University of Maryland gives countries ‘democracy’ scores of 0 to 10 at various points in their history.2 By definition, the scores look to what it calls ‘Western democratic forms’. Of course, the US scores 10 since 1871. But predominant party states also have high scores. Sweden scores 10. South Africa and Botswana both score 9. India scores 9 from 1950 to 1975, when the Congress party was dominant. Mozambique scores 6 for the multi-party period since 1994; it has the same score as South Africa for ‘political participation’ and ‘competitive elections’ but scores much less for constraints on the executive branch of government – the President and ministers. Polity argues that Mozambique’s parliament ‘remains clearly subordinate to the executive branch’ and ‘the weak judiciary remains unable to provide an effective check on the power of the executive branch.’3 There is an arcane debate in the democracy literature over the terms ‘dominant’ and ‘predominant’, with the former used both as a generic term and specifically for younger and more fluid democracies, and the latter for more institutionalised systems. We opt for the term ‘predominant’. See, for example, Erdmann and Basedau (2007). 2 The Polity data series was originally designed by Ted Robert Gurr, and is now directed by Monty G. Marshall at George Mason University. Data can be downloaded from http://www.cidcm.umd.edu/polity/. Scores are based on years through 2004 and were downloaded in December 2006. Quotes are from Marshall and Jaggers (2005). 3 Individual country reports were downloaded from http://www.cidcm.umd.edu/polity/country_reports in late December 2006. 1

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Over recent decades there has been a debate between those who argue that economic growth must come first to create a basis for a functioning democracy, and those who argue that democracy promotes development.Autocratic and one-party states have successfully promoted rapid economic development, for example in the Asian tigers of South Korea and Taiwan, and more recently in China.The initial economic growth of both India and Mexico occurred during predominant party periods. But most autocratic and one-party regimes in Africa and Latin America have done badly.4 That suggests that what is key for development is a combination of stability and a government with legitimacy. Both autocratic states and those with rapid democratic turnovers seem prone to corruption and rent-seeking,5 while it is very difficult to plan long-term development if the only goal is to survive the next election. Thus for young states, legitimate predominant parties may provide the correct mix of essential stability and long-term thinking most suitable to promote development. The excessive focus on elections tends to overshadow the more important aspects of democracy – participation in the political process and an interaction between citizens and government that goes far beyond just voting every few years. Shifting from one corrupt and incompetent government to another, or electing governments that go to war despite popular opposition, as happens in some countries, cannot be considered democratic just because people are able to vote. Democracy is really about: • Responsiveness. Does the government represent you and act in your interest? • Rights. Does the government promote your political and economic rights and protect the rights of minorities and of opposition supporters? • Accountability. Does the government account to its citizens and can you change the government? • Participation. Between elections, are you encouraged to take an active part in the making and implementing of local and national decisions? Mexico and the PRI What distinguishes democratic predominant-party states like Mozambique and South Africa from one-man states like Zimbabwe? It is perhaps useful to look at the PRI in Mexico, the longest serving single-party government in the world, remaining in power from 1929 until its defeat in elections in 2000. ‘The absence of an independent and threatening military, the regularity of elections, and the orderly process of presidential succession spurred many theorists to regard Mexico as a model for its southern neighbours’ (Davis and BrachetMárquez 1997).There were serious competitive elections from the late 1930s and the PRI won regularly and legitimately, except for fraudulent victories in 1940 and 1988. Analysts suggest that elections became referenda on the PRI as the natural party of government – ‘voters ask first and foremost if they are for or against the PRI and how the social and economic future might look without the PRI’ (Wallis 1998). The PRI and its government organised peasants and workers in the 1930s and promoted a major land reform. An economic boom lasted from 1940 until 1982; living standards rose consistently and there were gains for peasants, industrial workers, and the growing middle class and public sector.The PRI was seen as the party of growth and social inclusion and it built a popular base. There were examples of repression, but largely that base was maintained through social and economic policy changes that responded to grassroots demands.‘When 4 An article in the establishment US journal Foreign Affairs even dispels the economic boom myth of the USbacked neo-liberal Augusto Pinochet dictatorship in Chile. It notes that Chile ‘suffered two acute economic crises’ during Pinochet’s time.‘It took until the mid-1980s for Chile to sustain a per capita income level higher than that of 1973’, the year Pinochet seized power (Siegle et al. 2004). 5 In the economic literature,‘rent-seeking’ is distorting the market to earn a profit without any work or investment. In this context, it means using control of land, contracts, and granting various kinds of permissions to ensure that the official or party gains a commission or other recompense, or even a share of the business in the case of a new investment.

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large-scale opinion polling started in Mexico in the early 1980s, pollsters were surprised at how much genuine support the ruling PRI enjoyed’ (Philip 2002). As the PRI state expanded and responded to new demands, it also drew in more groups which could participate in formal party structures and make demands.Thus the party reacted to potential opponents by incorporating them. Davis and Brachet-Márquez (1997) note that ‘for several decades both the party and Mexico’s citizenry seemed relatively content with party institutions and practices that were constantly revamped to accommodate the latest demands. By implementing these changes, Mexico’s PRI could therefore claim legitimacy as well as some approximation of democracy.’ One special factor seems important in Mexico. The President (and mayors and governors) can only serve one six-year term.This means that the head of the PRI at national and local level must change every six years.This forced a very rapid renewal, preventing the emergence of individuals who became dominant over many years. Of course the picture is not totally rosy or democratic.The PRI also tried to keep debate within the party and marginalise those opponents it could not incorporate, so an independent civil society was highly circumscribed.And it could be highly repressive, as in 1968 when troops fired on demonstrating students, killing an estimated 200 people. But after 1968 the PRI became increasingly open, especially as it was forced to accept elected governors and mayors from opposition parties. Various analysts point to a set of different factors which combined to cause the decline of the PRI and its eventual defeat in 2000.After 1982, Mexican economic policy was increasingly built around IMF programmes, structural adjustment, market-oriented reform and conditionalities linked to debt relief.These were not popular and did not work. George Philip (2002) noted that ‘much of the urban poor has changed its electoral allegiance … due to Mexico’s relatively poor economic performance since 1982, the unpopularity among at least some voters of the government’s free market economic policies, and the PRI’s reputation for corruption’. Joseph Klesner (2001) notes that ‘young voters don’t remember any part of the Mexican miracle, and thus feel no need to thank the PRI’.The economic crisis of 1994-6 and the collapse of living standards hit the PRI hard.Also there were increasing abuses of power, in part in response to the 1994 Zapatista uprising, and ministers were involved in large-scale drug trafficking (which also helped to finance the party), murder, massive corruption relating to privatisations and the collapse of privatised banks (Philip 2002;Wallis 1998). By 2000, Davis and Brachet-Márquez argue that ‘the PRI had lost the popular legitimacy’ and no longer had a party machine capable of delivering the votes. Turnout was sharply down in 2000 compared with 1994, in part because the PRI activists failed to get many of the party’s rural supporters to vote, and that made the difference between victory and defeat. Key factors for democratic predominant parties The PRI has a longer history, but we can see a pattern which also relates to Mozambique’s predominant party neighbours.We argue that five factors seem important: • there are genuine elections and the party can lose, which means that • the party must remain responsive to voters.This, in turn, means good contact with the base and strong internal party democracy so that those who lose touch are moved out. • The party is more important than any individual and there are regular changes of leader. CCM, the ANC and now Frelimo have all had peaceful handovers within the party. Frelimo’s decision to not let Joaquim Chissano stand again was particularly important; the party responded to internal pressure from below suggesting that allegations of corruption and a spirit of deixar andar (not bothering) meant Frelimo might lose if Chissano stood again, so the party replaced him. Chissano may have been angry, but he did not form a breakaway party; he remained in Frelimo and even campaigned for his

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successor. Contrast with ZANU in Zimbabwe, which was captured by Robert Mugabe. • Freedom of expression means the media and civil society provide a check on the predominant party. All leaders get angry with vocal opponents, but in South Africa and Mozambique the press remains outspoken;6 civil society in South Africa is strong and in Mozambique it is growing. • The military is not a major political player. A successful predominant party has three channels of information – the normal government system, the party itself where information can bypass possible blocks in government, and the media and civil society which raise particularly serious problems. A party which listens and responds stays in power. Clearly a successful predominant party state, such as Sweden, satisfies those conditions. But what about Mozambique?

Frelimo & elections Some of the similarities between Mexico and Mozambique are striking. Both the PRI and Frelimo became the parties of modernisation and economic development. Less positive similarities include the failure of the structural adjustment programmes, the collapse of privatised banks followed by assassinations, blatant corruption, and drug links. Similarly, the questionable and very close 1999 Mozambique election served as a warning to Frelimo about its own weaknesses and that it was taking the voters for granted, which resulted in the naming of Armando Guebuza as a new broom who subsequently shook up the party. In this section, we look more closely at the five multi-party elections, and at Renamo and the opposition. Frelimo held elections in the one-party-state era, when people at public meetings voted to accept or reject candidates put forward by the party for local councils. We attended such meetings in the early 1980s and saw party-approved candidates publicly criticised and forcefully rejected. But the 1990 Constitution and the end of the war brought the first secret, multi-party elections. National elections for president and parliament (Assembleia da República, AR) take place every five years, so far in 1994, 1999 and 2004.The most striking change is the fall in turnout (see Chart 9.1), from roughly 80% of voting age adults in 1994, when people were emphatically voting for peace, to around 40% in 2004.7 Chart 9.2 shows the voting patterns, and three points can be made: (i) The 1999 presidential election was unexpectedly close. But there were only two presidential candidates and Afonso Dhlakama seems to have received the votes that went to other candidates in 1994 and 2004. (ii) Frelimo gained a clear majority of the parliamentary vote only in 2004, and had less than a majority in 1994 and 1999. (iii) The opposition vote has been steadily declining, with a larger fall in 2004; the core Frelimo vote of 2 million has remained faithful.Those who voted in 1999 but not in 2004 appear to have been almost entirely opposition supporters. Regional shifts have been quite important. Both Frelimo and Renamo have always had seats in all provinces (except Gaza, where Renamo has never won a seat.) As Table 9.1 shows, in 1994 Renamo had a majority in five provinces (Nampula and Zambézia in the north andTete, Manica and Sofala in the centre). In 1999 it gained one more (Niassa, in the north), but this masks a falling parliamentary vote and large Frelimo gains in the country’s 6 The conservative German Konrad-Adenauer-Stiftung, not an admirer of Frelimo, commented:‘the liberty that is conceded by government in this area [media freedom] is remarkable, especially compared to the media freedom (or rather lack thereof) in other countries in the region.’ It went on to note that Radio Moçambique ‘despite the fact that it is owned by the state, has a reputation for independent journalism of good quality’ (Lalá and Ostheimer 2003). 7 Actual turnout can only be roughly estimated, because about 7% of polling stations have been excluded in each year, and there was some ballot box stuffing in 2004.

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Chart 9.1 Turnout in national elections

91

Chart 9.2 Votes in national elections.

Source: Mozambique Political Process Bulletin, 14, 24, 31, 32.

Renamo presidential candidate Afonso Dhlakama in all 3 elections. Frelimo presidential candidate Joaquim Chissano in 1994 and 1999, Armando Guebuza in 2004. Independent presidential candidates stood in 1994 and 2004, but not in 1999. Source: Mozambique Political Process Bulletin, 14, 24, 31.

largest province, Nampula, which the party had specifically targeted. The 2004 collapse meant that Renamo only held Zambézia and Sofala, while Manica was divided equally. Our view is that both the 1999 and the 2004 elections were referenda on Frelimo as the natural party of government.The 1999 vote for Dhlakama was a vote against Chissano, in part because the people around him were seen as corrupt and not interested in development, and in part a vote against Frelimo’s economic policies which had failed to bring a peace dividend. In 2004, Frelimo with a new leader was seen as credible to continue in government, while Renamo under Dhlakama waged such a negative campaign (discussed below) that it was not seen as a credible alternative. For many people, in rural areas in particular, the rains had started and it was seen as more useful to plant than to vote against Frelimo.This seems to be reinforced by the result of Raúl Domingos, who had led the Renamo negotiating team at the Rome peace talks and then been expelled from Renamo in 2000, setting up a new party and standing as a presidential candidate.Well known, well funded, and seen (especially by donors) as a potential ‘third force’ who would attract those who wanted to vote against Frelimo but not vote for Renamo, he in fact gained only 86,000 votes. Table 9.1 Seats in parliament 94 Niassa 7 Cabo Delgado 15 Nampula 20 Zambezia 18 Tete 5 Manica 4 Sofala 3 Inhambane 13 Gaza 15 Maputo Province 12 Maputo City 17 Emigrants TOTAL 129 No of provinces with majority 6

Frelimo 99 04 6 16 24 15 8 5 4 13 16 12 14

94

Renamo 99 04

4 6 32 29 9 9 18 3 0 1 1

7 6 26 34 10 10 17 4 0 1 2

133

9 18 27 19 14 7 6 15 17 12 14 2 160

112

5

8

5

UD 94 0 1 2 2 1 0 0 2 1 0 0

117

3 4 23 29 4 7 18 1 0 1 2 0 90

6

2

0

Bold = majority Mozambicans outside the country only had representation in 2004. Source: Ibid.

9

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Elections were held in the 33 municipalities in 1998, which Renamo boycotted, and in 2003.Turnout in 1998 was very low, at 15%, in part because there were contests in only 14 cities. In 2003 turnout was 28%, but rose to 46% in Mocimboa da Praia.This showed that people were prepared to vote if there was a serious and interesting contest. In 1999 Mocimboa da Praia had voted 54% for Renamo, so both sides thought they could win and put up good candidates for mayor and sent in big guns from the party to boost the campaign. In the end, the Frelimo candidate won by just 197 votes. Suffering from poor organisation and leadership, Renamo did much worse than expected, winning both the mayoral post and assembly control in only four cities – Beira and Nacala (Mozambique’s third and fifth largest cities) as well as Angoche and Ilha de Moçambique. But it lost cities which should have been safe victories, simply because it did not have a party organisation that could get out the vote. Citizens’ lists are allowed to stand in local elections, and in 1998 citizens’ lists and two small parties gained seats in 6 cities, winning 40% of the vote in Beira and Manhiça. In Nacala and Maputo citizens’ lists were quite active in the assembly. But in the end, they made little impact and failed to build a base. Renamo won seats in 31 of 33 municipal assemblies, implying that it has some support even in the Frelimo heartland of Gaza. Election secrecy and fraud On polling day, Mozambique’s voting usually draws high praise from observers.The system is smooth and transparent.Voters are registered in advance and vote at a specific polling station, where possible a school classroom. Each polling station has a five-person team which is normally well trained and operates largely independently.The main political parties have agents (delegates) in each polling station, and press and observers can be present. As soon as voting ends, the ballots are counted in the presence of party agents, press and observers.The results are immediately posted on the polling-station door and copies given to party agents, which permits parallel counts to be done by the parties (and in 2004 by observers and Radio Moçambique). But what happens after polling day is just the opposite.The results from the individual polling stations are brought together in an election tabulation process that is apparently unique. In a process which typically takes more than two weeks and is done completely in secret, the National Elections Commission (Comissão Nacional de Eleições, CNE) compiles the final results, based on the results sheets (editais) from more than 10,000 polling stations. Consistently, between 6% and 8% of editais are not counted and many others are ‘corrected’; no reasons are given, and there has never been a complete list released. This has drawn increasingly hostile comment from domestic and foreign observers, the press and even Mozambique’s own Constitutional Council (Conselho Constitucional, CC). Tensions were greatest during the 2004 election, both because a close election was forecast by everyone (including Frelimo), and because the problems cited in 1999 had not been resolved. Unusually, the European Union Observer Mission never signed a memorandum of understanding with the CNE because they could not reach agreement on access. Former US President Jimmy Carter stressed that the level of access was unacceptable; stating that in elections in other countries ‘we have rarely been excluded from any significant part of the process’. He looked back at the 1999 elections, and publicly questioned the outcome. The ‘amount of corrections made to the results in 1999 exceeded anything in any similar election I have ever witnessed’.The exclusion of more than 600 polling stations that year was ‘extraordinary. It is simply hard to believe that so many results sheets could not be used’.8 Many additional editais were ‘corrected’ in secret.The official result gave Joaquim Chissano only 205,000 votes more than Afonso Dhlakama, while 8

Mozambique Political Process Bulletin, 31, Maputo, 29 December 2004.

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more than 300,000 votes were excluded. Other irregularities, combined with secrecy, mean we will never know how close the real result was, and who really won.9 This combines with consistent computerisation problems.The head of computing was effectively appointed by President Chissano and not the Election Commission.There were consistent criticisms in 1999 and 2004 that the software was inadequate and insecure, and changes were being made to software until the last minute – and in 2004, even later, with software modifications still being made after polling day. The software and many of the changes were kept secret, even from the parties. Frelimo went into the December 2004 elections expecting another close race. Some changes, such as the naming of Guebuza and his subsequent year-long tour of the country, building up party structures and rebuilding local support, were essential and positive. But some in Frelimo were ready to steal the election if necessary. Three tricks were used: (i) ballot box stuffing, either physically or simply by writing higher numbers on the results sheets, particularly in Tete and Gaza provinces in polling stations where Renamo party agents were improperly excluded, sometimes by force and sometimes by a refusal to issue credentials. Guebuza probably gained 70,000 extra votes this way, and Frelimo gained 2 extra parliamentary seats in Tete. (ii) In many Renamo areas, particularly in Zambézia and Nampula, polling stations failed to open or if they did open, they were in the wrong place or had the wrong register. Dhlakama lost 70,000 votes and Renamo probably lost another 2 parliamentary seats. (iii) In some places polling station staff allied to Frelimo tampered with ballots during the count, either by simply calling Renamo and Dhlakama votes invalid, or by putting an extra ink mark on them to make them invalid. A study done with the LSE Crisis States Research Centre shows that the manipulation affected Dhlakama votes overwhelmingly, suggesting that the actions were intentional and not due to incompetence or poor work practices (which would have affected both parties equally).10 During a part of the central counting process that was open to the press, we saw several series of ballot papers for Dhlakama which had clearly been marked with an ink fingerprint in exactly the same place to invalidate them. In the event, the unexpected collapse of the Renamo vote made the fraud unnecessary. But there was again chaos in the computer system and total secrecy in the CNE. Although the media and observer response to the 2004 election was very critical, many of those involved in the misconduct were promoted by the new government, and no-one was penalised. The message seemed clear, that electoral manipulation was to be encouraged. But, as we noted in an earlier chapter, Frelimo is divided on these issues. After Guebuza was elected, the senior computer person in STAE was quickly removed, perhaps because he no longer had the protection of Chissano. STAE then released detailed data, in easily useable form on a CD-rom, which staff must have known would be used to demonstrate Estimates by the Mozambique Political Process Bulletin and European Commission delegate in Maputo Javier Puyol suggest that, if missing polling stations had been included, Chissano’s majority could have fallen to as little as 116,000.The final national results sheet for 1999 was not produced by the official computer system, but on a laptop of an official of the technical secretariat (Secretariado Técnico de Administração Eleitoral, STAE), and changes were being made up until the last minute. It has also been reported by several independent sources who were inside STAE in 1999 that computer technicians from STAE made ‘corrections’ at provincial level, before data were presented to the provincial election commissions. Nationally, there were 241,000 more votes in the presidential election than in the parliamentary election. In Nampula, in particular, nearly one in ten people voting in the presidential election did not vote in the parliamentary election. Separate ballot boxes for president and parliament are placed side by side, and it is strange that no observer in Nampula noticed a voter failing to put a ballot paper in the parliamentary ballot box.The tabulation of results in Nampula was delayed, and no reason was ever given. STAE refused to publish the final data from 1999 on a station-by-station basis. Could Chissano’s 205,000 vote margin have come from ‘corrections’, additional votes in Nampula, and exclusion of editais that favoured Dhlakama? See Mozambique Political Process Bulletin 24 and 28 for more details. 10 In August 2006 STAE released a CD-rom with station-by-station results for the 2004 election. (Eleições Gerais 2004, Maputo: Secretariado Técnico de Administração Eleitoral, 2006. Book and CD-rom.) This allowed a detailed analysis, published as Hanlon and Fox 2006. 9

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the extent of electoral misconduct.Their message also seemed clear; we may be Frelimo but we want clean elections. Why is Renamo such a weak opposition? Renamo was the creation of the Rhodesians and South Africans, and had committed some quite brutal atrocities; it had not won the war and the peace accord recognised the existing government as legitimate. So Renamo was in a weak position, but it had gained some local support and it did become the focus of opposition, particularly in rural areas where Frelimo had failed to support peasant agriculture and where its opposition to traditional leaders and practices had not been popular. Renamo also attracted some competent people who had not been linked to Renamo guerrillas during the war, but who had fallen out with Frelimo or saw Renamo as a possible route of advancement in business or politics. It largely fell to the international community to promote parties and an electoral system, and this was linked in the minds of many people with the transition to capitalism. The UN talked openly about buying Renamo’s involvement with money and houses for the leadership (see, for example, Boutros-Ghali 1995: 59). Politics became a business – donor money went to people who set up parties and donors paid for tasks that are voluntary in other countries, such as being a party agent at a polling station.Voluntary activity came to be associated in many people’s minds with the bad old days of socialism; in the new world, people were paid for everything. Ironically, the result was that only Frelimo, the former socialist party, maintained a party structure that looked like party structures in industrialised countries, with party branches at provincial and local level, and large numbers of militants working voluntarily to ensure that it stayed in power. By stressing payment rather than voluntarism, the international community created in people’s minds the view that parties and politics were about immediate present gain rather than about getting your party into power with a view to future gain. It was part of a much broader image created by the international community that whereas socialism had all been about hard work and little present gain, capitalism was about present gain – a strange kind of capitalism with no sense of investment of time, labour and money for future results. Over the next decade Renamo failed to transform itself from a guerrilla movement to a political party that could be seen as a credible alternative government.Afonso Dhlakama retained very tight personal control as a ‘chief ’ of the party, taking the smallest decisions and even sometimes paying expenses out of his own pocket. Perhaps to prevent threats to his position, he has expelled from the party or at least marginalised most of the more competent people who could create an effective party structure. Raúl Domingos, for example, is a former railway worker kidnapped during the war by Renamo guerrillas and who rose rapidly through the ranks to become Renamo chief negotiator at the Rome peace talks. He then became leader of the parliamentary party and led negotiations with Frelimo after the difficult 1999 election. Dhlakama then expelled him from the party in 2000. Similarly, Daviz Simango, whose father had been executed by Frelimo, joined Renamo, was elected mayor of Beira in 2003, and rapidly built up a good reputation.11 Instead of using Beira and Simango as a model of what a Renamo government would look like, Dhlakama marginalised Simango and never mentioned Beira. During the 1992-4 peace process, Frelimo and President Joaquim Chissano had formal power because they were recognised in the peace accord and by UN officials as the legitimate government. By contrast, Dhlakama’s power came entirely from walk-outs, boycotts and refusals to participate if he was not granted certain concessions.This culminated in a boycott of the first day of the first elections, which he ended only after he was personally telephoned by Zimbabwe’s President Mugabe and received a message from the UN Secretary General. Initially, the power of the boycott came through the support of an international community anxious to keep Renamo on board, and through fear that Renamo 11

He was named ‘personality of the year’ by the independent weekly Savana, 29 December 2006.

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might resume hostilities. Over the subsequent decade, there have been similar boycotts in parliament and the National Elections Commission.The usefulness of the boycott tactic ended when Renamo boycotted the first municipal elections in 1998 and donors allowed the election to go ahead, with Frelimo winning all 33 municipalities. The difference in the day-to-day running of Renamo and Frelimo is quite stark. Frelimo decides its strategy in Political Commission meetings and then gives substantial authority to its parliamentary and CNE leadership. Dhlakama telephones Renamo members of the CNE and parliament during meetings to give them explicit instructions. During 2005 Renamo boycotted the drafting of a new election law that did not give it a veto in the CNE, but in 2006 the Frelimo parliamentary majority went ahead and approved a new law. Dhlakama told the weekly Zambeze12 ‘if Frelimo uses its majority in parliament to pass the law, there will be a lot of noise.’The final day of parliamentary debate on the law, 20 December 2006, began normally.Then Maria Moreno, the head of the Renamo group, received a mobile telephone call. Clutching her phone to her ear, she left the podium where the parliamentary standing commission sits, to take the call in the privacy of a nearby corridor.When she returned the mood changed. Renamo became increasingly disruptive and noisy. Eventually Renamo deputies surged out of their seats and stormed the podium, dancing, chanting, blowing whistles and banging on the table in front of Frelimo MPs on the standing commission.13 Dhlakama consistently makes poor choices. One occurred in 2000, after the very close and disputed 1999 election. Both Frelimo and Renamo were divided on how to respond and, with the approval of Chissano and Dhlakama, secret negotiations were opened between less hard-line people on both sides. Dhlakama had demanded the right to appoint governors in the six provinces where Renamo had won a majority, and Chissano pointedly did not name new governors. Negotiators agreed what is in retrospect a remarkable and complex deal; Chissano would name a short list of three candidates in each of three provinces and Dhlakama would choose one, and vice versa in the other three provinces. It was the first time Frelimo had ever been willing to give Dhlakama real political power over key appointments and would have ensured three Renamo governors; this would have transformed the political scene by making Renamo a serious political player. Instead, Dhlakama turned down the deal, demanding the right to name all six governors or nothing. Chissano named all six and Dhlakama was never again offered such an opening. Dhlakama apparently believes he won all three elections – ‘everything shows that the Mozambican people always voted for me and Renamo by a large margin.What happened was theft and fraud.’14 This led him to run a disastrous and totally negative election campaign in 2004, the main message of which was that the previous elections had been stolen from him. He rejected advice from advisers, including one from the British Conservative Party, telling him to run a positive campaign showing how he would run a better government than a corrupt and tired Frelimo. Instead, the impression he gave voters was that it was not worth voting for him, because he would lose anyway.This must partly explain the huge drop in his vote. Dhlakama argues that he is seen as the main ‘obstacle by many in Frelimo’, which is why he has to stay as leader.15 But the reality is precisely the opposite. Frelimo is happiest with Dhlakama leading a weak opposition. Perhaps, however, the biggest problem for Renamo and Dhlakama is that it is very difficult for an opposition to have a genuinely alternative policy. Economic policies are agreed with (or imposed by) donors and the on-going neoliberal model leaves little space for variation.Thus competition becomes much more about power and patronage, and the predominant party is always at an advantage in such a contest. Zambeze 21 December 2006, but in a interview given several days earlier. ‘Renamo riots as Assembly passes election laws’,AIM, Maputo, article 881206E, 20 December 2006. 14 Zambeze 21 December 2006. 15 Ibid.; Notícias, 1 January 2007. 12 13

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Frelimo as a predominant party Independence and revolutionary parties inevitably preside over major transformations of state and society.Where these changes have widespread support, as in Mozambique and South Africa, it is hardly surprising that the party becomes dominant. In Mozambique, all three branches of government – executive, legislative and judicial – were created in the one-party era. Even at the height of the socialist period, not all senior officials were members of Frelimo, and promotion was based in large part on competence and merit, but for most it seemed natural to be at least a passive member of the party.Taking part in a process that set its sights on abolishing poverty and discrimination meant that being a civil servant or teacher, or even a judge, seemed synonymous with taking an active role in Frelimo. For the next generation, the children of peasants and workers knew that they were receiving an education and then gaining administrative jobs because of independence and Frelimo, so allegiance to the party was natural. Thus the administrative apparatus largely identified Frelimo with independence, transformation, and development. But, as Zimbabwe and Zambia show in very different ways, the continued allegiance of the state apparatus and of the middle classes to the independence party is not automatic; it requires planned action to transform the liberation party into a predominant party. Frelimo did this through development and then through the transition from socialism to capitalism. During the war the government used aid money to maintain living standards and even expand health and education in urban and semi-urban areas, where most people then lived.After the war, civil service wages were badly squeezed and reconstruction delayed by IMF-imposed structural adjustment. But with the easing in 1995, civil servants again felt part of something moving forward. A form of semi-apartheid under Portuguese colonialism had limited the growth of a domestic middle class. By the mid-1980s government and donors had come to agree that one would have to be created as part of the transition to capitalism. Frelimo wanted to ensure that it had a leading role. Frelimo unity and diversity Frelimo is almost unique in its post-independence ability to stay totally organisationally united and yet remain so diverse on key issues.There have been no splits and few people are ever expelled. Potential opponents are actually recruited into the party. Party members genuinely believe in the US revolutionary slogan:‘We must all hang together, or assuredly we shall all hang separately.’16 Perhaps most striking is the different attitudes of ZANU in Zimbabwe and Frelimo to rising independent trade-union leaders. In the 1990s Morgan Tsvangirai and Soares Nhaca were the charismatic leaders of the Zimbabwean (ZCTU) and the Mozambican trade union federations (OTM) respectively. ZANU and Robert Mugabe attacked and harassed Tsvangirai and turned him into the opposition leader; Frelimo and Chissano co-opted Nhaca by making him a provincial governor. Corruption shows how this can work in two different ways. During the 1999 election campaign, party workers were shocked at the way corruption had antagonised voters and traditional Frelimo supporters. Honest members and leaders stayed within the party and opted for internal reform, which led to Chissano being ousted as party leader and presidential candidate.This can be seen as the democratic predominant-party state at its best, responding to grassroots electoral pressure and making a significant change.Yet, Chissano remains in the party, on the Political Commission, and powerful. The other side of the coin is that some of Chissano’s notoriously corrupt allies also remain in the party, in some cases with well-paid sinecures, and with the justice system manipulated to ensure that they are never prosecuted. To maintain unity and cohesion, the party pays the high price of Attributed to Benjamin Franklin after he signed the US Declaration of Independence in 1776. (An action which in today’s parlance would surely make him a ‘terrorist’.)

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allowing unsavoury people to remain. One reason Frelimo remains united is that it retains substantial internal democracy, and even the power of the president is checked. After the 2004 election, Armando Guebuza went through several gruelling sessions with the party Political Commission before reaching agreement on a list of ministers and deputy ministers. In particular, Guebuza’s choice of Justice Minister was blocked. Similarly, delegates to the Frelimo 9th Congress, 10-14 November 2006, were largely elected, as was the new Central Committee and Political Commission. Congress delegates caused some upsets, rejecting some members of the old guard while giving an unexpected boost to Prime Minister Luisa Diogo by according her the second highest number of votes for the Central Committee – suddenly making her a serious candidate for party leadership. The overlapping of party, state and business remains important, with the mobile telephone becoming the key communications network. A judge who ruled against a senior Frelimo figure received a mobile phone call during dinner from a member of the Supreme Court, telling him to reverse the decision. Patronage networks have grown over the past three decades, as have regional and sectoral baronies.Those behind the murder of Siba-Siba Macuacua are unlikely to be brought to justice because some are senior in the party and could tell too many stories about others in the party. Many senior party members have been given land improperly; in several cases this has blocked development because they have left the land unused and have even refused to release it to foreign investors who declined to pay the exorbitant price demanded for a totally illegal transfer of the land. Party unity also means not rocking the boat. In parliament and other autonomous institutions such as municipal assemblies, some independence is acceptable, but the party leadership intervenes to negotiate a settlement if criticism becomes too strong. This has implications for how Frelimo operates. Serious efforts are made to draw good people into the party, while there is a distrust of those who remain outside. Despite acceptance of an independent media and civil society, there is also a distrust of them.The journalistic standards of the state-owned Radio Moçambique and the daily Notícias are very high and they are not propaganda organs, but they are also careful not to challenge the party on sensitive issues.‘Criticism is made inside the structures of Frelimo … not in the streets or in the open air,’ explained the Theses Explanatory Booklet For [Party] Cells published before the Frelimo 9th Congress in November 2006. Criticism and self-criticism ‘are only valid inside Frelimo structures’, it continued.This seems an attempt to curb public debate, saying discussion on issues ranging from election laws to development can only happen inside the party, not in public with non-party members. Can Frelimo leave space for an opposition? Following the 2004 elections, Frelimo moved to consolidate its power, and reduce space available to the opposition.There is now a closer identification between the state apparatus and the predominant party. Civil servants and figures in civil society have come under pressure to join the party. This is matched by a growing sense, never formally stated, that civil servants are expected to give preference to Frelimo members; there are increasing allegations that it is easier to obtain licences and government grants and loans if one is a member of the party. This was underlined by fraud and misconduct in the 2004 elections by people who should be neutral – civil servants, polling station staff and police. In its ruling accepting the 2004 election, the Constitutional Council was nevertheless highly critical of violations of the law. It said ‘if violations of the election law remain unpunished, they will multiply and threaten the entire fundamental principles of our state. This is a real threat.’17 Far from being punished, those who acted improperly against the Renamo opposition seem to have been rewarded. Linked to this is continued concern about the justice system remaining 17

Conselho Constitucional Deliberação nº 5/CC/05, 19 Jan. 2005. Maputo.

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non-functional and the lack of progress on prosecuting corruption.This creates a sense of impunity and gives the impression that some party figures are no longer accountable to the citizens. Frelimo is also using the state apparatus to squeeze and harass the Renamo-controlled municipalities of Nacala, Beira and Ilha de Moçambique. In all three it appointed central government ‘representatives’, which it can do under the municipalities law, but had not done in any Frelimo-controlled municipality. Some actions have been petty. For example, in Ilha de Moçambique, before the new Renamo administration took over in 2003, the few experienced technicians were transferred from the municipality to the central government, leaving the city with few skilled staff. Speaking at a rally in Nacala, the wife of the President, Maria da Luz Guebuza, said:‘We want to say here that this country has only one government and that is the Frelimo government’ (Notícias, 14 Dec. 2006). There is a growing attempt to create a Frelimo-aligned civil society to compete with the growing independent civil society and with those parts of it seen as aligned with donors (such as the business association CTA which is largely funded by the US embassy) and with the opposition. For the 2004 election, the president of the CNE was to be nominated by ‘civil society’, but Rev. Arão Litsure was chosen. Nominated by the Frelimoaligned Christian Council, he was seen as Frelimo rather than independent. Nevertheless, the picture remains complex.With the rapid shift of power to the districts and the growth of various consultative councils (see Chapter 8), it is clear that these groups are locally representative.To be sure, Frelimo-aligned community leaders predominate, but there are also members with no party alignment and others with known membership in Renamo. The role of donors in the democratisation process is contradictory. On the one hand, their projects promote civil society and democratisation. On the other hand, as Elísio Macamo points out in a study for the UK Department for International Development, the IMF and donors require budgets and other matters to be agreed by the donors before they can be submitted to public and parliamentary scrutiny. A condition of aid is that Mozambique be ‘on-track’ with the IMF. Macamo asks: ‘What if the Mozambique Parliament rejects PARPA? What if civil society organizations mobilize popular protest against IMF-inspired policies and put pressure on the government to resist donor advice?’ The underlying assumption of the entire aid process is that Mozambique is not democratic. ‘To put it simply, the very strong cooperation with the government of Mozambique and all the mechanisms in place to ensure that funds are properly accounted for are turning civil society organizations, as well as parliament, including the opposition parties, into ignorant institutions and individuals’ (Macamo 2006). ‘A very strong Frelimo party may be good for ensuring the efficiency of the state apparatus’ but it may not be good for democracy, Macamo notes. Donors want Mozambique to have a strong party and government that can deliver on their promises, without the bother of parliamentary and press debates.This was made clear after the 2004 elections, when all international observer groups condemned the secrecy and confusion of the election and refused to consider it acceptable.Yet donors rushed to congratulate Guebuza and pledge support. Donors need the democratic predominant-party state. Views from outside and inside Some consultants and academics have had very negative views of Mozambican democracy. In another DfID study,Tony Vaux argues that: despite the appearance of a multi-party state, in practice Mozambique is controlled by an oligarchy within the ruling party which purchases support through patronage, much of which derives from aid. … The trend is toward centralization and consolidation of power with a narrow elite, which will be obliged to offer patronage to a wide and ‘greedy’ circle of clients. …Relations based on extended families (and in some cases ethnic affiliations) determine access to state resources and political power. … Behind all this is a murky world of financial relationships and trade-offs. …

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Mozambique is moving in the direction of being a single party state, or perhaps something like a royal court in which favour and advancement depend on informal relationships. (Vaux et al. 2006: 3)18

Vaux also warns that ‘although Mozambique displays an impressive rate of economic growth, the benefits are patchy and have yet to make much impact in the rural hinterland. There is an emerging problem of alienated youth and unemployment.’ Brazão Mazula, first head of the CNE and later rector of Eduardo Mondlane University, picks up this last point. He argues that young people are afraid to become activists for development. Perhaps they have good reason, he continues, because they see that those who take initiatives are marginalised and meet a hostile reaction. ‘They come to believe that only party leaders, ministries, associations, perhaps the university, etc, can be protagonists. … A cult of personality has been created, and it appears that public spaces are mostly reserved for certain families’ (Mazula 2003).

Conclusion: Democratic predominant party? A predominant party will try to capitalise on its position – from arrogance because it sees itself as the natural party of government, because it wants to use its position of power, and because it wants to retain power. But this need not be a return to the 1975-90 one-party state. Mozambique will remain a democratic predominant-party state only if it ensures that the democratic checks on the dominant-party remain in force. At the beginning of this chapter we set four criteria for democracy: responsiveness, rights, accountability and participation between elections.To remain democratic, Frelimo and its leaders must remain responsive, especially to the demands of the poor and young who are feeling increasingly marginalised.The rights of those who are not party supporters must be protected. Policy debate must be open and not closed within the party, and there must be more transparency in government. Finally, the party and its leader must remain accountable and – ensuring the ultimate check on the predominant party – elections must remain honest. Despite his otherwise negative view,TonyVaux makes the point that ‘so long as Frelimo needs to please the voters, most of whom are poor, there is a clear incentive for development’ (Vaux et al. 2006: 3). Most voters are young, which means that Frelimo must do more to promote development for the young if it is to continue to be re-elected. In countries with many parties in parliament or frequent changes of power, opposition parties are the check. But in predominant-party states, this role falls much more to nonparty forces – civil society and the media.Transparency and accountability in government and the election processes become more important. Institutions like the Constitutional Council which have prestige and integrity and are seen as independent have more of a responsibility and need to take a more prominent role. Thus keeping the predominant-party state democratic poses challenges both to the party and to non-party forces. First, Frelimo itself has become overcontrolling of the opposition and undercontrolling of itself. It can afford to let Renamo run Beira and Nacala – indeed the competition might actually be useful in keeping Frelimo municipal leaders on their toes – and it does not need to squeeze them quite so hard.At the same time, Frelimo could put more pressure on its own corrupt barons to at least moderate their greed – as being essential to protect the electability of the party. But the second challenge is to the independent press and civil society, which have largely failed to campaign for transparency, for example in aid and elections, and have largely failed to use the transparency that already exists to hold the predominant party to account.The Constitutional Council ruling on the 2004 elections argued that ‘the principle of transparency in the electoral 18 Vaux admits that the study was done with ‘considerably less time than is normal’ and with interviews only in Maputo and Beira.

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process is an essential element in its credibility’.Yet the electoral law that went to parliament made no changes to reverse the total lack of transparency, and the ‘independent’ press and civil society did not notice. Predominant-party states can be democratic, but only when the natural party of government shows – and is forced to show – restraint in its use of its predominance.

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Corruption, rent-seeking, reform & a divided elite At independence in 1975, the new government did not replace the old colonial banknotes and coins.1 Then on Sunday night 15 June 1980, President Samora Machel announced on the radio that the old ‘escudo’ would be replaced, one for one, by a new ‘metical’, over the following three days. Money in bank accounts was converted automatically, but cash had to be changed at banks or, in rural areas, mobile change centres. We were working in Mozambique then and have strong memories of the change-over. One of us,Teresa Smart, was then a teacher at the Industrial Institute in Maputo. She picks up the story: To reduce the number of people in the bank queues, people with jobs were encouraged to bring their money into the workplaces and one person would queue for them all. On Monday the office manager told us all to bring in our money the next day, and we did. I handed in about a month’s salary as did 40 other people, and he went to queue at the bank. It was late when he reached the front of the queue, so he took the bag of new money home and gave it to us the next day. No one thought it was strange.This was what Samora told us to do. Everyone knew that anyone walking away from a bank had a huge pile of money.Yet we heard no stories of people being robbed.

The operation had been meticulously organised. By Sunday, literally thousands of people in banks and the civil service knew, yet nothing was leaked. State cars all had to be turned in ‘for servicing’ at the end of the previous week, and everyone dutifully did so. Most remarkably, many people were not allowed to go home. Over the weekend, hundreds of people ‘disappeared’, yet no one panicked, and of course on Sunday night they found out why.Teresa Smart continues: There was total trust – a belief that Frelimo was working for you and that everyone was working together to build something new. Many people had more responsibility and seemed to be studying as well as working, so no one looked down on lower level staff.The director of the Industrial Institute was himself studying at night. Many of our students were workers. Of course you gave all your cash to the office manager and trusted that he and the banks would change the money.

Just a month before the currency change, Francisco Langa had committed suicide. A liberation war leader and then member of the Frelimo Central Committee, he had been in charge of support for Zimbabwean refugees and assistance to ZANU before independence 1 Because of the economic crisis brought on by the colonial wars, the colonial authorities had already made the Mozambican escudo separate from, and non-convertible to, the Portuguese escudo.Thus, although independence required the creation of a central bank, it did not require the creation of new currency.

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in Zimbabwe. An unprecedented Central Committee statement on 21 May 1980 announced that he had been caught embezzling funds and had shot himself because he was overcome with shame and could no longer face his comrades.2 Joe Hanlon continues:‘as a journalist in Mozambique at the time, I can confirm that Langa’s behaviour was highly unusual and would have been seen as totally shameful.’ Of course, there was some corruption at the time. But memories of a less corrupt past are not mythical.When taxi drivers say ‘It wasn’t like that in the days of Samora’, they are right; in those first years of independence there was an assumption of honesty and integrity. Older Mozambicans still remember that period, which makes them especially angry about corruption now. Of course, honesty ran in parallel with a host of problems. Lack of experience, compounded by laziness and incompetence, meant that the bureaucracy inherited from the Portuguese often functioned badly. Frelimo, trying to grapple with all the problems of government, made many mistakes.And, in the background, there was a degree of repression. But the joy of independence was linked to a can-do spirit of defeating underdevelopment. People were willing to share the limited resources and make the extra effort, so that, by and large, things worked surprisingly well. Leaders did not live ostentatiously and President Samora Machel was notable for his integrity. But just two decades after Langa’s suicide, Foreign Minister Leonardo Simão said of the government department to help people hit by disasters (effectively the successor to Langa’s unit),‘thefts and pilfering were constant. Some staff thought they had a right to steal’.3 A survey in 2005 showed that the petty corruption in Mozambique was twice as serious as the African average, with more than a fifth of people saying that in the past year bribes had been necessary to get a child into school, to get through a police check point, or to obtain a document from government. Health was worst, with 29% saying that at least once in the year it had taken a bribe to obtain health care (see Table 10.1). Even the US government admits that Mozambique was honest in the socialist era, and that ‘corruption has been spreading rapidly over the past 20 years’ – the capitalist era (Spector 2005).

The rapid growth of capitalism & corruption How did it all change so quickly? The euphoria of independence could not last. Central planning and especially state control of prices and movement of commodities began to crumble; Frelimo did not have enough qualified people to make the system work. We were in Zambézia in 1982, seven years after independence, and state farms were already having to buy food for their workers on the parallel market at well above official prices. Table 10.1 Bribe paying In the past year, have you paid a bribe to? See a health worker Obtain a permit or document Police at a check point Get a child into school Obtain a household service (eg water, electricity)

Mozambique

African average

29% 25% 22% 20% 18%

15% 16% 15% 9% 10%

Source: Pereira et al. (2006). Mozambique survey carried out in 2005. ‘African average’ is the mean of surveys carried out in 18 countries in 2005–06. Totals corrected to exclude no answer, no experience, don’t know, etc. Source: Logan et al. (2006).

AIM Information Bulletin 47, May 1980, Maputo; Hanlon (1991: 231). Foreign Minister Leonardo Simão speaking at a conference 28–29 September 2000, explaining his decision the previous year to close down and replace the Department for the Prevention and Combat of Natural Disasters (DPCCN, Departamento de Prevenção e Combate às Calamidades Naturais). Christie and Hanlon (2001: 74). 2 3

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Table 10.2 Mozambique perceptions of corruption How many of the following do you think are involved in corruption?

None

Some

Most or all

The President & his officials Elected members of parliament & local councils Judges & magistrates National & municipal civil servants Teachers & school administrators Health workers Customs/immigration Police

49% 46% 31% 29% 24% 23% 23% 21%

39% 39% 47% 46% 43% 43% 39% 42%

14% 15% 22% 24% 34% 34% 39% 36%

We also saw district administrators make deals with local traders, turning a blind eye to some unofficial trading in exchange for the supply of scarce goods to government officials. Once the state apparatus becomes involved in activities which are manifestly necessary but remain ‘illegal’, and the government seems unable to see the gap between reality and policy, it becomes plausible to ignore ever wider areas of law. Meanwhile, the elite did begin to believe that they deserved a little bit extra. Initially, as we saw personally, the little bit might just be for a district administrator to have cooking oil when there is none in the shop. But it soon expands to cars, consumer goods, better houses, and better health care and education, especially for the Maputo elite. War had a corrosive effect and every war has profiteers.And those who were taking the most risks felt that they deserved a bit extra. Initially it was just the driver taking the odd sack of maize, but it grew. It remained a mixed package. For example, the Maputo city rationing system lasted into the late 1980s, supplying staples to everyone in the capital, and it remained popular.The railways and the grain marketing board, Agricom, continued to operate at the height of the war – because people made immense sacrifices. A 1985 US evaluation of Mozambique government-controlled distribution of food aid said:‘there has been virtually no evidence, nor even suggestion, of corruption at the lowest levels.’ (Brennan and Lockwood 1985). But large-scale corruption began to increase.Thefts of aid were noted.When President Samora Machel was killed on 19 October 1986, he was returning to Mozambique to attend a meeting at which he had already said he was going to dismiss corrupt generals profiteering from the war. A new era started in 1987; Joaquim Chissano was president, Mozambique was adopting capitalism, it was good to get rich, and the strict morality of the Samora era was left behind. Part of the increase in corruption was directly linked to the rapid introduction of free market capitalism.As Teresa Smart points out with reference to the money change in 1980: Money was less important.Your basic food came from the co-op. Food and rent cost only a small portion of your salary.There wasn’t much in the shops; people complained, but there was also a sense of hardship shared.There was little point in stealing money; it was hard for ordinary people to spend more, and the leadership could not use it because of a puritan culture of not displaying wealth.

All that changed in 1987. Suddenly there were goods in the shops but at prices few could afford. In the Chissano era it was OK to display wealth; money mattered, and people were prepared to bend the rules to have it. The World Bank in a study of East European transition economies admits that these countries were less corrupt in the central planning era than in the free market era. The Bank argues that the Communist Party controlled the behaviour of public officials using a mix of mutual oversight, incentives and repression. It adds that central planning ‘did place certain boundaries on corruption’ (Pradhan et al. 2000).This was true in Mozambique. But

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equally, or more, important were idealism and political will. In the first decade of independence, Mozambican officials really did believe they were building a better country, and that the integrity of the state was important. The donors’ role In the rest of this chapter we look at the complex interaction between the Mozambican elite and the international community. One example will show the intricate balance. As the war intensified in the mid-1980s and South Africa stepped up its backing for Renamo guerrillas, Mozambique was anxious to bring the United States on board to stop backing apartheid South Africa’s destabilisation.A US condition was that two of its INGOs, Care and World Vision, be allowed to work in Mozambique, and, under further US pressure, Care’s contract was extended in 1986 to ‘manage and coordinate all requests and receipt of emergency relief assistance’.Various evaluations showed that Care did a much worse job than the Mozambicans; a 1990 evaluation said it failed to organise regular checks of goods in warehouses or control of reception and dispatch. For example, in Quelimane in 1988, food aid was brought by sea and transferred to lorries to be taken to the warehouse. Local staff soon realised that although Care counted the number of sacks loaded onto each lorry at the dock and then compared it with the number off-loaded at the warehouse, it did not count the number of lorries. Drivers took entire truckloads of food aid and sold it to private traders. Other donors increasingly complained about Care, but the US embassy vociferously defended it (Hanlon 1987: 77). In 1992 these reports were put to USAID. Julius Schlotthuer, USAID manager in Maputo, replied: We are fully aware of the shortcomings mentioned. However, it has never been the USA’s political and aid-related intention to go in and strengthen Mozambican public administration by helping to establish a national state organisation to counteract emergencies. Quite the opposite; the faster such attempts erode, the easier it will be for private interests and non-government organisations to assume responsibility for the distribution of emergency aid and to reach targeted groups.You can quote me on this point (Abrahamsson and Nilsson 1995: 142, fn 239).

This happened at the same time as the new structural adjustment programme, with much higher prices, had hit working people hard. People began to steal food aid just to feed their families. The international community created the conditions – held open the door – that allowed Mozambicans to become corrupt. It was not that donors consciously tried to bribe Mozambicans (although that happened, too); rather it was that donors always had higher priorities, particularly about reducing the role of government and increasing that of the private sector, and these were pursued single-mindedly even if corruption was a sideeffect. Mozambicans had hands out for bribes and hands in the honey pot of aid money. But donor attitudes made the corruption of Mozambican life much more rapid.They also created a climate in which corruption became reasonable and safe; it seemed stupid to be honest. War and capitalism Many of the problems related to the rapid transition to capitalism. Most Mozambicans had little experience of business and markets. In the colonial era, trade had been tightly controlled, with licences allocated largely on racial grounds to whites of Portuguese origin and people whose families came from Portuguese colonies in India and China.The vast majority of Black Mozambicans were not allowed to run businesses, however small, or permitted into even lower level management posts. In 1975 many Portuguese ‘went home’, abandoning and often sabotaging small businesses.Workers assumed that Frelimo would ‘do something’. Abandoned businesses continued to operate and workers were still paid. The priority was to reverse the economic collapse caused by the flight of the Portuguese;

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but ministers and new senior civil servants often became firefighters, trying to resolve problems in tiny businesses. It worked; the economy turned around and started to grow. In 1980 the state began to sell off most of its shops and small businesses (Hanlon 1986: 77).At the height of the ‘socialist’ central-planning era, Frelimo was taking the lead in privatisation long before it was fashionable in the West – and Mozambican capitalists were now comfortable and confident enough to take them over. There were two other prongs to the Frelimo strategy. One was to dominate larger industry and agriculture, through new factories such as the planned textile mills in each province and large state farms.These were to run in parallel with private companies which had not been abandoned, such as one sugar estate and several tea plantations, and new private investment, such as the Mabor tyre factory.The second prong was to provide competition to the private sector. The state-owned Hortofutícola had a 30% share of the Maputo wholesale fruit and vegetable market. Run as a private company, it had a double brief; to lower consumer prices and to make a profit.Thus, where private traders formed a cartel to keep prices of staples like tomatoes high, Hortofutícola opted for the mass market and pushed prices down, while still being profitable (Hanlon 1991: 127). The war put a stop to this transition to a mixed economy. Roads and electricity supplies were under constant attack. Exports fell from $281 m. in 1981 to $77 m. by 1985, and there was a debt crisis. Net aid and new loans (after repayments) had been $415 m. in 1982 but in 1985 Mozambique actually paid out $27 m. more than it received.The debt crisis meant that imports of raw materials and consumer goods were halved between 1982 and 1985 (ibid.:Appendix 1). Shops were empty and factories paralysed. It was difficult for any business to be profitable, other than traders operating at high risk or on the edge of legality. The crisis caused by the rapidly collapsing economy and the intensifying fighting led the government to try to deal with the West to end the Cold War proxy war. In 1984 it joined the World Bank and IMF, signed aid agreements with the US, and signed the unsuccessful Nkomati Accord with South Africa. During 1985 and 1986, Mozambique was under increasing pressure from the US and the Bretton Woods institutions. On 14 January 1987, just three months after the murder of President Samora Machel, Prime Minister Mario Machungo presented to parliament the Economic Rehabilitation Programme (PRE, Programa de Reabilitação Económica), Mozambique’s first structural adjustment programme. It involved devaluation, deregulation and sharp increases in prices.This was matched by a special fund to import consumer goods and try to stimulate the rural economy. Although the war was intensifying, the PRE did revive the economy.The national currency, the metical, had become almost valueless and people were resorting to barter, but the PRE restored its value. Privately owned small trucks and minibuses began to provide public transport in Maputo and other cities, as they do elsewhere in Africa. Informal markets sprang up everywhere with women sitting behind piles of charcoal, cabbages or cans of South African beer. There were many more cars on the street as well as new luxury restaurants and nightclubs, but the PRE hit the poorest hard.The mark of the change was children on the streets of Maputo selling cigarettes one by one. Previously this would not have been allowed and there was no need; with free market reforms, it was possible and the tiny amount of money these children brought home helped to keep malnutrition at bay (Hanlon 1991: Chaps 11, 12). Frelimo renewed and extended its privatisation efforts.Top priority of the US and the international financial institutions was to convert the ‘Marxists’ into capitalists, but they were so blinded by their own anti-communist rhetoric that they were oblivious both to Frelimo’s attempts to create an indigenous business class and a mixed economy, and, more importantly, to the colonial history that meant that there were few Mozambican entrepreneurs. At first the IFIs pushed for more rapid privatisation, but then they found no one willing to take the shops and factories on offer.

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Creating capitalists Across Africa colonialism left behind a class of people who had administered the country for the colonial power, but the very nature of that exploitation meant it rarely left a domestic capitalist class.The new elite tended to be a governing and administrative group. Socialism and war gave Mozambicans little experience, or even contact, with running a business to make a profit. Even for experienced managers, the priority had been to keep enterprises running and producing, to ensure that people had food and basic goods even if the cost was high.Thus the transition to capitalism required the creation of capitalists. Meanwhile, there was a need to buy the agreement of generals to end the war and of some in Frelimo to abandon any ideas of socialism. On the other hand, there was a burgeoning and more ostentatious elite in the Chissano era which welcomed the change, but had no assets.There was a tacit understanding that there would be a massive but less than transparent privatisation process. Larger industries would go to foreign companies, but medium and small businesses would go to individual members of the nomenklatura4 (or Frelimo party elite), to party companies, and also to those who hoped to use the assets for more progressive ends, such as Graça Machel’s Community Development Fund (FDC, Fundação para o Desenvolvimento da Comunidade) which took shares in the privatisation of Maputo’s water supply. Some Mozambicans had gained a rapid on-the-job training in management after independence, and often became quite good at it. Some of the better-run state companies were successfully privatised as management buyouts. Successful private traders took some firms, and a few of the Frelimo elite showed a flair for business and with continuing support from the state established well run and profitable companies. But most of the privatisations to members of the Frelimo elite were failures. In trying to turn administrators and generals into emergent businesspeople, the international community gave them a crash course in capitalism.And the lesson was that capitalism is not about profit but about patronage; businesses are ‘privatised’ and given ‘loans’ that need not be repaid, according to who you know and donor whim. A few years ago we wrote about the system of ‘loans’: In 1988 the Caixa de Crédito Agrario e de Desenvolvimento Rural (Agricultural and Rural Development Fund) was set up using donor counterpart funds to give ‘loans’ to military men and party officials, with no intention that the loans would be repaid. … The World Bank’s 1989 Small and Medium Enterprise Development Project was intended to help the new owners of privatised businesses. Nearly $33 million was lent, and the World Bank’s 1998 evaluation admitted that 90% of the loans would never be repaid.The Bank’s own evaluation admitted that ‘the Bank is alleged to have put substantial pressure on the management of the banks to ensure the expedient disbursements of project funds; this undermined even further the credit quality of the subloans’. A World Bank Industrial Enterprise Restructuring Project was similar and gave $30 million in loans to larger privatised state companies, most of which will probably never be repaid [Landau 1998: 62–3]. In effect, the World Bank admits it put ‘substantial pressure’ on honest Mozambican bankers to bend the rules to give loans they knew could not be repaid (Hanlon 2004a: 750).

Many in the nomenklatura took seriously the socialist cartoon description of capitalists as people who lived in relative luxury, did little work, and exploited the workers. Money was spent on fancy offices, houses and cars rather than being invested in the business.They assumed that this was how they were to run their new privatised businesses with non-repayable ‘loans’. In the previous chapter, we pointed to Frelimo’s extraordinary ability to remain organNomenklatura: From the Russian from the Latin, meaning a list of names. In this case the list of names that the Communist Party thought eligible for appointment to key posts, rather like the British list of ‘the great and the good’.The nomenklatura thus became the name for the party’s increasingly privileged bureaucratic and administrative elite.This is what Issa Shivji called the ‘bureaucratic bourgeoisie’ in his 1976 book Class Struggles in Tanzania, and what the Yugoslav writer Milovan Djilas in his 1955 book called ‘the new class’. 4

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isationally united, out of necessity, while there were huge disagreements inside the party. And this unity has held, even as divisions within the party have increased. Peter Evans defined a distinction which seems appropriate: Some states may extract such large amounts of otherwise investable surplus and provide so little in the way of ‘collective goods’ in return that they do indeed impede economic transformation. It seems reasonable to call these states ‘predatory.’ ...Those who control the state apparatus seem to plunder without any more regard for the welfare of the citizenry ... Other states, however, are able to foster long-term entrepreneurial perspectives among private elites by increasing incentives to engage in transformative investments and lowering the risks involved in such investments. They may not be immune to ‘rent seeking’ or to using some of the social surplus for the ends of incumbents and their friends rather that those of the citizenry as a whole, but on balance, the consequences of their actions promote rather than impede transformation.They are legitimately considered ‘developmental states’ (Evans 1989).

We see Frelimo as divided into ‘predatory state’ and ‘developmental state’ groups which follow these two approaches. Some inside Frelimo tried to block the predation of others and pushed for a softer, more social democratic capitalism with a higher degree of state intervention. Differentiation and class formation are taking place and a drive though Maputo shows neighbourhoods of expensive houses, largely of people in the nomenklatura – people with family or other links to the party.The puritanism of the Samora era has been forgotten; even the developmental group lives well, and sometimes better than their European counterparts and more comfortably than state salaries would justify. Nevertheless, the key point here is that made by Evans.There is a real difference of attitude between those in the elite working purely for themselves and their families, and those who see themselves participating in a joint project to develop the country. In 1990 at a meeting in Paris, Finance Minister Abdul Magid Osman stressed that ‘the creation of a large, dynamic and enterprising Mozambican entrepreneurial class is essential’. But he admitted that ‘the current tendency is towards the creation of a class based on dubious business deals, and which requests various kinds of “bonuses” and protectionism from the state’ (Osman 1990).5 Seventeen years later, he admitted that two clear lines continued. One is to create ‘a restricted group of big business people who are the ones with political connections which enable them to arrange capital’.The other is to create thousands of business people; some will fail and others will succeed and eventually become big business people (Notícias, 15 March 2007). Osman’s comments were linked to a debate about the shortage of capital and a possible development bank (Chapter 17), and whether credit just goes to a handful of people with party connections. In the four years 1999–2002 the Treasury gave loans for $50 m. (then 874 mn MT) to 35 private companies.6 The loans were largely to the nomenklatura, and in the three years 2003–5, payments were being made on only 11 of them.The Administrative Tribunal report for 20057 stated that, by the end of 2005, Mavimbi, a fishing company linked to President Guebuza, had repaid 1% of its loan; a company linked to Albano Silva, husband of Luisa Diogo who was Finance Minister and thus responsible for granting the loans at the time, had repaid 15% of its loan; and a company linked to Alberto Chipande, who fired the first shot in the liberation war in 1964, had actually repaid 82%. But companies linked to the liberation war veteran General João Américo Mpfumo and the family of Tourism Minister Fernando Sumbana were not repaying; both had also been debtors to Banco Austral when it collapsed (see below). Dr Magid Osman became president of the second largest bank in Mozambique, BCI Fomento, which was a 2004 merger of Banco Comercial e de Investimentos (BCI) and Banco de Fomento. Osman had been Presidente do Conselho de Administração do BCI. BCI Fomento was controlled by the Portuguese bank Caixa Geral de Depósitos, with 42%.The other two shareholders were the Portuguese bank BPI with 30% and SCI – Sociedade de Consultoria e Participações, Osman’s company – with 28%. Osman and SCI left BCI in 2007. 6 The Treasury then stopped making loans, and apparently none have been made since 2003. 7 Tribunal Adminstrativo,‘Relatorio e Paracer sobre a Conta Geral do Estado de 2005’, 30 Nov. 2006. 5

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Cabritismo, rent-seeking and division within Frelimo Increasingly, many in the predatory group believed they deserved a cut of whatever was going. It was difficult for Mozambicans or foreigners to set up businesses without a member of the Frelimo elite having a share. Licences, permits, and land required bribes or participation. Mozambicans began to talk of ‘cabritismo’. Cabrito means goat, so this is literally ‘goatism’, which comes from the Xichangana saying ‘a goat eats where it is tethered’ (Lopes et al. 2002). In other words, the goat eats anything that comes within the range of its leash, and thus civil servants and more senior people expect to ‘eat’ anything that comes within their area of influence. It is classic rent-seeking, and it soon became quite obstructive as people were prepared to block developments with broad public benefit if they did not get their share.8 The problem was also cyclic: with so many goats needing to eat, few businesses could be profitable, so they were forced into grey areas such as not repaying loans. Land has proved a key area. Many people in the nomenklatura, from the top down to district administrators, have organised rural land for themselves.A few are actually investing and some simply have weekend farms. But at high level there are people with large tracts of land which they are holding speculatively. If land is privatised, they hope to sell it; otherwise, they hope to rent it out. Driving from Chimoio to Vila Manica along the main road, you see prime agricultural land – good soils, good rainfall, close to the road. But little of it is used; instead it is simply being held by very senior people in Frelimo. We interviewed a foreign investor who wanted to grow bananas for export. He found some land near Beira. His story continues: ‘The land was perfect for bananas, and would have created 2000 jobs. It was held by a high party person, who wanted a huge cut. I talked to the then Minister of Agriculture, who checked and then told me “that person is too powerful for me to intervene”.’ So the investor began looking in the Maputo corridor. ‘There was good land, and the officials who controlled it said they wanted to promote development and were prepared to negotiate. But they wanted to be given “jobs” at a salary of $3000 per hectare per year.’ Bananas could be profitable, but not if he paid $1 million per year to cabritos. In many ways, Mozambique was a ‘transition country’ moving from socialism to capitalism, like those of Eastern Europe.A World Bank study of corruption in Eastern Europe developed a distinction between two types of corruption. (i) Administrative corruption relates to the implementation of laws and regulations, such as paying a bribe to obtain special treatment or to encourage an official to carry out their job.Also,‘state officials can simply misdirect public funds under their control for their own or their family’s direct financial benefit’. (ii) State capture involving taking control of institutions, such as ministries, the judiciary or regulatory agencies, to influence the formation of laws and government policies for personal benefit. The overlapping of business and political interests of state officials ‘has been a particularly prominent characteristic of many transition countries’ (Pradhan et al. 2005). Cabritismo can involve both types. But state capture became increasingly apparent in the 1990s.A key aspect of this, according to the World Bank study, is ‘the sale of civil and criminal court decisions to private interests [and] corrupt mishandling of central bank funds’, both of which happened increasingly. The judicial system was kept intentionally weak and politicised, so that cases against the nomenklatura were simply never heard. Here it is important to insert a personal note. However awful the effects of cabritismo and the predatory state group, we have remained involved with Mozambique because the developmental state group is significant. On all of our travels, from the districts to the capital, we have always found good, hardworking, honest people who believe that Mozambique can be transformed. Many of these people were young at independence, and at school and university internalised the early Frelimo belief in the developmental state. SoPerhaps the real difference between the predatory and developmental groups is that the predatory group will block a development if there is not a cut, whereas the developmental group will give priority to promoting the development while hoping eventually to profit. 8

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cialism may have been replaced by capitalism, many are now in the private sector, many lead middle-class lifestyles well above the Mozambican average, yet they retain their belief in their responsibility to contribute to the development of the country. Even when thwarted by the predatory group and blocked by the narrow views of the IFIs, they find ways to build a better society.They are the real Mozambican heroes. Squeezing the poor and middle class The very rapid changes did not just affect the nomenklatura. Sharp price rises in the late 1980s hit everyone. But the biggest change came in 1991 and reflected a sharp and surprising split between the IMF and the World Bank. The IMF, in its harshest ideological phase, demanded sharp cuts in government spending and resisted the Bank’s call for a rise in civil service wages. In January 1991 the civil service wage range was from $31 (then £21) to over $500 (£300) per month. Five years later, it had fallen to $20–$150 (£13– £100) per month. Nurses and teachers fell below the poverty line in early 1992 and below the abject poverty line in mid-1993 (Hanlon 1996: 49). The result of such a rapid fall in wages was inevitable. Civil servants had to steal time, resources, or money in order to feed their families. Many spent a large part of the day away from work, doing petty trading or trying to grow food.Anyone with access to state resources used them, so state cars were used as taxis, medicines were stolen and sold in the markets, etc. But the most devastating impact was that front-line civil servants demanded money. Medical treatment required payment to the nurse. Bribes were necessary for school places. Ordinary people were angry, but they also saw that nurses and teachers had to feed their own children. Even good people in the developmental state group were forced to duck and dive. Low wages corrupted the entire system; less work was done and everything had to be paid for. Little more than a decade after Langa’s suicide and the money change, Mozambique had become a deeply corrupted society, with the predatory state group manipulating the system and hungry civil servants demanding bribes. At the same time, the BWIs, bilateral donors and NGOs were paying 10 to 30 times as much as civil service wages, so many of the most competent and qualified civil servants moved to the aid sector, further weakening the government.That was partly intentional. The IMF ideological line was for a small, weak government. But by the mid-1990s some donors were rebelling against the whole IMF structural adjustment policy, which had made the civil service so weak that it could no longer do the things the donors needed to carry out their programmes.The IMF backed off, and from 1996 wages began to rise.The minimum wage went from $20/month in 1995 to $30 in 1998 and $37 in 1999 (above the level before the IMF cuts); wages remained steady until 2003 and then the minimum rose rapidly, reaching $56 in 2006. The problem was that by the time the civil servants were earning a living wage, habits of maintaining multiple jobs and demanding bribes were ingrained.Another factor is the ostentatious wealth now demonstrated by the elite. Civil servants see themselves as middle-class and are demanding a higher standard of living, while their wages remain relatively low. Even USAID in 2005 admitted ‘Low-level government officials use corruption to supplement meager incomes’. In health,‘low wages trigger a motive for extortion of patients and requests for unofficial fees.’ (Spector 2005). Bank robbers9 Like the rest of the economy, Mozambique’s banking system went through rapid transition. First there was nationalisation of most (not all) private banks to prevent capital flight after independence, plus the creation of a central bank.The banking system had to serve a state-dominated production system. In his studies of the system Marc Wuyts concluded that its policy of financing deficits was crucial in stabilising employment, preventing a fur9

This section is based on three articles which detail Mozambique’s banking crisis: Hanlon, 2001, 2002 and 2004a.

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ther collapse in production, stabilising prices and actually preventing inflation, at least in the short term. Allowing abandoned and sabotaged companies to close would have created chaos (Wuyts 1986; 1984). Banks soon shifted into keeping the economy going during the war, which meant providing working capital to keep industries and state farms operating that would never be repaid.10 Finally came the transition to a banking system that would serve the ‘free market’. Through the 1980s, there were three banks.The Bank of Mozambique (BdM, Banco de Moçambique) served as the central bank and a commercial bank as well as the treasury. The People’s Development Bank (BPD, Banco Popular de Desenvolvimento) was a commercial bank and, as its named implied, a development bank, and it had branches in most district capitals. Finally, Banco Standard Totta de Moçambique (BSTM) had always remained private.The first step was to split the commercial and central banking functions of the BdM. This began in 1987 and in 1992 the Commercial Bank of Mozambique (BCM, Banco Comercial de Moçambique) was formally broken off from the BdM. But by the late 1980s, the BdM was already corrupt. Senior officials were involved in illegal foreign currency transactions, and loans that did not need to be repaid were being offered for a 10% commission.Within Frelimo the split between developmental and predatory was becoming more obvious, but the commitment to unity meant that the corrupt elements were protected at the highest level and could not be disciplined. So Adriano Maleiane, who became governor of the BdM in 1991, split up the banks in such a way that corrupt, incompetent and lazy staff went to the BCM. He kept the best staff and used them to turn the BdM into an effective and honest central bank, which was his priority. It was clear by then that both the BPD and the BCM had become corrupt and badly run and literally tens of millions of dollars were stolen through fraudulent transactions.After much debate, the government decided in early 1995 that they should be privatised, but it was clear that they would need to be cleaned up first; $100 m. was injected into the BCM to clean up its balance sheet.At this point the BWIs stepped in.The World Bank’s 7 November 1995 Country Assistance Strategy, which had liberalisation of cashew as a necessary condition, also had privatisation of the BCM as a condition.The 11 April 1996 joint IMF-World Bank Policy Framework Paper required that the government privatise both banks during that year. But there were no credible buyers.At the last minute a consortium was put together by a Portuguese businessman, Antonio Simões, who was already deeply in debt to the Mozambique government for unsuccessful attempts to rehabilitate the local metal working industry.The consortium included Impar, a Mozambican insurance company whose shareholders included Simões and various members of the nomenklatura, as well as a Zimbabwean bank believed to be fronting for the Chissano family, and Banco Mello of Portugal. Fermino Santos, who was coordinating the privatisation for the BdM, strongly opposed the consortium’s bid on the grounds that the BdM already considered Simões a bad debtor. Santos pleaded with the World Bank to permit a delay, because he believed another Portuguese bank was interested, but the Bank forced through the sale, which took place in mid-1996. The same thing happened with the BPD. In early 1997 the IMF threatened that aid would be cut off if the bank was not privatised by the end of June.This time the Mozambican partner was a company called Invester, headed by Octávio Muthemba, who had been Industry Minister when Simões was borrowing from the ministry, and who was also chair of the Frelimo party holding investment company SPI – Gestão e Investimentos. On a visit to Malaysia in March 1997 President Chissano persuaded the Prime Minister Mahathir Mohamed to assign a Malaysian bank, SBB, as the external partner.The BPD was privatised in September 1997, with Muthemba as chairman.The BPD also had links with 10 Initially, the policy of printing money to keep businesses running was not inflationary, in part because the de facto rationing of consumer goods worked and was acceptable. But by the early 1980s more cash was going into a parallel economy and traders were starting to accumulate large amounts of money.

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the Chissano family, in particular through the President’s son Nyimpine. Both banks were being looted before and after privatisation. Probably the biggest single theft was of 144 m. MT (then $13 m.) from the BCM in the six months before privatisation. In June 2004 seven people were convicted of the fraud, including Vincente Ramaya, manager of a BCM branch, and Nini Satar, a loan shark and son of a businessman who fled to Dubai after the fraud. Initially investigation of the fraud was blocked by corrupt prosecutors. Ramaya always claimed that the fraud was only possible with the participation of senior bank officials; bankers I interviewed agreed, but investigation of these people was blocked and they were never prosecuted. A mark of the nature of the privatisations was that the buyers of both banks did not carry out what are called ‘due diligence’ audits when they took over; these basically separate the past actions of the old owners from future actions of the new owners, and would have revealed past fraudulent practices. It seems likely that the new owners did not wish to highlight past fraud because they wanted to continue the same methods and did not want future looting to be easily distinguishable from that of the past. One official of the BCM told me at the time:‘The bank needed a total clean-up. But it never happened.The shareholders told us not to.’ The BCM continued to be looted, apparently from its foreign accounts in particular.The BPD was renamed Banco Austral and began handing out loans to the Frelimo elite without guarantees and without likelihood of repayment. The crises for both banks came in 2000.The BCM was taken over by Banco Comercial Português (BCP), which had bought Banco Mello, and a new deal was struck with the government. BCP cleaned up the bank, and by mid-2001 it had been necessary to put in an extra $162 m. to cover bad debts and ‘other items’.The government was to fund twothirds of this with bonds. No audit would be done of past misconduct; a curtain would be drawn over the whole mess.11 Also in 2000 Banco Austral collapsed and was taken over by the government.An audit by KPMG showed that bad loans, bad accounting and outright theft had cost at least $15 m. pre-privatisation and $30 m. in the three years after. KPMG found more than $8 m. in thefts had been hidden in the accounts.There were non-performing loans to at least two ministers.The bank had lent money improperly to its own shareholders.Top management of the bank had manifestly violated Mozambican banking and corporation law, yet they were never prosecuted. BdM governor Adriano Meleiane stated in 2001 that Banco Austral required a recapitalisation of $150 m. In 2001 it was sold to the South African bank ABSA, later itself taken over by Barclays.ABSA was to attempt to collect on many of the bad loans. But 70 loans for 347 m. MT (then about $17 m.), believed to be the politically sensitive loans, were left for the state to collect. By the end of 2005, only 15% had been collected. Of the 70 bad loans, no attempt was made to collect on 26.12 So in the 1990s more than $400 m. was lost from the banking system, some simply bad loans to underperforming companies, but most looted by members of the predatory group in Frelimo and their friends. Most of this occurred after privatisations forced by the IMF and World Bank, which had been told they were fraudulent by honest people in the BdM, but which insisted that the privatisations go ahead. It was the predatory group which stole, but it was the BWIs which opened the safe and said ‘help yourself ’. Dealing in white powder The drug trade became important in Mozambique in the late 1990s as major dealers began BCP was only founded in 1985 but quickly grew to be one of the biggest banks in Portugal. It set up Banco Internacional de Moçambique (BIM), Mozambique’s first new private bank, in 1994. BIM’s chair was former prime minister Mario Machungo. Initially, BCP owned 50%, the International Finance Corporation 25%, Mozambican government institutions 22.5%, and Graça Machel’s Community Development Fund 2.5%.When BIM was founded it quickly attracted substantial foreign currency deposits and there were allegations of money laundering and fraud. In 2001 BIM took over BCM. In 2004 BCP renamed itself Millennium BCP and BIM became Millennium BIM. 12 Tribunal Adminstrativo,‘Relatorio e Paracer sobre a Conta Geral do Estado de 2005’, 30 Nov. 2006. 11

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to look for alternative routes which were less easy for the international agencies to control. Once movement throughout the country was re-established after the war, Mozambique was attractive; its long coastline with many islands and no navy made it easy to move drugs. Low salaries and a climate of corruption helped. At first the main movement was of cannabis resin (hashish), but by the late 1990s this route was being used for heroin moved from Pakistan to Dubai to Tanzania and Mozambique and then on to Europe.Typically it was offloaded from larger boats offshore onto smaller local dhows, then stored in Pemba and Nacala, and then taken to Mozambican and South African ports where it was hidden in containers of other goods going to Europe. International experts say that the Mozambican police were almost totally corrupted, and that Maputo airport was seen as ‘open’ and easy for drug couriers to come and go. A paper presented at South Africa’s Institute of Security Studies in April 2002 stated that ‘the relative impunity with which some of the successful [drug] traffickers operate is often a result of their close connections with individuals at the highest levels of government or the Frelimo party’ (Gastrow and Mosse 2002).With no danger of raids, Mozambique becomes a safe place to store drugs until the dealers have an order to fill. Mozambique is only a tiny player on the international drugs scene, but when we first wrote about this in 2001 experts estimated that more than one tonne per month of heroin with a retail value of more than $50 m. was passing through the country.13 Some of this money, perhaps $2–5 m. per tonne, must have been going to dealers inside Mozambique. This was enough to make drug trafficking the country’s biggest business, with the value of illegal drugs passing through more than all legal foreign trade combined. Income from this industry must have had a major, albeit unrecorded, impact on the Mozambican economy. Some of this money was certainly leaving the country, both in suitcases and money laundering through the unusually large number of banks and exchange houses. But a considerable amount has been invested locally.The construction boom in Pemba, Nampula, Maputo and along the coast, with new large buildings and luxury houses, must be partly funded by drug money. Some went into the stock market, which ballooned to a value of $100 m. in the first year it opened, which at the time was described as ‘unique’.Tourism is a good investment as well. And what is the role of Frelimo? International experts we interviewed in 2001 said that the total absence of drug arrests and the fact that there had been no fights between the various Mozambican groups moving drugs suggested that the trade was being controlled from the very highest levels, with market shares and police protection organised at high level. Does drug money help to pay for Frelimo and its lavish election campaigns? Since 2001, there appears to have been little change. Although there have been a few arrests of cocaine mules passing through Maputo airport, there have been no heroin arrests. More recent discreet questioning in Nampula and Cabo Delgado suggests that the trade continues, and is usually combined with warnings not to look too closely at Pemba and Nacala ports.And donors still turn a blind eye. This is shown most clearly by customs reform.The IMF and the donors insisted that the corruption in customs was too great and that the government had to collect more revenue from customs duties, so under donor pressure the entire customs service was handed over to a private company.The brief was to increase revenue but not to consider contraband on which no revenue could be raised. A senior company official confirmed to me, ‘We weren’t interested in anything but revenue’, and he noted that certain appointments of regional directors surprised him, because they were people ‘close to the party’.The project was a success, with a more efficient customs service and sharply increased revenues – and no heroin seizures at ports or airports.There is, however, no public discussion of the impact of this large amount of drug money on the economy and politics of Mozambique. 13

Metical 1017, 28 June 2001, Maputo.

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Murder, reaction & compromise A few million dollars may not be a large amount of corrupt money in Saudi Arabia or the United States, but it is enough to kill for in Mozambique. Several people involved in investigating bank scandals have been shot and at least two died in curious circumstances. One was José Alberto de Lima Félix, Portuguese managing director of the Banco Internacional de Moçambique (BIM), who was shot while investigating money laundering in the bank in December 1997. But it was two very public assassinations that really brought home the danger of looking too closely at bank fraud. Carlos Cardoso was Mozambique’s best journalist, one of the founders of the first independent media group, MediaCoop, in 1992 and the originator of the first faxed daily, MediaFax. In 1997, he left to start a new faxed daily, Metical; named after the currency, it was to be Mozambique’s first business newspaper – but with a difference. Cardoso was always on the left and a holder of traditional Frelimo values, but he also argued that domestic capitalists committed to development were a progressive force in the face of World Bank and IMF structural adjustment policies and a bias toward foreign ownership. Through Metical he quickly became the spokesperson for the developmental wing of Frelimo and the scourge of the predatory wing. He was trusted and his investigations were meticulous, so honest people inside the banks, donors, and state apparatus began to leak scandals to him. He was also part of a citizens group elected to the Maputo city assembly in 1998 in an explicit challenge to corruption in Maputo government. Cardoso began to investigate the banking scandals – the post-privatisation looting as well as why the 144 m. MT bank fraud was not being investigated – and he also looked at the business practices and loan-sharking of the Satar family. Initially he investigated BCM, but in November 2000 he was asking the government pointed questions about Banco Austral. Then on 22 November 2000, on his way home from work, he was machine-gunned and killed on a busy street in the rush hour. His murder curbed investigative journalism in the country for several years.14 António Siba-Siba Macuácua was a bright young economist who had risen to be number three in the central bank, BdM, where he was head of banking supervision.With the collapse of Banco Austral, Siba-Siba was made its temporary head in early 2001 with a brief to clean it up for re-privatisation. He had the backing of honest people in BdM and the developmental wing of Frelimo, and on 19 June 2001 he published a list of more than 1000 individuals and companies with overdue loans. But the list excluded people from the nomenklatura, and Siba-Siba began negotiating with them, and increasing the pressure. On Saturday morning 11 August 2001, he was killed and thrown down the stairwell of Banco Austral’s 12–storey headquarters – another very public assassination. Initially, neither killing was investigated; links at the top were too obvious. But Cardoso was well known in the donor community and abroad. On foreign visits President Chissano was asked by journalists why there was no investigation. In Maputo there were regular vigils at the site of the killing and newspaper advertisements demanding prosecution of the killers of Cardoso. Finally an investigation began; arrests were made and the case went to trial in late 2002. Siba-Siba was arguably more important, as a senior figure in the central bank, but he had fewer vocal friends, and there was little investigation of his murder. Overriding the assassination? The donor response to the assassinations is much debated. In March 2001 donors decided to withhold budget support.Although this was never announced publicly, it appears from Appendix Table A1.4 that Mozambique lost $50–$100 m.15 In mid-2001, before Siba-Siba was killed, key figures in civil society who were also close to the developmental wing of 14 15

There is a good biography, in Portuguese and English: Fauvet and Mosse 2003. Aid figures vary wildly from year to year, so it is hard to be precise.

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Frelimo approached donors privately and appealed for more pressure on the government – perhaps even withholding approval of the poverty reduction strategy paper (PRSP) and, with it, debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Some Nordic donors were sympathetic, but most refused (in part due to international pressures discussed in Chapter 11). An investigation did begin into the Cardoso murder.Then Siba-Siba was killed and again there was no investigation. Just two months after the murder, the donor community had another chance, at its Consultative Group (CG) meeting in Maputo on 25–6 October 2001.There was much high-flown rhetoric about the assassinations, corruption and the bank scandal. Mozambique asked for $600 m. in aid and was given $722 m. – the extra money was enough to plug the hole in the banking system.And budget support was reinstated. Donors argued privately that they had extracted concessions from the government (and Cardoso’s killers did go on trial.) But it seemed a large reward for a very limited concession.A month later, former security minister Sergio Vieira wrote in his Sunday newspaper column that the donors recognise ‘the good performance of the government’ and this ‘overrides the bank scandal and the assassinations of Siba-Siba Macuacua and Carlos Cardoso’ (Domingo, 2 December 2001). No donor, publicly or privately, disagreed withVieira. It was widely seen as only a slap on the wrist and an implicit backing of the predatory group, in effect saying ‘you can steal $100 m. a year so long as you follow our structural adjustment policies’. Balance shifts inside Frelimo But the two assassinations were clearly a step too far, showing that the predatory faction had become greedy, and they proved to be a turning point. One of the country’s foremost writers, Mia Couto, said ‘we live in a kingdom where those who lead are gangsters’16 and that an elite was using power ‘in order to enrich itself.They don’t think of Mozambique, they think of themselves.’17 In a brave annual statement to parliament on 6 March 2002, which also reflected a shift in the balance inside Frelimo, Attorney-General Joaquim Madeira pointed to ‘the growing tendency for illegality to gain supremacy over legality, the dishonest over the honest’. He said that ‘the culture of legality is still a dream, even among leaders’ who feel free to ignore requests for information from corruption investigators in the Attorney General’s office. Frelimo activists campaigning in the provinces in 1999 had been shocked by the backlash against the party caused by corruption, and saw it as the cause of the near defeat of Joaquim Chissano in that election. Spurred on by what they regarded as a an increasingly obvious criminalisation of the state led by people around Chissano, they moved against him. Under the then constitution,18 Chissano could stand for a third term. He stated publicly that he did not want to stand, apparently hoping for a wave of party support to sweep him into a third term, but it did not happen. By the time he made clear he did want to stand again, his critics had mobilised against him. Frelimo factions are fluid and strange alliances can be formed. In this case, the Frelimo old guard, led by Graça Machel and Jorge Rebelo, worked with the developmental wing of the party, and were joined from the other side by corrupt people who, realising that Chissano would be defeated in the next election, wanted to protect their rentseeking.At the Frelimo 8th Congress on 10–14 June 2002, Chissano was defeated and Armando Guebuza elected secretary general of the party and the next presidential candidate. Guebuza clearly represented a compromise – a change, but not too much. He is a veteran of the liberation war and has been a senior figure in the party since independence. Now one of the wealthiest men in the nomenklatura, his assets come almost entirely from privatisation and access to state contracts and licences. However, he was seen to have managed his businesses well and not engaged in the crude rent-seeking of the Chissano clique. 16 Marcelo Mosse, interview with Mia Couto published in Demos, Maputo, February 2001 and quoted in Gastrow and Mosse (2002). 17 ‘114502E Mia Couto condemns “predatory elite” ’,AIM, Maputo, 24 May 2002. 18 Later changed.The 2000 constitution has a two-term limit.

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Meanwhile, the internal battle between predatory and developmental factions saw investigators and magistrates in the Cardoso case changed as one side gained the upper hand, only to lose it later. In the end the developmental wing came out ahead, but in a classic Frelimo compromise only those who actually carried out the assassination were investigated and tried, and not those higher up who ordered the killing. Six men were charged, including Anibal dos Santos Junior (Anibalzinho), a known gangster who organised the actual killing;Vincente Ramaya, manager of a BCM branch and later convicted of the 144 mn MT bank fraud; and Momade Assife Abdul Satar (’Nini’), a loan shark and part of a corrupt business family, who was also convicted of the 144 m. MT fraud. The trial began in November 2002, and had a totally unexpected impact because of the courageous actions of a few people.Without asking permission of their superiors and party officials, senior editors at the government’s own Radio Moçambique applied for permission to broadcast the trial live on radio and TV, and the young and dedicated judge, Augusto Paulino, agreed. In every city and town, people were glued to the radio. Street traders all had their radios turned up, so you could hear the trial as you walked down the street. And the trial was conducted in a large tent in the grounds of the high security prison, so it was open to anyone to attend. Several of the defendants accused the son of the president, Nyimpine Chissano, of being behind the killing. He gave evidence, and denied any role. But the trial exposed complex and probably corrupt and illegal financial links and the movements of large amounts of money which linked loan sharks and gangsters, including Anibalzinho and Nini, to Nyimpine and in turn to key party figures and their companies, including the casino at the Polana Hotel. It also revealed that Anibalzinho and Nini had high-level protection and had been able to carry out criminal activity unchecked. Ordinary people listened to President Chissano’s family and close colleagues being closely linked to a criminal underworld. Meanwhile,Anibalzinho was twice allowed to escape from the ‘maximum security’ prison and given air tickets and false passports, implying protection at the very top of the Interior Ministry. He was recaptured the first time only because a group of honest police and a prosecutor carried out their investigations in secret, not telling their superiors or the Interior Ministry until they located and arrested him in South Africa. In early 2003, all six were convicted and sentenced to long jail terms. But the culture of impunity continued, in part because of a division within the donor community. One group of donor staff, particularly those who have not been in Mozambique very long, do not see or understand divisions within Frelimo.A significant group of donors argued that it was a waste of time and energy to prosecute for past corruption, and that the emphasis should be on creating structures, including better government accounting and an anticorruption commission, to prevent future corruption. This was fine with the predatory group, who were not only to be allowed to get away with murder and brazen robbery, but who could continue to steal for years to come as the new systems were only slowly put into place. As part of this, the government refused any audits of the banks and there was no investigation of the Siba-Siba murder; most donors accepted this situation because the government was doing so many other things the donors wanted. But a minority of donors, led by Sweden, argued that the assassinations and bank thefts were so egregious that a failure to prosecute would set a precedent which would make any capitalist development impossible, and that it was necessary to support the more progressive people within Frelimo. They finally forced the government to carry out forensic audits of the BCM and Banco Austral, which confirmed substantial thefts from BCM, that some in the Banco Austral management had violated corporation and banking laws, and suggested avenues for the Siba-Siba investigation. Change under Guebuza? Unquestionably the balance had shifted, but how far? Armando Guebuza spent much of his time after being named presidential candidate outside the capital, rebuilding the party

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machine and trying to present a new clean image. He campaigned not against Renamo and Afonso Dhlakama, but against his predecessor and the corruption and spirit of ‘deixar andar’ – ‘let it go’, or ‘not bothering’ – of the Chissano government.And he won the election convincingly, with Dhlakama losing half his 1999 vote. Choosing a new government proved fraught, with considerable horse trading between the various factions and party and regional barons. Guebuza’s new government put substantial emphasis on making the state machinery work properly.There was a new stress on decentralisation and an attempt to reduce petty corruption – although, as noted in Chapter 9, in parallel there was the growing importance of the party and of priority to be given to party members. Frelimo’s 9th Congress in Quelimane on 11–15 November 2006 produced few dramatic changes. President Guebuza consolidated his leadership but ex-President Chissano remained a force in the party and was named Honorary President. Some old-timers were pensioned off and replaced by younger, better educated people, but the liberation generation remains powerful. The total openness and smooth running of the Congress suggested that the sharp tensions between the various groups are now being successfully managed. Chissano’s power and protection are clearly reduced. His son Nyimpine was formally charged in May 2006 with ordering the murder of Carlos Cardoso and with various economic offences.19 But by early 2007, there had been no moves to use the Banco Austral forensic audit for prosecutions or to investigate the killing of Siba-Siba. And rent-seeking and cabritismo continue. A clear example in late 2006 was the installation of an electronic scanner in Maputo port. Charges of $20 to $100 for containers put through a new electronic scanner in the port of Maputo have triggered protests from shippers because most countries (including South Africa) do not charge; indeed, they earn more than the cost by preventing contraband and false documentation by shippers.The scanner is owned by a company which is itself 35% owned by SPI, the Frelimo holding company, and the rest by people linked to Frelimo.20 South African shippers claimed they would use South African ports rather than Maputo because of the increased cost. It was a classic case of cabritismo and state capture – using state power, in this case customs, to extract revenue, even if the long-term impact is to harm the port and the country’s general development. And in early 2007, Vodacom Moçambique, the private mobile telephone operator, reported that a company part-owned by President Guebuza had bought 5% of the telephone company, using a loan from abroad. SPI and various members of the nomenklatura already had shares in the firm.When questioned,Vodacom said it was ‘the norm’ to have shares held by political parties and government officials.21 Justice? Courts and the police remain the most fraught area. One key aspect of state capture had been the criminalisation of the Interior Ministry and maintaining of the justice system as 19 The financial charges grew out of an immensely complex saga of a set of post-dated cheques for 1.2 m. MT ($70,000 in late 2000) which Nini Satar presented to the court at his trial in 2002 and which he claimed were given to him personally by Nyimpine Chissano to cover a loan for payments to Anibalzinho for the contract killing. In his evidence to the court, Nyimpine Chissano admitted to signing the cheques, but said they were given to Maria Candida Cossa as collateral against a loan to meet demands from unspecified ‘suppliers’ and he did not know how the cheques had fallen into Satar’s hands. At the original trial, Cossa backed Nyimpine’s story. Anibalzinho had been tried in absentia because he had escaped jail, so he was retried (and reconvicted) later. Cossa used the second trial to say she knew nothing about the cheques and that she had lied after Nyimpine put pressure on her. At that trial, there was a formal confrontation (as can be done under Mozambican and Portuguese law) between Cossa and Nyimpine; both stuck to their stories, but it was dramatic courtroom theatre. Cossa was a former girlfriend of Nyimpine and one of the borrowers from Banco Austral who was not repaying her loans. Nyimpine Chissano died on 19 November 2007. 20 Savana, Maputo, 15 Dec. 2006. 21 Savana, 9 March 2007. Mail & Guardian, Johannesburg, 13 April 2007.

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weak and ineffective. José Pacheco was named Interior Minister by Guebuza; a member of the Political Commission and a former governor of Cabo Delgado province, which contains the port of Pemba, he seems a safe pair of hands to clean up the police but allow high-level illegal activity linked to the party to continue. Links between the police and organised crime ran deep, and reorganisation of the police was slow; in the ensuing struggles, several policemen and prison officials were killed. But Guebuza’s attempts to appoint a strong Justice Minister were rebuffed by the Chissano wing of the party.This remains the heart of state capture by the predatory group. Donors have been officially pressing the government on justice for more than a decade, but they always allow themselves to be fobbed off with a new plan (identical to the one presented to the previous group of donors a few years before), construction of a few new courts, and the promise of reform some day. From Washington, however, the criticism has become more forceful. In a report released in 2006, USAID stated that ‘with political considerations dominating the highest level of the court system, the hierarchical nature of the Mozambican judiciary makes it difficult for judges at lower levels to avoid political interference or operate in a more transparent manner’.As well as political manipulation, the report accuses justice officials of selling verdicts and of losing evidence and case files in exchange for bribes.And in an unprecedented statement, the report personally attacked Supreme Court President Mario Mangaze who is given ‘a significant portion of the blame for slow reform’ of the justice system. He ‘was appointed in 1988 and his commission was renewed by former President Chissano just weeks before the 2004 elections. He is a Frelimo stalwart who is widely considered to be a key interlocutor for political leaders when important interests are at stake in court cases.’22 The World Bank and IMF are particularly heavy regarding the failure to clean up the justice sector. In a joint staff note, they say:‘The weaknesses in the justice sector and a lack of transparency will continue to impede the development of a viable private sector, in particular due to the slow contract enforcement process, which makes debt collection costly, slow, and unlikely.’ (World Bank and IMF 2007). Mushtaq Khan of the School of Oriental and African Studies in London points out: in all the successful developers, from South Korea in the 1960s to China in 2002, corruption was rife during the period of early capitalist development.Why is there no example of a developing country that was corruption-free at the early stage of development? The answer that poverty breeds corruption is wrong; poor people are often scrupulously honest. Rather, the process of capitalist development itself generates powerful incentives and motives for corruption. … [T]he construction of capitalism, although it may be necessary for the long-term prosperity of poor countries, is itself an ugly and conflictual process. … In successful developers, corruption could coexist with growth because it was part of a system of primitive accumulation through which a new class of capitalists emerged with strong state assistance and often in collusion with state leaders. State functionaries shared in some of the new wealth, but were also able to discipline capitalists to ensure that inefficiency did not sustain itself, infrastructure was not too badly constructed, and that domestic resources did not fly to foreign banks. In the less dynamic countries, although bureaucrats and politicians also captured wealth, paradoxically they often captured less in absolute terms because they failed to discipline capitalists … and, in the end, failed to generate growth (Khan 2002: 165, 166).

All elites use the state for their own benefit. In Mozambique, leaders of the liberation war who made sacrifices for their country believe they deserve a comfortable old age. The issue is one of balance – are the actions of the nomenklatura to feather their own nests so disruptive that they are blocking development? The problem is not new. More than a decade ago in Peace Without Profit (Hanlon 1996: Chap. 17) we argued for a crackdown on corruption – linked to an amnesty, higher civil service salaries, and an end to donor support for corruption.Twelve years have passed and 22

Spector 2005 (but only released in early 2006).

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the problem is much worse. It is very difficult for Mozambicans or foreigners to invest when bribes eat up the profits and when a court system kept non-functional by a predatory elite means that contracts cannot be enforced or bills collected.That, in turn, means that investors have only two choices. Local businesspeople stick to areas, particularly trade, which have high profits and quick turnover because longer-term investments seem too risky. Big foreign companies only invest in enclaves – mines, gas, Mozal, plantations — which are entirely outside the Mozambican state system. Neither can bring long-term development. Khan argues that ‘the capitalist transition is not something that happens naturally’, and that a common feature of all high-growth developing countries is that ‘state interventions were critical in managing the process through which new capitalist classes emerged by acquiring capital and technology’. He continues: The flow of real resources into the hands of newly emerging capitalists was orchestrated through a variety of mechanisms including state control over or ownership of banks; controls or distortions of prices, interest rates and exchange rates; and directly through taxes and subsidies. Even more important, particularly in the dynamic economies, was the discipline that the state could impose on the newly emerging capitalist class to ensure that these resources were not significantly wasted and that potential capitalists who failed to become productive lost out and resources could be transferred to others (Khan 2002: 172).

Khan concludes that in supporting and promoting an emerging capitalist class, the state must ensure ‘that this process of support is sufficiently disciplined for resources not to be wasted … The real danger is when inefficient capitalists succeed in bribing or influencing the state to capture resources.When this happens, the cost to society is much greater than the resources wasted in corruption.The state may be systematically creating a class of conspicuous consumers rather than productive capitalists’ (ibid.: 181). This is happening in Mozambique, and for a small group of Frelimo elite and foreign investors, it is just fine. But if Mozambique is to develop, and if Frelimo is to be re-elected legitimately, there will have to be an increase in jobs and income.That means putting the cabritos on a diet and transferring resources to those emergent capitalists who can be more productive. It is not a problem that the Frelimo elite has been given the first chance, been given soft loans, and been allowed to become relatively rich. Rather, the problem is that it has been undisciplined and unconditional, so that the unproductive come first. Of course, not everyone is corrupt; some of the elite are repaying their loans and building serious businesses. But the cabritos remain at the forefront, eating so much that most developmental investments are blocked.

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Aid dependence & subservience: carrots & sticks1 In early 2007 the IMF reported (IMF, 2007c: 4) ‘Mozambique is a success story in subSaharan Africa, benefiting from sustained large foreign aid inflows, strong and broad-based growth and deep poverty reduction.’ A joint donor-government study in early 2007 stated ‘Mozambique is generally considered an aid success story.’ But this study also ‘revealed a widespread perception that Government leadership and ownership of the aid agenda has left donors in the driver’s seat.’2 In a 2004 study,Tony Hodges and Roberto Tibana stated ‘high aid dependence means that the budget process essentially involves only two actors, the executive and foreign donors.Accountability to donors is much stronger than it is to Mozambican society’ (Hodges and Tibana 2004: 8). Is Mozambique seen as a success precisely because it has succumbed to donor demands? In an ironically titled 2005 report Perfect Partners,Tony Killick, Carlos Nuno Castel-Branco and Richard Gerster said: Mozambique appears as many (but not all) aid-dependent countries, with the government apparently believing that its undoubted reliance on foreign assistance means that it is not in a position to insist on its own priorities. While there is no avoiding the truth that the bargaining position of the government vis-à-vis its development partners is, and will remain, highly unequal, we would like to stress that aid dependency does not have to entail subservience, and that boldness by the government can go part way to redressing the asymmetry … Donors are anxious to maintain active and substantial programmes of assistance to Mozambique, a fact which gives the government genuine bargaining strength (Killick et al. 2005: 50).

Mozambique and its donors are symbiotically linked; Mozambique needs the money and the donors are desperate for an African success story.Yet, the only real test of the ‘success’ of aid is a reduction in aid dependence, as happened in Europe after the Marshal Plan or Ireland after its EU-funded aid boom. Mozambique’s aid dependence is increasing. Castel-Branco makes the point that: Development aid is a crucial determinant of economic growth in Mozambique – more so than private sector investment – because of its impact on government and social consumption. [health, education, water, etc] To keep high rates of growth without changing the current dynamics of aid allocation and growth, Mozambique needs to keep investing in government and social consumption through aid, and needs aid to maintain previous years’ investments operational. Hence, in each round aid dependency deepens. This chapter is based in part on joint research with Paolo de Renzio, published as de Renzio and Hanlon (2007). 2 KPMG ‘Donor Cooperation Strategy with Mozambique’ London: 2007 pp. 46 and 32. 1

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This cycle can be broken if aid is re-allocated to strengthen productive capacities by financing the public provision of basic productive services (Castel-Branco 2007: xx).3

This, he argues, would require ‘fundamental changes of vision, policy and organization’ on the part of both government and donors. In this book, we argue that such a fundamental change is essential, but this chapter emphasises that the relationship between donors and the Frelimo elite has become so close that such a change would be very difficult. In the quotes at the start of the chapter there are fashionable donor phrases like ‘success’, ‘ownership’ (of policies) and ‘driver’s seat’, as well as the very unfashionable word ‘subservience’. Definitions of all of these are highly contested and will be only partly discussed here. But Castel-Branco notes that ‘the decision by the recipient government to apparently give up ownership to maximise aid flows and minimise internal political friction reflects some degree of ownership related to a strategy of survival in a context of limited options’ (ibid.).Thus, to ‘pursue an active strategy of not even seeking ownership and leadership’ is taking a form of ownership. It may be rational to appear to have no strategy and no desire for ‘ownership’. In this chapter, we argue that the Frelimo leadership has chosen this course.We shall justify this in five sections: • How ‘success’ is measured, the neo-liberal and social consumption model, and why any alternative is difficult because it requires changing the definition of ‘success’. • Subservience pays.The shared primary goal is to maximise aid, and this requires doing what donors want before they ask. Donors can enforce this with a big stick. • The human factor. How people who genuinely want to develop Mozambique become locked into a bureaucracy creating dependence. • Building a comprador group that acts in the interests of outsiders. • Budget support and how a tighter web of relations makes it harder to change direction. We shall conclude with a section looking at a series of contradictions emerging within aid policy. To fit this into one chapter requires some heroic simplifications. It is important to keep in mind that there is a spectrum of people in government, Frelimo, the aid industry and the BWIs. Government officials change and aid workers come and go. Hundreds of people change priorities, positions, agendas and alliances; no one has absolute power and few people are obsessively single-minded, which means negotiating and shifting positions. But just as the waves on the surface cannot conceal the tide underneath, so we hope this simplified version represents the underlying tide of events.

Measuring success Of course, the success of aid is initially measured by the headline rate of GDP growth and the official rate of poverty reduction (which we contested in Chapter 7). But there are two other measures of success which count for much more: at the macro level, carrying out the neo-liberal,Washington Consensus, free market policy agenda, and at the micro level, doing things which can be counted and measured and reported to donor headquarters, such as building schools and roads. More will be said about the micro issues later. When the World Bank wanted to justify increased aid and Bank policies in a report to the 2002 Monterrey UN Conference on Financing for Development, it cited six successful countries where ‘policy and institutional reforms have sparked rapid development’. Only two were in Africa: Mozambique and Uganda. ‘Mozambique over 3 Castel-Branco is Associate Professor in Development Economics at the Eduardo Mondlane University and Director of the Institute for Social and Economic Studies (IESE), both in Maputo.

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the last decade has emerged as an example of successful reform,’ said the Bank (Stern 2002).4 David Dollar and Craig Burnside defined much of the World Bank policy in this area in the late 1990s and early 2000s, and stated ‘the heart of structural adjustment is fiscal discipline, trade liberalization and other market friendly policies’. They explicitly equate ‘good policies’ with ‘good economic policies’, and then define an index of good policy based on just three factors: government budget surplus, inflation (as a measure of monetary policy), and trade openness (Burnside and Dollar 1997: 1, 2, 16).5 The World Bank uses its Country Policy and Institutional Assessment (CPIA) to rate governance. The 2003 CPIA put its stress on free trade, low tariffs,‘credit not directed’ (see Chapter 17) and little state ownership of financial institutions. Measures of success can become quite bizarre. Darius Mans,World Bank Country Director for Mozambique, in his report on the Consultative Group (CG) meeting in Maputo in October 2001, said that ‘there was widespread agreement [of the donors present] that the most significant achievement of the last 12 to 18 months has been the completion of the PARPA’, the first Poverty Reduction Strategy Paper (Mans 2001). Thus for Mans and the donors, the ‘most significant action’ in a period in which there had been huge corruption and two murders was the writing of a document rather than any action. PARPA is notable for religiously following the World Bank model for such documents, by accepting that poverty will be reduced through low inflation, reducing ‘red tape’ (using the English phrase in an otherwise Portuguese text) to encourage growth of the private sector, and a stress on human capital (República de Moçambique 2001). The 2001 CG faced two challenges to this measure of success, and rejected both.After the meeting, donors and IFIs met with civil society. In his report, Mans continues: ‘Several civil society organisations (CSOs), in a consolidated statement, stated their belief that structural adjustment and high growth had not resulted in poverty reduction in Mozambique.’ Mans then makes it clear that the CSO statement was ignored.The other issue, already discussed in Chapter 10, was the bank scandals and murders. The donors gave Mozambique extra money to plug the holes in the banking system, and Sergio Vieira wrote that this meant that donors recognised ‘the good performance of the government’ and this overrode the assassinations (Domingo, 2 December 2001). Donors and the BWIs were saying that the predatory elite were doing the ‘right’ things by writing a neo-liberal PARPA, that complaints about assassinations and lack of poverty reduction did not matter, and that Mozambique was a success. To a certain extent, this reflects a much broader head-in-the-sand approach to corruption. At the time, the World Bank’s CPIA hardly mentioned corruption, and Norway,6 Britain and the World Bank all had public policies of not tackling past corruption.They argued instead to promote institutional reform and capacity-building in the hope that institutions can tackle future corruption. A World Bank study of Eastern Europe showed that this does not work. It allows state-capture groups impunity and more time to steal (Hanlon 2004a). But the institutional reform approach was important in measuring ‘success’ in two ways: first, it meant corruption did not count against success, and second, it allowed donors and BWIs to report their capacity-building and institutional reform programmes as ‘successes’. On 11 July 2003 IMF Managing Director Horst Kohler told a press conference in MaStern was World Bank Chief Economist and Senior Vice President, Development Economics. A subsequent evaluation of World Bank research found that the results in this paper ‘are not robust’ and are ‘unconvincing’. See Chapter 12. 6 ‘Investigation and prosecution of corruption cases require large personnel and other resources, which implies costs well above what poor developing countries can afford. Strong emphasis must therefore be placed on preventing corruption, by raising public knowledge and awareness, and by reducing the scope for corrupt behaviour.’ NORAD, Good Governance and Anti-Corruption Action Plan 2000–2001, Oslo: Norad, 2000, p 20. Downloaded 31 July 2007. http://www.norad.no/items/1022/38/5792693521/HandlingsplanKorrEngeksl.doc 4 5

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puto:‘it is our conviction that the government, under the leadership of President Joaquim Chissano, has done a fine job in defining and implementing the fundamentals for growth and for reducing poverty.’ When journalists raised the issue of the bank frauds and the murder of Antonio Siba-Siba Macuacua, Kohler simply called for ‘deeper reform’ in the financial sector.7 Since then, there have been some slight shifts, with justice and anti-corruption rising higher on the agenda, but the basic macroeconomic focus remains. On 18 June 2007, the Executive Board of the IMF ‘commended the Mozambican authorities on the impressive macroeconomic performance and overall satisfactory program performance’, calling only for ‘second-generation institutional reforms’ and further ‘public sector reform’. There was nothing on corruption or deepening poverty, only the need for ‘strengthening of the business environment’ (IMF 2007b).The donors and BWIs need a success story in Africa, and they are prepared to define ‘success’ in a way that ensures that Mozambique is a success.

Subservience pays Carlos Nuno Castel-Branco (2007) argues that the government’s goal is simply to maximise aid.There are repeated complaints that donors expect government officials to ‘know’ what is expected of them, and to adopt policies before they are told to do so by donors. Killick et al. (2005) argue that the ‘government [has] genuine bargaining strength’ with the donors and that ‘aid dependence does not have to entail subservience’.We argue below that Killick et al. are wrong, and that subservience pays – probably to the tune of about $350 m. per year. Consider three countries which are similar to Mozambique and nearby:Tanzania and Uganda, which have almost the same GDP per capita as Mozambique and are often grouped with it as IFI showcases of ‘success’ (Harrison 2001), and Malawi which is much poorer than Mozambique.Average aid for 2004 and 2005 was almost identical in each of the three countries, at $42 per person per year, but in Mozambique it was 50% more, at $65 per person per year. Mozambique really is the donor darling. (Table 2.2 compares aid per capita for 2001–4 in Mozambique and its neighbours.) The Tanzanian alternative Although sometimes seen as also compliant with donors,Tanzania has had a rockier relationship than Mozambique and adopted a process of independent monitoring of aid.The UNDP says Tanzania ‘provides an instructive example of how independent monitoring can promote more equitable partnership and effective use of aid’.8 Tanzania is Mozambique’s northern neighbour and the two countries are often linked in people’s minds, in part because of similar socialist, one-party histories and their role in the Front Line States opposing colonial rule in Rhodesia and apartheid in South Africa. Chart 11.1 is of aid per capita. It shows that Tanzania consistently received a bit above the average for sub-Saharan Africa, except for a fall in 1993–5. It also shows that from below-average aid in the early 1980s, Mozambique jumped to aid levels more than double the average and well above Tanzania.Aid to Mozambique was particularly high at the end of the war, but otherwise Mozambique and Tanzania follow the same trends – rising aid in the 1980s, falling aid in the 1990s, and rising aid again from 2000. But the point is that, from the mid-1990s, Mozambique has received $20 per person more in aid than Tanzania, worth more than $350 m. per year. Despite the big difference of the war in Mozambique,Tanzania and Mozambique had Paul Fauvet,‘Glowing praise for Mozambique from IMF’,AIM, Maputo, 11 July 2003. UNDP 2005,The Tanzanian experience is known in Mozambique. A Mozambican joint donor-government review in early 2007 said that ‘the experience of … Tanzania seems to be interesting to look at’, (Supporting Team to the Government and Donor Committee Review, 2007: 27).

7 8

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very similar aid histories. Both began implementing World Bank structural adjustment programmes in 1986, moved from socialist to capitalist economic systems, and then moved towards multi-party political systems; both were rewarded with increases in aid rising at above-average rates. By the early 1990s, both countries had been forced to cut civil service wages and were showing signs of substantial corruption. Chart 11.1 Aid per capita In Tanzania government-donor relations 3-year average excluding debt cancellation deteriorated and became very tense during Source: OECD DAC. the early 1990s. Donors complained of problems of governance and a lack of commitment to economic reforms while government accused donors of intruding excessively on domestic policy matters (Courtnadge and Elikana 2004). Structural adjustment had hit the well-being of citizens; for example primary school enrolment fell from 93% in 1980 to 69% in 1990 (Helleiner et al. 1995). In sharp contrast to the Mozambican strategy of largely accepting donor demands, the Tanzanians confronted the donors and suspended the structural adjustment programme. Aid fell by one-third at a time when it was still rising in Mozambique and was steady in Africa as a whole, as Chart 11.1 shows. In 1994 the government and the Danish Ministry of Foreign Affairs invited a group of experienced aid economists to provide an independent assessment that might bring the two sides together. It was headed by Toronto University Professor Gerald K. Helleiner.9 Their report stressed the need for the government to take immediate actions to ‘restore its credibility’, but was highly critical of ‘intrusive donor conditionality’ and argued that Tanzania was doing well by African standards, not poorly as donors claimed (ibid.). It was particularly critical of the World Bank for being arrogant and ‘unwilling to engage in serious substantive discussions’ with the government. This was 1995, just when the Bank was taking its hardest line in Mozambique on privatising banks and closing cashew factories; indeed, many of the issues raised in Helleiner’s report. But the harshest criticism of all was of the government’s ‘aid-dependence syndrome’, its ‘passivity’ in the face of donor pressure, and its ‘reluctance to say “no”’ to donors.The report concludes that ‘Tanzania’s national leadership needs to articulate a development vision’ and that ‘the government could impose much more authority on the donors’. Tanzania then set up an Independent Monitoring Group (IMG), chaired by Professor Samuel Wangwe and working through the independent Economic and Social Research Foundation in Dar es Salaam, which reported in 2002 and 2005.The 2005 report noted that in education donors and government ‘have been at loggerheads’, while in agriculture the relationship is ‘difficult and unhealthy’.The IMG also said that the government ‘has continued to avoid saying NO’ to ‘uncooperative development partners’ because donors give ‘government officials subtle messages that they could reduce aid if their proposals are not accepted’.The IMG feels the risk is real, but could be mitigated (IMG 2005) There is much discussion of ‘ownership’ of policies, but in a subsequent study Helleiner cites a donor comment on what ‘ownership’ means to them:‘Ownership exists when recipients do what we want them to do but they do so voluntarily’ (Helleiner 2002). Also, ‘We want them to take ownership. Of course, they must do what we want. If not, they should get their money elsewhere’ (Helleiner et al. 1995). Aid to Tanzania is increasing, but it remains at two-thirds of aid to Mozambique.That seems to be the price of being only slightly less subservient, having independent monitoring of aid and trying to have a few national policies. The Tanzania team included Tony Killick of the Overseas Development Institute, London, who went on to head the team in Mozambique that argued that Mozambique need not be ‘subservient’ to donors. 9

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Big sticks in reserve At least once each decade the donors have wielded the big stick, to show Mozambique just how much power they have. In the 1980s, they twice withheld food aid and allowed Mozambicans to starve: in 1983 to force it to join the Bretton Woods institutions, and in 1986 to pressure it to agree to its first structural adjustment programme (Hanlon 1996: 90–2). In 1995 it was the World Bank’s ‘necessary conditions’ of cashew liberalisation and bank privatisation which were imposed with the explicit threat of a cut-off of all aid. Neither issue, in itself, was important enough to cut off aid and starve a country just coming out of war, but both had been highlighted by the government; by choosing these issues, and by almost arbitrarily ordering the dismissal of 10,000 workers, the donors reminded the newly elected government who was boss. A decade later they were more subtle but no less forceful. During his visits to rural areas in 2003 and 2004, Guebuza highlighted the lack of rural credit as a major barrier to development, and pushed the creation of a development bank high up on his election platform. (The bank itself is discussed in more detail in Chapter 17.) Donors were shocked at Mozambique’s pursuit of a development idea which had not been cleared with them first and which very gently challenged the neo-liberal orthodoxy. In 2004, even before Guebuza was elected, they made it clear that they would block the development bank. Guebuza used a speech on 9 December 2005 at the Carter Center, in Atlanta, Georgia to protest that he would continue to push for the bank.10 It was a classic Frelimo tactic; Guebuza spoke out, but he did it out of hearing of the Maputo-based donors, as a way of tempering the offence caused. At the Carter Center, he went on to criticise donors for not giving developing countries the chance to follow their own programmes, and insisted that the government should set its own priorities; donors could monitor their aid programmes but should not interfere in policy. The nature of the donor opposition to the development bank was important.The obvious and typical procedure would have been to welcome the proposal and smother it in help, ensuring that it never got off the ground. Instead, donors made clear that they would oppose any attempt of the government to create a development bank.As a decade earlier, the issue itself was not important; rather it was that donors were reminding a new government who had the overriding power. Thousands of kilometres away Guebuza could vent his anger, but in Maputo nothing was to be said. Mozambique did not press on with the proposal. Planning and Development Minister Aiuba Cuereneia told me ‘We need a development bank in Mozambique; Mozambique is not accumulating and we need longer-term credit.’ Such a bank would be transparent and professionally managed, but he understood that the donors had ‘reservations’. He felt that ‘if I could sit down with the donors I think I could dispel their nightmares,’ but he accepted that ‘the climate is not favourable’ so there is no point in going forward, perhaps for five years or more.11

The human factor The aid process in Mozambique has been going on for three decades and has involved tens of thousands of people; indeed, it sometimes seems like one of the massive multi-player online games.The rules and roles are constantly changing, and new players who do not know the history are constantly joining, while others drop out.We have used words like ‘donors’, ‘government’, and ‘IFIs’, but in fact these are groups and institutions of thousands of individuals. And there is a whole range of ‘games’ going on within the main one, for power, resources and intellectual hegemony. At the most superficial level, it is a very unequal game; Mozambique is small and weak, 10 11

Zambeze, Maputo, 15 Dec. 2005. Interview, Maputo, 26 Oct. 2006.

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while the ‘international community’ is rich and powerful. But the ‘game’ is complex because neither ‘side’ is united and there are many other ‘games’ or struggles going on inside each side. Changing alliances, interests and attitudes make the ‘game’ very fluid. And at the same time, most people on the two sides are united in a common goal of developing Mozambique, even though there are fierce differences as to how to go about this. Frelimo and its foreign ‘partners’ have developed a close and complex relationship that tries to balance self-interest on both sides with real cooperation and a degree of mutual respect. An important part of this is history, with 20 years of unbroken acceptable relations with the international financial institutions and up to 40 years of strong links with the Nordic states. Going back to the colonial era, Frelimo was skilled diplomatically in building up international support. NATO member Portugal was backed by the West, particularly the United States. But Frelimo won support from both the Soviet Union and China (highly unusual for a liberation movement in that era). After independence this support continued. Mozambique came to independence with very few skilled or educated people and with ministries, farms, and factories abandoned and often sabotaged by the departing Portuguese. Thus it became dependent on skilled foreigners, cooperantes, who came not just from the socialist countries but from Italy, the Netherlands, Sweden and Britain; thousands of secondary school pupils were educated in Cuba. With the intensification of the Cold War under Ronald Reagan, Mozambique became a battlefield. In the decade-long proxy war, more than one million people died and much of the country’s infrastructure was destroyed.Aid from Western and Eastern Europe played a key part in keeping Mozambique alive;Western European countries, in particular, though not willing to challenge directly the US support for destabilisation, were at least ready to bind the wounds.This led to total dependence on aid, which reached $1 bn in 1991, perhaps 70% of GDP. In the mid-1980s Soviet support declined and Mozambique stepped up its informal negotiations with the US to try to end the war, joining the World Bank, allowing US NGOs to work in Mozambique, and beginning its rapid shift to capitalism; but the war did not stop until the fall of the Berlin Wall.The government set up a commission to try to coordinate aid and set some priorities, but gradually lost power to the donors, particularly to the IMF and World Bank (see Hanlon 1991). Most of the aid agency people who arrive in Maputo really want to ‘help’. Similarly, most government officials want to reduce poverty in their area and help develop the country. Thus, there is a starting point of good will and good intentions on both sides.And on both sides, people have careers and families.They want to be praised and promoted, and to secure their next contract. International staff are typically in Mozambique for two to three years; they want to avoid trouble or controversy, while also being seen to have done something to ‘help’ Mozambique. Promotion, especially in the World Bank but also in all the larger donors, is based on spending money. Aid is a highly competitive industry, so donor staff are under pressure to promote their agency, by winning preferential access to high officials or to development areas, and getting their policies adopted. On the Mozambican side, officials want to obtain more support for their areas, both for development and for bureaucratic empire building.The district administrator and the donor official are, at least part of the time, having the same thought: how do I make the best use of the available aid, and how do I avoid making a mistake, in order to win promotion and a better posting next time? Helleiner in his 1995 report on Tanzania makes a point that applies equally to Mozambique, namely that agency staff will be under pressure to ensure that they spend their budgets, even if it requires a degree of bulldozing to achieve this result, and they may well see it as in their own career interests to secure a high level of aid giving or lending.They are also under pressure to show quick results and short-term efficiency.There are few rewards for those who are prepared to sacrifice short-term performance for the sake or slower but more sustainable progress (Helleiner et al. 1995: 12).

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But in the decade since then there has been a major change, with donor headquarters demanding much more detailed accounting and reporting together with a switch to aid which has quantifiable results. Thus the rewards for agency staff come from producing numbers quickly. And, of course, most of the workers on the ground – government and donor – know what is needed better than headquarters. Donors’ priorities are set in Washington and European capitals by people who have never been to Mozambique and are more concerned about what will look good to their parliaments and funders. Gender one year changes to democracy the next, then HIV/AIDS, then environment the following year. No policy is in place long enough to be effective.‘Change management’ is the catchphrase and anyone who supports last year’s policy is seen as resistant to change. But the same thing happens in government. Policies set in Maputo may not seem so relevant in Memba. In 2005 Guebuza’s new ministers made a clean sweep of advisers and experts and appointed new ones; anyone who supported the old policies and questioned the new ones was labelled as a Chissano supporter trying to sabotage the new government. On top of all this, both donors and government have trouble getting money to the field in time. So lower-level government officials and donor field staff are always manipulating the books, robbing Peter to pay Paul and praying that the money will come through in the end, while also trying to keep running successful old programmes which they are disguising as new ones. Thus, with the best intentions or the worst, no one in the development game is totally honest; development would grind to a halt if they were.The desperate demands for more detailed accounting by Northern donors have actually made this worse. No one follows all the rules, honestly fills in all the forms, reports accurately, or waits for permission. But when ducking and diving becomes the norm just to be able to get anything done, where does one draw the line? What is honest and what is corrupt? On the ground, it is often seen as a battle between the buccaneers and the bureaucrats; the former are often more responsive to people on the ground and have both significant successes and spectacular failures, while the latter are responsive to head office and the people who pay the bills, and ensure that reports are written and money is accounted for. Self-interest Most people in the aid machine, on both donor and government sides, are linked to sectors – rural roads or secondary schools or agricultural extension.Those who believe in development normally believe in the importance of their sector, want to expand and improve it, and therefore want to increase their share of scarce resources. Indeed, competition for resources is often seen as a good thing, leading to better and more efficient use of money. Killick et al. say in their Perfect Partners study: A great deal of grant aid coming into the country is still spent off-budget, to an extent estimated to be equal to half or more of public spending. Still, a large proportion of total assistance coming into the country is made up of a multitude of uncoordinated, often donor-driven, development and technical assistance projects, which do not add up to a coherent whole, do not necessarily promote the GoM’s [government of Mozambique’s] priorities, and of which the GoM has highly incomplete knowledge. Because of the continuing large scale of project assistance, line ministries tend to orient themselves more to the attraction of project finance than to attempts from the centre to achieve a coherent overall strategy (Killick et al. 2005: 46).

Education, for example, has 26 different donors. Rivalries between donors and rapid turnover of staff lead to donors supporting conflicting policies and backing respective clients within ministries. Bureaucratic self-interest and building personal fiefdoms, even for the most positive development reasons, entail becoming the client of a donor patron, who often has more money and thus more power than the minister. In choosing to back one national director over another, donors like the

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World Bank argue that they are simply backing the most effective people, but it tends also to mean that they are backing the ones who do not question their policies. Into this world of largely good intentions comes another set of agendas. Some aid agency people who arrive in Maputo are misguided and ideological – ranging from those from USAID who genuinely believe that a totally unregulated free market will bring prosperity, to those promoting their own particular god, to NGO people who want to work with the ‘poorest of the poor’. Some on each side see the other side only as caricatures. Some donors see Mozambicans only as cabritos eating what is available. On the government side, some officials see foreign aid people as racist and paternalistic, coming to tell Mozambicans what to do, or as rich and stupid and only in Mozambique for the beaches. Three-fifths of the Ministry of Agriculture budget is covered by donors through Proagri, the joint Ministry of Agriculture support programme, which has been one of the most politically fraught. Donors could not agree on a programme because they had such strongly different views on issues such as agricultural extension, so almost the only thing they could agree to fund was restructuring the ministry. Killick et al. note that the joint Proagri donor pool has had no effect on the development of agricultural capabilities and had little impact on the Ministry’s performance in delivering core services (for example, after 5 years of Proagri, there still are no sanitary and phytosanitary systems in place). … This is mainly due to fragmented donor interventions and the continuing strength of established niches of the interests (and rent-seeking) that such fragmentation often creates.

Castel-Branco (2007) adds that Proagri donors set particularly ideological principles for the programme, including ‘that the government cannot provide services directly to producers; if services have to be provided, the government should outsource the capacities of private firms’.With few such firms, few services have been provided.

Building the comprador group At the end of an IMF mission, the mission head Jean Clement said at the briefing on 13 April 2005 that Mozambique was ‘first in the class’. It is a telling phrase. To the IMF, Mozambique is a diligent pupil being praised for giving the answer the teacher expects. It is hard to underestimate the importance of learning and reciting the catechism. Donors, from aid ministers down to local staff, are really pleased when Mozambicans thank them effusively for their help and advice, and parrot the rhetoric.This goes into reports to headquarters and on into reports to parliament and donors. Mozambicans know that this is essential to making their country a donor darling.There are no debates in parliament or Tanzania-style hearings to question the donor lines; instead, there is only fulsome praise and thanks. Subservience reigns. For more than two decades the Bretton Woods institutions and their allied Western donors have been trying to impose policies on Mozambique. Many of their officials believe they know what Mozambique needs, and in their haste for rapid change they have no time for discussions with what they see as ill-informed and corrupt Mozambicans. Instead, they want to create a Mozambican elite who will promote a rapid transformation, following the neo-liberal model. Two decades of carrots, sticks and relentless pressure have created quite a large group with whom donors can work.This group is diverse. In part it consists of senior civil servants, academics and party officials simply doing their job.They have come to see that national policy is to maximise aid and that subservience is important for this. Similarly there is a large group in local NGOs or working for INGOs, often doing good work, who know that subservience pays: nothing is to be gained from challenging a sudden change in donor

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policy, whereas jumping to attention and transforming the programme (at least on paper) keeps the money flowing. In public, they tug their forelock and say ‘yes baas’, but in private they are often highly critical and look for ways to pursue a different development agenda. But the real target of the donor community is a small elite that can change Mozambican policy and that actually believes in donor policy.Two key groups have been won over in different ways. Over two decades the Washington Consensus ideology has achieved a broad hegemony. Key finance and planning people have been sent to US universities where they learn neo-liberal economics, and often work for a while with the IMF or World Bank. Local economists and other researchers receive consultancy contracts only if they follow the correct line.As the main group of educated people, they come to dominate the ministries and even become ministers. They accept what in Chapter 13 we describe as the ‘Cargo Cult’ view that the private sector will magically arise and end poverty, if the right conditions are created. An important part of accepting neo-liberal views is to accept that by getting rich, you help to end poverty.12 How can a government official argue against having a big house and several cars when the World Bank says this is good for ending poverty? In the 1980s, this was characterised in the American film Wall Street as ‘greed is good’. It is also called the ‘trickle-down’ myth of development: that if more money is given to the rich, some will ‘trickle down’ to the poor. In 1992 John Kenneth Galbraith dismissed this as ‘the less than elegant metaphor that if one feeds the horse enough oats, some will pass through to the road for the sparrows’ (Galbraith 1992: 108).The idea had seemed long discredited. But in 2006 the IMF called for a ‘second wave of reforms’ in Mozambique, central to which was ‘an agricultural and rural strategy to enhance the trickling down of growth to the poorest segments of the population’ (IMF 2006a: 7).To both those who believed in the ideology and those who were willing to be persuaded that building their big house was helping to end poverty, it should have been increasingly obvious that the policy was not working and wealth was not trickling down. Some closed their eyes, but others did not. In Chapter 10 we argued that Frelimo was increasingly divided into predatory and developmental groups. The more honest developmental group raised questions about the manifest failure of neo-liberal policies. But instead of seeming honest, to many in the donor community the developmental group just seemed resistant to change. Donors began to back the predatory elite because they were seen to be doing and saying the ‘right’ things.13 As the developmental group was marginalised, the small but powerful predatory group was being rewarded by being given non-repayable loans and privatised companies, and even being allowed to kill and steal. Donors make choices. In any year they can make one or two clear demands which the government has little choice but to accept. These have included bank privatisation, the introduction of value added tax, the introduction of user fees, and a cap on the size of the civil service. All of these are part of the neo-liberal economic package.Yet donors have never demanded, with equal force, that Mozambique introduce conflict of interest regulations or publication of the assets of the President and ministers.The predatory elite will certainly draw lessons from donors prioritising neo-liberal economic issues over those that might affect that predatory group. Drawing on its long history of dealing with more powerful foreigners, the Mozambican predatory elite has learned not to misuse donor funds directly; discretion is essential and theft must be at least one step removed so that it is less obvious.14 In a way Frelimo 12 Much in the manner of Tom Lehrer’s 1959 song about the ‘old dope peddler’, the marijuana seller ‘doing well by doing good’ – making a good living by helping people. 13 There is also a group in the international community which has little interest in Mozambican development, and instead sees Mozambique as important for its minerals and energy, as a tourist destination, and as a location for enclave investment. For them, the predatory group is the obvious partner. 14 Both Denmark and Sweden have demanded the repayment of funds blatantly misused by the Ministry of Education, which was an important reminder that theft must be distanced.

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had already learned the point made in a speech by UK High Commissioner to Kenya Edward Clay in July 2004. He said government officials ‘may expect we shall not see, or notice, or will forgive them a bit of gluttony because they profess to like Oxfam lunches. But they can hardly expect us not to care when their gluttony causes them to vomit all over our shoes.’15 The speech had been cleared in advance by the UK Foreign Office16 and thus reflects the views of most donors. Frelimo’s predatory elite rarely vomits on donor shoes, so a bit of gluttony can be forgiven. Guido van Hecken, then head of the office of Belgium’s State Secretary for Development Co-operation, said in 2002 that ‘the possibility of controlling funds earmarked for Mozambique is easy and transparent’ (IRIN 2002). There is really a continuum.17 The predatory elite is powerful but small; there are only a few key people in Frelimo who brazenly kill and steal.There is a larger group who selfinterestedly accept the trickle-down view as justification for taking money for big houses and cars.And there is a larger group who sing the donor songs in order to get money for their project or agency. The international community has created a subservient elite which responds first to foreign interests and whose status – as minister, senior civil servant, local NGO head, or business leader – is dependent on the patronage of foreign agencies. In Marxist literature the term ‘comprador bourgeoisie’ has been used for a group in peripheral countries (like Mozambique) which cannot function on their own as a national capitalist class and instead become wealthy by serving the interests of foreign companies against the interests of their own people.18 So there is an implicit deal.The comprador group do everything donors and big investors want, at least about the economy, say all the right things, copiously praise the donors, and are careful not to appropriate donor funds directly.The donors increase their aid and allow some ministers to live luxury lifestyles.And, within he comprador group, they allow the key predatory elite to steal more than $100 m. a year and deal in drugs. A personal note On both sides, there is a larger perception gap than is often appreciated – between how donors and government see each other and see themselves.All the donor friends who read this chapter in draft considered it too hard on the donors; two told us the same thing: ‘I do not see myself here’.Yet Mozambican friends who read the chapter found it a valid picture of donors. On the other side, many donors believe Frelimo is irredeemably corrupt. On one page of the draft where we discussed controlling the cabritos, a senior donor official scribbled ‘You’re dreaming’. On their side, Mozambican friends recognise the problem but believe change is possible. Two donor friends asked me several times:‘Who is this developmental group? I do not see it.’Yet in a year’s research, we met dozens of people, from ministers down to district officials, whom we see as part of the developmental group. Donors choose not to notice that a minister with a very big house was also key to the appointment of Siba-Siba to clean up Banco Austral and then to trying to find his killers.The promoters of the cashew Posted on the BBC website on 14 July 2004. http://news.bbc.co.uk/ 2/hi/africa/3893625.stm The BBC on 15 July 2004 reported: ‘Chris Mullin, the UK Foreign Office Minister with responsibility for Africa, told the BBC:“We heard the speech in advance and we did clear it”.’ http://news.bbc.co.uk/2/hi/africa/3896971.stm 17 The international group is also diverse. At one end of the spectrum are some who see a need to transform Mozambique and will buy change at any price. More common are the donor and BWI officials who genuinely believe that some Mozambicans are blocking change and therefore want to ally with the change agents, and who close their eyes to both kinds of dishonesty – parroting donor rhetoric and pocketing donor money. 18 ‘Compradors’ were a Chinese merchant class who aided Western traders in the 19th century.There are two ironies here. First, the word ‘comprador’ is originally Portuguese and referred to Chinese buyers for Portuguese companies. Second there is a complete reversal: some Mozambicans have become compradors for Chinese investors and timber traders. In a similar way the concept of ‘comprador intellectuals’ has been developed, for example for those who work as staff or consultants for the World Bank and parrot the neo-liberal line. This is related to what Frantz Fanon called ‘colonisation of the mind’, alluded to by Kenyan writer Ngugi wa Thiong’o in his 1986 book Decolonising the Mind. 15 14

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value chain have not only been creative and hardworking, but they successfully challenged vested interests.What strikes us, again and again, is a group of hardworking Mozambicans who finished their education part-time while building health units or newspapers or businesses or ministries, and who now live modestly but are proudly sending their children to university.And there is a younger, better educated generation, who recognise the power of the old people in Frelimo and the donor world, but who have a commitment to developing their community and country and who are searching for new ways forward. Donors fail to see this group for two reasons. First, having built their comprador group and developed close relations with it, many in the donor community in Maputo now cannot see beyond that group. Second, we have seen a real change in the attitude of Mozambicans to the international community.Twenty years ago, Mozambicans were still honest with foreigners; now they say what they think foreigners want to hear. Subservience reigns, and there is little challenge to the received wisdom.We believe we heard a broader story, because we had more time than donors normally have to talk to people, and because a number of people said they had read one of our previous books and felt we represented Mozambican views honestly. The greedy predatory group is small but important, and we claim that the donor community over two decades has, intentionally or inadvertently, built up its power. The larger comprador group includes many, such as those in local NGOs, who see little choice but to build an alliance with rich and powerful foreigners. In turn, there is a penumbra of people who believe that for a poor country like Mozambique in a globalised world, maximising aid flows is best, and thus subservience is important – but they resent it. The international community has created its comprador ally, but it is not Mozambique.

Budget support: merging donors & state Donors to Mozambique have taken a lead in introducing collective systems, starting with Sector Wide Approaches (SWAps) in which a donor pool is created for a ministry, and moving on to general budget support (GBS).The group of GBS donors rose rapidly from 9 of Mozambique’s traditional friendly donors in 1999 to 19 when this book was being written, and budget support has been rising towards one-third of the aid which actually arrives in Mozambique (see Chapter 2 and Appendix 2).19 The budget-support donors are known loosely as the G19 but are formally called the Programme Aid Partners (who even have their own quite good website) and jointly with government develop annual Performance Assessment Frameworks (PAFs) for both government and for the donors themselves. The theory behind this is extremely positive. By putting money directly into the government budget, it is the government that decides how it should be spent and this decision is confirmed by parliament when it approves the budget.This should increase both Mozambique’s power and public accountability.There is also a hope that it will reduce the administrative burden; this is an issue on both sides, as donors try to increase aid and find that donor and recipient bureaucratic machines cannot process the aid.20 Despite the best intentions, however, budget support has actually worsened three negative trends; it increases donor power, policy fragmentation, and the administrative burden. Graham Harrison (2001) points to what he calls ‘post-conditionality politics’ in 19 There is no consolidated list of donors, but there are probably about 60 bilateral and multilateral agencies working in Mozambique, as well as more than 150 INGOs. 20 Confusingly, these bureaucratic bottlenecks are sometimes called lack of ‘absorptive capacity’ and are used by aid critics to claim that poor countries cannot actually use the aid.The donor use of the word ‘absorption’ here is totally different from that in Chapter 14, where it simply means spending the dollar or foreign currency part of aid.

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which a group of states such as Mozambique, Tanzania and Uganda that are seen to have carried out donor conditions particularly well move to a new situation in which there is no longer such a sharp division between donors and government. Donor and IFI representatives are at the very heart of decision-making within ministries and no longer on the outside imposing conditions. ‘The neo-liberal logic close to the heart of the IFIs is also close to the hearts of Ministry of Finance technicians’, notes Harrison. Of course, conditionality and the big stick do not disappear completely, but on many of the key development and economic issues, the donor and neo-liberal lines have largely been internalised. Clearly being at the heart of decision-making increases donor power. In an environment in which the ‘national project’ is simply to maximise aid, the sense that donors expect government officials to ‘know’ what is expected of them and to adopt policies before they are told to do so, now filters down to much lower levels and to relatively detailed decisionmaking in ministries and provincial governments. Thus donors did not need to tell the drafters of PARPA II that criticisms of the neo-liberal economic model in the first draft were not acceptable; it was made known in informal chats and the comments disappeared from the final draft. There is usually a ‘lead donor’ for each sector, and a representative of that donor is likely to be in daily contact with a senior civil servant from the sector; e-mail increases this contact, because the lead donor may expect to be copied in to internal discussions. Often advisers and technical assistance staff are sent to the ministry, and they are also in regular contact with the lead donor. Conversely, as Hodges and Tibana point out (2004: 10), low salaries and the shortage of trained people mean that senior government staff often earn money by doing consultancies for the donors.We have seen that this can be directly related to their work and for donors who are working with them as part of the GBS process. SWAps and GBS mean that donors have prior access to thinking and documents; donor concerns and approaches to issues are an integral part of policy formulation. Over time, it becomes increasingly hard for civil servants and donor staff to distinguish between national and donor interest, and some come to see it as the same thing. Furthermore both sides have a joint interest in keeping the discussion closed; neither wants the debate to be extended to the media and parliament and they will always argue that the issues are ‘too technical’ for outsiders to understand and are better resolved through cosy internal chats. Hodges and Tibana comment (2004: 105): ‘In the area of public finance management, it is noteworthy that all the assistance from donors has been at the technical level within the executive. … No attention has been given to strengthening the role of parliament … so that there can be more effective parliamentary oversight of the budget.’ Nor is any attempt made to promote clearer presentation of the budget so that parliament, civil society and the media can better interpret it. Donors wield immense and detailed power, and are at the very heart of decisionmaking and policy formulation, from the conception of issues and options through to writing the final policy. There is a very real sovereignty question here: ‘to what extent should non-Mozambicans be playing such a central role?’ It seems to have become impossible to have a truly ‘national development project’. This is matched by external power. In 2005 a member of a high-level Norwegian delegation visiting Maputo issued a statement saying that ‘everyone knows’ that poverty is fought through investment in health, education, water and roads (Castel-Branco 2007).A key point of this book is to argue against this. But Norway is the sixth largest budgetsupport donor and carries substantial political clout in the G19.What Mozambican would choose to question such an important donor saying what ‘everyone knows’? This works at two different levels. Many officials simply accept the judgement and do not question what ‘everyone knows’ – another tiny step toward doctrinal hegemony. But it is also more insidious, because of a broad climate that one does not challenge strongly held donor views; anyone who disagrees keeps their mouth shut, for fear of losing promotion or con-

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sultancy work, or being pushed out of policy-making circles.21 It would be easy to dismiss this as paranoia, but one GBS donor in 2005 demanded a change in policy in an area totally outside the budget support framework, on the grounds that their writ ran to all government policy. A letter from the donor stated that, as a GBS donor,‘it is our obligation to critically observe the government’s actions and policies’. Overload The G19 has become the most politically powerful donor group, and many of the new members are putting just a small amount of money into budget support simply to buy a seat at the table; Britain is the largest donor, putting $71 m. into budget-support in 2007, while Portugal is the smallest with only $1.5 m.The system has evolved and by 2005 there was a set of joint donor-government working groups, initially just for budget-support issues but also taking in the PARPA revision and increasingly more areas of government policy. Meetings and working groups have also been opened to civil society. The formal budget-support system involves a March/April review of past performance, the setting of new goals for the coming year and agreement of an aide memoire, and an August/September mid-term review.The workload is huge. In April 2006 elaborating the aide memoire involved 24 working groups and hundreds of people during two months in which these people, many of them very senior government officials, did little other work. At the 13 April 2006 press conference, Planning and Development Minister Ajuba Cuereneia complained about the number of sleepless nights for his staff in the weeks before the meeting, while the Swedish ambassador, whose embassy led the donor side, admitted she was shocked by the amount of work involved. A year later the number of working groups had increased to 29. At the 30 April 2007 formal announcement of the results of the review, Cuereneia said one of the principles of budget support is to reduce the administrative weight of foreign aid, but, as we have said before, the joint review process remains extremely long and complex.This involves a great deal of work from senior government and donor officials and we must find new ways to work that are shorter and faster and leave us more time to actually implement the decisions taken.

A key part of the administrative burden is that donor missions arrive in Mozambique every working day, all expecting meetings with ministers and other senior officials, which leaves these people even less time to do their actual jobs. In 2006 the G19 donors promised to reduce the number of missions substantially, but it seems to be increasing rather than decreasing. Because Mozambique is a donor darling and all the donors want a piece of the action, large amounts of time are increasingly taken up by the donors coordinating with each other and with their headquarters. For many aid staff, almost their entire time is taken up in feeding the aid machine and very little in actually ‘helping’ Mozambique.A striking effect of this is that most embassy and aid staff rarely leave Maputo and have no idea what life is like in the rest of the country; they are much too busy talking to other donors and sending reports to headquarters to have time to get to know the reality of the country. Fragmentation One of the most important effects of the creation of this huge machine has been fragIt is not clear that the Norwegian official actually meant to close off discussion with the throwaway comment ‘everyone knows’. He may have simply been parroting received wisdom from above.We have seen how foreign and aid ministries and local embassies penalise those who step out of line, so many aid officials in their dealings with Mozambique are only trying to do what they ‘know’ is expected of them by their superiors.This is part of a broader problem in that both Frelimo and the aid industry are hierarchies in which success and promotion are often dependent on patronage; many consultants and lower-level officials try to figure out what their superiors or patrons want them to do, and then try to prioritise it and carry it further. Distortion, confusion and misunderstanding are almost inevitable in such a climate.

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mentation. Issues are divided between the 29 working groups and it proves very difficult to pull this together into a coherent policy during the two-month aide memoire process. As the group gets larger it becomes increasingly difficult to reach agreement on anything meaningful. This inevitably leads to a combination of lowest common denominators – typically an emphasis on administration and process rather than content – and long menus of compromise demands, which typically include a whole series of pet donor issues.The aide memoire of April 2005 had 57 evaluation criteria. This working group fragmentation feeds directly linked into the fragmentation of the Mozambican budgeting process. Instead of first setting out broad policy objectives and priorities for the year and then allocating funds accordingly, budgeting is done though what Richard Batley (2005) calls ‘vertical silos’. Each year’s budget is developed within individual ministries based on the previous year’s expenditure, plus a small increase. Ministries then look to donors for extra funds, as part of the budget or in off-budget projects. It is ‘a fundamentally incremental approach rather than one based on making strategic choices about competing needs and priorities’, say Hodges and Tibana (2004: 102).‘Rather than engage in political battles in the Council of Ministers over resource allocation, which would require trade-offs between competing needs and risk undermining government unity, ministers prefer to negotiate additional resources directly with donors.’ This fragmentation benefits the nomenklatura in two ways. First, the proliferation of evaluation criteria means that, because the government can easily satisfy most criteria, it feels it can get away with not satisfying key targets on justice (although this may finally be coming to an end, see below). Second, the President and senior ministers do not need to mediate between conflicting interests and make choices between priorities to fit within an overall plan; instead each sector works out its own budget with the donors.

Contradictions Several of the G19 donors were reviewing their aid strategy to Mozambique in 2006, and there was a certain disquiet about both donor and government trends. In October and November a series of quite unusual closed ‘hearings’ were held with 17 individual donors, with a report published in early 2007. It cites what donors saw as a lack of government ‘leadership and ownership’ and notes that ‘an issue arising from the review is that of Government overcoming the “psychological” problem of letting donors drive the aid agenda’ (Supporting Team to Government and Donor Committee Review 2007: 33).22 But, as in Tanzania, what donors really mean by government ‘leadership and ownership’ is unclear. Indeed, the report admits a whole range of factors which make it hard for government to assert leadership and ownership: • ‘Donor agencies utilize the aid process to pursue a variety of goals besides aid development effectiveness: gather information and understand the country, interact with other donors, influence policy dialogue, consolidate their acquired comparative advantages, amongst others’ (p. 21). • Donors’ choice of sectors to fund is ‘more related to the management of the agency and agency interests’ than Mozambican needs (p. 25). • ‘Donor visibility is an important issue for many donors. Cooperation agencies adopt and maintain certain aid modalities as accountability mechanisms to their constituencies in their home countries.Visibility is lower the more aid is channelled towards GBS’ (p. 35). 22 Italics in original.The formal committee comprised 6 donor representatives, 2 each from Britain and Sweden and 1 each from Germany and Denmark, and 6 government representatives, 3 from the financial side, 2 from the Foreign Ministry, and 1 from the Planning and Development Ministry.

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• Donor preferences ‘also involve policies (for example, primary education instead of technical training)’ (p. 13). • ‘There are regular and cyclical development “fashions”.’ It was ‘getting prices right’, then public sector reform, then good governance. • Donors’ own perceptions change. ‘Proagri was considered for several years a success story, and it was “advertised” by many donors as such in their Headquarters as well as in multiple forums, but then this perception changed’ (p. 39). Perhaps, then, it is not surprising that ‘The hearing process revealed a widespread perception that Government leadership and ownership of the aid agenda has left donors in the driver’s seat’ (p. 32). The report, largely by omission but also by differing comments in different chapters, inadvertently highlights a series of contradictions. Central to this book is that donors are beginning to see the need for resources ‘on the productive side of the economy’ (p. 24), while they are ‘re-orientating resources towards the social sectors.This seems to require a second thought since the social sectors are overcrowded with donors while their financial needs seem to be met’ (p. 24).The report notes that in order to build the economic and social capacities that are required to significantly reduce structural aid dependency, Mozambique may need to start balancing aid allocations in different ways. The development of broad-based competitive productive capacities that will create more growth and development opportunities and improve income distribution may require the selective development of scientific, technological, training, informational, managerial and infrastructural capacities articulated with direct productive investment prospects, opportunities and decisions. In this way, through articulated public/private investment, aid could crowd-in private productive investment and, hence, help to generate the resources, capacities and institutions that are needed to eliminate structural aid dependency (p. 36).

The report also notes that it was recognised that while ‘Economic Development is one of the PARPA II pillars’ (p. 31), donors’ own priorities override those of the government. Support for private sector development is often not a ‘priority within the donor agency’ (p. 31) while the ‘shift towards the financing of the social sectors … is in line with … international trends’ (p. 11). The contradiction is sharp: economic development is a government priority and donors recognise the need, but it is difficult for the government to take the lead on this key issue because donor policy, at headquarters, is to support the already overcrowded social sector. The report argues that ‘Mozambique is a heavily aid-dependent country without an aid policy’ and that the government ‘must define clearly and precisely its priorities’ (pp. x, xi). But when donors are under so many pressures, is it possible? In one other area, the contradictions here come thick and fast.The report argues that the problem is that government ‘leadership is fragmented because there is no one ministry with overall responsibility for aid management.’ It calls for a new institution – a ministry or an agency – for ‘aid management’ (p. xi).Two decades ago Mozambique had a Ministry of Cooperation and in 1987 it set up a special Comissão Executiva Nacional de Emergência (CENE – National Executive Commission for the Emergency) to coordinate donors and aid. My 1991 book Mozambique:Who Calls the Shots? (Hanlon 1991) was largely about how donors resisted coordination and fought against the structure. It is filled with stories of unwillingness to be coordinated and of donor infighting.The Ministry of Cooperation had an entire corridor of ‘advisers to the minister’ imposed by donors, and all fighting each other, like courtiers in a medieval court, for the minister’s ear. In order to avoid being coordinated, donors sought client civil servants whose loyalty could be bought with gifts, trips and top-up salaries.Two competing donors had different projects for child soldiers; one went through the Ministry of Health and the other through the Ministry of Education. The Ministry of Cooperation was finally abolished in 1995. Now, 13 years later,

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donors want it back – perhaps because the aid industry has so little institutional memory that it does not know such a structure once existed and that they opposed it.Why would they accept a government lead now?23

Conclusion: put the chauffeur in the driver’s seat The question of who is in the driver’s seat evokes a range of images in which the driver is often not the owner of the car. It does appear that neither donors nor the nomenklatura really want government in the driver’s seat.The Frelimo elite prefer to be sitting in the back of a luxury car chauffeured by the donors, while the donors see the government as a taxi driver going where the donors direct.24 Donors see a lack of government ‘ownership’ but like the term ‘driver’s seat’. This is subject to somewhat varying definitions.There is a ‘not invented here’ syndrome, where Mozambique can only take ownership of ideas handed down by the donors. Under President Guebuza, it tried to take a lead on three key development issues, and donors have opposed them all: (i) PARPA II clearly sets out the new priority of economic development, and donors responded by increasing funds to the social sectors; (ii) Guebuza called for the creation of a development bank to help promote the private sector, and the donors united to oppose it; (iii) the government set up a new planning and development ministry to give a higher status to development issues, and donors vocally opposed the decision and provoked civil servants to resist the change.Where Mozambique has shown the leadership demanded by donors, they have been overwhelming hostile. Under the circumstances, the fallback position of subservience to maximise aid becomes the most sensible form of leadership, ownership, and national project. In particular, it works to the advantage of the predatory elite, who are allowed to steal – as long as they do not vomit on donor shoes. The dense post-conditionality web of links between donor, BWI and government officials combined with interests and agendas pulling in different directions leads to a remarkably stable equilibrium when everyone acts more or less within the rules. But there have been three occasions in which one party has crossed an invisible line and been collectively slapped down, and it is worth looking at them to see both the boundaries and also how they reflected a whole complex of issues. The first was in 1995, when the IMF threatened to declare Mozambique ‘off track’ (which would have forced donors to cut off nearly all aid) because it had raised the minimum wage from $15 to $20 a month. Donors stood up to the IMF with an unusual public letter (Hanlon 1996: 135) and the IMF backed down. It was a turning point, forcing the IMF to ease up on its ideologically-driven view that post-war reconstruction had to be restricted because it was inflationary.The stand was important, but there was also a context. The IMF had put a cap on aid to Mozambique, saying more aid was inflationary, while local aid officials were under huge pressure from their capitals to spend more. And it did reflect a split between the World Bank and IMF at the time; donors did not oppose the Bank’s hard line on cashew and bank privatisation. The next was in 2001. Carlos Cardoso was well known to donors and respected (even though he also challenged them and especially the BWIs), and his assassination clearly crossed an invisible line. Some donors withheld budget support, but rejected civil society pressure for stronger measures.Then global politics came into play.The IMF and World Bank were under growing pressure from the Jubilee 2000 debt cancellation movement Indeed, the report admits it has not accepted a lead from the ministry which was created.‘The hearings indicated that with the creation of MPD [Ministry of Planning and Development] last year, most donors had expected this Ministry to play such a co-ordinating and central role, but it is not clear whether this expectation is correct. In any event, it has not been fulfilled. Moreover, some donors didn’t see any merit in the creation of MPD’ (p. 33). 24 Nor is there just one car. It often seems there is a traffic jam, but of different cars all going to the same place. 23

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because they had only cancelled the debt of two countries, Bolivia and Uganda, in the Enhanced Heavily Indebted Poor Countries Initiative (HIPC).25 So the US embassy successfully pressed donors to approve the Poverty Reduction Strategy Paper (PARPA) so that Mozambique would be the third country to have its debt cancelled. Donors at the Consultative Group in October gave Mozambique more money than was asked for – effectively giving back the money withheld – leading to Sergio Vieira’s notorious newspaper column saying that giving extra money so soon after the assassination of Siba-Siba meant that donors recognised ‘the good performance of the government’ and this overrode the bank scandal and the assassinations (Domingo, 2 December 1991). It was an expensive slap on the wrists of the predatory group, telling them they had overstepped the invisible line, but the implicit deal continued. The third was in 2007. As we pointed out in Chapter 10, the justice sector is at the heart of state capture. For a decade, the government had fobbed off donor demands in this area by promising reforms and ever more studies. For a long time, donor staff could report to headquarters that they had obtained an important concession from the government on justice – a promise of a study or reform – and they would be in their next post before anyone noticed that nothing had been done. Slowly, however, different donors had different reasons to be worried about justice.The lack of a functioning court system means that contracts cannot be enforced, which has become a major block on investment. Corruption remains serious.And no action has been taken on the Banco Austral fraud and the murder of António Siba-Siba Macuacua, despite intense pressure from a small group of donors. In both the 2006 and 2007 joint G19–government aide-memoires, the failure to act on justice is noted. Finally, on 24 May 2007, nine of the G19 donors (accounting for 38% of budget support) announced that they were not increasing their level of budget support as had been previously promised, because of the government’s failure to fulfil its pledges, particularly with respect to justice. Like the previous two responses to crossing the invisible line, this one was mixed: four of the biggest budget support donors (the UK, Sweden, Norway and the European Commission) did not join the protest and increased their aid as planned. But the public statement was important, and again showed a line had been crossed. Despite the failure to increase budget support in 2007, subservience still pays, and the comprador group is now fully ensconced.At a more restricted level, maintaining the deal between donors and the predatory elite may require concessions on justice, but the deal seems unlikely to break down. Meanwhile, negotiations for PARPA II and with the budget-support donors have established a fragmented way of working in which hundreds of people want to defend sectoral interests and not worry about the big picture. Criticisms of present neo-liberal policy and new ideas such as the development bank are given short shrift. No government ‘leadership and ownership’ will be allowed on these issues. In Part III of this book, we call for a radical rethinking of aid and development policy, to reflect new thinking both outside and inside Mozambique. Is the post-conditionality aid machine too comfortable and inward-looking to be able to do this? Or does the challenge on justice indicate that the contradictions are finally cracking open, creating space for a move on development policy? 25 There is a certain irony here. Hanlon was policy officer of Jubilee 2000 at the time and helping to ratchet up the pressure, but was also a friend of Carlos Cardoso.

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On the edge of the world As a small country in a large continent and larger world, the actions of others impose heavy constraints on the choices Mozambique can make, but also point to some of the opportunities. Mozambique has a number of advantages – land, people, and being a donor darling – but to the larger world it is marginal and peripheral, buffeted by decisions taken by people who may not even know it exists. In this chapter we look in more detail at the global forces affecting Mozambique.We start with an embarrassing and damning independent evaluation of World Bank research – by evaluators chosen by the Bank’s own chief economist – which shows Bank research to be incompetent and biased. Research underlying Bank policy prescriptions for Mozambique is poorly done and distorted for political ends.Why should that be? Is it possible that the Bretton Woods institutions and many of the rich countries want Mozambique to stay poor and marginal and supported by Northern charity? Even if it is not their intention, senior BWI and donor officials are supporting structures of globalisation and policies for poor countries which are central to transferring resources from poor to rich; GDP per capita in the rich countries was 17 times that of poor countries in 1960, but by 1995 is was 77 times.1 At the very least, the BWIs are trying to maintain an intellectual hegemony for their view of the world, in the face of a growing body of alternative research which rejects their development models.Thus changing development strategy in Mozambique requires thinking not just about alternative models, but also about the hidden agendas of the BWIs and donors. In the following section we draw on two approaches which shed light on how the international community is dealing with Mozambique (and other poor countries) – ‘kicking away the ladder’ and ‘postmodern imperialism’. After the global political economy analysis, we move on to three other global and regional issues: China and changes in industrialisation, climate change, and finally regional factors.

World Bank research ‘not remotely reliable’ Even the Financial Times was shocked:‘The World Bank’s use of questionable evidence to “proselytise” on behalf of its development policies has been sharply criticised by the first big external audit of the bank’s use of research’ (21 December 2006).This is the remarkable conclusion of an independent panel of top academics chosen by the World Bank’s own chief economist to evaluate its research (Deaton 2006).2 World Bank policy for MozamData from World Bank World Development Indicators data base, downloaded 2 February 2007; ‘rich’ = high income,‘poor’ = low income. 2 A detailed analysis of the report was published in Bretton Woods Project newsletter 54 http://brettonwoodsproject.org/researchevaluation54. 1

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bique is totally undermined, because the research underlying that policy was poorly done and is unbalanced and unreliable. Even when the IMF says research is wrong, it is still used by the Bank for political ends. Research contained ‘analytical errors [that] would be well understood by a first year graduate student in economics’. Some of the panel’s most damning comments were on research by David Dollar, variously with Aart Kray, Paul Collier and Craig Burnside, on aid, globalisation, growth and poverty. This research is absolutely central to World Bank advice to Mozambique, and therefore the panel’s views are important.The evaluators say that ‘much’ of the research by Dollar and others in this area ‘appears to have such deep flaws that, at present, the results cannot be regarded as remotely reliable’.Yet the bank has ‘proselytized the new work without appropriate caveats on its reliability. … Nor has it corrected itself to this day’, even where studies by the IMF and others have shown the research to be wrong. A key paper, Burnside and Dollar (1997), cited in Chapter 11 as a major support for World Bank policy in Mozambique, is dismissed by the panel as ‘unconvincing’. It is based on one assumption that can be accepted only with ‘an unusually generous suspension of disbelief ’, actually confuses starting policies and outcomes, and uses an index for its regression ‘that is at best arbitrary’.The Dollar and Kray paper Growth is Good for the Poor which, the panel said,‘is sometimes used to argue that, in the presence of economic growth, explicit anti-poverty measures are redundant,’ has been hugely important, even forming part of the intellectual back-up to Mozambique’s PARPAs.Yet the evaluators note that, far from proving growth is good for the poor, Dollar and Kray assume that the incomes of the poor rise at the same rate as average income.The evaluators go on to cite Bank research by Branko Milanovic, ‘providing extensive empirical evidence of increasing income and consumption inequalities in the world’.They then note that ‘once again, the official position of the Bank gave selective prominence to one set of views’, those of Dollar and Kray, and ignored other research. The independent panel wrote that it ‘had substantial criticisms of the way that this research was used to proselytize on behalf of Bank policy, often without taking a balanced view of the evidence, and without expressing appropriate skepticism. Internal research that was favorable to Bank positions was given great prominence, and unfavorable research ignored.’ It goes on to say that:‘balance was lost in favor of advocacy’,‘there was a serious failure of the checks and balances that should separate advocacy and research’, and ‘results were sold without appropriate caution and qualification’.What this means is that no World Bank policy advice can be taken at face value, because it may be based on incompetent research being ‘sold’ for ‘advocacy’ purposes. The evaluation uses the word ‘proselytize’, which underlines the way the Bank sometimes acts with a fundamentalist religious fervour, as we saw with cashew (Chapter 5) and will see with agriculture (Chapter 15). It has become much more important to treat World Bank research sceptically – to see if they are forgetting history or misusing research – and to give much more consideration to alternatives. Kicking away the ladder How is it possible that some of the highest paid economists in the world produce research that even a first-year graduate student would reject? A decade ago Peace Without Profit looked at the failure of IMF policies in Mozambique and throughout Africa.We wrote that ‘Mozambicans are now beginning to insist that, while the world’s best economists may not be as bright as peasant farmers, they cannot possibly be that stupid. Could it be that the IMF programme really is successful, but that it has different goals and a different agenda from what the Mozambicans are told?’ (Hanlon 1995: 107). Cambridge economist Ha-Joon Chang suggests an answer to the question: Contrary to the conventional wisdom, the historical fact is that the rich countries did not develop on the basis of the policies and the institutions that they now recommend to, and often force upon,

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the developing countries. Unfortunately, this fact is little known these days because the ‘official historians’ of capitalism have been very successful in rewriting its history.Almost all of today’s rich countries used tariff protection and subsidies to develop their industries. Interestingly, Great Britain and the United States, the two countries that are supposed to have reached the summit of the world economy through their free-market free-trade policies, are actually the countries that have most aggressively used protection and subsidies (Chang 2003: xx).

In his fascinating book Kicking Away the Ladder, Chang asks:‘How did the rich countries really become rich?’And he replies: The short answer to this question is that the developed countries did not get where they are now through the policies and the institutions that they recommend to developing countries today. Most of them actively used ‘bad’ trade and industrial policies, such as infant industry protection and export policies. … If this is the case, aren’t developed countries, under the guise of recommending ‘good’ policies and institutions, actually making it difficult for the developing countries to use policies and institutions which they themselves had used in order to develop economically in earlier times? (Chang 2002:2–4).3

Chang’s answer is yes, and his book’s title comes from a quote from the nineteenthcentury German economist Friedrich List: It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. … Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of errors, and has now for the first time succeeded in discovering the truth.

That sounds very similar to what the IMF and World Bank are saying now. Could it be that they are actually tasked by their managers in Washington to kick away the ladder? Postmodern imperialism Robert Cooper, a senior British diplomat who helped to shape British Prime Minister Tony Blair’s foreign policy,4 goes further than Chang. He sees, and supports, the Bretton Woods institutions and INGOs monitoring and policing a new ‘postmodern imperialism’. He argues that there are three kinds of states in the world. First are the ‘postmodern states’ – the European Union, Canada, Japan – which ‘no longer want to fight or conquer’ and seek security through transparent collective action and a growing range of international institutions. Then there are ‘traditional modern states’ – the United States, India, China – ‘which behave as states always have done’.They retain war as an instrument of foreign policy and rely on maintaining a balance among aggressive forces. Finally, ‘the premodern world is a world of failed states’ which requires some form of control and intervention.‘Colonisation is unacceptable to postmodern states’ and old forms of empire and imperialism are no longer possible. He continues: What is needed then is a new kind of imperialism, one acceptable to a world of human rights and cosmopolitan values.We can already discern its outline: an imperialism which, like all imperialism, aims to bring order and organisation but which rests today on the voluntary principle. Postmodern imperialism takes two forms. First there is the voluntary imperialism of the global economy.This is usually operated by an international consortium through International FinanThis book won the 2003 Gunnar Myrdal Prize of the European Association for Evolutionary Political Economy. Observer, London, 7 April 2002.

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cial Institutions such as the IMF and the World Bank – it is characteristic of the new imperialism that it is multilateral (Cooper 2002: 17).

Second is policing.‘It is not just soldiers that come from the international community; it is police, judges, prison officers, central bankers and others. … As auxiliaries to this effort – in many areas indispensable to it – are over a hundred NGOs.’ Asking fundamental questions The independent evaluation of World Bank research, as well as considerations of ‘kicking away the ladder’ and the way the BWI role in ‘postmodern imperialism’ is supported at a high level in a major donor, must lead to some fundamental questions about donor and BWI policies. We noted in the previous chapter that many of those who work for the BWIs and the aid industry firmly believe that poor people and their governments hold misguided beliefs which must be changed, and that these changes are hard to bring about because the beliefs are sincere.This chapter suggests that we need to turn the telescope around. Perhaps it is BWI and aid industry officials whose beliefs are sincere and misguided – indeed, so sincerely and strongly held that World Bank officials distort and misinterpret research which challenges those beliefs. Finally, it is worth looking again at Cooper’s ‘voluntary imperialism’. What makes it ‘voluntary’ is that it is managed locally.The previous chapter talked about Mozambique having a ‘comprador group’ – a subservient elite which responds first to foreign interests and whose status is dependent on the patronage of foreign agencies, particularly the BWIs and donors. Mozambique is a donor darling and the elite is being rewarded. Is it possible that it is being rewarded for the local management of voluntary imperialism? That fits the facts better than that the Frelimo elite is being rewarded for its limited success in ending poverty.

Other global factors A variety of other global changes will also have an impact on this poor country on the periphery. Changing international trade patterns point to a need for changes in strategy, and global warming will condition what is possible. And Mozambique must deal with being more open to regional trade. During the second half of the twentieth century the relative price of commodities exported by poor countries fell while the price of manufactured goods imported by poor countries rose. In 2000, poor countries had to export double the volume of commodities to import the same amount of consumer goods as in 1980.5 This led to a widely accepted development strategy based on import-substituting industrialisation, especially promoting local production of basic consumer goods such as clothing. Industrialisation must be the basis for development; it creates jobs and linkages that are at the heart of a dynamic economy. But shifts in both manufactured goods and primary commodities at the end of the twentieth century suggest changes in the industrialisation strategy. First, real prices of manufactured goods have been falling since 1997, and the decline is greatest for those products where low-income producers such as China and India are important. This is not just goods like clothing, but also products from higher technology sectors, and the price decline is likely to continue, argues Raphael Kaplinsky of the Open University. Why? ‘China and other low-income economies are characterised by a large reserve army of labour, including increasingly educated and skilled people. Another potential driver of falling prices of manufactures is the growing concentration of global buy5 In other words, the index of manufacturing-commodities terms of trade fell from 100 in 1980 to 50 in 2000 (Kaplinsky 2006).

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ing power’ – the big supermarket and retail chains. Rich buyers are increasingly powerful while poor workers must increasingly scramble for work, pushing down wages and working conditions, even as education levels rise (Kaplinsky 2006). Kaplinsky then makes a surprising second point: world-wide, employment in formal sector manufacturing is falling. In the 17 largest manufacturing economies, manufacturing employment fell from 200 million to 176 million between 1995 and 2002, with big falls not just in the OECD countries, but in China and Brazil as well. China’s huge expansion of manufactured exports is being done with fewer factory workers. The inevitable conclusion must be that Mozambique has no chance of competing with China, India and Brazil on basic manufactured goods, nor is this a route to job creation. On the other hand, after decades of decline, commodity prices are rising. In part, this is driven by increased demands from China, which is importing not just more oil and metals, but also more food – reflecting falling land availability and stagnant agricultural productivity. It is also driven by the rich buying more fresh fruit and vegetables and specialised agricultural products. Kaplinsky (2003) cites the increasing importance of niche markets for specialised coffees coming from one region or even one estate. Fair trade plays an increasing role here.This is tied directly to the growing role of certification and of higher quality, health and environmental standards – the knowledge and information content that converts an ordinary commodity into a luxury consumer good.Value chains play a key role in this, and Kaplinsky talks of ‘innovation-intensive products’. In Chapter 3 we saw how this is happening with peanuts and cashew; in interviews we talked to people in Nampula trying to do something similar with sesame seed, trying to raise standards enough to export to China. The other component on the commodity side is rising oil prices, driven in part by the realisation that global oil reserves now appear to be falling. Biofuels – using cooking oil in place of diesel and mixing alcohol into petrol – are becoming increasingly important. This has two impacts on Mozambique. First, world oil prices only need to remain higher than $80 a barrel to make it profitable for Mozambique to produce biofuels, at least for its own use. Second, the demand in the US and Europe for maize to produce alcohol has already pushed up world food prices. Many biofuels are produced from food crops, increasing world prices just as Chinese demand is also rising.This means the end of massive food aid to dispose of developed country surpluses. So it appears that this peripheral country suddenly has a few advantages in the hostile globalised economy. Compared with many other countries, Mozambique has surplus land and substantial irrigation potential (although climate change will also impose limits, as we note below).The market for food and industrial crops is clearly growing; many of these are good peasant crops, and small farms are more productive than large farms (UNDP 1996: 8, 95), which all points to the promotion of smaller-scale commercial agriculture.And there seems substantial potential for industrialisation and value added linked to agriculture, such as production of biofuels and raising standards on existing products to meet the demands for higher value export food crops.The potential for linkages is huge, from plant breeding and other activities to supply agro-industry, through to processing and packaging. Climate change All forecasts are that Mozambique will be adversely affected by climate change. Rising sea levels will have an impact on all coastal areas, including ecologically important mangrove swamps and some of the islands and beaches targeted for tourism developments.The lower areas of coastal cities like Beira could flood more frequently. Most estimates predict more extreme weather: more cyclones and floods and more serious droughts.The Intergovernmental Panel on Climate Change, in its 2001 report, cited the record-breaking Mozambique flood of 2000 as typical of what must be expected. It also appears that climate change will have different impacts in different regions.The Royal Netherlands Meteorological Institute (KNMI) maintains a regularly updated web-

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page which summarises research and modelling on climate change in southern Africa.6 Their summary of models at the end of 2006 predicted little change in rainfall in northern Mozambique and the Zambeze River valley. For central Mozambique, including the productive higher areas of Manica, almost all models predict less rain, a shorter rainy season, and more severe droughts. KNMI predicts that southern Mozambique will be hit hardest; already the driest area, there will be less rain and it will start later, with October and November becoming notably drier.7 The Intergovernmental Panel on Climate Change 2001 report8 looked specifically at key African river basins, and changes in rainfall and evaporation. It predicted that runoff in the Limpopo would fall by 25% to 35% and in the Zambezi from 26% to 40%. Of course, such models and predictions are not guaranteed forecasts, as our understanding of climate change is improving rapidly. But, taken together, this seems to suggest (i) that: increased disaster preparedness is needed. (ii) Care must be taken with coastal development because of potential damage by storms and rising sea level. (iii) Agricultural development will need insurance schemes to compensate for losses caused by increasingly erratic weather. (iv) It will also need to be concentrated in the north, where rainfall and water supplies will remain reasonable. (v) Flows will fall in the Zambezi, but if they are smoothed over the year by hydroelectric dams, then substantial water will remain for irrigation.And finally, the agricultural potential of the south is very limited, with less rain and less river water for irrigation. Regional free markets SADC agreements allow free trade with all the neighbours by 2015, but largely unrestricted trade began in 2008, and this will have a significant impact on Mozambique.Agriculturally, it should lead to the integration of markets in northern Mozambique and Malawi, which should be good for Mozambican farmers – if they can increase their productivity – while a return to normal in Zimbabwe could flood Mozambique with competing maize in good years. Some thinking about national and regional buying policies and food reserves may be called for. But the biggest problem will be South African manufacturers and contractors with many years more experience, who can produce to much higher standards at lower costs and with greater regularity of supply. The expansion of the South African Shoprite supermarket chain into Mozambique shows the problem – they do source locally, but for many things Mozambican producers find it hard to compete. Even at the very local level, information and innovation-intensive production is important, and Mozambique must run to catch up.

Conclusions – Trojan horses & elites Literature and history are full of stories of gifts containing hidden destruction.The smiling officials from the IMF,World Bank, bilateral donors and INGOs may genuinely want to ‘help’ Mozambique and may sincerely believe in the policies they are promoting, but they are sometimes like the sellers of herbs to cure AIDS – believing, believable and dangerous. The World Bank’s own evaluators accuse it of distorting research for political ends, http://www.knmi.nl/africa_scenarios/Southern_Africa/ There seem to be particular limitations for Mozambique in climate models.The Intergovernmental Panel on Climate Change (IPCC), which issued its 2007 report just a month after the KNMI posting, finds its December to February rainfall forecasts are inconsistent on northern and southern Mozambique and the Zambeze valley, as well as Zimbabwe and eastern South Africa, so no prediction can be made. But they agree with a fall in December to February rainfall in central Mozambique (IPCC WGI Fourth Assessment Report, Summary for Policymakers, Figure SPM-6. p. 20, 2 Feb. 2007. http://ipcc-wg1.ucar.edu/wg1/docs/WG1AR4_SPM_PlenaryApproved.pdf) 8 http://www.grida.no/climate/ipcc_tar/wg2/383.htm 6 7

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and that the key research underlying policy for Mozambique ‘cannot be regarded as remotely reliable’. Why? Are they kicking away the ladder? Are they simply trying to control Mozambique and keep it relegated to the periphery? It is important to remind ourselves that Robert Cooper, not some wild-eyed radical but someone at the heart of the British foreign policy establishment, sees the IMF and the World Bank as partly operating the new ‘post-modern imperialism’, and that the INGOs are ‘indispensable auxiliaries’. The key point must be that there is no reason to accept IMF and World Bank policies and research as gospel; indeed there is every reason to question it and to look at the agenda behind it.When PARPA fits so neatly with the ‘voluntary imperialism’, it is time to worry. This is not to say that all, or even most, of what the IMF and World Bank preach is false. All religions preach good practices alongside a lot of nonsense. Readers will pick and choose from this book, too. Rather, the point is to interrogate much more closely the policies imposed on Mozambique – and now willingly accepted – and to consider alternatives much more seriously. The rest of this chapter looked at the global context for rethinking. Global warming, the reduced possibility of import-substitution industrialisation, the increased demand for food and regional free markets point to small commercial agriculture and agro-industry as being more important in the shorter term than traditional industrialisation. Of course, there are many ways forward.The key is to challenge the received wisdom and consider a broader range of alternatives, so that this country on the edge of the world can find its road to development.

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Part III

ALTERNATIVES & THE DEVELOPMENTAL STATE

13

Questioning the cargo cult ‘Our policy is to attract foreign investors who bring capital and do not need Mozambican banks in order to invest.The investor has access to markets and brings know-how and even staff in order to train Mozambicans,’ explained Roberto Albino, director of the government’s Commercial Agriculture Promotion Centre (CEPAGRI, Centro de Promoção Agrária).1 And he went on to cite sugar, which now accounts for more than 60% of Mozambique’s irrigated agriculture, and has been developed entirely by foreign investors. In an interview on 26 October 2006, Aiuba Cuereneia, Planning and Development Minister and a member of Frelimo’s Political Commission, set out the government’s development policy as follows:‘Priority must be given to human capital.This is the main capital of Mozambique and it is very low now. People must be educated.The state must invest in giving people capacity. Education is the future of this country.’The second key area is improving infrastructure – energy, water, roads – especially to support agricultural marketing. The third area is reducing bureaucracy and creating the conditions for business.The government can create the conditions, but then ‘we must leave it to the market,’ he continued. Business ‘has to grow by itself ’. Mozambique needs ‘a serious class of managers’ but the private sector must create them, not the government. Mozambican business people start from a very low base because there has been very little accumulation. Building a business class will be a long process.That means, he concluded, that for the next few years,‘unfortunately, most investment will be foreign’.

Creating the right conditions In the nineteenth century in the Pacific Ocean islands of Melanesia, residents noted that when foreign colonisers and missionaries built wharves, ships would arrive bringing goods. This evolved into what were called ‘cargo cults’, in which people believed that if they adopted Western dress and behaviour, prayed to the Christian god and built a wharf, shiploads of cargo would arrive.These beliefs were reinforced during the Second World War when soldiers arrived and built airstrips, and huge planes arrived bringing cargo. It was proof that their faith in cargo was valid. After the war, the island people built more airstrips in the hope of attracting more cargo.And when the cargo did not come, they were convinced that they were performing the wrong rituals, or were not praying hard enough.2 This sounds familiar. If Mozambique carries out the rituals called for by the IMF, World Bank and donors and if it constructs the right airstrip in the form of infrastructure, human Speaking at a public meeting organised by CTA and Frutisul at Hotel VIP, Maputo, 23 May 2006. The concept is not restricted to the Pacific islands.Ancient Greek and Roman theatre sometimes ended plays with what is described as the deus ex machina, when a god is put onto the stage by stage machinery. 1 2

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capital and no bureaucracy, then foreign investors will fly in with a cargo that ends poverty. Faith is reinforced because, by reciting the catechism correctly, $11 bn in aid has flowed in. And there have been investments in energy, sugar and tobacco. So if most people are still poor, it is necessary to carry out more rituals and improve the airstrip.The main article of faith in the neo-liberal, Bretton Woods, foreign investor version of the Cargo Cult is that there are investors and entrepreneurs who will magically appear, and put an end to poverty. In 2002, the then Agriculture and Rural Development Minister Hélder Muteia, made the link explicit:‘We have to be able to respond to an investor who flies in and says “I want 10,000 ha to grow soya and my plane leaves in two days”.’3 In the first part of this book, we showed that there has been development. There are more bicycles, but most people are still on foot and, as Chapter 7 showed, the bulk of Mozambicans are not being lifted out of poverty.The Cargo Cult is not working, and a better ‘runway’ and more prayers will not bring development flying in. The struggle against poverty is based on work and initiative, President Guebuza has said repeatedly in speeches throughout the country.‘We must start with the few resources we have instead of holding out our hand begging without even trying,’ he said in Lichinga. ‘We must wage a titanic struggle against the arrogance of thinking that others must change, but not us’ (Savana, 24 April 2006). Creating the right conditions for foreign investors is a modern version of the Cargo Cult and is holding out one’s hand begging. Senior officials waiting for foreign investors are little different from peasants waiting for food aid. A first step in the titanic struggle for change is to abandon belief in the Cargo Cult and shift to using Mozambique’s own resources.There is a growing body of European and Southern academic research, as well as reports from UN agencies such as UNCTAD, suggesting ways to do this. Six key points are stressed throughout the final chapters of this book: • The state must play an active role. All successful developing countries have had extensive state involvement in the economy, and it is the state which promotes and creates successful capitalism. • Invest in the economy. Human capital and infrastructure are necessary but not sufficient. Economic development will require massive investment in the economy by both government and donors. Mozambique is in a unique position to do this during the coming decade. • Entrepreneurs are created, they do not fall from the sky. Mozambique does not have a capitalist class.There are few people with money to invest and few successful business people.The entrepreneurial gap caused by the colonial and socialist eras will require active intervention in training, on-going support, and finance. Many will fall along the way, but catching up means that Mozambique cannot wait a generation or more for entrepreneurs to emerge organically. • Agriculture and agro-processing are the basis of development. Here, the rhetoric is correct, but new thinking is required about how to create commercial farmers, markets, and food security, and how to promote new crops. • Demand needs more attention. Mozambique’s economy is weak because the poor are so poor that they cannot buy goods and services, and neo-liberal policies to make it easier to supply goods and services will not help.The poor need incomes they can spend, which will increase demand for goods and stimulate economic growth. • Jobs are fundamental. Central to the neo-liberal model is the assumption that selfemployment by subsistence farmers, artisans and petty traders will put food on the table for most people. But this is based on these people earning very little and remaining in abject poverty. Most subsistence farmers are inefficient and unskilled. Selling things to other poor people will never earn a good living. In opinion polls most people put jobs as their highest priority, and they are right; they earn more from jobs than self-employ3

Interview, Maputo, 29 April 2002; see also Hanlon (2004b).

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ment, even when paid well below the minimum wage. More stress should be put on creating entrepreneurs and commercial farmers who will, in turn, create jobs. How this is to be done must be decided by Mozambicans, based on local conditions and experience. The main purpose of this book is to support and promote debate within Mozambique as to how to carry forward President Guebuza’s call for changed thinking, no longer holding out hands for ‘cargo’ but instead building on local resources. There are many ways forward, and in this final part of the book we draw on examples and point to possibilities illustrated by the experiences of other countries. There is no point in reinventing the wheel; Mozambique can learn from experience elsewhere. But as we noted in the previous chapter, there should be a healthy distrust of advisers sent by the World Bank, who proselytise for the Cargo Cult and promote dubious research, and of consultants sent by donors, who may only be ‘kicking away the ladder’. Instead, Mozambique has more to learn from other Southern countries such as Brazil, India, and China – as well as its African neighbours – who are struggling with the same problems. From the North, however, two experiences may be useful. First, the social democratic countries, such as the Nordics, promoted higher levels of development and greater equity through a careful mix of state and market. Second, the actual histories of the US, Britain, Germany and other early industrialisers – and not the World Bank Cargo Cult myths about them – show a variety of ways in which the state has supported (and continues to support) domestic capitalist development.

Jump off the MDG bandwagon The Millennium Development Goals (MDGs) have become the primary and increasingly narrow focus of the international community because they satisfy three different donor needs: • The need for increased spending on the social sectors is obvious. Lack of education is probably the single biggest constraint on development. • Accountability has become increasingly important to donors.The MDGs are all measurable, so poor countries can report to donors who can report to their constituents that X girls have been able to go to school because of aid.That makes it easier to increase aid levels. • Neo-liberal ideology is satisfied because additional aid goes largely to the social sectors and to creating ‘human capital’, and thus does not require any state role in the economy. The MDGs therefore fit perfectly with the Cargo Cult. Mozambique is heavily aid-dependent; it can expect large aid flows to continue for at least the next decade – even taking into account the fickleness of donors. A donor study in 2007 said ‘It is clear that aid flows to Mozambique are likely to increase slightly over the next four years’.4 But the long-term goal must be a development that increases domestic production and reduces the need for aid. So a key question must be: How to spend aid in a way that reduces dependence? This requires substantial and sustainable economic growth that is broadly based and not just in enclaves. But there is a danger that the stress on the MDGs, the social sectors, and waiting for foreign investment will hamper economic growth, and instead create permanent aid dependence. Tony Killick, a respected economist and senior Research Fellow at the Overseas Development Institute in London, stated in 2006:‘In contrast to 20 years ago when the soSupporting Team to the Government and Donor Committee Review (2007: 14). Note that donors privately predict a significant increase in aid, but say that they were forced to use the phrase ‘slight increase’ in the report because of a lack of firm commitments. 4

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cial sectors were neglected, there has been a massive switch in aid from the productive to the social sectors.Today it is the productive sectors which are neglected.The bandwagon of pinning everything on the Millennium Development Goals has gone too far.’5 This is confirmed by the 2006 annual study commissioned by the budget-support donors (PAPs – Programme Aid Partners), in which the donors said their aid remained conditional on the government pursuing pro-poor policies and a pro-poor budget.‘When asked what they meant by pro-poor policies and budget, the common answer was “those that deliver education, health, water and sanitation and other crucial infra-structures”.’ But the report goes on to ask if policies and budgets should be ‘pro-poor’ or, instead,‘pro-development’, if delivering high levels of welfare that are heavily aid-dependent ‘is aid helping poverty to fall or only mitigating its effects’. If Mozambique needs aid to deliver such services, then by promoting an aid-dependent social services system, are donors actually increasing rather than eliminating aid dependence? This leads the study to ask if government expenditure should ‘increase in education, sanitation and public works only’. Or should the government ‘be more involved in promoting production and trade, research and innovation, information coordination and coordination of economic and productive chains?’ (Ernst and Young 2006: 45–6). The study then goes on to some fundamental questions. If the government redirects public finances from general education to irrigation and technical training related to dam maintenance, water management and irrigated agriculture, to what extent can a PAP [donor] argue that this is a less pro-poor growth strategy? And if resources are reallocated from health to promote GoM-[government of Mozambique] sponsored industrial innovation and agro-industrialisation based on small and medium firms that produce more of the resources that today are scarce and can only be provided by aid – is this a less ‘against-poverty’ growth strategy?

Killick (below) answers these questions by saying that more aid should be spent on technology, producer goods, and even subsidies and investments in the productive sector. Indeed, he believes that the way aid is being handled now squeezes the private sector and hinders economic growth. Defining key terms Before going into detail on the debate about how one might use aid, it is important to digress and look at the economics of aid. Here we define four terms: demand, supply, tradables, and Dutch Disease. ‘Supply’ is simply the goods and services available for purchase at a given price, while ‘demand’ is the desire or ability to buy those goods and services at that price. Economic development should involve the growth of supply and demand in parallel. One of the great divides in contemporary economics is whether to put the stress on supply or demand. A strong element of the ‘Washington Consensus’ or ‘neo-liberal’ policies promoted by the US, Britain, the World Bank and the IMF is the stress on the supply side – promoting a free and unfettered capitalist production sector to increase the supply of goods and services. The IMF, in a statement issued on 18 December 2006, said that in Mozambique there was a need for ‘an investment climate enhanced by lowering the cost of doing business … [and] by addressing the remaining rigidities to labor market Speaking at a seminar on ‘The Macroeconomics of Scaling Up Aid’, Overseas Development Institute, London, 11 December 2006.This emphasis is also shown in the 2005 report of the UK Commission for Africa. In a review of the report,Ankie Hoogvelt comments that ‘on reading the report one gets the impression that the economic agenda is relegated to third place (after governance and health) and that it deals only with creating a better investment climate for the private sector, on transport, and on diversification of agriculture for exports.’ This is part of what she describes as ‘an emerging “social services” model’ of poor countries, in which aid ‘is to be primarily (even if not exclusively) focused on the social infrastructure.’The ‘path to economic growth [is] to come primarily from investing in people. … What is missing though are any thoughts on national developmentalism, or a comprehensive agenda for economic development’. (Hoogvelt: 595–9). 5

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flexibility.’6 The argument is that expanding businesses will create jobs and incomes. Killick is also looking at the supply side, but in a very different way. In Africa, labour market flexibility has meant lower wages and increased insecurity, which reduces rather than increases domestic demand.This led UNCTAD and economists on the other side of the fence to stress demand, and argue that growth will come from an increase in demand for goods and services, and that businesses will expand and be created to meet the demand.We deal with this towards the end of this chapter. But the fear of the supply-side economists is that if demand rises but supply does not, the result is inflation, as prices rise to mop up the available cash. Mozambique does not exist in isolation, which means goods and services are imported and exported. Economists talk of ‘tradables’ which are goods and services that can be exported or substituted by imports.‘Non-tradables’, then, are goods and services produced and consumed domestically that are not close substitutes of import or export goods and services. Most goods, even staples like maize, are tradables. Many services, construction, and non-storable goods like fresh fish are absorbed domestically and not traded internationally, so they are ‘non-tradables’. Clearly the boundary between the two categories is fuzzy.The point for economists is that the price of tradable goods is partly determined by an increasingly globalised market, while the price of non-tradables is determined almost entirely by domestic demand. The Mozambican economy is officially based on the domestic currency, the metical, but it is clear that US dollars and South African rand circulate freely and local prices are often determined by their dollar or rand equivalent – the rate of exchange. If this falls (that is, a dollar costs more meticais), then imported goods become more expensive but it is easier to export because Mozambican products are cheaper in dollars. But if the exchange rate rises, imports become cheaper and exporting is harder. This leads to the concept of ‘Dutch disease’, a term coined by the Economist magazine to explain why the discovery of Dutch gas in the 1960s led to a fall in the production and export of manufactured goods.The explanation was that as the Netherlands (which then had its own currency) sold the gas to other countries, it built up a supply of foreign currencies, which led to an increase in the exchange rate. Dutch tradable goods were no longer competitive, so exports fell.There is ample evidence that other countries have suffered Dutch disease when they suddenly began earning large revenues from mineral exports or steep rises in oil prices.The IMF and many economists assumed that large amounts of aid would have the same effect as sudden mineral income, but, perhaps surprisingly, there is no evidence of aid causing Dutch disease.7

Squeezing the productive sector Tony Killick finds that large amounts of aid can have two economic effects which directly squeeze the domestic productive sector.The first is that the exchange rate is overvalued, which makes it harder to export and to compete against imports.The second is that credit is restricted and interest rates are kept high. Both have happened in Mozambique. The value of the metical has remained stable, at between 20 and 26 to the dollar, since 2001, but it might be argued that this value is too high and that there is some Dutch disease. In Chapter 4 we noted that local sunflower oil could not compete with imported palm oil.And Mozambique clearly suffers from credit rationing and interest rates so high that borrowing for long-term investment is impossible. There are two responses to this. One is that Mozambique is so poor that it should not worry and instead, as it is doing, put the emphasis on building basic infrastructure and on health and education. The second, 6 ‘IMF Executive Board Completes Fifth Review Under the Three-Year PRGF Arrangement for Mozambique …’, press release 06/289,Washington: IMF; http://www.imf.org/external/np/sec/pr/2006/pr06289.htm 7 Foster and Killick (2006).They note ‘The Mozambique study also found no signs of a Dutch disease problem.’

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taken by Tony Killick and others, is that there is a need to look more closely at how aid is used and how the domestic productive sector is being treated. Why can aid squeeze the productive sector? Killick and Foster (2007) point out that aid comes as dollars or pounds or euros, but is often spent as meticais. For example, much of the spending on health and education is for salaries, which are in meticais, so aid dollars are not needed to pay salaries in local currency. But if the government simply printed extra money to pay the salaries, that would be inflationary, because it would increase demand without increasing supply. So, if aid is not to be inflationary, it is important to ensure that both the dollar and meticais values are spent.8 Of course, where aid is directly used for imports, for example for anti-retroviral drugs, this is not an issue. But where aid is used for local currency spending, something must be done with the dollars to compensate; if not, there is a danger of Dutch disease. Killick and Foster find that Mozambique spent all of the metical value of the big increase in aid between 2000 and 2002, but only two-thirds of the dollar value (which is still better than most countries in their study, but could help to explain a slightly overvalued exchange rate). The IMF’s highest priority has been to control inflation, and in the early post-war period, Mozambique was not allowed to spend the extra aid at all. Later it was required to put large amounts of the dollars into the reserves rather than spend them on imports.An important aspect of IMF inflation policy has always been control of the money supply, and this has been done by restricting credit to the private sector. Killick and Foster (2007) point out that a common response is to try to ‘sterilise’ some of the aid money.‘One approach is to raise interest rates, increasing the cost of credit and reducing aggregate demand. A more indirect route is to mop up domestic liquidity by selling additional government securities to the banks and public.This too is likely to raise interest rates’. Both methods are used in Mozambique, and, as Killick and Foster say,‘these approaches to domestic sterilisation work by squeezing credit to the private sector’. Aid need not hit the private sector Increasing aid has hit the Mozambican private sector through the squeeze on credit and the high exchange rate. But Killick and Foster argue that this need not happen, if aid is managed more carefully.There are two key elements: first, to ensure that all of the dollars and pounds are actually used for imports and, second, to take action to support the productive sector.The first seems a total reversal of the thinking of two decades ago, but the huge aid flows mean that hard currency is no longer scarce. A key factor is to encourage infrastructure investment – on roads, water, electricity and telephone – which has a substantial import content. Killick and Foster note that ‘there is strong evidence that public investments stimulate output and capital formation in the private sector – the so-called “crowding-in” effect – especially as it relates to transport and other infrastructural investments’. Infrastructure investments also reduce costs, helping to make businesses more efficient and more competitive against imports. The World Bank now also supports infrastructure as part of its supply-side measures. But Foster and Killick (2006)9 go much further.They argue that governments need ‘conscious policies’ to support the tradable goods sector. Indeed,‘virtually no evidence was found of aid being used for promoting private sector development.The significance of this is that it is within the private sector that most exports and import-substitutes are produced, while non-tradables come more from the public sector.’ In fact, there has been a large long-term switch in aid use away from directly productive investments in favour of current and investment expenditure in the social sectors (Killick and Foster 2007).This reflects the inKillick and Foster, and other economists, use the word ‘absorb’ for the use of the foreign currency for imports, and the word ‘spend’ for the increase in government spending.We find this confusing, especially as the aid industry uses ‘absorption’ in a much broader sense, often to include what Killick and Foster would call spending. So we shall just refer to dollar spending for ‘absorption’ and metical spending for ‘spending’. 9 Foster and Killick (2006) based on a study of 7 countries including Mozambique. 8

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creased stress on the Millennium Development Goals.‘The problem is not with the MDGs per se but with the relative neglect within them of MDG1 – the eradication of extreme hunger and poverty. Greater attention to that would necessitate giving higher priority to economic growth, as the most powerful influence on poverty levels.’ ‘The shift in recent years away from using aid for directly productive development in favour of health, education and other social spending is another source of concern. In effect, non-tradables have become the favoured outputs, increasing the danger of Dutch Disease’ (Foster and Killick 2006).‘In the absence of accelerated economic growth, massive improvements in educational standards are apt merely to lead to qualification inflation, under-employment and frustrated ambition.The issue is about balance in the composition of investment, a balance which is not being well achieved at present’ (Killick and Foster 2007). They emphasise that ‘infrastructure alone will not be sufficient’ (a point shown by research cited in Chapter 7) and that policy must include direct support to tradables producers. This should include ‘some form of subsidy to compensate tradables producers for any disincentives that may result from aid inflows’. Killick has stressed that there is a real danger of corruption that must be watched, and that subsidies must be targeted at making companies competitive. But he also points out that the need to spend the dollars and pounds means that this is a good time to invest in imported production equipment and technology upgrading, and that this should be co-financed or subsidised by the state.10 Indeed, the next five to ten years are a unique period in which aid means that Mozambique will have a surplus of dollars. Now is the time to import the capital goods to build up production. In Chapter 4 we pointed to the lack of investment in fruit and nut trees; now is the time to import the land-clearing machinery, irrigation pumps, nursery equipment for growing trees, and so on. It is also the time to hire foreign experts to train Mozambicans for business development centres. Borders with the other SADC countries are now largely open, and many Mozambican firms are not competitive.There is a need for a big push in improving productivity and quality, through improved technology and training, as well as lowering production costs. This is also the time to be bold.A few years of subsidised fertiliser imports would sharply raise production and create a group of farmers who could use fertiliser profitably. Fertiliser costs much more than in neighbouring countries because so little is imported.The subsidy should be designed to bring the price down to what it would be if it were imported by the shipload rather than the container load; as consumption rose, private companies would import in quantity and the subsidy would no longer be needed. But it needs a subsidy to kick-start the increased use. All of this is aid to the supply side – increasing production and the supply of goods – in keeping with traditional thinking, but because it involves subsidy and the state, going much farther than the Washington Consensus will allow. Increasing demand Domestic demand makes the largest single contribution to economic growth; but generalised and persistent poverty means that demand is small and this inhibits growth, explains the UN Conference of Trade and Development Least Developed Countries Report 2006 (Gore et al. 2006). Most donors and the international financial institutions stress supply, but ‘policies which seek to engineer a supply-side fix in the LDCs [least developed countries], without due attention to the dynamics of demand, are likely to fail’ (pp. 263. 280). UNCTAD argues that ‘growth in agricultural incomes can provide an important stimulus for investment in manufacturing industry and services within very poor countries.’ It looked at the growth of 15 countries in the period 1993–2003, and found that, although Mozambique had the highest overall growth rate, its domestic consumption was one of the 10

Speaking at the seminar on 11 December 2006.

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lowest as a share of growth. On average, private consumption is 51% of demand for the 15 countries, but in Mozambique it is only 16% (the lowest except for Zambia) (ibid.: 264, 265). UNCTAD notes that ‘InViet Nam and Bangladesh, it is possible to observe a virtuous circle in which demand stimulus from agricultural growth induces investment, entrepreneurship and employment in non-agricultural activities, particularly non-tradables’ (p. 280).Thus supply-side interventions like those of Killick and Foster, which increase agricultural production, also play an important role in increasing demand. In the next chapter, we shall look at a series of temporary measures to stimulate demand directly. But the clear conclusion to be drawn from Killick and UNCTAD is that more aid must be directed into the productive sectors, in particular to increase peasant productivity and income. The main reason to want to increase rural demand is because it will stimulate the local economy, and most purchases are of local goods and services, which means that there are multiplier effects as the money continues to be spent and creates further demand.There is, however, a potential problem with using aid to stimulate demand, because spending is in meticais but aid is in dollars, which must also be spent.This proves not to be a problem, because the weak state of Mozambican industry means that all manufactured goods have substantial import content and many key items, ranging from fertiliser to bicycles,11 are totally imported.

Conclusions: money to the economy Like the Pacific island cargo cults, Mozambique’s development strategy is based on the belief that if it creates human capital, builds infrastructure, and reduces restrictions on business, then investors (mainly foreign) will miraculously appear and end poverty.This involves building to satisfy unknown or mythical outsiders – in the Pacific case landing strips for those who bring cargo, and in the Mozambican case creating the right conditions for investors who bring development. But no one really knows what those elusive investors want.The first set of conditions did not work, so the IMF is calling for a ‘second generation’ of reform. How long is Mozambique prepared to accept the nostrums of these Cult priests? President Guebuza has called on Mozambicans to stop holding out their hands waiting for ‘cargo’, and instead change their way of thinking and build on local resources. One of the definitions of development cited in Chapter 8 was the ‘search for alternative paths of social transformation’. Responding to both, this chapter begins an exploration of alternatives and different thinking. New thinking will look inside Mozambique and find ways of turning resources and constructive energy to stimulate the growth of the economy directly. This, in turn, requires a recognition that the MDG bandwagon has led to an imbalance in the use of aid, and that there is a need to return to the use of some aid and government budget funds in the productive sectors. Mozambique is in the unusual position that large aid flows mean that, for the next decade at least, it will have a very large pile of dollars to spend, and that it should be encouraging imports. Spending the dollars is important, also, to reverse the way in which aid pushes up the exchange rate and the sterilisation of aid restricts credit to the private sector and pushes up interest rates.This, in turn, means stepping up imports of agricultural inputs such as fertiliser, machinery of all kinds, and technology and expertise. Paying salaries of foreign experts from Brazil, India and elsewhere, over the next decade, can help Mozambique create new industries, new agricultural exports, and a new class of entrepreneurs.This will involve some careful management. Encouraging the rapid uptake of new technologies may require some initial subsidies, for fertiliser, for example.And it may be necessary 11

Mozambique had a bicycle factory, but it would now be impossible to compete with Chinese imports.

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in the short term to protect certain sectors that Mozambique is trying to build up, such as vegetable oils, against cheaper imports. If the country’s new industries are to be regionally and globally competitive, there must be a rapid increase in quality and productivity. But, at least for the next few years, Mozambique has the dollars to send people abroad for training and to gain hands-on experience, and to import the computers and testing equipment required by the new higher standards. Finally, we pointed to the demand constraint. People are too poor even to buy the goods and services which are already available. In the next chapter, we look at short-term ways to increase demand, and in the remaining chapters at ways to give people more money by increasing peasant farm production and by creating jobs. But there will be little economic growth and development if Mozambique remains waiting, hands out, for investors. Instead, it needs to invest in its own economy.

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Increase demand to kick-start the economy The poor are poor because they have no money.That simple statement goes a long way to explaining the economic problems in Mozambique. As Chapter 7 showed, the large majority of the rural poor are too poor to make even the most basic investments needed to help lift themselves out of poverty. Chapter 8 ended with a picture of Lichinga market, but it could have been in hundreds of different places, where market women sit behind tiny piles of vegetables or dried fish, which cost only pennies, but most people are too poor to buy.There are more bicycles, but one-third of them do not work; and people are too poor to repair them. In rural areas, the average cash income (excluding food grown for family consumption) is just $31 per person per year – 60¢, 30p, or 15 MT a week.That does not buy much in the market. In the previous chapter we noted the UNCTAD view that ‘domestic demand makes the largest single contribution to economic growth’, and that making it easier to do business is no help when people do not have the money to buy. It seems obvious, then, that one way to kick-start the economy is to give people money that they can use to buy things. That will lead others to grow, make and sell more, triggering a local economic boom. Later we look at three possible problems: distrust of poor people, a belief that poor countries cannot hand out money, and a worry that it might be inflationary. But first, let us consider how we might put money into the hands of poor people. One method is already in use; labour-intensive road maintenance is increasingly being used for secondary and tertiary roads.As we noted in Chapter 8, this produces better quality roads as well as providing local incomes.Yet, as that chapter also notes, the government admits that it is not maintaining a third of the road network because of budget constraints. The same problem affects a whole range of other possible investments such as shallow wells, rainwater ponds (represas) and irrigation systems, which could be built by local labour. In the towns similar exercises could be undertaken for road works, rubbish collection with pushcarts (tchovas), tree planting and even gardening. Most urban roads are not paved and can be maintained by similar labour-intensive means; experiments have been carried out in Maputo with roads made of blocks (a modern form of cobbles) which can be built and maintained by hand and which seem to hold up better than ordinary paved roads. (The picture at the top of this chapter is of a just such a road crew in Ribáuè checking their bicycles before going home at the end of the day.) The IMF and the Ministry of Finance are naturally worried about a large expansion in public sector employment. But this could be treated as a temporary public works measure intended mainly to stimulate the local economy, and could be included in the investment budget by the government and donors, rather than in current expenditure. The agricultural minimum wage is only $40 a month, but just three or four months work in

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the dry season, when there is less farm work, would make a huge difference to poor people’s budgets – at relatively little cost. Voluntary labour remains fashionable with donors and government. The view is that people have more of a stake if they help to build a school or health post, which is probably true. But if one takes a broader view, it would have more local economic impact if people were paid for the work. This could, of course, be carried forward into more capital-intensive areas, such as boreholes and electrification, both of which have substantial semi-skilled labour components but also require skilled labour and imported equipment like wire and drilling rigs.We noted in the previous chapter that in the short term, importing is not a problem because of the surplus of aid dollars.This could also be linked to on-the-job training of electricians, well drillers and so on.When the money runs out for these special programmes after a few years, the hope is that the economy will have been stimulated enough to create a demand from the slightly better-off for wells and electricity, so that these people can continue in the private sector. (In Chapter 17 we look more closely at what will be needed to create contractors and entrepreneurs.) There is a long history of public works projects. During the great depression of the 1930s, the US set up the Civilian Conservation Corps, which gave jobs to more than 600,000 people and planted more than 3 billion trees. In communities close to CCC camps, local purchases prevented the failure of many small businesses.1 More recently there have been public works projects following floods in Bangladesh, in war-affected regions like Afghanistan and the Democratic Republic of the Congo, and, most recently, in tsunami-affected parts of Indonesia and Sri Lanka. India has taken a much more radical step, with its National Rural Employment Guarantee Scheme, which began in 2006 in 200 of the poorest and least developed districts. This guarantees 100 days of work a year at the minimum wage to every household.The Indian minimum wage is $1.35 a day, lower than the Mozambican minimum wage.The programme is paid for by the national government but organised at local level and will be used for public works and to create village assets such as roads and dams, as well as raising the standard of living of the poor.The national government has pledged to expand the programme and some states, such as Bihar, have already used their own resources to expand the programme to other districts.2 There seems no reason why such a programme could not be tried in Mozambique, perhaps promising fewer days (say 25) and paying only the agricultural minimum wage. Even so, that would pump tens of millions of dollars into rural economies and lift many people out of absolute poverty. Another option is to follow the example of Zimbabwe after independence (and the US, as noted in the next chapter) and set a higher and guaranteed price for maize.As noted in Chapter 4, this stimulated the rural economy.There are limits to this and other plans, in that one does not want to distort the economies on Mozambique’s long borders with Malawi, Zambia and Zimbabwe. But a guaranteed price not too much more than the cross-border price would be possible.

Cash transfers in Mozambique In industrialised countries it is now widely accepted that the poor should simply be given money; in some countries cash grants to children, the poor, disabled, elderly and unemployed make up more than 10% of GDP. Known as ‘social transfers’ or ‘social protection’, it had been argued that this was impractical in developing countries. But rich country History of the Civilian Conservation Corps, St Louis: National Association of Civilian Conservation Corps Alumni, http://www.cccalumni.org/history1.html, downloaded 12 April 2007. 2 ‘India launches anti-poverty deal’, BBC news, 2 Feb. 2006. http://news.bbc.co.uk/1/hi/world/ south_asia/4671328.stm; ‘7th Peer Learning Workshop, Bihar, A Report’, 26–28 August 2006, Rajgir, Bihar, http://www.empowerpoor.com/downloads/7th%20PLW%20Bihar.pdf; both downloaded 11 April 2007. 1

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thinking is changing as donors increasingly use social protection. Britain’s Department for International Development (DfID) has given strong backing to social protection, and cites as explicit goals of cash transfers to ‘facilitate economic growth’ and ‘stimulate local markets’ (Fawkner-Corbett 2006). A whole issue of the journal Development Policy Review (September 2006) was devoted to cash transfers.A whole range of experiences, including in Mozambique, shows that it can be done (Hanlon 2004c). The National Social Action Institute (INAS, Instituto Nacional de Acção Social, part of the Ministry of Women and Social Action) runs a ‘food subsidy programme’, which is really just a cash grant, given to 75,000 poor elderly people in 2005, 15% of the Mozambicans over the age of 65. Two-thirds of the recipients were women. The grant is 70 MT ($2.80) per month for an individual.The programme also reaches 5000 chronically ill or disabled people.There are a number of problems with it, including identifying recipients, the requirement that recipients have identity cards which are difficult to obtain, an inability to reach out into rural areas, and relatively high administration costs.3 Nevertheless, it hopes to reach 130,000 people in 2008 (Notícias, 12 May 2007). Despite its problems, the INAS programme is important for three reasons. First, Mozambique has already demonstrated that it can hand out cash in a reasonably effective way. Second, the target group are precisely those who cannot work and thus will not benefit from the labour schemes suggested above.Third, most labour schemes are rural, while, so far, INAS is mainly urban; as one study of INAS pointed out:‘Urban areas of Mozambique have a truly destitute population that is surviving below minimally acceptable levels of consumption’ (Low et al. 1999: 56). Mozambique has had experience of two other large cash transfers.The largest was the payments every two months for two years to 93,000 demobilised soldiers after the war.The basic payment was $7 per month for about half, and larger amounts for the higher ranks. Administrative costs were low, and the soldiers were willing to travel to district towns to collect their money.The money seems to have been particularly important in restarting economic activity in war-affected areas.A UNDP study showed that these cash payments gave ‘a new impetus to social life, especially in rural areas’ (Christie and Barnes 2001; see also Lundin et al. 2000). The other was a USAID grant of 1500 MT (then $90) to 106,000 rural families who were victims of the 2000 floods.The money was given only to female heads of household. Use of it was very diverse, with some going for basic consumption (18% on household goods such as dishes and blankets, 12% on clothes, 7% on food) and some for investment (14% for livestock, 9% for construction materials, 8% for seeds, 4% for farm equipment). The money was initially spent locally, but much of it was used for longer-term goals.4 Thus, Mozambique has adequate experience to run a cash grant system if it wanted to do so. The Minister for Women’s Affairs and Social Welfare,Virgilia Matabele, wants to reduce the number of people on food allowances.‘What we are giving people are alms’, she argues. ‘Whether we want to admit it or not, these are alms’.5 But two arguments can be made against this. First, in line with article 25 of the Human Rights Declaration, when the government provides cash grants, it is not giving charity or alms, but rather guaranteeing the human rights of its citizens.Therefore, on human rights grounds alone, it should be increasing rather than decreasing the number of grants. Second, and equally important, is the broader macroeconomic point: economic growth is constrained by lack of demand, and thus giving people money is an important way to boost the economy. Anuário Estatístico 2004; Revista Alvo, 2006; Maimuna A. Ibraimo (2003); Devereux et al. (2005). Miller (2002). Note that, because of delays in the US, the money was distributed nine months after the floods. By then most people had rebuilt their homes and farms.Thus much of the investment must have been new investment. 5 Speaking at the Ministry’s coordinating council, 10 May 2007, in Nhamatanda, Sofala. Quoted by AIM, 10 May 2007,‘Minister calls for fewer beneficiaries of food allowances’. 3 4

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Matabele goes on to argue that cash grants should be replaced by income-generating activities. In practice, the two need to go hand-in-hand (and it is sometimes argued that everyone should get a small cash transfer, what South Africans call the ‘basic income grant’). If people produce goods, then someone must be able to buy them, which means putting money into the community to kick-start the economy. It would be much better to see the food allowance in that light, rather than as ‘alms’.

Social protection elsewhere There are now a wide range of ‘social protection’ programmes in poor countries.The most common are those like INAS in Mozambique with strict eligibility criteria targeting only the poorest. Ethiopia, for example, has a donor-funded public works programme which targets the poorest households and also gives an equivalent cash grant of $3.50 per person per month to those who are unable to work, about 10% of the total. However, there are an increasing number of programmes covering entire groups, for example all children, all old people or everyone receiving ARVs (anti-retroviral drugs for AIDS). Botswana pays a pension of $27 per month to everyone over the age of 65. Lesotho introduced a pension of $25 per month for everyone over 70, despite opposition from the IMF. Some are conditional. Brazil’s Bolsa Escolar and Mexico’s Oportunidades are grants to poor families whose children have a school attendance rate of more than 85%. Bangladesh, Nicaragua, Honduras and Colombia have similar programmes (Farrington and Slater 2006; Devereux et al. 2006). Paying cash grants after emergencies has now become much more common, from Iran to Ethiopia to Kenya, for two reasons. First, people’s needs are often very different; in a flood some lose their food store and others lose their roof. Second, food aid and other commodities can wreak havoc with local markets, whereas cash stimulates local supplies where there are functioning markets.Three of Mozambique’s neighbours run cash grant programmes. South Africa has a pension for all but the wealthiest old people and a child benefit for all poor children. Zambia has a donor funded programme to give $8 per household per month to the poorest 10% of households in 143 villages. Malawi has an experimental programme in which poor people receive cash instead of food aid.6 Critics of cash transfers usually worry that the poor will misuse the money, and there has to be tight control by highly paid donor staff or government officials. But a wide variety of studies show that the poor use money wisely. A study for HelpAge International and Save the Children UK comments: It is possible that some cash transfer income could be ‘misused’ by being squandered on alcohol, for instance … However, there is little empirical evidence to support this (rather condescending) assumption, and it is important to emphasise that we found no evidence of this kind of abuse by beneficiaries in any of our case study programmes. Instead, individuals and households appear to make careful and strategic decisions about how to use this additional income for the best interests of the household, either immediately (buying more food and groceries) or for the longer term (buying chickens or a goat, investing in farm inputs, or paying schooling expenses for grandchildren).7

Even targeted cash transfers have broader economic impacts. Pensions in Lesotho and South Africa improve the health and school attendance of children. The child grant in Mexico improves the health of the whole family (Barrientos and DeJong 2006). 6 Devereux et al. (2005); Chris McGreal,‘Britain backs revolutionary aid experiment’, Guardian, London, 16 Feb. 2007. 7 Devereux et al. (2005).‘Groceries’ are items such as soap, paraffin, matches, and candles.

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Don’t just target the poorest It seems obvious that cash grants should be targeted at the very poorest, but on further consideration it is not so obvious at all.There are four problems with targeting: cost, corruption, the breadth of poverty and possible social conflict. In Mozambique, INAS already knows about the first two.The difficulty of distingishing the ‘deserving’ from the ‘un-deserving’, of checking regularly, and of keeping an up-to-date list requires substantial staff; the cost of actually deciding who gets the money and handing out the cash can be as much as the grant itself. INAS and its predecessor GAPVU (Gabinet de Apoio à População Vulnerável) both had problems with ineligible people obtaining grants, due to corruption and weak administration.Any scheme in Mozambique that requires the approval of an official will face corruption problems; some chiefs and regulos will include their family in the list of beneficiaries or ask for a percentage of the money, while, if Brazilian or Mexican systems are adopted, some teachers will demand bribes or sexual relations with girl pupils before signing the paper certifying 85% attendance. The third problem, which has surfaced with the attempt of donors to select the poorest 10% in Zambian villages, is that, in many villages and urban neighbourhoods, everyone is poor; most people will be living below the absolute poverty line.Therefore, targeting the very poorest means separating the starving from those with only serious malnutrition. As noted in Chapter 7, most rural people are very poor and have no assets.Thus, choosing the very poorest means that one of two things may happen: those who receive grants will lose all dignity because they have been identified as the lowest of the low, or people will be jealous and say ‘I am as poor as Maria over there, and she has a grant and I do not.’ A study in Malawi by the London-based Overseas Development Institute found that there were serious problems with targeting: The concept of targeting is alien to most communities in rural Malawi. A major consideration among the participants was the implications of community targeting for social harmony.They felt that it would strain social relations because everyone would like to benefit from such schemes as most villagers are poor.They pointed out that the targeting discussions often evoked fear of witchcraft and bitter quarrels (Levy 2004: 4).

The study team tried to simulate beneficiary selection exercises, but faced resistance: In one site, the participants agreed to ‘play the game’ but said that the selected beneficiaries would just act as channels to receive the benefits, which would be shared. … [In another, the attempt to simulate beneficiary selection] came up against a practical problem. Once the quota of the ‘very poor’ and ‘very vulnerable’ households was exhausted, and the participants had to choose among members of the ‘poor’ group, it was much more difficult to decide.As nobody in this group appeared to qualify much more than anybody else, the tendency of some participants was to select themselves or their relatives (ibid.).

Taken together, this suggests less targeting as the way forward, giving grants to large, easyto-define groups. In Mozambique, the three easiest-to-identify groups are children (8.4 million under 15 in 2005), old people (500,000 over 65 or 300,000 over 70), and people taking ARVs (40,000).With no complex eligibility criteria, people need only identity cards to qualify. For Mozambique, child benefit makes more sense than a school attendance benefit, because of the continuing shortage of school places. It may be politically important to exclude the 20–30% of non-poor from these groups, but the cost – in corruption and administration – would be similar to the amounts saved. Furthermore, the family expenditure survey8 showed that children and old people are more likely than average to be Inquérito aos Agregados Familiares Sobre Orçamento Familiar – Quadros Definitivos, Instituto Nacional de Estatística, 2003. 8

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poor. One way to exclude the best-off would be to ensure that the money had to be collected from a bank, post office or delivery system, in person by someone who would have to supply their finger prints.The best-off would certainly consider it was not worth their time to travel and queue; so they would opt out of the system without being formally excluded. A study of cash grants concludes that the associated administrative problems are so great that ‘finely tuning targeting and conditionality … may overall be a less cost-effective approach to poverty reduction than to introduce much cruder forms of targeting and conditionality, and achieve better levels of implementation’ (Farrington and Slater 2006). A final point is that once old people, children, AIDS patients, and the disabled are included, nearly all families in Mozambique would receive some money.This leads to the obvious suggestion that everyone should simply get a basic income grant, say of 50¢ per person per week. Such a grant could be given as a family grant, preferably to the senior woman in the household, and to simplify administration, might be paid once a month or once every two months (Hanlon 2004c). Such a grant would cost about $100 m. per year, which is less than 10% of the aid to Mozambique and is just the recent annual increases, yet it would have a huge impact on poverty and would create the demand to stimulate economic growth.

Technical issues Sceptics raise three issues about universal or large group grants – that they are impracticable in a poor country, that they would be inflationary, and that they create dependence. With the demobilisation grant, Mozambique has already proved that they can be done (see Hanlon 2004c for more details). Ex-soldiers were given books of cheques or vouchers which they could cash once every two months.At the end of the war, more than half the district capitals had bank branches or post offices which could cash cheques. Most of the bank branches have closed with privatisation. But large group grants, for example for all children, or a universal grant, would stimulate the opening of branches in district capitals; indeed, the government could contract out the administration and a condition could be bank branches or post office banks in all district capitals.This, in turn, would stimulate people to open bank accounts and encourage rural saving and investment. Mozambique has shown that it is possible to issue millions of electoral registration cards at relatively low cost.There is discussion of a ‘smart’ identity card which can also be used as a health card, electoral registration card, etc. (Notícias, 13 April 2007).This could easily also be used as a benefit card. There are other ways to distribute money. Malawi and Namibia send the cash around by armoured car or a truck with a safe. Both use swipe cards and cash machines (ATMs); Malawi also has a fingerprint reader to confirm identity.The cost is relatively low, and it would not be hard for Mozambique to set up such a system. Inflation is the next issue.This can be dealt with, but requires some care.At local level, if a large number of people suddenly receive a grant, this could easily push up the price of food and other goods in the local market.At one level, pushing up food prices is not a bad thing, since the money is earned by local producers, and the higher prices might stimulate more production. But large jumps in prices can be quite damaging.There are three responses to this, all of which would have to be followed. First, and most simply, traders and other business people need to be told well in advance that there will be more money and they should stock up.They might require assistance for this. In the cash grants after the 2000 floods, USAID set up a special credit fund for wholesalers, to allow them to stock up and let shops and traders have extra stock on credit.The second response is to monitor the situation closely; if food prices rise, the initial step is to tell traders in neighbouring areas about the higher prices in the hope that they respond, and if that is not

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enough, the government will need to be able to sell some food at the normal prices.The third response is to phase in large grants over several years, as South Africa did with the child grant (Barrientos and DeJong 2006). Not only does it make it easier to get registration and payment systems into place, it also allows the local economy to adapt. The other half of the inflation issue comes when cash grants are paid out of aid.The grant is in meticais, but the aid is in dollars or euros. As the previous chapter made clear, to prevent inflation these dollars must be spent on imports. Some of the purchases that the grant recipients make have import content – fertiliser, tools, oil, etc. – and there is a cascade effect: when people buy more food, the farmers use the extra income to buy things, some of which have import content. But this needs to be monitored, because if dollar spending falls behind metical spending, the government will need to encourage other imports, hopefully of inputs and equipment to also stimulate the local economy. Dependence is the third issue – the fear that people will take the money and not work. Although 50¢ per person per week would double the cash income of many rural households, this is small enough not to deter work or crop sales. Indeed, the opposite seems true – with few assets the poor are often in debt, and small cash transfers would ease part of this crisis and allow people to invest, even if only to buy a few chickens.The Overseas Development Institute, in one of the more detailed studies of cash transfers, notes that ‘as well as providing safety nets and increasing demand, [cash transfers] reduce vulnerability to risk and so facilitate engagement by the poor in more productive enterprises.They also reduce the dangers of capital being diverted from productive activities to meet domestic shocks and stresses’ (Farrington et al. 2005). Continuity is key in all of this. People need to know that the money will come in regularly for some years to come.This will allow traders to invest in stock, farmers and craftspeople to produce more, and ordinary people to run down their emergency reserves and instead invest this money. In another ODI study of cash transfers, Paul Harvey (2006) concludes that these transfers are successful:‘People spend the money they are given sensibly, cash projects have not generally resulted in sustained price rises and women have been able to participate and have a say in how the cash is spent’.

Conclusion UNCTAD notes that ‘domestic demand makes the largest single contribution to economic growth’.Yet most Mozambicans are desperately poor and cannot afford to buy; Mozambique therefore has very limited demand.The obvious answer is to give the poor money. A first step would be to sharply expand labour-intensive public works projects, such as road and irrigation system building.These are constrained by the desire to limit the growth of public sector employment, but they could be treated as temporary and short-term projects not involving permanent staff, but which would put money into rural areas.The costs should be charged to the investment budget rather than the salary account. It would be perfectly possible to follow the Indian example and offer one month of labour to every family in Mozambique. The second step is basic cash transfers, not just to the very poor, but to all children, old people, and patients on ARVs. Indeed, it would make more sense just to give 50¢ a week to all Mozambicans. Supply-side measures cannot be enough to stimulate growth when the poor are so poor. So start by giving money to the poor.

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Agriculture & the new role for the state Agriculture is the base of our economy, satisfying the basic food needs of the people, supplying raw materials for industry, and guaranteeing a level of exports necessary for the economic development of the country. … Agriculture, creating the largest part of our surplus, is the main source of accumulation for our development (Frelimo 3rd Congress, 3–7 Feb. 1977).1 The agricultural economy contributes directly to reducing poverty in Mozambique. Most poor people live in rural areas (PARPA II, 2 May 2006, para 231). Agricultural growth is the main determinant in reducing rural poverty. (World Bank 2006a: 23).

For three decades, the centrality of agriculture to Mozambican development has been recognised. Agriculture still supports 80% of the Mozambican population (World Bank 2005a: xiii).There was growth in production after the end of the war, but it came largely through displaced people returning home and re-opening land that had not been used for many years. The World Bank (2006a) warns that such growth is not sustainable because there has been no modernisation; more than 30 years after independence, most peasants farm in the same way as their grandparents. Of Mozambican farm families, 99.6% have small holdings averaging only 1.2 ha, because with only a hoe they cannot work more land. Of the rest, 0.33% are medium-sized farmers with 6.6 ha and a tiny 0.07% are large farmers with an average 282 ha (Mole 2006). Most farmers grow food primarily for their own consumption; virtually all grow grain of some kind, but fewer than one-quarter actually sell grain, and most grow beans and/or peanuts, but again only one-quarter sell. There are five reasons why this rural pattern needs to be transformed, and why agriculture is central to Mozambican development: (i) Subsistence.Although far from self-sufficient, half of Mozambique’s population largely lives from what it grows. Productivity levels on subsistence farms are so low that many people cannot even grow an adequate diet for themselves and their families. Raising nutrition and the most basic living standards of the largest group of Mozambicans requires substantially increased productivity. (ii) Jobs. Rural people want and need jobs. Expanding commercial agriculture could create jobs and promote rural development. (iii) Food.The rural population will remain the same and population growth will be in urban areas, particularly towns. Most rural households buy maize and the rural maize market is as large as the urban one (Tschirley et al. 2006). More rural people with jobs plus a rapidly growing urban population will increase demand for marketed food. 1

Directivas Económicas e Sócias, 3º Congresso da Frelimo, 3–7 Feb. 1977.

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(iv) Raw materials. Producing biofuels, cooking oil, nuts and other agro-products will need inputs. (v) Exports. Radical shifts in global economics result from India and China sharply increasing imports.The world demand for biofuels is pushing up grain and oilseed prices. At the same time, the very low cost of Chinese industrial production makes traditional import-substitution industrialisation less viable. For the first time since independence, a stress on Mozambique exporting and processing crops makes sense (see Chapter 13). How to move forward has been the subject of bitter arguments since independence, leading to policy paralysis and inaction. Government policy struggles have brought regular changes of minister and no coherent agricultural policy. Donor infighting was so intense that a policy could not be included as part of the multi-donor ProAgri aid programme, and eventually several donors dropped out.The various World Bank agriculture missions could not even agree among themselves. In this chapter, we shall argue that four components must underlie any rural policy:. (i) Rural people and their needs must have a more central role in policy-making.They already take a systems approach, and understand that inputs, markets and jobs are key to any changes. (ii) A technological leap to increase productivity and quality is required. (iii) Commercial farmers, producing for the market, will lead the way in creating jobs and introducing new technologies, and need special support. Policy should recognise the spectrum of farmers, from those growing mainly for the market, to those selling some food and a cash crop (who are also, in a smaller way,‘commercial’ farmers), to those who mainly produce their own food; a spectrum of responses is required to meet different needs. (iv) State intervention to support farmers, agricultural value chains and job creation is an essential part of all three other components.

Rural people, jobs & income Peasants are not self-sufficient; they buy food as well as household goods such as soap, cooking oil, and clothing, and need money for health care and education. Cash comes from selling crops, petty trade, or wage labour – often migrant labour (which was substantial towards the end of the colonial era, but is much less available now) as well as seasonal and casual work such as ganho-ganho – working on other people’s land on a daily basis. PARPA II (para 527) points out that ‘the pattern of rural family life depends on a complex relationship between family production and salaried work on and off the farm’. The central planning era ignored the complex family networks and role of wage labour; peasants were treated as self-sufficient ‘subsistence’ farmers.The war reduced the supply of goods and food, which made the poorer peasants even more desperate to obtain cash (Wuyts 2001).2 The war also accelerated differentiation and this has continued (ibid.) The poorest families lost access to better land and small-scale irrigation, and increasingly could not afford basic tools (see Chapter 7).The largest rural labour market survey ever carried out in Mozambique3 finds that ‘rural inequality is very significant’.Wage labour has been important to the relatively better-off rural families, but half of the people in the worst jobs only managed to find 20 days or less of wage work per year.Thus the survey concludes that ‘an increase in the number of days per year when they can find employment would Marc Wuyts was formerly linked to the African Studies Centre of Eduardo Mondlane University and is one of the most knowledgeable people on Mozambican development. 3 The Mozambique Rural Labour Market Survey interviewed 2638 wage-employed people in Manica, Nampula and Zambezia in 2002–3.The sampling was purposeful rather than random to cover a large range of rural workers and employers (Cramer et al. 2007). 2

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have a dramatic impact on their living standards’ and that ‘decent jobs’ can transform the living standards of even the poorest, especially rural women (see also Sender et al. 2006). There are many problems related to low wages, poor working conditions, and the huge discretion enjoyed by employers, and this is raised in Chapter 17. But there can be no broadly based development in Mozambique that excludes the poorer peasants, and wage labour will be central to ending poverty.4 In Chapter 14 we also pointed to the role of rural job creation in increasing demand. Young people are an increasingly important group, with many more rural children obtaining at least a basic education. In Manica and Nampula there are reports of ‘thousands’ of people turning up when they hear that agricultural or agro-industrial jobs are available (Cramer et al. 2006). With no new jobs in rural areas, young people move to the towns and try to make a living as best they can, often on the edges of legality.A priority must be to find ways for them to earn a better living than their parents, through jobs or improved farm technology. Nearly half the population sees jobs, in- Table 15.1 Most important problems come and food as the worst problems facing In your opinion, what is the most important the country, as Table 15.1 shows. In the same problem facing the country? Urban Rural Total survey, 51% of the population said that the gap between rich and poor was getting Unemployment 33% 25% 29% 18% 16% ‘worse’ and 61% said that the government Poverty, food shortage 14% Education 7% 10% 9% was doing ‘badly’ at creating jobs. Health Water

7% 5%

9% 5%

8% 5%

Lazy peasants? roads, crime and corruption follow at Peasants blame the government, which, in Drought, 4% each. turn, sees things very differently. ‘The lack Source: João Pereira et al., ‘Round 3 Afrobarometer of a habit of hard work is perpetuating survey in Mozambique’, 2005. Based on ‘a nationally hunger and poverty.We have to work more representative random, stratified probability sample of 1,200 Mozambicans.’ and harder,’ President Guebuza told a series of rallies in Zambezia province in April 2007.‘There are many lazybones in Mozambique. We have to admit we don’t work much.’These are people who ‘relax without having done anything, and then become tired of so much relaxing’. He criticised the ‘massive apathy towards work in the country’. In Zambezia there is a lot more land that could be farmed, and rivers that could be used for irrigation, but they are not being used because the peasants are lazy and apathetic (Mavie 2007).The respected journalist Gustavo Mavie, head of the AIM news agency, who travelled with the President, said Guebuza really was ‘breaking the ice’ – saying the unsayable in blaming lazy peasants for underdevelopment. He noted that in Mopeia, Guebuza hinted that it might be necessary to resort to ‘persuasion’. This could be seen as a reference to the Operation Production which Guebuza used to move ‘unproductive’ people from the cities in 1983. Aiuba Cuereneia, Planning and Development Minister and effectively number two in the government, argues for the need to change the peasant mentality. People have very short time horizons and do not invest. Poverty is not just about money,; it is also a poverty of ideas.‘Peasants have the capacity and resources and could grow more,’ but they do not, he told us. Lack of food used to be a cause of shame, but this is no longer true. Because of the war and food aid, whole communities expect free food, he said in an interview on 28 October 2006. The Frelimo leadership, Guebuza’s advisers and much of the media are increasingly urban middle-class, and some of them have been pushing the lazy-peasant line. But they also appear to have been mis-briefing Guebuza. In one speech he said that it was due to laziness that food was being imported from Malawi. But on the same day, an article appeared in Notícias complaining that 13,000 tonnes of food had been exported to Malawi 4 In this, we and Chris Cramer explicitly disagree with David Tschirley and Rui Benfica (2001 and 2000) who argued that ‘it will be very difficult to use wage labour markets as a policy tool to alleviate poverty.’

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from just one district, because there was no market for the food in Mozambique where peasants did not have the money to buy basic food.5 Nor is the ‘lazy peasant’ line going unchallenged.The National Peasants Union (UNAC) marked International Peasants’ Day (18 April 2007) by stating that the peasants could not do more work unless they had more support from the government.The use of fertiliser, improved seeds, animal traction and irrigation is very low in Mozambique because most peasants are so poor they cannot buy inputs. UNAC said that other governments in the region and around the world provided agricultural credit, inputs and marketing support, which are also necessary in Mozambique to make peasant agriculture profitable. On trips to Gaza and Inhambane in May and June 2007, presidential statements about peasants needing to work harder to resolve their own poverty met with increasing demands that the government contribute more. At one meeting a member of the audience told the President:‘The people of Homoine are pleased with your visit, Mr President, but we would be even more pleased if you could resolves the problems of lack of water and electricity and the degraded state of the roads in the district.’6 In Xai-Xai, Gustavo Djedje, head of the Pedagogic University (Universidade Pedagógica, UP), asked: ‘Why is it that roads are only mended when the President is coming.Why can’t we have regular maintenance?’ Anastácio Matavele, coordinator of the local NGO forum (Fórum das Organizações Não Governamentais em Gaza, FONGA), said that agricultural production would increase only if there was more rural credit and if the government supported the whole chain, from production through marketing. Local businessman Mansur Daúde pointed out that in earlier times the state company Mecanagro had rented out farm machinery and provided servicing for tractors, which no one does now.‘It would be really good for farmers if this were started again.’Assok Lalji, head of the Xai-Xai business association, said poverty in the rural areas was shown by the fact that shops destroyed in the war were never rehabilitated and that young men were being driven into the city; with no employment, there was a crime wave in Xai-Xai.The state, he said, must create jobs for these people.7 Thus the message from the grassroots is that peasants can work harder only if they have more support, so that their effort is profitable.The need is not just for isolated inputs, but for an entire marketing and production chain. It was also repeatedly pointed out to the President that, although things are getting better, the vast majority of rural people remain desperately poor. Indeed, one reason for what the President sees as peasant apathy may be simple lack of food. Peasants who start work at 4 am before sunrise and who eat only one meal a day are likely to be tired and sitting under a tree by 11 am when the visiting delegations pass by.They have already done 7 hours of hard labour.A bit of fertiliser and some improved seeds would make that labour more productive, meaning more food and perhaps making harder work possible during the next season. Trapped by misplaced faith After the heavy role of the state in the late 1970s and early 1980s – big state farms, central planning, price setting, and a marketing board – the 1990s saw the Bretton Woods institutions and donors push the state totally out, through privatisation and a withdrawal from marketing, supply, and pricing. Mozambique did all that was asked of it.‘Mozambique stands out in Southern Africa for its commitment in policy and practice to open borders’ (Tschirley et al. 2006).‘The trade-weighted average tariff is 9%, one of the lowest on the continent.’‘Today, the Ministry of Agriculture formulates policies and regulations, and the private sector supplies inputs and markets’ (World Bank 2006a: vi, x). But this failed.The World Bank admits that Notícias, 13 Apr. 2007. In Murrupula, in neighbouring Nampula, 70,000 tonnes of maize, cassava and beans from the 2005/6 harvest were never sold and rotted because the peasants were too poor to buy it and the roads so bad that no traders came to buy. Notícias, 13 July 2007. 6 ‘I´bane determinada a vencer a pobreza – constata Guebuza, pelo entusiasmo popular e dinamismo do Governo provincial’, Notícias, 2 June 2007. 7 ‘População de Gaza aguarda visita do PR com expectativa’, Notícias, 2 June 2007. 5

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The dismantling of the state-owned organizations that were responsible for the provision of agriculture inputs and bought and marketed production has created a vacuum. In its infancy, the private sector has yet to find it cost effective and profitable to reach out to the rural areas (ibid.).

Indeed, the prestigious Institute of Development Studies at Sussex University argues that throughout Africa the gains of liberalisation in Africa have been patchy, limited or absent. Poorer farmers have lost the support once offered by (admittedly inefficient and often corrupt) parastatal marketing boards and government research and extension services, but have rarely gained new support, markets or production opportunities (Scoones et al. 2005).

Similarly, the Overseas Development Institute, one of Britain’s most important development think-tanks, argues that it is impossible to depend only on markets in Africa, in part because of high transaction costs and uninsurable risks (Omamo and Farrington 2004).Too often the ‘market’ and the ‘private sector’ do not mean competition and improved services but instead ‘one local trader pushing up input prices, buying as low as possible, and unwilling to go to areas routinely visited by government employees in the past’ (Howell 2005). The failure of the neo-liberal, totally free market in rural development is now obvious, but both the government and the World Bank still profess their blind faith in the unsuccessful dependence on the ‘free market’. Indeed, PARPA II calls for ‘transferring the supply of public services to the private sector’. However, there are hints that the faith may be wavering; PARPA II (para 528) also calls for joint investments with the private sector and for the state to ‘make investments that stimulate agro-business (support for the family sector to supply agro-industry with raw materials of quality, in the quantity required, and when needed)’. But the World Bank remains zealous. Faced with the obvious failures, it can only call for ‘a more business-friendly environment’ and increased ‘flexibility of labor markets’ (2006a: xiv, 189). In Chapter 14 we talked about the ‘Cargo Cult’ and the belief that if the right runway is built, mythical outsiders will fly in to develop Mozambique and end its poverty; this is a clear example of the World Bank’s blind faith in the Cargo Cult. Perhaps the most extreme contradiction comes where the Bank concludes that rural extension is highly effective in increasing rural income, and that government extension is more pro-poor than INGO or private extension (ibid. Appendix 5). The answer seems obvious, but it is not permitted in the Bank’s fundamentalist neoliberal model.8 So the Bank is reduced to saying that ‘new methods of providing extension services need to be explored. Perhaps the public sector could train private sector workers who could in turn provide extension advice while retailing their inputs’ (World Bank 2005b: para 209). When even the World Bank is reduced to saying that ‘perhaps’ a way can be found for Table 15.2 Agricultural technology 1995–6 2001–2 private sector salespeople to do what the % of farm households state extensionists manifestly do better, it is Uses chemical fertiliser 1% 4% time to call a halt. Eventually, past failures Uses manure fertiliser 3% 6% 7% 11% and the contortions needed to twist an ide- Uses animal traction 4% 11% ologically driven policy become so obvious Has irrigation Hires farm labour 19% that zealotry needs to be challenged. It is Education of household head 1.9 yrs 16% 2.2 yrs time to say that the earth really does revolve Source: Table A1.1 and TIA 1995–6 and 2001–2. around the sun. The pile of Mozambique agriculture studies on our office floor is more than a metre high. Many say what ‘should be done’ and their answers are often very different. However, most point to the same issues and most assume a much larger role for the state.That is also In researching this book, we were repeatedly told by donors that the neo-liberal model was no longer being applied, and that the post-post-Washington consensus model was very different. But in agriculture, as in other areas, this report (World Bank 2006a) shows how little has changed.

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what rural people have been telling President Guebuza, and should be the starting point to developing a new rural development strategy.

Raising the level of technology The World Bank and the government agree on the underlying problem. Increased productivity is essential and this has not happened because there have been few improvements to agricultural technology (World Bank 2006a: 2, 41; PARPA II, para 525).Very low technology levels mean most peasants cannot even grow enough to feed themselves properly and cannot earn a basic cash income. Indeed, it appears that agricultural labour productivity is actually declining (World Bank 2006a: 61). Nearly all farming is still done by hand, with nothing more than a hoe.There has been a slight increase in the use of fertiliser and pesticides, mainly by farmers growing cotton and tobacco as part of outgrower schemes. Irrigation has increased a little, largely for vegetables, and more families have oxen, but they are used more for transport than for ploughing. Credit is available to only 3% of rural households, less than 5% are in farmer associations, and extension services reach only 13% of households (Coughlin 2006).Table 15.1 shows the problem.Table A1.1 shows the division by income group. President Guebuza talks of the need for a new Green Revolution in Mozambique. Simon Maxwell, director of the Overseas Development Institute, points out that the first Green Revolution, in Asia in the 1960s, ‘benefited greatly from historic investments in roads and irrigation … supplemented by new investments and by subsidies on a scale hardly conceivable today – up to 10% of agricultural GDP in some cases.’ There were ‘large-scale fertiliser, water and electricity subsidies, as well as major investments in roads’ (Maxwell 2004).An African Green Revolution will be very different, because of major differences in physical conditions and world markets; nevertheless, substantial subsidy will be required.This ‘s-word’ is one which still cannot be spoken in donor-dominated discussions in Maputo, yet all the donor countries hugely subsidise their own farmers.Agricultural development will require subsidies, so the key issue is choosing ones which will be efficient and can be phased out over the longer term. The three overlapping sectors of subsistence farming, food production for local sale, and commercial farming have substantially different levels of needs, but the core problems are the same: lack of inputs (notably seed and fertiliser), lack of extension, and poor market structure. Seeds Most Mozambican peasants simply keep seed from the previous year’s crop to use the following year, and rarely use more productive new varieties. One survey showed that only 4% of households used hybrid9 maize seed and 1% used improved open pollinating varieties (Mole 2006), which one study showed would raise productivity by one quarter. If all peasants used this better seed, the additional value would be $29 m. a year.10 Hybrid seeds and fertiliser could raise yields much more. More peasants would use modern inputs if they could; there has been some uptake of improved varieties of cassava, sunflower and sweet potato, and farmers in border areas buy improved maize seed in Malawi. But seed, fertiliser and agrochemicals are not widely available and are significantly more expensive in Mozambique than in neighbouring countries. Structural adjustment policies of the 1980s and 1990s had two effects. First, as in the rest of Africa, government research was largely destroyed, so there are few appropriate new seeds available to be sold (Scoones et al. 2005). Second, privatisation of the seed industry 9 Farmers can keep maize from open pollinated varieties and plant it as seed the following year; this cannot be done with hybrid maize, for which seed must be bought each year. 10 After deducting the cost of the seed purchased (Rohrbach et al. 2001).

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in the 1990s led to its almost complete collapse because it had trouble making a profit. Peasants cannot afford to buy seed at commercial rates, while low producer prices and high input costs mean better seeds are not always profitable.To fill the growing gap, INGOs began distributing free seeds, which further cut into any potential market. A Michigan State University study for the Ministry of Agriculture concluded that the state will have to invest substantially in much more agricultural research and seed development (Rohrbach et al. 2001). In the past few years government research has begun to recover, but it needs a much larger boost to support all three levels – subsistence, domestic food and export crops.The Michigan study also called for a return to the state carrying out seed multiplication and distribution. ‘Since there is little immediate prospect for the commercial multiplication and distribution … the public sector has little choice but to accept this responsibility’ (ibid.). In 2007 Calisto Bias, director-general of the Agricultural Research Institute (IIAM, Instituto de Investigação Agrária de Moçambique), announced a first step in this direction; 10 farmers had been identified to grow seed for two higher yielding hybrid maize varieties (Notícias, 30 May 2007). But they will only produce 170 tonnes of seed, less than 2% of what is needed. Fertiliser At the African fertiliser summit in Abuja, Nigeria, 9–13 June 2006, heads of state agreed that fertiliser should be subsidised and distribution networks expanded in order to increase access. Both Malawi and Zambia heavily subsidise inputs, and these often leak into the border areas of Mozambique, so input subsidies in Mozambique would not lead to crossborder distortions. Indeed, this argues for Mozambique to join with its neighbours to develop common agricultural policies. During the 1980s, the state company Interquímica imported all agrochemicals and was able to buy in bulk, obtaining the lowest possible price.With privatisation, the market was fragmented, with agents buying relatively small quantities from multinational chemical firms. It is much cheaper to buy fertiliser by the shipload, and for some bulk suppliers the minimum order is 10,000 tonnes. The largest dealer in Mozambique can sell only half that. Furthermore, various studies have shown that dealer mark-ups on agrochemicals in Mozambique are up to three times as high as in neighbouring countries. Cotton and tobacco concession companies sometimes charge higher than normal prices as well (Coughlin 2005). For some crops like mangoes, the agrochemicals can be up to a third of the production costs, so high Mozambican costs make these crops uncompetitive. A start would be for the government to subsidise fertiliser and agrochemical prices down to the bulk import cost and ensure distribution at least to provincial capitals, where they would be made available at fixed prices.The aim would be to raise demand to justify shipload imports, with users paying a real cost which would still be substantially lower than the current price.This would help larger farmers, but the poorest cannot save enough and borrowing remains unrealistic. Cash grants (Chapter 15) would allow them to buy inputs. An alternative would be to give ‘kits’ or ‘ag-packs’ containing basic seeds and fertiliser to the poorest every year. Extension ‘On average, access to rural extension increases farm production by about 8.4% in rural Mozambique,’ concludes a World Bank study (2005b).‘Agricultural extension in Mozambique is benefiting primarily the rural poor.’ Farmers who had received extension advice were twice as likely to introduce new varieties as those who had not.‘Extensionists have been very successful in promoting natural pesticides [which have] a strong and significant impact on living conditions’ and in promoting soil conservation (World Bank 2006a:Appendix 5).‘It is clear that extension advice improves living conditions,’ concludes the Bank (2005b).‘The main constraint is the limited coverage.’

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Donors limited the number of government extension workers to just 700, on the grounds that extension should be undertaken by the private sector. In 2004 there were 260 private extensionists, working for the cotton and tobacco companies, and 1300 working for INGOs, although many were organising farmer groups rather than doing agricultural extension. Despite the larger number of INGO extension workers, more people report contact with government extensionists (ibid.). In addition, government workers are assigned to poorer areas, while INGO workers are sent to the better-off zones. The World Bank shows that extension helps two target groups, the poorest peasants producing primarily their own food, and the better-off farmers becoming commercial farmers (ibid.: para 55).Thus Bank research demonstrates that the most useful thing the government could do quickly is to substantially increase its extension service, give additional training to existing extension agents, and raise salaries.Yet in 1999 when the government was trying to increase the number of extensionists to 1,024, the World Bank blocked the proposal, saying – as it still does – that extension must be private. One former Ministry of Agriculture official told us:‘the donors are imposing outsourcing without realising that there is no way of doing it.’ A recent UN Food and Agriculture Organisation study found that the ratio of publiclyfunded extension workers to farm workers in most developing countries varies from 1:1,800 to 1:3,000, whereas in developed countries of Europe, North America, and Asia the ratios average about 1:400. It says that a ratio of no more than 1:1,000 ‘is essential in order to diffuse knowledge … in rural communities where the majority of farmers are illiterate and where modern media are not available’ (Roseboom 2004). For Mozambique, the ratio of publicly funded extensionists is roughly 1:10,000. In the previous chapter we pointed to the need to spend more money in rural areas; hiring and training hundreds of extensionists would immediately inject their salaries into rural areas, and the World Bank study shows it would be a profitable investment.The World Bank study (2006a) points out that low salaries make it hard for the government to attract and retain skilled staff, so increased salaries might help. Not isolated interventions Rural people themselves see the problems in a systems context. Peasant farmers make clear that it is the market, and the high costs and risks involved, that prevents them from investing in more productive systems. Asked to rank the constraints to agricultural intensification, number one is low or fluctuating producer prices. Rural farming households do not like the new free market that came with structural adjustment and liberalisation, and say they preferred the old days of government price setting and intervention in the market (Mole 2006). Next comes the high cost or even shortage of inputs.The next problem they cite is lack of labour, because young people are moving to the towns because rural incomes are so low.This needs to be considered in the context of the systems approach used by Zimbabwe in the 1980s (Chapter 4), which raised rural incomes and reversed urban migration. Peter Coughlin in a (2006) study on agricultural intensification in Mozambique concludes with ‘a long-known lesson: peasants accept new technology if it is cheap and profitable and the risks are low.’ Their failure to do so in Mozambique demonstrates that these three conditions are not met. Poverty is a very real issue; half of rural households are so poor they cannot save money from one season to the next (Mole 2006) and simply cannot afford the risk of borrowing money for inputs.The problem is not limited to Mozambique. UNCTAD in its Least Developed Countries Report 2006 points to the ‘all-pervasive economic insecurity at the household level associated with generalised poverty [which] adversely affects entrepreneurship as it leads to short-termism and limits risk taking’ (UNCTAD 2006: 110). Only the best-off peasant farmers, with some assets and contacts in towns, can take advantage of the fragmented individual changes, such as improved roads and better markets, that come from the present emphasis on human capital, infrastructure and the free mar-

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ket.The vast majority of rural people are simply too poor.Any significant reduction in rural poverty is going to require a coherent approach which provides improved technology, lowers risk, and ensures markets and stable prices – all at the same time.

Creating commercial farmers PARPA II calls for ‘promoting policies that reverse the rural exodus caused by the lack of local opportunities’, particularly ‘commercial activities that permit rural families to improve their living conditions’. It also calls for agricultural development to be oriented towards the gradual transformation of family farmers into commercial farmers and support for commercial farmers to become more productive and competitive (paras 237, 526). Most farmers produce primarily for themselves and sell a bit of surplus, or produce a cash crop like cashew or cotton but on a small scale. Much of the INGO input is also on the production side, hoping that fish and vegetables will improve the diet of the poorest. Commercial agriculture involves a shift in focus to ask not ‘what can I produce?’ but rather ‘what can I sell?’ Farmers shift into new varieties and new crops that have a higher market value, meet market demands with sufficient quantities and in a timely manner, and have enough financial control to actually make a reasonable profit. Quality becomes especially important; at the lowest end it means ensuring that maize sold in town markets is dry enough to be stored successfully, while at the top end, as with peanuts and cashew, it means meeting stringent European Union standards. There are already at least 400,000 commercial farmers in Mozambique, in the sense of either earning a significant portion of their income from crop sales or being in a formal relationship with a concession company. Fewer than 5% of maize producers account for over 50% of production and 70% of sales; their yields per hectare are double those of the households which sell relatively little. Between 250,000 and 400,000 households are involved in outgrower or contract farming of tobacco, cotton or sugarcane. But not all those who attempt commercial agriculture succeed. Chapter 6 shows that half of tobacco producers only break even or even lose money; they would earn more working for other farmers, even at ganho-ganho rates well below the minimum wage. This leads directly to the line taken for some years by João Carrilho, formerly Deputy Agriculture Minister, that Mozambique should accept the reality of the increasing rural differentiation and try to work with it, rather than against it, to reduce poverty. He argues that 25% of peasant families can be turned into serious commercial farmers who can produce high-value crops and who will create the essential rural employment (Carrilho et al. 2003: 10). In the longer term, as in the rest of the world, most people will have to leave agriculture. But in the shorter term, the relatively low wages make labour-intensive production sensible, while the wages are high enough to have a major impact on poverty reduction. The development model that favours the poor stresses the increase in productivity of a stratum of the commercial family sector that has some link with the market and has a higher probability of reacting to investments and political incentives. In this process, peasants that succeed in increasing their productivity and profit will look for labour locally, offering jobs to their neighbours. (ibid.: 13)

To do this, argues Carrillho, requires: a secure market at a reasonable price; creating a sense of quality production as a way of increasing earnings; extension and technical assistance; availability of inputs; economic policies that defend the poor, for example ensuring that land distribution remains relatively equal and there is no landlessness; and credit, particularly seasonal credit.This last issue is taken up in the next chapter, but is clearly a major problem. PARPA II (para 532) calls for ‘the creation of alternative rural finance mecha-

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nisms (risk capital, farm insurance, guarantee funds, and credit lines for agri-business)’. With increasing cash income, the need for a place to deposit savings becomes important. Contract and concession farming Intensification and increases in production and productivity have occurred in Mozambique only with outgrower cash crops, notably tobacco, cotton, and sugarcane (Mole 2006). These outgrowers are the main users of fertiliser and agrochemicals. Outgrower schemes satisfy all the conditions set out by João Carrilho.A larger company supplies the producer with inputs on credit, provides agricultural extension services, and guarantees to buy the crop, thus taking on a major part of the risk. There are two overlapping systems. Cotton and tobacco concession companies are given exclusive rights (a ‘concession’) to deal with peasants in an area, usually a district. Peasants who take the input package must sell the crop to the concession company. A similar system was used by the grain marketing board in Zimbabwe for maize (Chapter 4). Each peasant family must sign an agreement with the company, so that there is no competition, but this reduces the costs for a company dealing with many small producers. The alternative is for a company to enter into an individual contract, usually with larger farmers. In Manica some commercial farmers (Zimbabweans and Mozambicans) entered into contracts with tobacco and paprika companies. Quite large amounts of money can be involved and the parent company may monitor the contract farmer quite closely (see Chapter 4). All outgrower systems face two corruption problems. On the one hand, the concession or contract company has total control and there are always complaints about low prices being paid and about unfair grading; all farmers think they produce high quality, while it is in the interests of the contract company to claim the quality is poor and pay less. Ruotsi (2003) did find that cotton concession companies in Mozambique pay the lowest prices in the region and charge high interest rates. On the other hand, farmers are tempted to sell to other companies which have provided none of the support but then offer a higher price for the final crop; this is known as ‘side-selling’.Tobacco farmers in Tete, for instance, openly sold tobacco in Malawi saying the higher price offered there was proof that the concession company was cheating them. Both problems are solved only by a good relationship between farmer and company, although systems such as arbitration panels help. Contracts can also be signed with producer associations, in which the association monitors both prices and side-selling. A key problem with all contract farming in Mozambique is that the weak legal system makes it impossible to enforce contracts; a useful government investment could therefore be to set up a fair and accessible arbitration system. So far contract and concession systems have been used significantly only for products which are linked to major international companies – cotton, tobacco and sugar. But there is a huge potential for other export crops, including tea, sesame, pigeon peas, nuts and some fruits, as well as for inputs for agro-industry, particularly for both cooking oil and biofuels.11 An IFAD study (Ruotsi 2003) came out strongly in favour of concession systems as being beneficial to smallholders in Mozambique, despite problems with the cotton concession companies. Where crops are untried or an attempt is being made to develop new markets, it would make sense for the state to subsidise the first traders. One way would be to select a pilot crop and district, such as sesame in Buzi, and issue a public tender for a company to sign a five-year contract to develop the crop.12 The tender would have to clearly specify re11 The World Bank agricultural strategy for Mozambique ‘emphasizes promotion of contract farming arrangements’ for cash crops (World Bank 2006a: xiii). 12 Experiments by a private company in Buzi in 2004 and 2005 suggest that sesame is a good crop to grow there. Some family producers earned over $100, and income can rise to $300/ha, although there is an issue of quality. It might need a government boost to go from the initial private experiment to large-scale production.

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sponsibilities – for example, that in the final year the company would be expected to have 2,000 outgrowers and market at least 400 tonnes.A hundred different experiments could be tried with 20 different crops; some would succeed in some places, and after the trial this could establish a whole new range of crops and new commercial farmers. An alternative structure, which could be better for tree crops, might be the Incaju system for cashew, described in Chapter 5, where a state agency works with a specific export crop and deals with all segments of the value chain, in cooperation with local banks and foreign experts. Incaju has not had to deal much with tree planting or large plantations, but a state agency for new crops, such as mango or macadamia, would need to do that.That will require more business development support than is currently provided by Incaju, but the model seems reasonable. No commercial farmer, large or small, is going to risk a crop they may not sell. Initially, the government might guarantee to buy the crop if there were no sure market. For export crops, global marketing is a role that the state takes on throughout the world, as with Canada and maple sugar (Chapter 4). In most cases, this is not a task for the government itself, but rather for private companies paid by government.The guarantee would be limited to five years; if the experiment were successful, it should not need a government subsidy and could be treated like a cotton concession or cashew association. Some degree of protection may be required. A temporary fall in the world price of palm oil destroyed local attempts to manufacture sunflower oil.13 If gaps in the value chain are filled, Mozambican chicken producers can probably compete with frozen chickens from Brazil on a quality basis; consumers will pay a little extra for local chickens on grounds of taste and freshness. But when frozen chickens are near the end of their shelf-life, global traders dump them at very low prices, and local producers cannot compete. Local sugar production is already protected, because foreign investors demanded it; local investors in agro-industry deserve similar protection. Changing global markets World commodity prices are booming. Maize prices are at their highest for a decade and the use of maize (corn) to make alcohol for biofuel in the United States probably means the end of US food aid disrupting local markets (but should make countries reconsider issues of food reserves). Indeed, oil prices only need to remain higher than $80 a barrel to make it worth locally producing diesel substitutes from jatropha, sunflower and other oilseeds, even if they are not exported.Various crops might be used for alcohol to add to petrol. China is becoming a major food importer and for a number of crops, such as sesame and sugar, Mozambique should be a competitive producer, although big agricultural countries like Brazil and South Africa could be major competitors. For both export and domestic markets, the issue is quality. Despite the ‘Made in Mozambique’ campaign, local consumers will buy imported South African fruit juices so long as the quality is higher; Mozambique needs to produce cheaper fruit juice of at least comparable quality, and then needs to market it to local consumers. Export markets are changing rapidly, requiring much higher quality and health standards, as well as traceability, even for bulk commodities; Mozambican sesame is not of a high enough quality yet to be sold to China. Health standards require a huge expansion of laboratory facilities.Traceability means a level of record keeping that Mozambican farmers cannot even imagine. Finally, there are high-value branded niche markets that fair trade and organic peanuts and cashew from Nampula are beginning to reach (see Chapter 3). Raphael Kaplinsky of the Open University in England has studied value chains and points to the growing importance of very high quality products, often identified with a specific place, such as JaMalaysian palm oil fell to a record low $250 per tonne in 2001, compared with over $430 in both 1999 and 2003.The price of local sunflower oil was between these two prices, so the plant was put out of business when it could not sell due to a very temporary fall in the price of competing oil.This suggests the need for either protective tariffs when prices of competing imports drop suddenly, or subsidies to keep factories functioning in the face of short-term competition.

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maica Blue Mountain coffee, or even a whole country, like Costa Rica coffee. Just as fine wines are identified not just by country but by region and producer, so rich consumers are increasingly buying bananas, wool and a range of other products similarly labelled.This requires substantial improvements in the product, both in terms of varieties and quality control to ensure that the consumer really is buying a higher quality product, and heavy investment in marketing and branding. It may also require breaking with traditional marketing cartels.The key to all of this, he argues, is a proactive approach, and not just waiting for market forces (Kaplinsky 2003). Food poses a special problem Food crops, particularly maize, present special problems.They are high volume and low value, are heavily affected by weather, and have very variable and wide-ranging prices. Private traders and even associations do not like them because of the costs and risks involved. Traditionally, they were handled by marketing boards, which offered guaranteed prices, and sometimes also provided inputs. As Matte Maast showed (Chapter 4), in the early 1980s Zimbabwe was spectacularly successful in putting together inputs, extension and guaranteed purchases by a marketing board – so successful that it is one of the few examples of reversing urban migration. Eliminating marketing boards, transferring the risk from state to peasant, and creating more space for the private sector and free market were the first demands of the extreme neo-liberal policies of the BWIs in Africa in the 1980s.14 Zimbabwe’s successful experiment ended and hunger came to Malawi. Drivers from Mozambique’s marketing board, Agricom, literally risked their lives during the war to go to rural areas and buy peasant maize; but when the war ended, it was closed down. The argument was that marketing boards were inefficient for three reasons: (i) in Bank theology, the private sector is always more efficient than state companies because people in the private sector work harder and are better managers, because they are driven by profit; (ii) marketing boards practised national fixed pricing which meant that, although they reached peasants in remote areas, farmers closer to the cities received less than they would in a ‘free market’; and (iii) marketing boards stored large quantities of grain at substantial cost, even building up grain reserves for drought years, when peasants could be expected to store the grain at no cost to the economy. Marketing boards did have many of the defects ascribed to them, but at least they worked, which is more than can be said of the present system, which has failed across Africa.And peasants have been the losers. Mozambican peasants have not upgraded their food reserves; the poor sell quickly after harvest both because they are desperate for cash and also because their post-harvest losses are high, so they would gain less than officials think by holding their grain even for six months.The World Bank concludes that ‘seasonal price fluctuations are mainly caused by lack of means to finance and store crops’ (2006a: Appendix 6).Thus Mozambique could sharply reduce losses if it were to have professionally managed silos in provincial capitals and main grain production areas.15 This would also bring down maize prices in January and February, when many rural families buy, which would have an anti-poverty impact. So far, the anti-marketing board ideology remains firm. Answering a question in parliament on 3 May 2007, Industry and Trade Minister Antonio Fernando stated that the government was opposed to building an emergency food reserve. He said it would cost $70 m. to set up a reserve of 83,000 tonnes of maize and beans.The government considers it much more cost-effective to use that money to upgrade the road network to move 14 The irony is that at the same time as the marketing boards in the South were being destroyed in the name of the ‘free market’, buying power in the North was being concentrated into just a handful of supermarket chains and a small cartel of buyers of most crops, who set the rules and determine the prices (as pointed out by Kaplinsky, 2003).The World Bank does not complain about their role.Again, whether by accident or design,World Bank policy decreased Southern power at a time when Northern power is increasing. 15 Tschirley et al. (2006), call for ‘public terminal markets [in] Maputo, Beira and perhaps other key cities’ with improved storage.

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grain around the country.16 So the policy is to depend on the market to shift grain from surplus to deficit areas. But global changes should cause some rethinking. Regionally, Mozambique is a potential surplus producer of both maize and oilseeds; South Africa already is, and Zimbabwe could be. Both are important food crops and other neighbours have deficits. Rapidly growing towns and cities are an important market, while rising incomes increase demand for animal feed.The region (apart from South Africa) is a major importer of cooking oil because there are few refiners using local seed (World Bank 2006a: Appendix 6). Oilseeds are also important for biofuel.The problem will be competing with South Africa and Zimbabwe, at least in good years, with the new open borders. Global warming seems likely to reduce African maize production and make it more variable.At the same time, demand is rising in Asia and for biofuel, meaning that less food aid will be available while Mozambique’s neighbours are exporting more outside the continent. Mozambique is likely to find that in a shortage year it will be very expensive to import grain. Grain reserves may be the way forward to reduce post-harvest losses, guarantee peasants a market for maize and other staples in order to boost production, and guarantee supplies for bad years.The government does not need to run the reserves; it could contract with private companies, cooperatives and associations, and provide training and credit and monitor the quality of the storage.This probably also means a return to floor prices and serving as a buyer of last resort. If Mozambique is to become a major grain producer, the government must take on more of the risk. The United States may provide a model. Maize subsidies in 2005 amounted to $9.4 bn,17 more than double official US aid to Africa in that year.18 These subsidies have two parts: subsidised credit and direct payments ‘as part of a “safety net” in the event of low crop prices’.19 The safety net provides farmers with a subsidy of up to 11¢/kg, nearly 3MT/kg, which is the typical price at which a Mozambican farmer sells her maize. A similar subsidy programme for peanuts cost only $276 m. in 2005, and paid farmers up to 40¢/kg, 10 MT/kg.This is exactly the mix of subsidised credit and guaranteed prices that Mozambican farmers want.

Conclusion: assuming risk & creating jobs The failure to transform agriculture makes this a vital task, but, as peasants already know, it requires connected rather than fragmented thinking.Wage labour and non-farm income are essential for all rural families, which makes job creation critical. Farming is important because most Mozambicans still live in rural areas or small towns, and the global picture is changing, with prices of industrial goods falling and prices of commodities rising and likely to remain high. Agriculture and agro-processing now seem a much more sensible development strategy. The model of state-dominated agriculture and marketing did not work well. But the model of total state withdrawal, with farmers taking all the risk and hoping for a fair deal from private traders, has been a disaster. Mozambique has an agriculture system which is unsustainable and cannot end poverty.The state has to come back in and take an active role, not dominating as in the past, but working in partnership with the private sector, including associations and cooperatives; and looking more at market failure and the gaps in systems, as well as at value chains. ‘Build more roads, not a food reserve’,AIM 3 May 2007, 12507E. The Environmental Working Group has a Farm Subsidy Database: http://farm.ewg.org/fram United States ODA to Africa in 2005 amounted to $4.2 bn, according to DAC figures. But in the five years 2001–5, total US aid to Africa in general and Mozambique in particular consisted of debt cancellation, technical assistance, and food and emergency aid.Thus in the terms set out in Chapter 2, in 2001–5 the US gave zero aid that could actually be used in Mozambique or in Africa. 19 ‘Direct and Counter-cyclical Payment Programme’, United States Department of Agriculture, Farm Service Agency, March 2006. 16 17 18

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The ‘private sector’, even in the US, includes large numbers of cooperatives and associations. Sometimes called ‘third sector’ or ‘social enterprises’, these are organisations firmly rooted in the marketplace, but aiming to benefit their members rather than external owners, and often with goals wider than mere profit. Government and donors may want to give special treatment to cooperatives and associations on grounds of poverty reduction and because they may promote the transition to commercial agriculture. Peasants are neither lazy nor stupid. But they are hungry and limited in the amount of work they can do, and after so many failed INGO and government projects, they are also sensibly risk-averse. Nevertheless, they accept new technology if it is cheap and profitable and the risks are low – especially if there is a sure market. Intervention is needed at three different production levels: (i) subsistence production where half of all Mozambicans grow most of their own food and desperately need to increase productivity, but also need cash income; (ii) commercial farmers. Mozambique could create a million commercial farmers who are productive and profitable and provide jobs for their neighbours, which in turn should stimulate a much broader growth in the rural economy; and (iii) food for urban and rural consumers can be guaranteed in a changing world only if action is taken to guarantee markets and promote production by both commercial farms selling in large quantities and subsistence farmers selling small surpluses. The core theme of this book is that government and donors must invest directly in the economy and especially in agriculture.There are many possibilities and many competing ideas and interests.The need is for a Mozambican debate about breaking the shackles of World Bank zealotry and deciding how to invest in agriculture. A few principles seem clear: • Policies must be consistent and be continued for at least five years. State intervention causes major changes to the context in which family farmers and private traders work; they need time to adapt and some assurance that policies will remain in place. • The state extension services must be expanded, which has not been allowed until now. • Research, adaptation of new varieties to local conditions, and seed development, multiplication and distribution have not proved of interest to the private sector and must be taken back by the state. • The state must take on most of the risk, through insurance, guarantees, being a buyer of last resort, etc. • Some subsidies, for example for fertiliser, and probably some protection are inevitable. • Concessions and contract farming should be encouraged for new crops, with subsidy initially if needed. • Incaju could be used as a model for other export-crop-specific support agencies. • With care, the state can do more to support marketing. The ‘market’ remains very fragmented for local foods, agro-industrial inputs and higher value export crops. Only the state can fill the gaps, stepping back and looking at the whole system and plugging the breaks in the value chain. Usually it will not do this itself, but will try to find a local or foreign business or entrepreneur to do it – with subsidy and other support if necessary. The state and the impoverished peasants cannot wait for the market to bridge the gap and end poverty. The developmental state must take an activist and interventionist role, both supporting and pushing the private sector, including producer groups, to transform Mozambican agriculture.

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Finance & a development bank ‘The lack of a development bank and the lack of interest shown by the recently privatised commercial banks in providing credit to the rural sector have calamitous effects in the financing of development, especially for commercial agriculture,’ warned the report Agenda 2025 (Committee of Counsellors 2003: 159).1 Released in 2003, it was an attempt by a very broad group of 14 Mozambican opinion leaders to create a development vision for the coming two decades. Emanating from a group that represented both political parties as well as academics and bankers, it was a statement of the obvious which clearly had broad support. But it was also more subtle than the normal rhetoric about lack of credit; it included discussions about risk and guarantees and saw the need for a savings bank: Companies need concessionary funds, as well as management support and capacity building, to facilitate medium- and long-term productive investment, something the banking sector is not ready to do. The lack of funds for investment may be overcome by establishing a development bank, credit guarantee funds and venture capital companies, targeting productive investment involving the private sector and establishing credit lines. Special credit lines should be reserved for activities that are currently not eligible to the banking sector for being high-risk activities. Financial transactions would support the undertaking of medium- and long-term productive investments in the sectors of agriculture, fisheries, agro-processing, manufacturing and export of goods that incorporate national added value and may generate employment. The fact that agriculture in Mozambique is determined by adverse climatic conditions increases risks in production. A development bank and credit guarantee funds may have an important function in providing capital at concessionary terms for training, for acquisition of equipment and know-how, for preparing studies and surveys on national and international markets, and for research and development, thus helping farmers to reduce costs and market risks. A development bank is vital for capturing rural savings (Committee of Counsellors 2003: 107).

Most importantly, it gave equal importance to training and to raising technological standards: 1 Convened in 2001 by the then President Joaquim Chissano, but with support of UNDP, the Carter Center and various other agencies, the 14 members of the Committee of Counsellors included two prominent academics, Julieta Langa, director of the Arts Faculty of Eduardo Mondlane University, and Lourenco do Rosario, vicechancellor of the private Higher Polytechnic and University Institute (ISPU); two former governors of the Bank of Mozambique, Prakash Ratilal and Eneas Comiche (also a member of the Frelimo Political Commission); two prominent members of the Renamo-Electoral Union coalition, economist David Aloni and lawyer Maximo Dias; conservative Muslim cleric Aminuddin Mohamad; and Catholic bishop Tome Makhweliha.The report was unanimously approved by parliament.

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Although concessionary funds may be important, entrepreneurs and managers, who have to be capable of creating liquidity in their companies and of improving management, are the decisive factor. … There should be mass training of entrepreneurs, managers and technicians, for raising production and valuing natural resources, with particular attention to the manufacturing industry for export.The economy has to increase exports, but that entails supporting companies to reorganise and modernise themselves (ibid.: 103, 108).

The following year, the G20 civil society platform in its 2004 Annual Poverty Report threw its weight behind the Agenda 2025 call for a development bank. Before the 2004 election,Armando Guebuza made the development bank a key part of his campaign (see Chapter 11). In its cautious way, PARPA II opened the door for a development bank. It stressed the need to increase access to credit and to create new credit instruments, as well as to train small-scale entrepreneurs, giving them both business and technical skills. It talks about the need for public investment in rural institutions and organisations, and that the state must make investments jointly with the private sector (Republica de Mozambique 2006a: paras 501, 505, 506, 528, 529). PARPA II makes a commitment to investing state money in economic activities that looks very like a development bank. Enthusiasm for the development bank is driven by the lack of interest on the part of the commercial banks.The newly privatised banks closed branches outside the big cities, and in 2007 only 28 of the 128 districts had banks.There is a problem both of a lack of credit and of nowhere to make deposits; in tobacco-growing areas where some families can earn hundreds of dollars, they are forced to just bury the money. Prakash Ratilal, a former governor of the Bank of Mozambique, points out that the loan problem is actually getting worse every year. In the early 1990s agriculture received 35% of total credit, by 1999 it was down to 20%, and by 2005 it had fallen to just 8%. Credit to industry is similarly declining, while credit for trade is increasing. President Guebuza repeatedly called on the private commercial banks to participate in the fight against poverty by opening branches at least in district capitals. But former Finance Minister Abdul Magid Osman, then president of the second largest bank, BCI Fomento,2 made it clear that this would not happen. He argued that Mozambique was so poor that there was not enough money saved in rural areas to justify opening branches in most districts; on the loan side, commercially viable projects have no trouble obtaining funds from the existing commercial banks or from donor agencies (Notícias, 30 June 2006). South African merchant banker Ainadin Cader agrees.There is no shortage of local funding for bankable projects, he told us, but Mozambique has a real shortage of bankable projects. The problem, the world over, is that commercial banks will not fund start-ups. He and others want to expand already profitable businesses, not turn around ones which are not yet profitable. Nursing new businesses to the point where they are profitable and can turn to commercial finance is exactly the role of the development bank. And, as Agenda 2025 makes clear, this requires a wide range of support and training in addition to finance – which commercial banks cannot afford to provide.

Cash is not the only problem Mansur Daúde, in the tourism sector in Xai-Xai, complained about foreigners dominating the Gaza tourist industry because, he said, they could get cheap credit in South Africa and elsewhere.‘We must firmly knock on the head the false impression that they are better than us.We have shown a huge capacity to work and only need loans with subsidised 2 BCI Fomento is the result of the 2003 merger of Banco Comercial e de Investimentos (BCI) and Banco de Fomento, to become the second largest bank, with 20% of the market. It is owned by two Portuguese banks, Caixa Geral de Depósitos (42%) and Banco Português de Investimento (BPI, 30%). Dr Osman was President of the Conselho de Administração and his group, SCI, held 28% until 2007.

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interest rates to upgrade our resorts and compete on an equal footing with these new foreign investors’.3 Daúde may be an exception, and it is also true that some of the South Africans opening small lodges have proved to be arrogant and incompetent. But many of Daúde’s colleagues are not as good as experienced foreign tourism operators; they need training and long-term support if they are to achieve the standards and consistency demanded by not just foreign tourists, but also a Mozambican elite that now has experience of tourism in South Africa and elsewhere. And many of Daúde’s colleagues need significant additional business training if they are to operate profitably in a competitive market. But Daúde expresses the widely held Mozambican view that cheap credit is a magic solution. Over the past two decades the government has created a series of Fundos de Fomento4 – development promotion funds – which provide cheap credit. Some have had significant impact; FARE, for example, has improved rural trade in the north. But in general they have not been widely successful.They have had high administrative costs,5 poor repayment rates, and have often been accused of giving loans to people linked to the Frelimo elite which are treated as a grant rather than as a loan to be repaid. Cheap money on its own is not the answer, and all serious proposals for a development bank, such as that from Agenda 2025, stress the other parts of the package. Not reinventing the wheel The G20 in its 2005 Annual Poverty Report commented that ‘The world is full of successful experiences of financial institutions for development. So it is not a matter of inventing the wheel, but rather of using the positive aspects of these initiatives, in accordance with the concrete reality of Mozambican depositors and investment risk takers.’ South Africa’s Development Bank of Southern Africa (DBSA) is often cited as one model. Prakash Ratilal points to a group of Brazilian institutions, led by the National Development Bank (BNDES, Banco Nacional de Desenvolvimento Económico e Social). A state-owned company, in 2005 it lent $20 bn – double the amount lent by the World Bank that year – and had a tiny default rate of 0.68% and a profit of $1.4 billion. BNDES supplies most of the long-term credit in Brazil, most rural investment credit, and nearly all the credit for buying Brazilian-made machinery and equipment (BNDES 2007).Two important related institutions are SEBRAE (Serviço Brasileiro de Apoio às Micro e Pequenas Empresas), a small business promotion institute which provides incubators, finance, and training, as well as bringing together small businesses in related sectors, and EMBRAPA (Empresa Brasileira de Pesquisa Agropecuária), the state agricultural research agency. The impact of these state agencies on the Brazilian economy and living standards has been dramatic. For example, over a 35-year period they promoted chicken production, turning Brazil into the largest chicken exporter in the world by 2004. Production costs are so low that the price of imported Brazilian chickens was less that the cost of producing a Mozambican chicken. Meanwhile, per capita chicken consumption within Brazil had increased 6.5 fold.6 The first years of the twenty-first century saw strong growth in both jobs and salaries in Brazil. BNDES reports that the companies it lent to increased jobs and salaries 50% more than those firms without its loans; for small and medium firms, BNDES support ’População de Gaza aguarda visita do PR com expectativa’, Notícias, 2 June 2007. Such as FARE (Fundo de Apoio à Reabilitação Económica, Economic Rehabiliation Support Fund) with $35 m. from the African Development Bank and IFAD, which since 1995 has been supporting rural shops and traders; PODE (Programa de Desenvolvimento Empresarial, Empresarial Development Programme); FFA (Fundo de Fomento Agrário,Agricultural Development Fund), FFHA (Fundo de Fomento da Hidráulica Agrícola, Irrigation Development Fund), FFP (Fundo de Fomento Pesqueiro, Fund for the Promotion of Fishing), and FFPI (Fundo de Fomento à Pequena Indústria, Small Industry Development Fund). 5 In the three years 1999–2001, the Fundo de Fomento Agrário spent more than 70% of its budget on administration and less than 30% on loans (Ebony Consulting International 2003). 6 ‘Frango agora tem passaporte brasileiro’, 15 July 1996; http://www.embrapa.br/noticias/banco_de_noticias/1996/julho/bn.2004–11–25.6630062235/mostra_noticia 3 4

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made growth particularly rapid. Its agricultural credits in the period after 2000 led to a substantial increase in agricultural mechanisation, in productivity, and in the area planted.‘The recent experience of Brazilian farm finance shows the relevance that directed credit instruments have in developing economies, such as Brazil,’ argued BNDES (ibid.). The first development bank was probably the Reconstruction Finance Corporation (RFC), created by the United States in 1930 to direct credit to businesses during the depression; housing and agricultural banks which were part of RFC are still in operation. After the Second World War, both Germany and Japan set up reconstruction banks which continue to operate; Germany’s KfW is larger than the World Bank. BNDES was established in 1952 on this model, and it argues that it remains essential because in developing countries commercial banks have little interest in providing long-term development credit. All over the world, development banks have played pivotal roles in building and rebuilding economies. Mozambique – and its donors – should be asking how BNDES can do so much to stimulate the economy and what lessons Mozambique can draw.

Opposition Despite the obvious success of development banks elsewhere, and the broad consensus on the need for one in Mozambique, there is strong opposition. The IMF has long argued against what it calls ‘directed lending to priority sectors’, which is precisely what development banks do. In a speech in 2006 in South Africa, IMF First Deputy Managing Director John Lipsky admitted that even though many countries had reduced directed lending, commercial banks have not moved in to fill the gap. Despite reform, ‘in many African countries, financial sectors are not functioning well.’ Lipsky argues that more reform is needed. But the IMF is increasingly unable to hold the line.7 The IMF is strongly opposed toVietnam’s development bank, which is the country’s second largest bank after an agricultural bank. But with no power overVietnam, it was forced to accept a compromise: As a first principle, policy lending should be well targeted and should not compete for projects which could be carried out on commercial terms. In this context, policy lending should be restricted to only those projects for which private participation on a commercial basis would not be forthcoming (i.e., owing to market failure or the dominance of social over profit motives), but which nevertheless can be expected to yield a positive stream of net socio-economic returns (Baker et al. 2006:10).

This is particularly interesting, because it reluctantly accepts the basic concept underlying a proposed Mozambican development bank. On 31 May 2006, the IMF Executive Board, very unusually, split over Brazil. Some directors wanted Brazil to reduce directed lending.The IMF’s own report then says ‘Many other Directors, however, cautioned that the scope for reducing reliance on directed lending would depend on progress in developing domestic capital and credit markets’ – in other words, as long as commercial banks would not do longer-term lending, then BNDES would have to do so (IMF 2006c). A similar issue arose in Uganda.The Bonna Bagagawale scheme gives subsidised loans to Uganda’s rural poor, but this was characterised by the IMF as ‘directed lending’. On 15 December 2006 directors ‘underscored the need to develop sources for long-term capital and noted the effort to promote financial services in rural areas, however, they cautioned 7 In 2003 the World Bank explicitly included ‘credit not directed’ as a criterion in its assessment of ‘good governance’. But the 2005 CPIA reversed the emphasis. Directed credit was no longer mentioned, while the new criteria were low interest-rate spreads and adequate credit to the economy. Mozambique’s score in the 16 CPIA categories is lowest for the ‘financial sector’. (http://www1.worldbank.org/operations/IRAI/AFR/mozambique.pdf)

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against directed lending by the government in support of these initiatives’ (IMF 2007b). But Uganda, like Mozambique, no longer has a full IMF programme, but instead only uses the Policy Support Instrument (PSI), a weaker version of IMF involvement, in which the IMF gives the approval that donors demand, but does not actually lend money. Uganda decided to stand up to the IMF, and go ahead with the scheme. Finance Ministry official Ruhinda Maguru said ‘the government is looking at the Bonna Bagagawale programme as a way of bridging the gap caused by market failures by providing financial services where the normal banking system has failed to reach, at affordable interest rates’ (Bretton Woods Project 2007). So it would appear that if Mozambique wanted to stand up to the IMF on this, it could, because the market failure and lack of rural credit are clear. Donors also opposed Perhaps more surprising is the total opposition to the development bank from the donor community and local bankers. Abdul Magid Osman was explicit in opposing the development bank because he feared it would compete with his BCI Fomento – for deposits and profitable loans (Notícias, 30 June 2006). Donor opposition seems to come from five sources: ideology, micro-credit, competition, ineffectiveness of funds, and past corruption. USAID takes the strongest ideological line, and has been campaigning openly against the development bank. It is opposed to any state role in lending, but also argues that if land were privatised, it could then be used as collateral, and that would attract more private lenders (Menon 2006). Some other donors also follow the conservative BWI line that the state has no possible role in banking. Micro-credit is very fashionable with donors, some of whom see this as an alternative to a development bank.This is discussed below. Abdul Magid Osman and Prakash Ratilal point to a third key area: donors do not want to lose control of how their money is used. Both point out that most donor countries have their own development banks which are making a few investments in Mozambique, usually in total secrecy.They have no interest in seeing competition from a national development bank which would act more transparently. Some have made foolish investments, such as Sweden and the Netherlands inVilmar Roses (see Chapter 4). Indeed, the donor development banks tend to illustrate the problems of state-run banking. Osman goes further, saying that it is ‘unrealistic’ to expect donors to allow their money to be put into a development bank because they will never delegate decision-making on investments (Notícias, 30 June 2006). Fourth is the fact that returns and repayments from the Fundos do Fomento have been lower than planned. In part this reflects political choices; FARE, for example, has to lend in every district in the country, and there are not always viable projects.And many of the funds have had corruption problems, with party officials receiving and then not repaying loans. Donors fear that both forms of political involvement would continue in a development bank. The fifth area, however, is at the heart of Nordic opposition.The looting of BCM and Banco Austral and the assassinations of Carlos Cardoso and Antonio Siba-Siba Macuacua clearly involved people at very high levels within Frelimo.And despite heavy pressure over more than five years, these people have total impunity. Murder, large-scale robbery, and blatant violations of corporate and banking law go unpunished. For a few embassies, the precedent of impunity puts any future development bank at risk; if no one is punished for Banco Austral or Siba-Siba, what is to prevent the looting of the new development bank? To these embassies, any pledge of changed attitudes will seem like empty promises without at least token prosecutions.They see that, at least at present, Frelimo’s need to protect some of its more corrupt leaders and keep them inside the party overrides even the need for a development bank.That, in turn, sets an impossible precedent: corrupt people in the party will know that, if they are senior enough, they can hold the party to ransom. Even if the development bank is privately managed, the attorney general or justice minister

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could block prosecution of key people, just as happens now. For some Nordic diplomats, this means that any development bank is doomed. The international community has taken a very hard line against the development bank. The nature of that opposition is controversial. Normally, when donors are opposed to something, they drown it in studies. It would be easy to say ‘the development bank is a good idea, but of course it must to be able to work’. Different donors could commission studies by dozens of different consultants, and years would pass as the issue was debated within government and between government and donors, as has happened with agriculture policy, for example. Thus, to take such a confrontational stand, rather than ask for more studies, is seen by many Mozambican and foreign observers as an explicit show of strength in rejecting something that Mozambique says is a major plank of its development platform. The blocking of the development bank has caused substantial anger on the Mozambican side. In his speech at the Carter Center on 9 December 2005 President Guebuza explained that ‘Privatization means privatizing for the foreigner, and the domestic entrepreneurs do not have the resources, they are not given the chance to have the resources, and they are not part of those that should play an important role in creating wealth in the country and providing jobs.’A development bank would help to redress the balance. But we are told that we cannot have a development bank in Mozambique because we had problems with the development bank we had 10 years ago, problems related to management and other serious questions.That means that Mozambique, if it had something wrong some 10 years ago, cannot be given the chance to transform these experiences into something that will be able to benefit more of our people. I think what went wrong in the past is a lesson for ameliorating it in the future. In Europe, people have created institutions that prevent wars on their continent because they have gone through serious wars in the last century and, because of this bad experience, they don’t want to repeat it. So whatever happened that is incorrect in the past should be taken as a lesson, and we Africans are also able to learn (Carter Center 2007: 40).

In the discussion at the Carter Center conference, Mozambicans accused donors of ‘actively discouraging’ the development bank ‘through surreptitious means’. One donor friend told us,‘We are not being surreptitious at all – we are totally open about our opposition.’ The Carter Center reports that Prakash Ratilal told the meeting: ‘We’ve been told to follow the example of successful countries like China, India, and Brazil, but all these countries have development banks.’ He expressed strong frustration that international donors have denied Mozambique a development bank that would provide private-sector financing and technical support to increase the quality of loan demand, even though Brazil has expressed support for providing professional managers. … The consensus among many forum participants was that the current international development policy agenda neither prioritizes nor allocates enough resources to spurring significant private-sector activity (ibid.: 48).

President Guebuza declared:‘We are the first ones interested in solving our problems.We feel them every day, and that is why we need to own our own development programme.’ But the government will not confront the donors directly on this. Prime Minister Luísa Diogo told the annual meeting of the private sector in May 2006 that ‘the creation of a development bank cannot be a priority’,8 while Planning and Development Minister Cuereneia told me that he cannot go forward with the bank when the climate is so unfavourable.9 8 9

Zambeze, 11 May 2006. Interview, Maputo, 26 Oct. 2006.

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Alternatives The desperate shortage of rural and development finance is widely recognised, and there have been several alternatives developed. In this section we look at four: micro-credit, Malonda, GAPI (the only existing development bank), and the 7 m. MT being given to each district. Micro-credit After the apparent success of the Grameen Bank in Bangladesh and other micro-credit institutions in Asia, donors actively promoted micro-credit in Mozambique, seeing it as an alternative to the development bank. So far, however, it has had only a minor impact. By 2005 there were 32 micro-finance institutions, with 67,312 borrowers and outstanding loans of over $16 m. The field is increasingly dominated by three large micro-finance banks with substantial donor investment which operate mainly in Maputo and Matola.A study for UNDP by Fion de Vletter (2006) estimated the average loan at $400, but three lenders have average loans of less than $30.The larger operators seem financially stable, but some smaller operators have loan repayment rates of under 70%. Savings had become increasingly important and micro-credit institutions had 63,793 savers in 2005. Despite the rapid growth and donor support, micro-credit has made little contribution to development or improving the lives of the very poor. Borrowers are largely urban – Maputo, Matola, and Beira account for 49% of borrowers and 69% of money loaned – middle-aged and upper-income.Three-quarters of all borrowers drop out very quickly, usually because they have trouble repaying, and the poor are much more likely to drop out (Athmer and de Vletter 2006; de Vletter 2006). Interest rates on loans range from 4% to over 10% per month and are rising; this is too high for long-term borrowing, so few loans are used for production.A micro-credit seminar in Namaacha on 5 and 6 July 2007 found that in rural areas micro-credit went only to trade, to the detriment of the productive sector, which was actually inhibiting rural development (Notícias, 7 July 2007). Loans in Maputo are almost entirely to traders or people running small bars and food stalls.The Maputo study showed that successful borrowers improved their own lives, but did not create any new jobs.The small group of successful borrowers started with higher education and basic entrepreneurial skills. They began with small loans and built up to bigger ones, and increased both their stock sizes and sales volumes (Athmer and de Vletter 2006; deVletter 2006). But those with less entrepreneurial experience had trouble repaying the loans, and a conclusion of the Namaacha seminar was that the main reason rural borrowers dropped out was that they could not make a profit because of lack of business knowledge and skills. Bank of Mozambique Governor Ernesto Gove told the seminar that donors, as well as doing capacity-building in the lending institutions, should also be training borrowers. Otherwise, he said, micro-credit will increase poverty instead of reducing it (Notícias, 7 July 2007). Malonda as an investor Micro-credit did have some early success in supporting small rural traders, providing them cash with which to buy crops to sell to bigger traders in the cities. Several governmentand donor-funded agencies, including Amoder (Mozambique Rural Development Association, Associação Moçambicana para o Desenvolvimento Rural) and the Malonda Foundation, lend money to rural traders.This has increased the buying of rural crops and appears to have stimulated production in some areas; which is useful as far as it goes. But it does not involve coordinated value chain lending, nor does it directly support production. Sweden drew on the experience of its own regional development funds of the 1940s and 1950s to create Malonda (‘business’ in the local Yao language of northern Niassa). Many countries impose restrictions on investing aid funds directly in profit-making

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business, so Sweden created the Malonda Foundation and a Malonda company, which actually invests in joint venture contracts with local companies, in effect sharing the risks and profits for a particular season.This is also known as a ‘royalty loan’, with most of the income coming from a share of the profits rather than from high interest rates.The main contracts were with two larger trading companies to help smaller traders to buy maize. Maize prices are highly volatile, but over six years Malonda’s profit on these contracts averaged 14%, with only one bad year – 2006/7 when there was a maize surplus and low prices. More recently Malonda has gone into joint ventures with small industries and a petrol station.10 Malonda also gives technical support to the businesses with which it has jointventure contracts. This led, in turn, to the creation of a business development centre, Nakosso (‘business’ in the local Emacua language of southern Niassa). Malonda offers a model of how donors could work, through joint ventures, royalty loans and business support services. GAPI Mozambique’s only significant and successful development finance institution is GAPI (Gabinete de Apoio à Pequena Indústria; Small Industry Support Agency). It integrates the supply of both finance and business services, and supports the whole value chain rather than individual borrowers.Thus in cashew (see Chapter 5) it supports both factories and traders, and can support the traders precisely because it knows that the factories will buy the raw nuts. GAPI was founded in 1984 and by 2004 had 300 borrowers with loans averaging $26,000.Agriculture, agro-processing and crop trading account for half the portfolio and fishing is 11%.An important part of its role is wholesale finance, lending to smaller microcredit agencies, Ikuru and associations which in turn lend the money to smaller traders. Two-thirds of its money comes from donor agencies and is on-lent, which is important in terms of leverage and partnership, but has also caused problems when donors could not fulfil promises and GAPI had to scurry (not always successfully) to find other donors. Good clients have been turned away because they did not meet the very tight donor criteria. And it remains insecure; for example, USAID has been innovative in providing quite large loan guarantees which have become essential in sectors such as cashew, but it could withdraw its guarantees without warning. GAPI is profitable, but there is an implicit subsidy, both because of the low rates charged by donors and because donors subsidise the business development side.The key to GAPI’s success is providing direct and ongoing support to make firms ‘bankable’ and ensure repayments, with an emphasis on preparing a business plan and then basic business management. António Souto, GAPI’s founder and executive director, underlines the importance of mentoring and closely following small businesses. Without regular visits, family pressures may mean that money is spent on a wedding instead of the loan repayment. Making companies ‘bankable’ is expensive and can cost 30% of the value of a loan. Souto estimates that it costs $35,000 to $70,000 in non-recoverable costs to create a medium-sized bankable firm which can stand on its own.And even then it does not stop. He says he has spent hundreds of hours helping companies outgrow GAPI, through contacts with IFC and donor development banks such as Norsad, which can provide expansion finance for successful firms. In late 2007, after several years of negotiation, it was expected that a fully fledged rural bank would be created which is to be part owned by GAPI and majority owned by three foreign agencies, including the Dutch agricultural bank, Rabobank.The bank will be small compared to the needs, but it is an important first step. Meanwhile, a confidential study has called on GAPI to be more proactive. For example, in Manica (see Chapter 4) GAPI 10

de Vletter (2007). Malonda also promotes foreign investment through joint ventures in forestry.

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should more actively seek out new value chains for crops such as coffee, macadamia nuts, guavas and mangoes. District funds – development bank by the back door? The 7 m. MT district fund ($280,000 (£140,000) see Chapter 8) was initially for general spending to be approved by the Consultative Councils (CCs). By mid-2007 it had become an economic development fund to generate income, create jobs and increase food production at district level. Projects are proposed by ‘associations, small businesses, and individuals who have the potential to be local entrepreneurs and whose projects are viable and sustainable’, and recommended by CCs. Rules were still changing as this chapter was written, but it appeared that the districts would provide loans as well as inputs and equipment on credit. The ‘7 million’ was a major breakthrough. It was the first time job creation had been given such a high priority. It was also the first time small business investment funds were being made available unconditionally and to be decided locally, instead of as part of funds allocated centrally for specific purposes. And the money did not carry the exorbitant micro-credit interest rates, so it could be used for productive investment. Precisely because of the importance of this money for local productive investment, there was also substantial concern about the way it was being managed. By mid-2007 there were still no clear instructions as to how to assess projects and risks, how to monitor progress, what rates of interest should be charged, etc. A major problem was that districts had no technical capacity to administer the money (although the central government has prioritised assigning technicians to the districts), to assess the viability of proposals, or to provide support to local business. Some districts realised in 2006 that it was possible to use the money for economic projects, and there was a clear demand. Money was spent on agricultural inputs such as improved seed, teams of oxen for ploughing, cattle and goats, the building of small dams, and maize mills, as well as non-agricultural projects such as market stalls, traders, salt-making, brick-making, charcoal burning and fishing. Some used the money to set up revolving loan funds which local businesses could use to buy equipment. But there were problems: projects were approved which were not practical and could not earn enough profit to repay the loans; some local contractors did shoddy work. Inhambane governor Francisco Itai Meque cancelled all spending under the ‘7 million’ in March 2007, in part because of corruption including overcharging for cattle (Notícias, 3 April 2007). Muecate, Nampula, lent money for 40 initiatives including market traders, commercial chicken raising, a carpentry workshop and even a music group. But the chicken farmer discovered that it was taking eight weeks rather than three to get the chickens up to the 1.5 kg weight for sale, so he was losing money, while the carpentry workshop could not sell the furniture it made. District Administrator Carlos Amade said that after six months, only one-third of the loans were actually being repaid (Notícias, 5 April 2007). It could be argued that one-third is actually quite good for loans to inexperienced business people, and may have been worth the money in giving them experience. But the danger is that the ‘7 million’ is simple becoming another Fundo do Fomento and is feeding the Mozambican myth that the only problem is lack of money.As GAPI has shown clearly, the main need is for long-term business training and technical support. Earmarking the ‘7 million’ specifically for jobs and food production provoked substantial controversy. Inside government, technicians complained privately that there was no capacity to manage a loan fund, and that the original point of the ‘7 million’ had been to give more freedom to local communities. Rogério Sitoe, editor of the government-owned daily Notícias, used his column to warn of the ‘many negative lessons in the long history of constructing this country when “politics was put in command” to the detriment of the technical component’. And he noted that technicians were becoming demoralised and frustrated in the face of increasingly politicised decisions (Notícias, 11 May 2007).

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Donors feared that they had been outflanked and the government had converted the ‘7 million’ into a development bank by the back door. In May 2007 a World Bank statement opposed this use of the 7 m. MT. It seemed to offer an opening, by saying that ‘The World Bank is not opposed to local communities using the funds for economic activities’. But it then followed with the traditional World Bank line that such ‘economic activities’ could only include ‘public goods’ such as roads and other infrastructure.‘Private goods’ including credits, productive investments or agricultural services, of the sort covered by the ‘7 million’, should be provided by the private or NGO sectors, not government.11 It would only agree to two kinds of government investments in the productive sector: agriculture services could be provided by a public-private partnership ‘where risk is subsidized’ by the government, and the government could subsidise commercial micro-finance institutions.

A development bank is essential As with agriculture in the previous chapter, the World Bank can only propose actions which have already proved to be failures – in this case more micro-finance, which, as we saw above, has proved totally useless for production and agriculture. As the World Bank’s own evaluation showed (see Chapter 12), its advice is political and based on distorted research. So the first step is to ignore the Bank on the ‘7 million’. The ‘7 million’ is increasingly similar to the Fundos de Fomento, which panders to the simplistic myth that the only problem is lack of money and that subsidised credit will solve all problems. It leaves decision-making in political hands, which will encourage, yet again, politically directed loans without any business training.All the things which GAPI and any development bank do, the district funds do not.This is the worst possible outcome, and a wasted opportunity. But it has come about because donors have chosen to exert their power on this issue, and say ‘no’ to the development bank. Like cashew a decade before, it looks like a show of strength.Yet again, as we argued in Chapter 11, and without really intending it, the donors have acted to benefit the rent-seekers within Frelimo by creating an environment in which they will be handed unconditional money from the ‘7 million’ – rather than being required to perform by a properly constituted development bank. Some donor opposition to the development bank is purely ideological, including the zealous defence of micro-credit and the blind refusal to allow state involvement in the economy. But some donors are more flexible, see the foolishness of continuing to follow failed policies, and are probably willing to support the government in creating some kind of development bank or business promotion fund. For those donors, concerns over rentseeking and corruption are the main obstacle. Cabritos, arrogance and inexperience On both the BWI and the government sides there were failures and corruption in the past and neither side can accept full transparency and honesty. During the war, state banks ‘lent’ money to state companies to keep them operating, and no one really expected repayment. In the late 1980s and early 1990s, there was extensive lending to the Frelimo elite, sometimes with World Bank connivance. As noted in Chapter 10, the BWIs pushed banks to do improper lending in the late 1980s and early 1990s and then forced the government to privatise the banks as part of an obsession with unquestioned privatisation – despite being warned of the consequences.Then part of the Frelimo elite used the opportunity 11 World Bank (2007).This is a paper for the donor Decentralization Working Group, written by various Bank staff and showing certain contradictions and disagreements among them. It is also an important example of how agencies use phrases in misleading ways; the Bank is able to say the money can be used for ‘economic activities’ by defining the phrase to exclude what most people would treat as ‘economic activities’, including all of the government’s planned uses of the ‘7 million’.

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to rob and kill. Neither donors nor Frelimo have clean hands. But that leads to the current impasse. Frelimo cannot afford to disturb party unity by prosecuting the high-level figures who stole and killed. But donors see this as creating impunity and ensuring that Frelimo can never control its cabritos (see Chapter 10). If no one is prosecuted for killing Siba-Siba, will anyone be brave enough to try to run an honest development bank? Can Frelimo face down its more greedy members with dollar signs flashing in their eyes? Incidents like the port scanner (Chapter 10) and the ongoing problems with Fundos de Fomento suggest to donors that cabritismo remains powerful and too many people feel they have a right to hold their hooves out and be given money. But the issue is also more subtle, and goes back to the common myth that all that is needed is soft credit. People who were bright enough to win the liberation war and run the government feel they are certainly able to use money successfully to run businesses. The soft credit myth is self-serving, but only partly so; from the outside, business looks easy. Even former combatants forget how hard it was to learn the skills of guerrilla warfare and that some who failed to learn those lessons well enough paid a high price. So there is also an issue of arrogance. No development bank can work in the long term if significant amounts of money are not repaid. Realistically, any party in power in a poor country has to reward its key members. But a key point of the one-party state discussion (Chapter 9) is that Frelimo also has to be re-elected, and that depends in part on economic development and creating jobs, and thus on the development bank being successful. This is surely an area of negotiation and compromise. It does seem odd to us that the donors, especially the Nordic countries, have not looked for a diplomatic, back-channel way out of this. After the war, Mozambique (in contrast to South Africa) did not have a truth commission because there was a general feeling that it was better just to put a horrible history to one side and start again. Perhaps it is time to take the same attitude and put aside the bad history of banks, and look forward, while learning the lessons of the past. It must be possible, for example, to ensure private Mozambican management of the development bank, with some set of rules or laws which would – by means of publishing lists of loan repayments or giving the head of the bank an autonomous right to prosecute – reduce the chance of corruption and impunity. President Guebuza’s emphasis on transparency with respect to the ‘7 million’ suggests he is prepared to allow foolish projects, as well as money given to the administrator’s family and general cabritismo, to become public. But donors have not put this on the table. Two kinds of tacit compromises seem possible. One choice would be to say that Frelimo people can go to the front of the queue, but they will be expected to repay their loan like anyone else – and take part in the same management and technical training as any other borrower.The party might want to use one of its companies to make party leaders more bankable and help them obtain and service development bank loans.Another choice would be to say that a certain amount of rent-seeking is allowed, but that it is off-loaded onto the Fundos de Fomento and Frelimo companies that already exist, while the new development bank has to meet higher standards. When the head of a small business buys a big new 4x4, is this inexperience, arrogance or corruption? It really doesn’t matter, if the money should have been used elsewhere in the business.Tight control, as Dimon did with the Zimbabweans (see Chapter 4) and as GAPI does with its borrowers, is essential for any credit system. Paulo Negrão, a citrus farmer who is a former LAM pilot, points out that you don’t put a whole year’s fuel in an airplane. Instead, after each flight you check to see that everything went well and that the plane is still in good condition, and then you put in the fuel for the next flight. Similarly with loans: you release only a small part of a loan at any time, and then release more only on proof of the proper use of the previous part. By definition, a development bank lends to people who cannot get acceptable credit

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from a commercial bank – because they are not yet bankable or because they cannot yet afford commercial interest rates.Therefore it is not a sign of distrust to say that the starting point is training and tight control over borrowers, no matter who they are.The development bank, in turn, is by definition taking higher risks, so it is not unreasonable for the funding donor agencies to ask for a high degree of transparency and frequent audits. How to create a bank? The need for a development bank is one of the most broadly accepted policy lines within Mozambique. Even Abdul Magid Osman, former BCI Fomento president who did not want competition from a full development bank, called for a government investment fund, risk-sharing, and subsidies. But the strongest point, as Agenda 2025 stressed, is that money on its own will not solve the problem:‘There should be mass training of entrepreneurs, managers and technicians.’ A sympathetic World Bank official argued that it should not be called a ‘development bank’ at all, but something else, like an ‘enterprise development company’. The bank, agency or company must provide huge amounts of training and hand-holding of new business people, it will need to build and support value chains, and it will need to do sectoral research and development – as Brazil has done with chickens, for example. How would such a development bank be run? It requires the creation of a quite complex balance.The starting point is that it must be a Mozambican institution, like GAPI or Ikuru, and must be headed by a Mozambican with a real development vision – not a party placeman. Second, after the experience of Banco Austral, the international community will not support such an institution without extremely tight audit control and open access to the books, which also means being very clear in advance as to where the subsidies will go – for example to business development services and subsidised interest rates. Third, it has taken two decades to build GAPI, which is successful but small compared with what is needed. Building a development bank will, in the short term, require a significant number of well chosen foreign technicians. GAPI works in partnership with other agencies which provide technical support, and in both cashew and citrus it drew on external experts to resolve problems. António Souto stresses forcefully the importance of GAPI and Mozambican institutions retaining control and hiring people as needed for specific projects, like the old-style co-operantes.This is in sharp contrast to donor-mandated ‘technical assistance’ which seems only to reproduce itself so that foreigners can never be replaced, as Souto says has happened in the donor-backed micro-credit agencies. Brazilian, South African and other development banks could be contracted, and there is a growing pool of retired business executives who want to work in Africa. Foreign experts would not only train local people, but could also begin the development of new local products. Just as the Brazilian development bank made that country the world leader in frozen chicken exports, a Mozambican bank could build up sesame or mango exports to China or India. A development bank could create new products and value chains, and initially hire in the people to get them started. Of course there will be failures and set-backs, which is inevitable in any new business and especially in agribusiness. But if openness and transparency are the watchwords, as has been happening, for example, with cashew, then the bank could make its mistakes and learn its lessons, while still maintaining its integrity. Instead of creating one large development bank, on the Brazilian model, an alternative might be to create five more GAPIs. Each one could be regional and perhaps linked to just one or two donor agencies; supervision and transparency are essential, but so is Mozambican control, to avoid permanent donor dependency. As we stressed in Chapter 13, the dollars are available, so this is an excellent time to hire foreign help. Mozambique could buy a development bank, if it chose to do so. As the earlier chapters show, Mozambique is not developing rapidly enough and the government must intervene in the economy. Jobs come top of the list of demands in most

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surveys, especially of youth, and Frelimo must respond to this – as it has done with the ‘7 million’. But everyone who has looked at this, from the Agenda 2025 team to GAPI, stresses that credit is just a small part of a larger package, including ‘massive’ training. That will make the development bank different from a fundo de fomento. Without that package, Mozambique cannot develop, and donors and government will have to come together eventually. It took a decade to find a creative way around the cashew impasse; the development bank is essential and requires similar creative thinking.

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The developmental state builds capitalism Colonialism and a brief dabble with socialism mean that, for strong historical reasons, Mozambique does not have an entrepreneurial tradition. If it is to build a productive national bourgeoisie and entrepreneurial class that will create jobs, then the state will need to take an active role in building domestic capitalism – just as states in the now industrialised countries did in the nineteenth and twentieth centuries. In contemporary clichés, in the ‘free market’ the ‘playing field’ is tilted in favour of those who already have money and experience; in Mozambique’s case these are largely foreigners. Only the state can level the playing field, through a mix of active intervention, subsidy and regulation.This, historically, has been the role of the developmental state. Of course, it would be easier and more comfortable to continue the present policy of comprador or parasitic capitalism, or rent-seeking, where the elite simply takes a cut from aid and the investments of more experienced foreigners. And, as we argued in Chapters 11 and 16, the donors and BWIs would be comfortable for this to continue. Few would argue now for socialism (indeed, few now admit they ever did). But there are Mozambican nationalists and developmentalists who also challenge the neo-liberal myth that the ‘free market’, by itself, will end poverty and develop Mozambique.They see, as we argued in Chapter 7, that it is not happening. Abdul Magid Osman, former president of the BCI Fomento bank, points to Zambézia province, where new infrastructure such as roads, electricity, and telephones has not triggered investment. So far there have only been a few investments in basic agricultural processing – cashew, cotton, tea and beans.1 He elaborates: Market forces per se will not create a strong agro-industry nor automatically increase productivity. The experience of many other countries shows that rural development and the creation of agro-industries requires intervention and specific programmes. For example, in India the growth in productivity resulted from a giant programme – the Green Revolution and the widespread use of fertilisers sold at subsidised prices, as well as tariff protection for Indian industry.The Indian government also contributed to a fund to cover the losses of industry developed in rural areas (Notícias, 30 June 2006).

With a little help from the family The importance of the lack of an entrepreneurial tradition should not be underestimated in considering the gaps that need to be filled.Abdul Satar Mahomed Hanifo is an example of a younger generation of entrepreneurs. He is 44 years old and only attended pri1

Feijão boer, pigeon peas, for dhal; an investment made partly by Osman himself.

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mary school; his father ran a shop. He told us he started doing transport at the end of the war, taking food for the World Food Programme from Nacala port to refugee camps in Malawi. Returning with an empty lorry he started to buy biscuits (bolacha) from a small factory in Malawi, which was owned by a cousin, to sell in Nampula.The cousin asked why he was buying so many boxes of biscuits, and when Hanifo explained, the cousin suggested he actually make the biscuits, and sold him a second-hand machine on credit. He rebuilt an old warehouse, and was soon making 40 cases a day, packed by hand.Then he bought a machine to put cream on the biscuits to make sandwich biscuits. He added boxmaking machinery, then new biscuit machines from India. He realised that there was a market for packets of 4 sandwich biscuits selling for 1 MT (4¢, 2 p), that school children and poor people could afford as a treat. He expanded to sweets (rebuçado) and spaghetti, and now employs nearly 500 people and sells to the entire country. At the end of the war Hanifo also took over an old sisal plantation. We had driven through this plantation on the way to another interview, and were impressed both by the degree of organisation and how clean the fields were, and by the extent of the new planting, so we tracked him down to find out who was investing in sisal.The factory had been damaged in the war, but the machinery could be repaired, so he found some of the old people who had worked there before the war and who knew about sisal, and an old manager from a sisal plantation that had been owned by a Portuguese company.‘Even now I don’t fully understand the old factory and all the details of sisal.You have to learn from these old men, and they are now training younger people.’ He began replanting, and imported spare parts and new equipment using a loan from a sisal exporter. ‘Sisal is hard work’, he says, so he is paying above the minimum wage and providing water and health care to his workers; without that, he admits, he would not be able to keep staff.2 Hanifo still does transport, and when we met him he was at the lorry workshop. He is a hands-on manager; ‘I am here,’ he said simply. ‘My older children are in university in South Africa, but I am here.’The reason why the sisal plantation had failed under the previous management, he said, was that they had tried to run it from Portugal and depend on hired managers in Nampula. He does not have a flashy office, so for the interview we went to his house, which is large but not ostentatious or luxurious. He stresses the importance of constantly reinvesting profits. For example, ‘You can cut sisal for up to 20 years, but new plants take five years to produce, so that means you must always be replanting.’ He also keeps experimenting, looking to new crops including cotton, beans and jatropha. But the final key to his success is:‘I have never used bank finance.All the money has come from my extended family.’ This is a classic East African entrepreneurial story.A bright, hard-working, creative young man of Asian origin has been able over 15 years to build up businesses that now employ more than 2,000 people. But he could draw on money, advice and experience from an extended family. If he had problems, help was at hand.Throughout East Africa, there is resentment at the entrepreneurial advantages of Asian traders, still able to build on privileges they had during the colonial era. In Nampula province this is compounded by a small group of Asian-origin traders with a very ostentatious life-style, who are open about not paying import duties on the white goods they sell, who are alleged to have links to drug trading, and who are protected by their good contacts at high levels in Frelimo. But just as Frelimo should not be judged entirely by its members who plundered the banks, so the Asian business community should not be judged by its most corrupt members.The point is not to criticise Abdul Satar Mahomed Hanifo, but rather to ask how one can create hundreds of Hanifos. The colonial inheritance is still a heavy burden in Mozambique.Although subordinate to the Portuguese in the colonial hierarchy, people of Asian origin were privileged in that 2 The Labour Market Survey confirmed that Nampula sisal cutters are paid above the minimum wage. Cramer et al. (2007).

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they could run businesses (although under substantial restrictions). By contrast, few black Mozambicans were allowed into any form of trade or manufacturing.When we first went to Mozambique at the end of the 1970s, the lack of street traders was striking; at bus and train stations in Malawi there were people selling peanuts and bananas, but not in Mozambique. There was no street food for poor people, only bars and formal restaurants for the middle classes. In the colonial era, most peasant farmers took their cash crops to the local Portuguese or Asian-origin trader to either sell or trade for consumer goods. Rigid licensing and an enforced apartheid meant that most people had little exposure to the mechanics of commerce. As a journalist for New Scientist magazine, one of us (JH) went to Portugal in 1975 after the revolution there, to interview engineers and scientists. At the time, I was struck by how engineers all saw themselves as being trained to be managers, usually for foreign firms.Their goal was to sit in a glass-windowed office above the shop floor. Portuguese engineers did not get their hands dirty; they had meetings with lower-level people who actually dealt with the workers. Everything was sanitised; being a manager meant a big house, a fancy car, a windowed office and shuffling papers for a few hours a day, while others did the work.3 This was, in large part, the heritage of four decades of fascism, in which everything was planned and independent thinking not encouraged. It was also the role of Portuguese managers in Mozambique. Even in the smallest shop, the Portuguese owner would just sit at the till and order the black workers to do things, while in larger businesses the manager would never touch the machinery.With few other role models, it is hardly surprising that many Mozambicans assumed that that was how you ran a business. Privatisation only reinforced this, with assets simply handed over to people, independent of whether or not they knew how to use them. The socialist era was highly contradictory in entrepreneurial and managerial terms.The armed struggle, of course, was very hands-on; guerrilla wars are not run from offices.The flight of the Portuguese and their sabotage before they left meant that many of the key Frelimo people were thrown into sorting out the problems of small and large businesses and doing it in a highly practical way, drawing on the tacit knowledge of the workers. Ultimately, they were forced into creating new institutions, such as the central bank.Within two years, the economy had been turned around; many people successfully learned basic business management skills on the job. In parallel, many of the commercial gaps were filled by Asian traders, who moved to the cities to take over shops abandoned by the Portuguese, and some black Mozambicans who took over or opened rural shops and urban businesses. But the position was confused both by central planning and the war.The experience of most of Frelimo’s leaders was of fascist Portuguese planning and Eastern European central planning, so the move to a socialist planned economy seemed entirely reasonable.The job of managers was to implement the plan, which for the best managers encouraged creativity to resolve problems and break bottlenecks, but did not encourage an entrepreneurial approach; indeed, when fulfilling the plan at all costs is the management target, few people pay attention to economic profit and loss.The war only compounded the problem; no company can make a profit when it has to pay for security and vehicles are regularly being destroyed, yet it was essential to keep as many businesses as possible running. All things considered, it is remarkable how many state companies proved to be well run and even profitable – electricity, telecommunications, railways, and various state trading companies. The green zones cooperative movement was also important and successful. And in the new capitalist era, many of the best managers and entrepreneurs had learned their craft as heads of state companies. The war had a particularly devastating impact on younger black business people in the rural areas.With the opening up of the late 1970s and early 1980s, rural shops were taken Not, I have to admit, a purely Portuguese phenomenon. In the 1960s in the US and the 1970s in Britain, I wrote about start-up computer companies where the initial capital was all spent on expensive sports cars and flashy offices, with no money left to develop the computer systems.

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over by a new generation of entrepreneurs, and there was small-scale commercial farming. But Renamo guerrillas specifically attacked the better-off, burning shops and destroying tractors; many new business people were left with loans they could not repay. Even if they survived, some in this group were unable or unwilling to start up in business again. Thus colonialism, socialism and war failed to create a large pool of entrepreneurs who could take advantage of the shift to capitalism in the late 1980s and early 1990s.There was a real growth in trade and informalisation, promoted by a newly privatised banking system with a very urban focus, and a decade later the promotion of micro-credit. In sharp contrast to the 1970s, the streets were full of people selling. But there was no growth in production. None of the essential components were available. Too few people think in terms of markets. As we saw in Nampula, people still ask ‘What can I produce?’ not ‘What can I sell?’Too few people have even the faintest idea how to get started. High interest rates (imposed by the IMF) and lack of interest by bankers mean that it is impossible to obtain long-term credits for productive investments. Returning to the story of Hanifo and his biscuits, the key point is that he moved up from trade and transport into production. Even he had to be prodded to take the first step; he admits it was not his idea to actually make the biscuits. And he was happy to tell me how many people he had turned to for help. He is unusual – he works hard, has imagination, and sees opportunities – but he succeeded because he had friends and family who could offer money and support. Hanifo is unusual but not unique; there are thousands of Mozambicans like him. Mozambique needs to promote that transition from trade to production, and the state and related agencies will have to provide all the help that Hanifo was able to obtain from family and friends. We applaud Felito Julião on the cover of this book, with his bundles of sugar cane on his bicycle, for showing initiative and imagination. But we also know from Chapter 7, that only the best-off peasants can afford to get ‘on your bike’; to do even what Julião is doing requires assets – the bicycle itself, the contacts in Nampula which allow him to sell the sugar care, etc – which mean that before he starts he is already in the best-off group in his village. Risk is shared across the extended family. Julião captures the contradiction at the heart of this book.At one level, he is the classic model of initiative in which the private sector will drive development. But at another level, he is a model of structural failure – a man with some education and from the bestoff group of peasants, who still has to earn his living by pushing a heavily laden bicycle up the hill day after day. Mozambique will really be on the road to development only when Julião is running a profitable business – a commercial farm, a transport firm, or a small manufacturing plant – and employing other people.

Risk, learning & creating entrepreneurs In the remainder of this chapter, we look at two sides of the same coin, First is what is needed to build Mozambican capitalism, with a stress on risk mitigation and learning. But the goal is development for all Mozambicans, not simply creating a better-off group, so the other side of the coin is promoting workers and peasants. In doing this, we specifically recognise that there is not one ‘capitalism’, and that capitalism in the United States, Sweden and India all look very different.The neo-liberal,Washington Consensus,World Bank model of savage capitalism is not the only one. Risk is pushed down to the lowest level under the neo-liberal development model. Peasants carry all the crop risks; they are expected to take loans to buy inputs, take all the risks with the weather, then store the production for months or years until traders offer the best price.‘Labour market flexibility’ means that wages are pushed down and workers are hired and fired easily. Both peasants and workers are somehow expected to have savings and reserves to cover the bad times.

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Yet we know from practical experience that this does not work. Mozambique’s successes have been in tobacco and cashew, where the risk is shared. In both industry and services, the need, from local builders up to export processors, is to raise quality and standards. At a practical level, a trained warehouse manager with a proper silo will have a much lower level of losses than a peasant with his thatch and stick grain store. Industrial competition requires skilled workers who learn and are motivated and committed. This comes only with secure jobs. Shared risk, investment and learning are essential for economic development and are intimately linked.At all levels, from the peasant to the entrepreneur, increases in production and productivity require trying new methods, new crops and new products. Experimentation and innovation are encouraged if the risk is shared; caution is encouraged under the present model. Individualising risk and pushing it down to the lowest level also forces each individual to build up excessive levels of savings, as insurance against bad times. If risk is shared, this is money which can be invested. Finally, development requires huge amounts of learning over the coming decades – about agricultural, commercial and industrial methods, and especially about business methods and thinking more about the market. But at all levels, from peasant to entrepreneur, people must feel it is worth investing substantial amounts of time and money in the learning process, which in turn requires some degree of security and a belief that the investment will be rewarded. A World Bank study notes that export horticulture and fruit do offer some potential for family farmers, but then points out that ‘smaller-scale producers cannot afford to be exposed to the full risks of the early stages of crop and industry development. Initially, international aid funds and the commercial sector should shoulder these risks’ (Sergeant and Bjerg 2005). Chris Foy, the head of Aquifer which is investing in rice and Manica horticulture (see Chapter 4), told us that one reason he expects Moçfer to succeed is that ‘we take the risk to show that all parts of the value chain work, before we ask others to take on risk. By taking risk we can provide a more reliable form of partnership.’4 In the final section of this chapter, we look at risk at the level of workers and peasants. Here one needs to consider risk at the level of business people. As the above examples have shown, one step is for larger businesses, such as Moçfer and the concession companies, to share risk with smaller commercial producers. The government can encourage this kind of support through insurance, and the various forms of support suggested in Chapter 15 for concession and contract companies dealing with new crops. Perhaps the greatest need is to help businesses move from small and/or informal, with a handful of workers, up to something larger with dozens or hundreds of staff. Many small business people find that they can earn a steady income and support their family, and see no reason why they should risk everything to expand. Spreading risk means asking them to risk something but not everything. In particular, this involves support for expanding, buying new equipment, fitting up new premises and entering new markets. Loan guarantee funds and subsidised interest rates are a good start, because they share risk. Infrastructure grants, for roads, water, electricity and even buildings, are common in many countries. But shared risk must really mean sharing.The entrepreneur must accept some of the risk, present a viable plan and agree to be monitored to ensure compliance with the contract; otherwise, it will be only too easy to treat support as just hand-outs for friends and party associates. Learning The really hard part is figuring out what to do next. The tiny carpentry workshop in Monapo (Chapter 3) has established a track record of making and selling reasonable furniture, and is formally registered with the city and even paying taxes. It would like to move up to another level, and knows it needs electricity and some power tools. But this group of carpenters have no idea how to move forward – how to get electricity, what 4

Interview, London, 6 May 2006.

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kind of building they need and how to build it, what kind of tools, how to keep proper records, how to expand their market.They will eventually need loans and clearly government financial participation would help, but it is lack of knowledge rather than lack of funds that stops them growing. Much stress by the World Bank and donors under the neo-liberal model is to create what is usually called an ‘enabling business environment’, which means fewer regulations, and making it easier to set up and run a business.Although non-Portuguese-speaking foreigners find the Mozambican bureaucracy tortuous, this is never the first issue raised by Mozambicans.Their problems are much more lack of skills, money and markets; they can deal with the bureaucracy, but have trouble finding out what to do next. One model quite widely used is business development centres, enterprise support systems, or incubators.There are more than 1,000 of them in the United States, where they receive substantial subsidies from state and national government and local economic development agencies. Many other countries have followed similar models. Business development centres provide management support, legal assistance, counselling, training and related services, and often provide direct help with paperwork. In a study of successful incubators, Rustan Lalkaka and Pier Abetti found they were particularly useful in providing shared facilities and support services, helping gain access to outside services and seed capital, and helping to leverage various other types of support (Lalkaka and Abetti 1999). In a wide-ranging study of incubators, Lalkaka and Abetti found that nearly all were funded by the state5 and that many were successful in creating businesses and jobs. But they issue a range of warnings, two of which are relevant to Mozambique. First, they point out that ‘new jobs and economic growth are created by companies, not by the incubator administration. In some countries the tendency is to spend most of the effort on preparing plans (which is relatively easy), rather than on implementation with the companies (which is difficult).’ A similar warning is that ‘in some countries there is a tendency to grow bureaucracy and provide poor service.The concept of incubation as a nurturing and valueadding process must be pursued from the start’ (ibid.: 207). Usually incubators are linked to sources of finance and to upgrading technology, often specifically linked to the needs of a cluster. Often there are attempts to link to educational institutions and bring in engineering students to help raise the technology levels of firms. Business centres also need close links with local stakeholders. In some countries such as Brazil, incubators see their most important role as clustering and networking, bringing together people in related businesses so that they can learn from each other and upgrade together.6 Incubators are often seen as only for high technology, but Lalkaka argues that ‘the majority of incubators serve mixed clients while a new breed is focused on agri-business, kitchen products, eco-tourism, arts, and special sectoral needs.’ Brazil’s incubators are actually shifting away from innovative technology and towards ‘mixed business incubators to meet the special needs of rural communities, based on local markets, resources and skills’. Brazil has also specifically targeted women, leading to ‘women-owned enterprises and also women in leadership positions in the incubator managements’ (Lalkaka 2001). The World Bank-based Committee of Donor Agencies for Small Enterprise Development in 2001 produced a draft ‘Business Development Services [BDS] for Small Enterprises: Guiding Principles for Donor Intervention’ which argued that the services should be provided by the private sector on a for-profit basis.Although in Bankspeak it is argued that ‘long-term donor subsidies to the demand or supply of BDS are likely to distort BDS markets and crowd out the commercial provision of services,’ the document nonetheless accepts that ‘subsidies may be justified in the short term as an investment in the development of BDS markets’.This is an important concession in terms of Mozambique, where few donors have invested in BDS.The draft document makes the interesting point that BDS services should be based more on the ‘perceived needs’ as seen by small business, rather than the ‘real needs’ as seen by donors.This also has implications for Mozambique where the ‘perceived need’ is often for money, for example from the 7 m. MT, rather than for business skills such as planning and bookkeeping. 6 A good summary of Brazilian incubator experience is Frick (2005). 5

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Incubators in other countries can be quite elaborate technology parks or industrial estates, but this does not seem initially relevant to Mozambique.What is needed is something much simpler, at local level, in the district towns (vilas) like Sussendenga and Namitil, perhaps linked to the growing network of ‘telecentres’.They would provide some of the essentials – desk, telephone and e-mail, photocopying, and a basic computer with simple word processing and accounting systems and basic printers.The historic lack of education means that many small business people have only primary education and may need help even writing letters. Business centres would need to provide a mix of services and training.They could be directly involved in the 7 m. MT, helping those who want to apply for the money to draw up basic business plans. A key element will be helping with applications – for licences, electricity, etc. – and with tendering for local contracts. One obvious ‘cluster’ would be to bring together local small contractors to help them learn about cost estimating and how to raise quality. Business development centres themselves need to be in networks and to develop strong linkages and knowledge bases. Local managers cannot be expected to answer all possible questions, but if they are part of networks they should be able to use telephone, e-mail and internet to find answers. Another model is ‘outreach workers’ or ‘business extension workers’, who do not sit in offices but actually go to the businesses they are working with. New businesses need the long-term, hands-on, direct involvement being provided. One of the international agencies has set up a consulting service in Mozambique (and some other countries). But growing businesses in Monapo and elsewhere needs much more than consultants. A different model was put forward in the joint government/CTA/G20 application to the US Millennium Challenge Corporation in 2004.This proposed contracting experts to work on a full-time basis for several months, up to two years, with start-ups and established businesses to assist with daily management and decision-making, as well as improvement programmes and training.7 This is similar to the support for the producer-owned cooperative Ikuru (see Chapter 3). There are many other variations on the business learning approach, and Mozambique might want to try more than one. None of them is cheap or simple. But the successful capitalist countries are following models like this, and the state is paying. This needs to be seen as investment, not subsidy. If donors and government are serious about creating capitalism quickly, then the next decade will need to see intensive training and direct support at the local level.Where will the trainers and business extension workers come from? Some can be hired, from India and Brazil.There is a growing pool of retired people in the North with business experience who would actually like to live in Nampula or Manica for a year or two, if NGOs or aid agencies organised it. In the Ukraine, business incubators were established with twin directors, one local and the other foreign, with the local director eventually taking over (Lalkaka and Abetti 1999). It does not even need to be the same system in Nametil and Vila Manica; different agencies can try out different models of business development centres. But the point is to get business extension workers on the ground, where they are needed.

And what about the workers? The first task of any business is not to lose money.Any business person tries to keep costs down by squeezing wages and payments to suppliers.This is happening at a global level, as big supermarket chains cut consumer prices at the same time as they try to increase profits, which they can only do if they pay less for the goods they buy from Mozambique and ‘Program to Promote Business, Investment and Employment in Mozambique. Country Proposal of the Republic of Mozambique to the Millennium Challenge Corporation’, Republic of Mozambique, Confederation of Economic Associations – CTA, and Civil Society in the Poverty Observatory – G20 (2004).

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elsewhere.And at a local level, small and inexperienced business people, often on the margin themselves, try to squeeze those below them.The whole neo-liberal model is predicated on this, leading to what is often called the ‘race for the bottom’, where the only way for a company to compete is to pay lower wages and offer worse working conditions. At a global level, the term McJob has come to mean a low-paying job with poor working conditions and little job security (the ‘flexibility’ pushed by the World Bank), typically in a multinational company such as the fast-food McDonald restaurants. At a local level, poverty is so great and the shortage of cash so desperate that thousands will queue up for jobs with terrible working conditions and miniscule wages; peasants will sell their maize at any price to get money for medicines or other necessities. If economic development is to mean anything in Mozambique, it must be about raising the standard of living of workers and peasants. If this is to be done by promoting capitalist development, then in parallel there must be support systems that guarantee that the bulk of the population gains, not just a handful. Partly this comes from the enforcement of laws and regulations, and partly from collective organising. If the state and donors are to promote the development of capitalism, they must equally promote those structures which defend the interests of those who sell their produce and labour. Of course, a balance has to be struck.The power of transnational capital is such that it does set countries competing with each other, and if Mozambican wages or commodity prices are too high then companies will go elsewhere. High wage employment is of no use if the output cannot be sold. But there are two countervailing forces. First, pressure for international health and labour standards means that companies engaged in international trade, such as the cashew factories, must provide adequate working conditions and meet minimum wage requirements; fair trade labelling raises those standards a bit. Second, the need for higher quality at all levels increases the importance of skills and learning, which in turn makes it more important to have a stable and experienced workforce; stability and loyalty become more important than flexibility. At a local level, the balance is different. One development goal should be to move people from the informal to the formal sector, precisely because of increased protection and bringing them into the tax system. By definition, the formal sector is more closely regulated, and the gap between the two sectors cannot be so large that it discourages employers from moving.This probably means tighter regulation of the informal sector, particularly in health and safety areas and on tax, combined with a more gentle regulatory system for small formal sector businesses.8 Regulation Regulation and inspection are the main roles for the state in protecting workers and peasants. One of the most important protections in Mozambique has been the minimum wage legislation. The minimum wage is set annually in mid-year by the government. In May 2007 the minimum industrial and service wage was increased significantly, in real terms, from the equivalent of $56.50 in 2006 to $63.60 (1,645 MT) per month.The minimum agricultural wage also rose, but by a smaller amount, from $40.15 to $43.60 (1,126 MT). This means the real minimum wage has more than tripled since it was pushed below $20 by the IMF in the early 1990s. Christopher Cramer and his colleagues from SOAS in London report that the Rural Labour Market Survey showed that ‘employers in practice exercise a great deal of discretion … The relatively weak bargaining power of wage workers, especially agricultural workers and domestic servants, means that a large proportion of them live on pitiful and irregular wages with no protection or non-wage benefits.‘ They also found ‘an astonishThe distinction between formal and informal is actually quite vague. Outside the big cities, many small businesses are registered in some way with the local administration and even pay local taxes, but may not be formally registered as companies with the central government. Thus the move from informal to formal passes through many intermediate phases. 8

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Table 17.1 Agricultural wages, median, 2002/3 Daily, Monthly, Daily, MT MT $ Official minimum 22 Small employer (1–10 workers) 10 Middle employer (11–50 workers) 10 Large employer (50+ workers) 15

ª

a

Monthly, $

560

0.93

23.63

250

0.42

10.55

350

0.42

14.77

460

0.63

19.41

Table 17.2 Non-agricultural rural wages, median, monthly, 2002/3 Official minimum Transport driver Construction Hotel/hostel Restaurant Domestic servant

MT

$

812 875 725 475 300 200

34.26 36.92 30.59 20.04 12.66 8.44

= based on 26 working days a month

ingly wide range’ of salaries and payment systems. Many farm workers are paid quite little and are paid by task;‘a woman who has difficulty completing the task set by her employer will bring along her children or female relatives to “help” with the work’ (Cramer et al. 2007). Tables 17.1 and 17.2 show the very wide range of incomes, with many farm workers earning less than half the minimum wage and domestic servants only onequarter. Despite these very low wages, Cramer et al. stress that the minimum wage sets an important marker. Larger farms and companies, especially foreign-owned ones, pay close to the minimum wage, and skilled workers can receive substantially more.They point out that the larger employers are more visible and exposed, and that large commercial farms ‘are constantly embroiled in social tensions and legal conflicts and face encroachment onto their land’.This puts them under pressure to pay reasonable wages and keep the workers on their side. Even for smaller employers, the minimum wage has ‘some influence’. Publicity is the most powerful weapon. Few people in the provinces actually know what the minimum wage is. Cramer makes the case for public information campaigns on the radio to inform people about minimum wages and working conditions.This would lead to more social pressure on poor employers. The Ministry of Labour under the new minister, Helena Taipo, has been doing more inspections and cracking down on labour law violations. She visited cashew factories in Nampula in September 2006 and found that some lacked proper toilet facilities, protective clothing and even proper first aid kits, and were paying less than the minimum wage. She said the government ‘wants to support the cashew industry, but demands that the employers establish basic health, hygiene and safety conditions’. Workers, she pointed out, needed incentives if they were expected to increase their productivity.9 Health and safety is one of the key areas where workers need more protection. For example, pesticide use is still quite limited, but farm workers rarely have proper protective clothing. Concessions and inspections More regulation and supervision are needed over crop concessions.There are angry disputes with farmers saying that the tobacco companies classify their tobacco at too low a grade in order to pay less, while charging too much for inputs and too high interest on loans; the tobacco companies complain of side-selling and diversion of inputs. In tobacco, there are already local arbitration committees, which are supposed to include independent valuation of crop quality, and which seem to work in some areas and not others. But the difference in treatment of peasants by Dimon and MLT (see Chapter 6) points to a much larger issue about the broader responsibility of concession companies. Health and safety issues around pesticide spraying are a particular issue with both cotton and tobacco. Since concessions seem an important way forward, there needs to be more discussion about the role of the companies. Could they be used to sell fertiliser locally, for example? 9

AIM Report No.327, 28 September 2006.

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Do they have more responsibility to support other crops as part of rotations? At the moment, concession agreements are decided largely in secret by the Ministry of Agriculture.The whole process needs to be more open, with the rules for all parties much better known locally.A better arbitration system is required.And there probably needs to be a concession inspectorate which would monitor if companies are carrying out their responsibilities. The World Bank supports more concession companies, but says the government should: • ‘establish clear commitments by concessionaire companies and strengthen control of their performance’; • ‘introduce clear and binding performance targets for concession companies and impose sanctions for non-fulfilment of agreed targets for the next five years’; • ‘accredit consultants to review the performance of concessionaries’ (World Bank 2006a: 173); • publish ‘key data on the performance of companies and trends in that data, placing pressure on companies to perform better’ (World Bank 2005c). One Bank study (2005c) warns that ‘the regulatory system has proved inadequate in some areas, notably in screening the quality of prospective concession companies and monitoring their performance.’ Government inspectors are one of the most important protections for workers and small farmers.Any rapid expansion of jobs and concession farming will require an equal growth in the number of inspectors.They will need to be trained to carry out their jobs properly. And they will need proper salaries and, in rural areas, at least motorcycles (and helmets and fuel) to allow them to move around. Donors constantly stress their desire to help the poorest, and such inspectors will directly support the most vulnerable, so one must assume that the donors will support such a programme. But if not, they should be in the government budget. At this point, corruption and bureaucracy both rear their heads.The traffic police are notorious for stopping cars and demanding bribes, and there have been complaints about labour and other inspectors. It is easy for an inspector to have a chat with the manager and, for a small amount of money, agree to turn a blind eye. On the other side, tax inspectors applying very unclear rules are accused of imposing excessive fines for apparently minor violations.A largely ineffective judicial system makes it hard to challenge either type of misconduct, and Frelimo party links also play a role.Thus introducing and strengthening inspectorates is fraught with problems. So long as there are such huge gaps between the rich and ordinary civil servants, the temptation of corruption will remain large. But there are two methods that might help. One would be to end immediate fines and instead opt for written and public enforcement notices. For example, a cashew company paying below the minimum wage might be given a month to correct the problem.The other is transparency, with open records of inspections and meetings. Enforcement notices should be posted at the factory, so that everyone will know what is expected.This would work in several ways. In the event of a real violation, it would shame the employer, especially if it was reported in the local media, and make clear to the workers what was expected. Employers sometimes complain of being charged with petty violations as a way to elicit a bribe; if a formal notice was required, and it really was petty, the publicity would serve as an important check. A factory inspector could not get away with failing to notice that there were no toilets if the visit to the factory was recorded and publicly known. Finally, it would allow comparisons, showing if some employers were being treated more harshly than others, or if some provinces were applying rules differently from others.The idea is not new; it is already used in elections, where the results are posted on each polling station door, which has been very important in creating a culture of openness in the electoral process.

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And, finally, it is a social issue.A new inspectorate would need to create a culture of pride and integrity.An inspector caught taking a bribe should be subject to real public shame. Collective action But workers and peasants cannot depend on government inspectors or donors to protect them.They will have to defend themselves through trade unions and associations. Just as businesses and entrepreneurs need training and support, so do those forming trade unions and associations.They need to learn organising and negotiating skills and the details of the relevant laws and regulations. Both inspectors and organisers are likely to have no more than primary education, which means that serious efforts will have to be made to design appropriate and accessible training. Just as there is a need for business development services, there is also a need for organisational development services – indeed, covering many of the same areas. A study by IFAD concluded that: by forming farmers’ associations and cooperatives, smallholders can make themselves more attractive clients for contract farming and input-credit provision by the companies.Well functioning associations can reduce costs and risks of the activities and make the daily operations of credit delivery, input supply, extension, and produce collection much easier to manage. However, in many areas, smallholders need technical support and training in order to establish and operate effective associations.This often involves higher up-front costs than the companies are prepared or able to pay.A justified donor intervention is to contract specialist intermediaries, such as consulting firms and NGOs, to support the associations and coops during their infant operational period (Ruotsi 2003: 127).

The World Bank, too, calls for ‘increasing the professionalism of farmers associations through a large programme of capacity building’ (World Bank 2005c). The World Bank’s suggestion of accrediting consultants to review performance is an interesting one; such consultants would not be ‘neutral’ but would represent the interests of workers and association members. But António Souto’s point about technical assistance in Chapter 16 is relevant here. Consultants, NGO staff, or people in Mozambique on donor technical assistance contracts are, in the first instance, responsible to their paymaster. Even if the money comes indirectly from a donor, people need to be hired by the association or trade union and represent their interests, especially in building capacity to work without outside help. Such people might be recommended or even sent by international trade union bodies or peasant associations in countries such as Brazil.This might be one way to bridge the skills gap, at least in the short term. As well as training, organisers will need the basic facilities including mobile telephones and motorcycles. They are also subject to the same corruption temptations, so they too need to operate with a degree of transparency. Democratic structures are important, to keep union and association leaders accountable to their members. A key element of collective action is information. People really need more information on minimum wages and workers rights, as well as the dangers posed by pesticides and other chemicals.The more people know, the more they can make effective demands of employers and concession companies. Effective organisations will be able to negotiate over tobacco grading or cashew factory toilets and thus reduce the conflicts that require inspectors and arbitrators. The World Bank in its agriculture strategy paper explicitly argues that ‘for the growing number of smallholders who participate in out-grower schemes, strengthening their power to bargain for better farm-gate prices and improve industries that add value is essential. … Farmers need to organize into producer organizations so that they have the power to negotiate with companies’ (World Bank 2006a: xi, xii).

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Conclusion: creating & regulating capitalism In the contemporary world, Mozambique’s economic development must come through market processes. But for historic reasons, Mozambique is a market economy largely without capitalists. It falls to the developmental state to create capitalism, and also to determine the nature of that capitalism. Entrepreneurs do not grow like wild flowers after the rain; rather, like fruit trees, they must be carefully tended until they are mature enough to survive on their own.This will require a huge degree of training and support, on a day-today basis, to help entrepreneurs create and expand businesses. And one of the key lessons is that entrepreneurs do not just sit in offices, but must actually go out and make things happen, and be actively involved in running their businesses. As part of the package, the state must take on a significant part of the risk, through insurance, guarantee funds, subsidised credit and joint investments. Business people must be accountable for the help they receive, and must also share the risk. In the previous era of state involvement, there was a stress on ‘picking winners’ – trying to identify products or industries which would be successful and thus which should be promoted, usually as state industry. In the new developmental state era, this line is rejected and much more trust is put in the private sector and entrepreneurs. But the state must be proactive and much more nimble than in the past, with three kinds of intervention: • Support for creating entrepreneurs, through state-funded incubators and business extension services. • Helping to promote new crops and products. Subsidies to encourage entrepreneurs to enter new areas – through new types of concessions, new agro-processing, etc. – are probably essential to kick-start rapid economic growth. Here the state does try to identify market gaps, but only to the extent of encouraging the private sector in the right direction. • Looking for gaps in value chains. Here the lead is taken by the private sector which identifies a crop, product or market, like cashew, but which cannot be produced because of breaks in the supply or value chain.The state then proactively fills that gap, preferably providing the private sector with subsidies or guarantees, but in some cases, like global marketing, perhaps by actually contracting an agency. The key point here is that this is a middle ground; it is not picking winners, but it is also not stepping back and just trying to create the right conditions or an ‘enabling environment’ – the cargo cult runway.The state is taking a proactive and interventionist role, but not a dominant or controlling one. The heart of economic development is creating jobs and raising the living standards of most Mozambicans. Entrepreneurs, business and exports are a route to this, not ends in themselves.This means that, in building a fairer capitalism, the state must pay equal attention to supporting the interests of small farmers and workers. Partly this will be through new and more transparent inspectorates, and partly through promoting trade unions and associations.And just as entrepreneurs needs long-term support, so do inspectors and organisers, so that the two sides grow up together to create a vibrant economy which raises the living standards of everyone. Donors and foreign investors will help, but this is a task for Mozambicans, and especially for the government. The developmental state can create a developmental, nationalist capitalism.

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Can Mozambique stop putting its hand out & become a developmental state? The picture above is proof of development.The girl and boy are coming home from a rural school, beneficiaries of a huge expansion in education.And she is riding a relatively new bicycle. So, yes, there are more bicycles and more school places. But the boy, like most people, is walking. And they are unlikely to find jobs when they leave school.There has been development, but not enough. Sixteen years after the end of the war, most people remain desperately poor; even those moving out of poverty remain precarious, with a strong chance of falling back into poverty, as we showed in Chapter 7. Yes, there are more bicycles, but the development leap that might have been expected after the war has not happened.What went wrong? One answer may be in a joint donor and government statement on 30 April 2007,1 which said:‘Approving and implementing a rural development strategy is urgent.’ Sixteen years after the end of the war, Mozambique does not have an acceptable rural development strategy. Instead, it has a series of beliefs and assumptions.The core one is that if it creates human capital (health and education) and infrastructure (roads and electricity), then foreign investors will fly in and a vibrant domestic business class will appear. Linked to this is an assumption about shifting the burden and responsibility onto the poorest and away from government. Instead of marketing boards and national grain stores, peasants should store their grain and bear the risks of weather and markets. Many more people should make their living through self-employment and the ‘informal sector’, rather than in formal sector jobs. The Bretton Woods institutions have built a strong intellectual hegemony around this neo-liberal, non-interventionist, free-market, small-government, foreign-investment model – more recently with a Millennium Development Goals social safety net tacked on.These assumptions and beliefs are sincerely held, but they are also very convenient for the Mozambican elite and the donors. Mozambican elites who are told that by becoming rich they are helping the poor are only too happy to believe it; peasants should not hold out their hands to beg, but cabritos can hold out their hoofs for a share of aid.And the donors are pleased to be helping poor Mozambicans by building roads and schools. But there is a problem. Malnutrition and maternal mortality are increasing; Sixteen years after the end of the war, the vast majority of peasants are still hoe farmers using the most rudimentary technology. Half of Mozambicans think their standard of living is falling (Table 7.8), and this perception seems accurate.Yes, there are more bicycles, but most people still walk. A decade of record GDP growth has not brought economic improvement to most Mozambicans. President Armando Guebuza rightly and repeatedly says that ‘we must start with the few República de Moçambique e Parceiros de Apoio Programático, 2007, Revisão Conjunta 2007 Aide-Mémoire, p. 23. 1

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resources we have instead of holding out our hand begging without even trying’ (Savana, 24 April 2006). But up to now Mozambique has adopted the BWI strategy of holding out hands waiting for foreigners to fly in and end poverty. It is not working. In a speech in Lichinga, the President also said:‘We must wage a titanic struggle against the arrogance of thinking that others must change, but not us’ (Savana, 24 April 2006).This book argues that he is right, and that the Mozambican elite must stop putting out its hand for foreign investment, and instead must look at ways to build domestic entrepreneurs. It will require the state to be interventionist; it will require the elite as well as peasants to work harder, it will disturb the cosy relationship with the donors; and it will force a rethinking of the passive acceptance of BWI policies. Not everyone subscribes to the myths Within Mozambique, the ‘titanic struggle’ to change thinking has already started. Perhaps the first public challenge to the accepted wisdom came in 2003 with the publication of Agenda 2025 (see Chapter 17), a report by a broad but very establishment group of 14 Mozambicans, including a Frelimo Political Commission member, a key economist from Renamo, clerics and prominent academics.Yet this group openly attacked the BWIs’ structural adjustment policy and the bias towards foreign investment, while calling for a development bank and a more interventionist economic policy by the state.The IMF and World Bank are actually listed as ‘threats or inhibiting elements to development’.The report notes that: as from 1987 the Country adopted structural adjustment measures within the context of agreements with the International Monetary Fund and the World Bank. Public expenditure was drastically reduced in relation to revenue. Cuts in the education, health and construction sectors were substantial; state-owned companies were privatised … The macroeconomic policies of a neo-liberal nature introduced in the ’90s emphasising the financial/monetary aspect were implemented in the absence of the complementary support policies and actions at the microeconomic level in the productive sector, leading to an increase in the commercial sector to the detriment of industrialisation. … the main factories and SMEs [small and medium enterprises] closed down. In consequence, ‘informalisation’ of the productive and commercial sectors spread to the whole Country. … The [BWI] paradigm Mozambique has been applying has not changed the economic and social situation of the country, and the same happened in other African countries that implemented similar programmes.

The report warns of possible ‘social instability’ and stresses the need for the BWIs to agree ‘on more realistic and adjustable programmes that consider the Country’s real needs’ (Committee of Counsellors 2003: 48, 49, 61, 62, 102, 107). ‘The economy is becoming more limited and less diversified, with fewer opportunities for developing broad based linkages, employment, and productive and technological capacity,’ the study finds.The most dynamic sectors of the economy are declining. ‘Part of the industrial stock was destroyed during the war, and the remainder was privatised; many of the recently privatised factories were closed down or transformed into warehouses (ibid.: 50–2, 57). The Agenda 2025 committee, which contained two former central bank governors, then went on to attack the IMF key shibboleth – keeping inflation low, which entails keeping interest rates high. Instead, creating employment should be given equal weight to controlling inflation. Productive sectors have been harmed by high interest rates, and higher inflation should be allowed: ‘Following the sustainable road to development may take longer to lower inflation to desired levels, but the benefit is, in the meantime, increased growth and job creation, and consequently poverty reduction’ (ibid.: 47, 102). Finally, Agenda 2025 comes out against the foreign investment bias.‘Mozambique provides incentives for attracting direct foreign investment’, but ‘there is no plan for empow-

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ering national entrepreneurs coming from traditionally disadvantaged sectors’.The result is ‘economic activity dominated by foreigners,’ while ‘economic dependency on South Africa increases’. Investment decisions are determined by ‘foreign corporate strategies’, while ‘Mozambicans do not have the financial capacity to compete with their foreign counterparts’.The study concludes that: Notwithstanding the increasing inclusion of Mozambique in the globalisation process, social and political stability in the Country require a positive discrimination policy of empowerment designed to technically and financially develop the emerging Mozambican entrepreneurial sector. Management of this process should be thorough, comprehensive and transparent. … The State has a role in supporting the modernisation of companies and in protecting national companies (ibid.: 52, 57, 101, 106).

Nothing more was heard of the radical thoughts of this very conservative body, and the report was buried by the donors and local elite. But the voices questioning the myths would not be stilled. With the preparations for PARPA II, further questions were raised. The economic growth background paper to PARPA II, for July 2005, makes clear that for PARPA I (2001–5): the implicit philosophy said that the economy is driven by private initiative and by market forces. The state’s role is to supply basic public goods, creating a propitious climate for economic growth and human development. [But this] strategy of leaving the private sector to develop itself on its own through market forces creates distortions against small and medium producers in all parts of the economy. … Small and medium enterprises have difficulties growing; the productive manufacturing sectors continue stagnant, except for the milling and drinks industries.2

The result has been an economy with mega-projects which employ relatively few people and pay few taxes, and a large informal sector.There is a ‘missing middle’ of formal sector small and medium-sized firms; the ones in the traditional sectors of textiles, clothing and metal working have closed and not been replaced by new ones. Economic growth is failing to create jobs. The paper calls for a much more interventionist approach:‘the state has a very important role concerning the support, expansion and promotion of the private sector in order to reach targets of broad, rapid and sustainable growth’. It continues that ‘the economic strategy of PARPA II must give priority to incentives for growth in local productive activity.’ And it called for ‘a more open discussion concerning strategic questions’. This discussion continued with the drafting of PARPA II.The first widely circulated draft concluded that ‘excluding the big projects, the formal sector of the economy has not shown obvious signs of growth. Market forces and the private sector, on their own, are showing themselves incapable of guaranteeing dynamic growth and articulating agricultural production with other sectors of the economy.’ Inequality is increasing (Republica de Moçambique 2005a). This frontal challenge to the shared assumptions of the BWIs, donors and the Mozambican elite proved unacceptable, and did not survive into the final draft of PARPA II. But it showed the views of the experts within the Ministry of Development and Planning, who, in a first draft at least, were prepared to say the emperor had no clothes. Meanwhile, civil society through the G20 platform also began to question elite and donor assumptions.The 2004 Annual Poverty Report, the last to be written by the late José Negrão, says that Mozambicans do not see themselves as poor people, but rather as people who are currently poor but who would leave this situation as soon as they had the Crescimento Económico e Estabilidade Macro (Grupo 1.1) – Contribuição inicial à elaboração do PARPA II, Maputo 18 July 2005. Italics in original.

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chance.3 This leads to a definition of poverty much more based on conditions, and that it is not an individual problem: Poverty is the impossibility of families, associations and companies to have access to the conditions that permit them to satisfy their basic needs and look to growth and development in the briefest possible time.

The 2004 report was based on a large survey, which found the obvious point that the main reason for poverty was lack of money. Many of those surveyed said that the family had insufficient food and water, falling to a level which violated their human rights.There was a widespread demand for a government policy to promote small and medium enterprises, and in particular for the government to lower interest rates and share risks, in order to create jobs and incomes. ‘Poverty reduction necessarily involves access to income through employment,’ said the G20 in its Annual Poverty Report 2005. Government must prioritise activities that generate employment.The report also calls for a development bank. Abdul Magid Osman, then president of the BCI-Fomento bank, concluded a public lecture in 2006 by calling on the international community to accept that ‘it is not fair to ask business people in Mozambique to perform miracles which were not done in their own countries’, and that ‘development depends on huge public support (domestic and international)’ (Notícias, 30 June 2006).

In a global context Mozambique’s donors and the local elite may not want to hear, but the mood is changing internationally as well. Bush,Wolfowitz and the Washington neo-cons have shown that the neo-liberal line of the Washington Consensus was just a cover for greed and arrogance. World Bank research underlying policies in Mozambique has been shown to be ‘not remotely reliable’ and politically motivated. Latin America, China and India are demonstrating different ways forward. And as we saw in Chapter 14, UNCTAD and academic thinkers are putting forward different, more interventionist lines. Phrases from the 1970s, like ‘development state’, are coming back into fashion. The move away from the interventionist developmental state of the 1970s appeared to respond to real problems, but failed because it was ideologically driven, as part of the Cold War and the move to a more global capitalism.Agricultural marketing boards throughout Africa may have been inefficient and paid peasants a poor share of export prices, but their free market replacements paid peasants even less and often left them without a market at all. Rather than bringing efficiency, ending support for local industry destroyed jobs and brought deindustrialisation. The agenda of the 2010s will be one that attempts to mix the best of the 1970s and 1990s while trying to avoid the excesses and failures.The interventionist, developmental state is back – not to replace the market, but to intervene directly in the market. Capitalism is very effective at making profits and developing new products and new needs, but as the last 30 years have shown forcefully, primitive capitalism makes the rich richer and the poor poorer, and has little interest in the poor because they have no money to spend. How will Mozambique fit into this new international thinking? In Mozambique the changes of the 1980s and 1990s also reflected real concerns about the impracticality of state-dominated approaches and about corruption and massive thefts from the banking system. No one wants to return to the days of central planning, big state farms, and promises of Expressed very neatly in Portuguese: ‘O Moçambicano não é pobre, mas ficou ou está pobre, podendo sair dessa situação logo que tenha possibilidade para o fazer.’ Relatório Anual da Pobreza 2004, Maputo: G20, p. 7.

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state-run textile factories in every province. But the pendulum has swung to the opposite extreme, where there can be no state involvement in the economy, and that has been a bigger disaster.The current jargon phrase is ‘public-private partnership’, which explicitly accepts a public – state – role. In Mozambique where the private sector is still so small, the state must have a very large role, and ‘private’ must include all non-state actors, including associations and cooperatives.

What roles for the new interventionist state? The main theme of this book has been the argument that what we have called the cargo cult view of development needs to be replaced by a new development vision in which the state promotes economic growth and Mozambicans, not foreign investors, lead the way. There is no single way forward. But Mozambique is not alone and it is not facing a unique challenge. It can draw on Asian and Latin American experience and hire expertise and trainers from all over the world. The cashew sector (Chapter 5) shows what is possible.The success comes from an Indian expert using appropriate Indian technology joining with Mozambican entrepreneurs, an interventionist government department, and progressive Northern agencies – and quietly rejecting the imposed World Bank model. Building the value chain from Nametil to London has meant a process of trial and improvement and ongoing support to strengthen entrepreneurship at all levels – peasant associations, Ikuru and processors. Is cashew a ‘model’ that can be used with other crops? Perhaps, for example with macadamia nuts. But the real model is a network of a broad range of people and organisations (national and international), of imaginative finance and risk-sharing, and of an interventionist state agency partly taking the lead and partly being supportive of entrepreneurs.Value chain thinking, which has been so important for cashew, could be applied to a whole range of other sectors, such as chickens and fish, where the state might initially have to support certain links in the chain, such as the production of baby chicks and fingerling fish. But if it were successful, then the state could drop out of the chain. Other successes also have lessons.Tobacco has probably done more to reduce peasant poverty than any other single intervention. Peasants are willing to grow tobacco because they obtain inputs on credit (an important form of risk-sharing), receive effective extension services, and have a guaranteed market.Tobacco companies have exclusive rights in certain areas. Cotton works the same way.Tobacco and cotton both have established world markets, but there is no reason why similar outgrower schemes could not be developed for sesame, sunflower and a range of other crops, through various forms of public-private partnerships. There are no detailed plans and the interventionist developmental state will need to be flexible so that it can move in where help is needed. Several areas seem important: • Filling the gaps.Where entrepreneurs are already active and successful, the government must be prepared to fill gaps in terms of finance, technology, training and marketing. It need not carry out these tasks itself, but could contract companies or NGOs. • Sharing the risk. Pushing the risk down to the lowest level, to peasants, workers and people in the informal sector, only leads to caution and conservative, non-developmental attitudes. Risk must be shared through insurance, loan guarantees, guaranteed purchases, unemployment insurance and other safety nets. Guarantees need not be direct, but can be indirect via banks and the insurance industry. • Boosting rural demand.The best way to boost the rural economy is to provide an income to poor rural people, through labour-intensive projects such as road building and much broader use of cash transfers. Giving the poor cash is meeting their human rights and not giving ‘alms’

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• Jobs are the top priority. Surveys show that people treat jobs as their greatest need, and they are right; for most people even poorly paid jobs are better than the ‘informal sector’ or growing their own food. • Regulation and protection.Workers and peasants must be protected through a range of health and safety regulation, minimum wages, trade unions, and arbitration committees for commodity prices.The court system must work, so that contracts can be enforced, both between businesses and between workers and businesses. • Showing leadership.The main difference between the central planning era and the new public-private partnership is that the government responds to gaps identified by the private and associations sectors. However, where there is an area which has not attracted private interest, then government should take the lead, both to promote the sector and to do the groundwork. • Supporting learning and experimentation. Colonial and socialist history results in the biggest gap, namely, that people do not have the skills to be effective entrepreneurs, and the government must fill the gap with business development agencies that train, advise and support new business people. Similarly, there should be support for businesses to experiment with new ideas and improved methods. • Becoming a learning state. Involvement in the economy will inevitably have a high failure rate; whole sectors will prove to be unprofitable or non-viable, while individual interventions will often not work. Rather than hiding less successful projects or getting involved in political fights about them, it is essential to use them to learn and improve. This means a greater degree of transparency for grants, contracts and projects. And it means formalised independent review and assessment systems. Hardest of all, it requires systems which reward innovation, risk-taking and debate, and do not penalise failures. None of these are easy. It will require a whole new mindset. But President Geubuza points out that it was not easy to win the liberation war either.That required whole new ways of thinking and acting, and degrees of creativity that some did not think themselves capable of. Developing Mozambique is no less of a challenge, especially when it is so clear that the old ways of thinking are not working.

Can ‘Leadership & ownership’ be economic? Donors, too, will need a new mindset.They will have to accept that the pendulum should swing back to economic development, and that at least additional aid should go to economic rather than social sectors.This presents three problems for donors. First, pictures of schoolgirls and statistics of school building are strong emotional justifications for increased aid, and aid agencies will need to educate their own constituents and parliaments about the importance of jobs and economic growth. Second, it requires an acceptance of the depth and intractability of Mozambican poverty, and the failure of present attempts to crack the problem.Third, it requires major European donors to distance themselves from the failed policies of the Bretton Woods institutions, at least privately and in Mozambique. More attention should be paid to methods used elsewhere, such as maize subsidies in the United States and development banks in Germany and Brazil, as well as past successes such as peasant maize in Zimbabwe in the 1980s. None of these have been without problems and they go strongly against current BWI ideology, but they have worked. Indeed, much more attention will need to be paid to experimentation and finding out what works, independent of whether it fits the tenets of the fundamentalist BWI faith. It might be useful for donor staff to look at the more economic interventionist aspects of their own histories – the United States in the great depression, Europe after the Second World War, and the Nordic states in the 1950s and 1960s. Whether intended or not, the international community has cultivated a culture of sub-

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servience. Claims by donors that they want Mozambican ‘leadership and ownership’ are simply not believed. Subservience will be slowly replaced by leadership only if a few of the more flexible donors, especially among Mozambique’s old friends, make clear that they are prepared to support a shift in government spending and aid money to economic development and direct intervention in the economy. Donors are worried about corruption, but they could signal a change by moving away from macroeconomic targets and instead put the emphasis on transparency.A simple start would be a move from ‘no subsidies’ to ‘transparent subsidies’, combined with public support for the commitment of the African Fertiliser Summit to subsidised fertiliser (see Chapter 15). Mozambicans see that, up to now, subservience has paid; to change this, a few donors will need to take the lead in opening up economic space. There are also opportunities for INGOs and the more project-oriented bilateral donors. Increased support for trade unions, to build their organising and health and safety capacity, would be a good starting point. Creating business development centres, not just with consultants but with people who can provide hands-on help as well as initial finance, would support local entrepreneurs. Marketing and business support for associations and for association-owned businesses like Ikuru would have a major impact.Another option is to take money to rural areas, through labour-intensive road building and cash transfers. But these interventions will work only if they actually build up Mozambican competence, which in turn requires two things; first a long-term commitment – ten years, not three; second that outsiders – the experts and consultants – work for, and are accountable to, Mozambican institutions. Most donor and INGO staff in Mozambique really want to ‘help’ the country and reduce its poverty.The most helpful thing now is to think outside the traditional box and abandon assumptions about human capital and infrastructure alone creating development. Instead, they need to find ways to promote economic development and especially to support a development led by Mozambican entrepreneurs rather than foreign investors.

Conclusion: a positive development vision In Chapter 8, we pointed to Robert Chambers’ definition of development as ‘good change’, and there has undoubtedly been good change for Mozambicans.There are more bicycles. But one fundamental conclusion of this book is that there has not been enough good change. In Chapter 8, we then went on to Alan Thomas’ definition of development. He stressed the importance of a ‘vision’ of a better society and a way forward to it. Mozambique has a curiously negative vision of development, characterised by the phrase ‘the fight against absolute poverty’. It is as if ‘absolute poverty’ was a chronic disease.This also creates a charity consciousness, that the ‘absolutely poor’ need help and handouts. This negative vision is reflected in the stress on creating human capital and infrastructure and then waiting for foreigners and the private sector to end poverty.This is like waiting for a patient to recuperate from an illness and gain strength. It is a passive view of what Mozambicans can do – that they must sit back and wait for the donors and the private sector. It is the world of fish and no nets (see Chapter 4). An important first step would be to adopt a positive vision – of creating jobs, livelihoods and incomes – a vision, not of ending something bad, but of building a better economic future.The ‘developmental state’ is one which takes an activist role in building that better future. Agenda 2025, President Guebuza, and even PARPA II all point to a Mozambique where the government actively promotes entrepreneurs – individual business people, commercial farmers, associations – and leads a broadly based economic development. Felito Julião pictured on the cover, the furniture makers in Monapo, Ikuru, everyone involved in cashew, Chimoio commercial farms, Marcos Mainato and João Ferrão, and thousands of other Mozambicans, are already entrepreneurs. Mozambique does not need to

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207

wait for foreign investors to fly in.The people who can develop Mozambique are already there. But they need training, long-term support, and credit – which the developmental state can organise and provide. There are no easy answers and none are offered in this book. Much discussion and some hard choices will be needed as to what kind of positive visions and interventionist strategies are most appropriate. But the first step is to listen to the President, use domestic resources and people, and stop holding out hands begging for aid and foreign investment.

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Appendix 1 Aid

In 1990, toward the end of the war, Mozambique was the 6th most aid-dependent country in the world, with aid accounting for 41% of GDP. Since then, aid levels have remained high; in 2004 aid was only 20% of GDP, but that still made Mozambique the 14th most aiddependent country, according to UNDP. Aid at $63 per capita in 2004 was lower than that in 45 other (mainly smaller) countries, including quite rich nations like Israel, but it is nearly double the $33 average for both the least developed countries and sub-Saharan Africa (Watkins 2006:Table 18). So Mozambique clearly remains a donor darling. The most detailed aid data are collected by the OECD Development Assistance Committee.1 Four tables have been extracted from that data base to give details of aid to Mozambique since independence. Unfortunately, the various data bases do not totally match up, so in some places we have had to make assumptions, explained below. Table A1.1 gives the total aid to Mozambique as reported by the donors and lenders themselves.Aid is known as ‘Official Development Assistance (ODA)’ and includes grants and ‘concessional’ loans ‘with promotion of economic development and welfare as the main objective’.A loan is treated as ‘concessional’ if at least 25% is effectively a grant (actually quite a small portion). In Table A1.2 we show aid divided into grants and loans; loan repayments in the final line are shown as negative numbers. Not all ‘aid’ actually reached Mozambique. Some debt cancellation counts as aid (and accounted for half of total ‘aid’ to Mozambique in 2002).Technical assistance counts as aid, even though much of it goes to consultants from the donor country, selected by the donor country, for studies and ‘help’ determined by the donor country, and for associated overheads, car, etc. This is one of the more disputed areas of aid. ActionAid International claimed that ‘two-thirds of donor money is “phantom” aid which is not genuinely available for poverty reduction in developing countries’.2 Mozambique also has little control over food aid and other emergency aid, which is largely donor-determined. In Table A1.1 we therefore define a new category of aid which is actually ‘available’ for use in Mozambique. In the six years 1999–2004, 18% of aid to Mozambique was debt cancellation, 16% was technical assistance, and 7% was food aid and emergency aid (partly linked to the floods in 2000).That left Mozambique with only 59% of aid which it could actually use. Thus, while post-war aid has consistently been running at $1.1 bn per year, Mozambique can only really use $700 m. of this. The former Soviet Union (USSR) was the largest donor to Mozambique in three key www.oecd.org/dac/stats This included debt relief, money spent in the donor country on immigrants but counted as aid, tied aid, technical assistance, excessive administration and transaction costs, and aid not to poor countries. Ireland was the lowest with 13% phantom aid, UK, the Nordics and Netherlands around 1/3, but France and the United States at nearly 90%. Greenhill and Watt (2005). 1 2

209

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APPENDIX 1

years (1984–6) during the war.The USSR did not disaggregate emergency aid and technical assistance, so in compiling Table A1.1 we assumed the same proportions as for other donors. Chart 2.1 in Chapter 2 and Tables A1.2 and A1.3 include Soviet aid, which is excluded from some DAC tables but not others. Table A1.3 divides aid by donor, including the USSR. Note that the figure for the IMF is negative in the post-war period; this means that during the entire post-war period the IMF took $7 m. more from Mozambique than it gave.Thus, in this book we do not treat the IMF as a ‘donor’. Table A1.4 is based on a different data set.Whereas the first three tables are for aid that was actually given, this table is only for aid promised. It also covers the period from 1990. But it has the advantage that it has a much more detailed breakdown of the purpose of aid. Note that technical assistance (16% of all aid) is not treated as a separate category in this data set, but is simply included as part of aid destined for various sectors. Several points are notable in this table: • debt cancellation is one-fifth of all projected aid; • budget support is growing, although perhaps not as rapidly as donors suggest; • aid to social sectors is rising rapidly, while aid to the productive sectors has fallen sharply. Finally, note from Tables A1.1 and A1.4 and Chart 2.1 the significant decline in aid during the 1995-2001 period, and the quite rapid rise in aid given and pledged after that.

168 195 135

966

1463 966

154 135 149

631

1103 651

1179 852

852

33 224 69

1179

1200 895

895

40 239 26

1200

1064 614

614

120 233 97

1064

1995

888 561

561

75 190 62

888

1996

70 49

948 602

602

118 162 65

948

1997

82 51

50

1040 634

634

199 150 57

1040

1998

107 60

59

0 27 19

805 543

543

58 156 49

805

1999

147 75

74

0 33 39

146

1979

877 533

533

31 174 139

877

2000

171 108

107

0 38 24

169

1980

933 492

492

153 166 122

933

2001

158 70

64

0 46 34

144

1981

2203 899

899

1045 201 58

2203

2002

217 130

125

0 50 33

208

1982

1037 753

753

7 225 51

1037

2003

219 114

109

0 44 58

211

1983

1235 942

942

7 209 72

1235

2004

294 147

130

0 47 82

259

1984

1277 1045

1045

4 189 39

1277

2005

354 193

163

0 51 86

300

1985

1611 1208

1208

138 219 46

1611

2006

547 355

273

0 70 78

421

1986

978 692

651

20 92 156

920

1988

884 625

579

20 100 121

820

1989

1061 799

755

44 92 112

1003

1990

298 168

144

0 51 62

257

1245 851

811

81 137 159

1189

1018 671

671

92 194 61

1018

1310 839

839

198 198 75

1310

Annual averages During war Post-war 81-86 87-92 93-99 00-06

735 521

473

0 73 121

668

1987

Source: OECD DAC International Development Statistics Online, accessed 24.11.2006. Actual aid, as reported by donors As there are no data, in calculating available aid, we assume that technical assistance and emergency & food are in the same proportions for USSR aid. Chart 2.1 includes the USSR.

1463

1069

1994

21 8

Including USSR Total aid (ODA, net) Available for use in Moz.

1993

8

Available for use in Moz.

0 12 18

105

1978

11:11

1992

0 7 14

0 4 8

80

1977

1/9/08

1991

70

21

49

1976

1975

Excluding USSR Total aid (ODA, net) of which Debt cancellation Technical assistance Emergency & food aid

Table A 1.1 Aid (ODA) given to Mozambique ($m.)

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APPENDIX 1 211

1993 1179 861 318 369 -51

1992 1463 921 543 646 -103

1991

1103 1015 88

245 -157

379 -55

1200 876 324

1994

9 0

272 -32

1064 1003 61

1995

13 0

107 94 13

1980 171 114 57 57 0 1997 948 680 268 279 -18

1979 147 114 33 33 0 1996 888 631 257 326 -69

Actual aid, as reported by donors. Figures include USSR. Source: OECD DAC International Development Statistics Online, accessed 24.11.2006

27 0

1 0

82 73 9

1978

282 -45

1040 824 216

1998

25 0

158 133 25

1981

1983 219 167 52 54 -1 2000 877 903 26 194 -46

1982 217 150 67 67 0 1999 805 1467 662 180 -53

1985 354 237 117 121 -4 2002 2203 2026 177 304 -46

1984 294 229 65 69 -4 2001 933 831 102 162 -47

1987 735 516 219 230 -11 2004 1235 1039 185 246 -50

1986 547 342 205 211 -6 2003 1037 829 197 250 -43

363 -63

1277 977 288

2004

345 -37

978 670 308

1988

406 -36

1611 1241 -1152

2005

210 -34

884 708 176

1989

11:11

270 -51

1061 842 219

70 44 27

21 20 1

1977

1/9/08

1990

Total aid (ODA total,net) Grants (ODA grants total) Loans (ODA loans, net) (net = new less repayments) New lending to Mozambique Mozambique's loan repayments

1976

1975

Table A 1.2 Aid (ODA) given to Mozambique, grants & loans ($m.)

05 Bicycles:Layout 1 Page 212

212 APPENDIX 1

A

J

A A

W

A A

A

J

A A

W

A A

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APPENDIX 1

213

Table A 1.3 Aid (ODA) given to Mozambique, by donor ($m.) 1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

All donors

21

70

82

107

147

171

158

217

219

294

354

547

735

978

884

1061

1103

1463

Bilateral of which United States Italy Germany United Kingdom France Sweden Netherlands Norway Portugal Denmark Japan Switzerland Spain Canada Ireland Finland Australia Austria Belgium USSR

11

35

67

77

116

137

125

176

170

228

277

451

606

795

646

809

804

1009

0 0 0 0 0 9 0 0 0 1 0 0 0 0 0 0 0 0 0 0

9 0 0 0 0 15 1 4 0 1 0 0 0 3 0 0 0 0 0 1

8 1 0 5 0 26 3 6 0 9 2 0 0 0 0 3 1 0 0 2

9 2 0 11 0 26 7 8 0 8 0 0 0 2 0 2 0 0 0 2

19 2 1 14 0 40 10 9 0 12 0 1 0 2 0 3 0 0 0 2

9 3 2 11 1 36 18 11 0 11 5 2 0 1 0 3 0 0 1 2

6 8 2 11 3 32 18 12 0 9 0 1 0 2 0 4 0 2 0 15

2 27 3 3 5 46 30 16 0 5 8 2 0 6 0 4 1 2 0 9

13 33 2 2 10 37 17 18 0 8 7 3 0 3 0 4 4 0 0 9

16 34 7 5 12 31 29 15 0 9 6 4 0 11 0 5 2 3 1 35

47 28 5 9 20 34 25 21 0 6 4 4 0 5 0 3 1 3 1 54

30 56 11 9 29 69 36 32 0 14 16 3 0 5 0 5 3 1 0 125

55 135 30 35 39 54 51 35 0 15 18 23 1 24 0 10 5 4 1 67

60 287 25 52 25 89 49 45 0 16 15 6 1 30 0 18 11 1 2 58

34 80 21 35 42 100 35 49 28 15 51 7 4 27 0 30 12 5 1 64

62 106 37 43 72 136 41 52 43 24 17 26 16 34 0 27 8 4 1 58

60 59 65 38 81 135 24 69 100 22 16 28 10 30 0 24 8 2 2 34

52 250 36 41 80 97 54 73 161 27 39 19 11 29 0 23 13 2 1 0

Multilateral of which World Bank (IDA) European Commission African Dev Bank Arab agencies & govts IMF United Nations of which WFP UNICEF UNHCR UNDP Other UN

All donors Bilateral of which United States Italy Germany United Kingdom France Sweden Netherlands Norway Portugal Denmark Japan Switzerland Spain Canada Ireland Finland Australia Austria Belgium USSR Multilateral of which World Bank (IDA) European Commission African Dev Bank Arab agencies & govts IMF United Nations of which WFP UNICEF UNHCR UNDP Other UN

9

36

14

30

31

34

33

41

49

66

77

95

129

183

238

252

300

454

0 0 0 1 0 8

0 1 0 26 0 9

0 1 0 3 0 10

0 6 1 3 0 19

0 5 0 5 0 21

0 7 2 22 0 24

0 11 2 3 0 19

0 4 8 9 0 26

0 15 2 5 0 29

0 21 3 4 0 40

5 25 9 6 0 38

24 33 4 4 0 37

49 26 7 -2 16 36

41 67 4 0 25 50

50 90 17 0 16 70

69 81 14 -3 12 78

56 103 14 0 42 85

106 89 34 4 63 159

4 0 3 0 0

3 1 3 1 0

2 1 3 2 1

10 2 4 3 2

8 2 4 4 2

10 2 5 5 3

5 1 0 8 5

11 1 0 9 5

12 2 0 7 7

20 3 1 8 9

12 4 1 8 12

9 7 0 10 11

12 7 0 8 10

19 11 3 12 5

24 10 5 14 17

34 16 5 16 9

36 16 4 22 7

101 26 11 16 6

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

post-war 2006 1975-92 1993-2006

1179

1200

1064

888

948

1040

805

877

933

2203

1037

1235

1277

1611

8610

16296

816

736

700

555

620

711

592

624

724

1663

700

735

761

941

6539

10878

61 97 136 47 52 72 43 59 105 32 19 19 17 29 0 10 9 4 3 0

73 94 101 39 33 74 42 72 39 36 43 30 4 17 1 13 13 5 3 0

96 27 111 36 43 54 54 52 59 45 40 27 17 6 2 12 12 4 1 0

45 35 41 35 21 61 46 52 51 47 30 27 17 13 2 11 7 3 7 0

71 20 40 72 45 52 43 55 89 30 38 18 7 9 6 10 7 6 1 0

70 111 85 53 37 32 48 49 62 48 41 22 11 13 8 12 6 5 1 0

71 12 52 49 34 51 44 37 53 52 63 18 8 12 9 15 10 4 1 0

116 13 48 83 16 46 62 38 33 47 20 25 24 8 15 12 9 5 3 0

92 13 41 185 15 43 87 33 34 48 34 23 12 14 19 11 6 2 10 0

160 446 157 48 432 45 52 39 24 52 70 22 34 9 29 12 7 21 3 0

135 15 38 63 17 57 47 54 19 66 35 21 23 27 40 22 5 3 9 0

110 27 39 66 15 68 55 61 24 67 19 28 32 27 49 26 2 5 11 0

85 22 43 81 14 79 64 68 23 65 15 25 29 56 48 25 1 4 12 0

109 30 65 99 9 92 60 64 22 71 107 22 34 49 54 28 2 7 13 0

491 1112 248 325 418 1012 449 476 332 212 204 131 43 215 1 168 69 29 12 534

1294 962 996 957 782 826 746 733 637 707 573 326 267 290 284 217 94 79 77

363

464

364

333

328

330

213

253

208

539

337

500

515

669

2071

5417

93 83 38 2 15 135

176 101 32 1 11 145

160 79 43 2 -14 95

220 62 32 2 -14 30

147 71 56 0 20 30

128 84 68 0 10 35

78 89 14 4 -3 26

94 79 13 4 30 28

53 74 57 16 -20 32

297 138 73 3 -11 35

159 90 32 14 -9 47

194 151 91 18 -20 45

243 163 73 15 -25 40

244 175 162 2 5 48

399 587 121 91 173 757

2287 1438 784 84 -27 771

59 27 31 12 7

48 20 55 18 4

16 18 44 9 8

0 14 0 9 6

4 9 1 10 6

3 7 1 15 9

2 7 1 9 8

3 7 1 6 11

2 8 1 6 14

6 6 2 4 17

9 8 2 9 20

5 9 2 9 21

6 9 2 7 15

8 9 3 7 20

331 111 51 155 109

172 158 145 129 167

Source: OECD DAC International Development Statistics Online, accessed 24.11.2006 and 15.03.2008. Actual aid, as reported by donors

115 81 34 0

41 29 11

Economic infrastucture 141 Transport & communications 116 Energy 25 Banking & business 0

Productive sectors 252 Agriculture, forestry, fishing 156 Industry, Mining, Construction 96

71 64 6

205 156 48 1

196 36 51 21 20 25

109 196 205 71

134 50 83

136 124 8 3

151 12 5 0 22 80

39 151 136 134

585

179 155

54 53 2

278 224 44 10

264 19 59 1 90 84

210 264 278 54

835

59 66

52 47 3

72 41 31 0

203 6 149 9 8 14

67 203 72 52

441

276 80

92 63 29

96 58 38 0

195 36 60 15 20 47

93 195 96 92

547

57 60

26 21 4

129 100 28 1

240 33 42 14 21 121

136 240 129 26

622

189 39

46 45 2

60 20 33 7

178 40 20 21 54 37

69 178 60 46

398

215 116

146 145 1

251 192 18 41

384 103 44 23 139 68

26 384 251 146

885

153 94

43 31 8

178 104 25 48

389 61 103 19 37 143

287 389 178 43

975

203 185

138 89 49

284 206 67 11

284 63 71 57 31 54

31 284 284 138

849

51 40 6

96 24 67 5

409 149 56 46 46 98

291 409 96 51

902

155 1151 100 93

22 57

80 38

84 31

46 16 30

244 117 95 32

488 76 97 100 6 180

88 488 244 46

87 44 35

185 129 24 31

403 54 98 91 26 120

357 403 185 87

130 118 5

159 72 62 25

530 197 98 104 64 51

380 530 159 130

142 121 18

173 118 50 6

584 131 119 127 76 105

253 584 173 142

944 1096 1293 1203

35 59

121 83 38

153 117 36 0

191 61 35 23 37 11

64 191 153 121

711

229 138

247 21% 19% 80 13% 10%

67 46 20

146 108 29 9

231 36 54 12 50 64

91 231 146 79

85 11% 61 8% 21 4%

8% 5% 2%

188 14% 17% 110 11% 13% 56 3% 3% 23 0% 1%

441 18% 27% 104 6% 4% 92 3% 6% 78 2% 1% 41 3% 6% 107 1% 7%

241 6% 11% 441 18% 27% 188 14% 17% 91 11% 9%

616 1038 66% 71%

161 87

6% 4% 2%

14% 8% 4% 2%

32% 8% 7% 6% 3% 8%

18% 32% 14% 7%

76%

18% 6%

214

Source: OECD DAC International Development Statistics Online, accessed 24.11.2006 and 15.03.08 Aid pledges, not aid actually given, as reported by donors.

258 141 45 22 27 6

118 7 9 27 64 1

39 258 115 41

45 118 141 252

941

541 173

11:12

Social Education Health Population Water & sanitation Government & civil society

592

120 148

601

25 93

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 90-2 93-9 00-06 90-2 93-9 00-06 718 859 1655 920 961 796 664 850 729 1132 1364 1103 2146 1038 1175 1411 1317 1078 864 1365

1/9/08

Detailed breakdowns

Remaining of which budget support social sectors infrastructure productive sectors

Total ODA pledged of which debt cancellation food and emergency

Table A 1.4 AID (ODA) pledged to Mozambique, by type ($m.) Average/yr% of total aid

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Appendix 2 Investment & other tables

Table A2.1 Mozambique, Foreign direct investment ($ m) Stock Flow

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 15 15 17 19 6 4 2 7 -13 0 2 2 4 0 2 2 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Stock Flow

17 -3

17 0

18 2

25 6

29 5

32 3

42 9

64 23

89 25

121 32

156 35

201 45

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Stock Flow

274 73

338 64

573 235

955 1094 1350 1697 2034 2278 2386 382 139 255 347 337 245 108

Source: UNCTAD Foreign Direct Investment data base, accessed 25.11.06.

Table A2.2 Foreign investment in sub-Saharan Africa Total FDI, $ bn, 1998-2005 inclusive Sub-Saharan Africa, countries over $2 bn South Africa Nigeria Angola Sudan Equatorial Guinea Chad Tanzania Congo Ethiopia Côte d’Ivoire Mozambique

18.4 14.7 13.2 7.6 6.9 3.4 3.4 2.3 2.3 2.1 2.0

Source: UNCTAD Foreign Direct Investment base, accessed 25.11.06.

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APPENDIX 2

More than $2 bn in foreign investment has flowed into Mozambique since the end of the war, as shown in Table A2.1, much of this starting in 1998. As shown in Table A2.2, this has made Mozambique the 11th largest destination of foreign investment in sub-Saharan Africa, which is below the level of neighbouring Tanzania and of Ethiopia. (South Africa is the main destination of investment, and the next five countries are all oil producers. But investment in Mozambique also relates to energy – electricity and gas.) Data for these two tables are from UNCTAD. Chapter 15 considers agriculture in detail.Table A2.3 provides a more detailed breakdown about farms, according to the income of rural families. Note that the best-off farmers have the largest farms, are most likely to use higher technology, and hire more labour, and that this difference increased between 1996 and 2002. Table A2.3 Characteristics of Mozambican farms Quintels of total net household income 1 – poorest 2 3 – mid 4 5 – highest Total

Cultivated Uses Animal Uses Uses area (mean traction Chemical Manure ha per family) (%) fertilizer (%) fertilizer (%)

Uses Irrigation (%)

Hires Labour (%)

1996 2002 1996 2002 1996 2002 1996 2002 1996 2002 1996 2002 0.9 1.1 4 11 0 2 2 5 3 8 12 8 1.1 1.2 5 8 1 2 3 5 3 8 12 9 1.3 1.3 8 8 1 3 5 5 4 9 18 14 1.3 1.4 7 10 1 4 3 6 4 11 24 16 1.7 1.7 9 18 3 9 3 10 5 18 28 36 1.3

1.3

7

11

1

4

3

6

4

11

19

16

Sources: Boughton et al. 2006 from TIAs

60

£ = UK pound

50

SARx10 = 10 South African Rand

40

= Euro

30

$ = US dollar

20

10

Chart A2.1 Metical exchange rates

2007 July

2007 January

2006 July

2006 January

2005 July

2005 January

2004 July

2004 January

2003 July

2003 January

2002 July

2002 January

2001 July

2001 January

0 2000 July

Meticais per unit of foreign currency

The metical has been steadily devalued against most currencies. However, since 2002 the US dollar has steadily devalued, so the metical has remained quite stable against the dollar. Chart A2.1 shows seven years of exchange-rate variations. Note that the dollar had fallen against the £ and € by more than 20% by 2005 and 40% by 2007.This has quite dramatic effects on aid statistics, and it means that the increase in aid in 2004 was largely caused by the devaluation of the dollar rather than increased aid.

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Bibliography

Many Mozambican documents are not widely available.Those cited below which are in electronic format and not posted on other websites have been posted on http://www.open.ac.uk/technology/mozambique NFD = no further data. Abe,Akiko.‘Social Capital Formation and Local Customs in Decentralisation.The Case of Zambézia, Mozambique’. Progress in Development Studies: forthcoming. Abrahamsson, Hans, and Anders Nilsson. 1995. Mozambique: The Troubled Transition. London: Zed Books. Adam,Yussuf, and Mariamo Abdula. 2002.‘Base line para monitoria do impacto da reabilitação de estradas rurais’. Maputo: Universidade Eduardo Mondlane. Adam,Yussuf, Zuraida Khan, and Mariamo Abdula. 1999. ‘Assessing health staff performance in Mozambique:The perspectives of the public and private sector’. Maputo: Universidade Eduardo Mondlane. Adam,Yussuf, Juliáo Pondeca, and Issuo Aly. 1994. ‘Hydro-power development of Cuamba:White elephants or productive investment?‘. Maputo: University Eduardo Mondlane, Centre for African Studies. Adam,Yussuf. 1997.‘Relatório da Segunda Fase so Estudo Participativo da Pobreza em Moçambique’. Maputo: Universidade Eduardo Mondlane. Adam,Yussuf, Humberto Coimbra, and Dan Owen. 1995.‘A pobreza em Moçambique. Um estudo participativo sobre a pobreza’. Maputo: Universidade Eduardo Mondlane. Addison,Tony, ed. 2003. From Conflict to Recovery in Africa. Oxford: Oxford University Press. Adedeji,Adebayo, Reginald Green, and Abdou Janha. 1995. Pay, Productivity and Public Service. New York: UNICEF and UNDP. Adenew, Berhanu, and Fayera Abdi. 2005.‘Land registration in Amhara region, Ethiopia’ in Securing Land Rights in Africa. London: IIED. Africa, Commission for. 2005. Our Common Interest: Report of the Commission for Africa. London: Commission for Africa Åkesson, Gunilla, and Virgulino Nhate. 2005. ‘Rapid Poverty Assessment – Niassa, Mozambique’. Maputo: Embassy of Sweden. ———. 2006. ‘Estudo Sócio-Económico e do Impacto na Pobreza do Projecto de Electrificação Rural Ribáuè/Iapala, Nampula, Mozambique’. Maputo: Embassy of Sweden. Åkesson, Gunilla, and Anders Nilsson. 2006.‘National Governance and Local Chieftaincy A multilevel Power Assessment of Mozambique from a Niassa perspective’. Maputo: SIDA and Swedish Embassy in Maputo. Araújo, M.G.M de, and I.M. Raimundo. 2003.‘Towards a sustainable waste urban management:The Maputo City Council and its urban dwellers’ in Sustainable Planning & Development, edited by C. A. Beriatos, C.A. Brebbia and H. Coccossis. Southampton:Wit Press. Arndt, Channing, Sam Jones, and Finn Tarp. 2006. Aid and Development:The Mozambican Case. Discussion Paper 06–13. Copenhagen: Department of Economics, University of Copenhagen. Artur, Luis, and Nazneen Kanji. 2005. Satellites and Subsidies: Learning from experience in cashew processing

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Periodicals AIM Reports,AIM, Brighton (UK), fortnightly AIM, Maputo, daily news service Canal de Moçambique, Maputo, daily, fax Domingo, Maputo, weekly Financial Times, London, daily Guardian, London, daily Mail & Guardian, Johannesburg, weekly MediaFax, Maputo, daily, fax Metical, Maputo, daily, fax (closed 2001) MoçAmbiente, Maputo, irregular Mozambique Business – Daily Investor Intelligence, Maputo, daily, e-mail Mozambique Political Process Bulletin, Maputo,AWEPA, irregular Mozambiquefile, AIM, Maputo, monthly Notícias, Maputo, daily O Pais, Maputo, weekly Observer, London, weekly Revista ALVO, Ministério da Mulher e da Acção Social, irregular Savana, Maputo, weekly Zambeze, weekly On-line databases Environmental Working Group Farm Subsidy Database: http://farm.ewg.org/fram OECD DAC http://www.oecd.org/dataoecd/50/17/5037721.htm Polity data series, George Mason University: http://www.cidcm.umd.edu/polity/. Royal Netherlands Meteorological Institute (KNMI), http://www.knmi.nl/africa_scenarios/Southern_Africa/ UNCTAD Foreign Direct Investment data base http://www.unctad.org/Templates/Page.asp?intItemID=3135 World Bank QuickQuery http://sima-ext.worldbank.org/query/

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Index

Abdallah,Adriano 23-4 Abetti, Pier 193, 194 ABSA 111 Abrahamsson, Hans 104 accountability 4, 88, 98, 99, 119, 130, 147 ActionAid International 209 Adelna 24-5 adjustment, structural 7, 10-15 passim, 59, 89, 90, 96, 104, 105, 109, 113, 114, 121-4 passim, 166, 168, 201 Administrative Tribunal 107 Afghanistan 155 aflatoxins 20-2 passim Agenda 25 175-7, 186, 201-2, 206 Agostinho, Jaime 16, 17 ‘ag-packs’ 167 agribusiness 165, 170 Agricom 103, 172 agriculture 1-4 passim, 13, 19, 23, 25-6, 59, 69, 76, 105, 123, 127, 128, 138, 141, 142, 145, 146, 152, 161-76, 182, 216; commercial 2-4, 27-35 passim, 47-8, 69-70, 141, 143, 162, 166, 169-75, 191, 206, CEPAGRI 27, 145; contract/concession 169-71, 174, 192; subsistence 3, 19, 23, 69, 161, 166, 174 see also peasants agrochemicals 166, 167, 170 agro-industry/processing 27, 37-47, 54, 55, 141, 143, 146, 162, 171-5 passim, 182, 188 aid 1-6 passim, 10-15, 32, 38-41, 69-70, 73, 96, 98, 113, 114, 119-36, 146-52 passim, 160, 205, 209-14; conditionalities 10, 13, 38-41, 89, 98, 110, 123, 124, 131, 135, 136, 148; dependence 119-36, 147, 148, 209-14; food 10-12 passim, 33, 103, 104, 124, 141, 146, 157, 163, 171, 173, 209; emergency 11, 12, 104, 209, 210; sterilising 150, 152; successes 120-2; workers 72, 73, 120, 125-7 passim,

132, 140 AIDS see HIV/AIDS; National Council 78 Akesson, Gunilla 67-8 Albino, Roberto 27, 145 Ali,Armando 68 Alliance One 54, 55 Aly,Aires 74, 75 Amade, Carlos 183 Amoder 181 Anglo-American 37, 43 Angoche 2, 14, 40, 92 Angola 8, 9 Aquifer 31, 192 arbitration 170, 196, 197, 205 Armando, Januario 18 Artur, Lewis 46 Asia/Asians 78, 166, 173, 181, 189-90, 204 assassinations 90, 113-14, 121, 122, 135, 136, 179, 185 Asselbergs, Mariette 85-6 Associated Agro-industries 45 associations 2, 4, 16-26, 32, 48-50, 67, 69, 84, 166, 170, 173, 174, 182, 198, 199, 204-6 passim; CTA 98; de Ehiquite-Iapala 16-18; FARI 18; Primeiro do Maio 18, 19 Athmer, Gabrielle 181 atrocities, war 9, 10, 94 audits 111, 115, 116, 186 Baker, Carol 178 Baloi, Oldemiro 40 bananas 108, 172 Banco Austral 107, 111, 113, 115, 116, 129, 136, 176, 186 Banco Comercial Portuguès 111 Banco Mello 110, 111 Banco Standard Totta de Moçambique 110 Bangladesh 152, 155, 157

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234 Grameen Bank 181 Bank of Mozambique 110, 111, 113 banks/banking 10, 13, 49, 90, 109-11, 113, 121-4 passim, 135, 159, 175, 176, 191 see also individual entries Barnes, Sam 156 Barrientos,Armando 157, 160 Batley, Richard 133 BCI 49 BCI Fomento 176, 179 begging 3, 200-1, 207 Beira 81, 92, 94, 98, 99, 141, 181 Benfica, Rui 53 Benn, Hilary 5 Bento, Daniel Herminio 24 Bias, Calisto 167 BIM 111n11, 113 biofuels 141, 162, 170, 171, 173 Bjerg, Bodil 30, 31, 192 Bolivia 136 Botha, Kobus 31 Botswana 87, 157 Boughton, Duncan 53, 55, 62-6 passim, 68 Boutros-Ghali, Boutros 94 boycott, electoral 92, 94-5 Brachet-Márquez,Viviane 88, 89 branding 171-2 Brandt Report 8 Brazil 141, 147, 152, 157, 158, 171, 177-8, 180, 186, 193, 194, 198; EMPRAPA 177; National Development Bank 177-8, 205; SEBRAE 177 Brennan,Tom 103 Bretton Woods Project 179 bribes 13, 48, 102, 104, 108, 109, 117, 118, 158, 197-8 budget 9, 12, 76, 83, 98, 119-21 passim, 133; Local Initiatives Investment 84; support 113, 130-3, 136, 148, 210 bureaucracy 102, 120, 125-7 passim, 129, 131, 132, 145, 146, 193, 197 Burnside, Craig 121, 138 Bush, President George W. 203 business development centres/services 193-4, 205, 206 businesspeople 4, 8, 43, 84, 104-7, 118, 145, 146, 190-2, 194-5, 199, 205 Buzi 170 BWIs 3-5 passim, 13, 14, 36, 41, 42, 72, 73, 105, 109-11, 121-4 passim, 127, 137, 139, 140, 164, 172, 184, 188, 200, 201, 205 see also individual entries cabbage 17, 18 Cabo Delgado 67, 112 cabritismo 108-9, 116, 118, 127, 129, 185, 200

INDEX Cader,Ainadin 176 Cahora Bassa dam 15, 19, 20, 28, 78 Caixa de Crédito Agrario 106 Calzuola, Glauco 77 Canada 32, 139, 171 Candua, Orlando 15 Canal de Moçambique 76, 77 cannabis 52n5, 112 capacity-building 26, 121, 181, 198 capital 22, 107, 110, 143, 175; human 3, 4, 35, 45, 121, 145-7 passim, 152, 168, 206 capital goods 151, 152, 155, 160 capitalism 3, 10, 94, 96, 102-12, 117, 118, 123, 146, 188-99, 203 Cardoso, Carlos 39, 113-16 passim, 135, 179 Care 10, 16-18 passim, 20, 22, 26, 67, 104 cargo cult 128, 145-7, 152, 165, 204 Carrilho, João 169, 170 Carter Center 124, 180 Carter, President Jimmy 8, 92 cash 70, 72, 176-8; transfers 67, 70, 155-60, 204, 206 cashew 2, 4, 13, 20, 30, 36-50 passim, 123, 124, 129-30, 135, 138, 141, 169, 171, 182, 186, 188, 192, 204, 206;AICAJU 42; CNSL 27n1, 43; processing 36, 37-47 passim Cassamo, Sergio 61 cassava 62, 68, 166 Castel-Branco, Carlos Nuno 14, 15, 119-20, 122, 127, 131 Chambers, Robert 72-3, 79, 80, 206 Chang, Ha-Joon 138-9 Chang, Manuel 6 change 5, 72-3, 85-6, 120; good 72, 73, 80, 85, 86, 206 Chelua,Agostinho 84 chickens 171, 177, 183, 186, 204 children 58, 60, 66, 71, 72, 74-5, 105, 157-60 passim Chile 88n4 Chimoio 32, 206 China 8, 15, 23, 52, 88, 125, 139-41 passim, 147, 162, 171, 180, 203 Chipande,Alberto 107 Chissano, Nyimpine 111, 115, 116; President Joaquim 40, 89-95 passim, 99, 103, 110, 113, 114, 116, 117, 126 Chivende,Afonso 21 Christian Council 98 Christie, Frances 156 citizens’ lists 92 civil service 4, 8, 13, 79, 80, 83, 86, 96, 97, 109, 120, 127, 128, 131; pay 13, 96, 109, 123; Public Service Commission 79 civil society 89, 90, 97-100 passim, 121, 132, 202-3; organisations 83, 98, 121

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INDEX Clay, Edward 129 Clement, Jean 127 climate change 141-2 coal 15 Coetzee,Willem 29 coffee 141, 172, 183 Collier, Paul 13-14, 40n11, 138 Colombia 157 colonialism 6-10, 15, 28, 43, 80, 96, 104, 106, 125, 146, 162, 188-90 Commercial Bank of Mozambique 110, 111, 113, 115, 179 Committee of Counsellors 175, 176, 201-2 Community Development Fund 106 comprador group 120, 127-30, 136, 140, 188 computer problems 93 concession system 52, 54-5, 167, 169, 170, 174, 192, 196-8 passim Condor 45, 46 Constitution 90 Constitutional Council 92, 97, 99 construction industry 4, 24-5 consumption 61-2, 151-2 Cooper, Robert 139-40, 143 cooperantes 8, 10, 125, 186 cooperatives 21-2, 70, 173, 174, 198, 204 coping strategies 67 corn 30-1 corruption 3, 13, 29, 48, 88-90, 96-8, 102-18 passim, 121, 123, 136, 151, 158, 170, 179,183-5 passim, 197, 198, 203, 206 Costa, Carlos 42 cotton 20, 21, 23, 40, 52-4, 166-70 passim, 188, 196, 204 Coughlin, Peter 166-8 passim councils, Consultative 82-4, 86, 183; special purpose 85 Courtnadge, Philip 123 Couto, Mia 114 Cramer, Christopher 163, 195-6 credit 2, 4, 12, 13, 19, 21-3, 26-9, 32-4, 47-50 passim, 107, 121, 124, 149-52 passim, 159, 164, 166, 169, 170, 173, 175-8 passim, 185, 191, 204; guarantees 175; micro 57, 179, 181, 184 crime 75, 164 Cruzeiro do Sul 66-7 Cuba 8, 125 Cuereneia,Aiuba 6, 124, 132, 145, 163, 180 currency 101, 103, 105, 149 customs 28, 48, 116; reform 112 Dai,Tobias 6 dam construction/maintenance 25-6, 29, 35, 142, 148, 183 damage, war 6-7, 13, 40, 78

235 Daúde, Mansur 164, 176, 177 Davis, Diane 88, 89 Deaton,Angus 137-8 debt 29, 30, 105, 160; cancellation 11, 12, 1356, 209, 210; relief 40, 89, 114 decentralisation 1-3 passim, 24-5, 73, 79-86, 116; Planning and Finance – Programme 82 deindustrialisation 203 deixar andar 89, 116 DeJong, Jocelyn 157, 160 Deloitte & Touche 39, 45;- - Tohmatsu Sisteconta 39, 45 demand 146, 148, 149, 151-60, 173, 204 demobilisation 9-10, 156, 159 democracy 87-90, 97-100 passim Democratic Republic of Congo 155 Denmark 123 de Oliveira, Leila 62 deregulation 10, 12, 105 Derek Hinde Consortium 30 Deroua,Ali 43, 45, 46 de Sousa, Clara 33 devaluation 10, 12, 59, 105, 216 development 35, 71-86, 90, 99, 120, 124-7, 135, 145-208 passim; definition of 72-3, 206; Monterrey Conference on 120; support agency 3, 24; strategy 4-5, 35, 50, 55, 58, 67, 69-70, 73, 137, 140, 145, 152, 166, 200 development bank 35, 107, 124, 135, 136, 175-87 passim, 201, 203, 205; creation of 186-7; opposition to 35, 124, 178-80, 184 Development Policy Review 156 Devereux, Stephen 157 de Vletter, Fion 181 Dhlakama,Afonso 90-5 passim, 116 differentiation 34, 57, 58, 62-9 passim, 107, 162, 163, 169 Dimon Tobacco 29, 54, 55, 185, 196 Diogo, Luisa 6, 97, 180 displaced 6, 161 districts 82-4, 183-4 Djedje, Gustavo 164 Dollar, David 121, 138 Domingo 114, 121, 136 Domingos, Raúl 91, 94 donors 3-5, 9-11 passim, 22, 35, 71-81 passim, 86, 98, 104, 109, 112-15, 119-36 passim, 142-3, 147, 162, 168, 179-81, 184, 185, 193, 199-206 passim; Consultative Group 121, 136; strikes 10-11 dos Santos,Anibal 115, 116n19 drugs 90, 111-12, 129 duties, export/import 12, 37-42, 47-9 passim Dupraz, Jean 57, 60, 72, 77, 79

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236 Dutch disease 149-51 passim ECI/African Consulting 24 Economic Rehabilitation Programme 105 Economist,The 149 education 1-3 passim, 8, 10, 12, 14, 66, 69-76 passim, 96, 123, 126, 141, 145,147, 149-51 passim, 163, 200 elections 87-99 passim; (1994) 9, 40n11, 90; (1999) 40n11, 90-6 passim, 114;(2004) 90-3 passim, 95, 97, 98; local 81, 82, 92, 95; National - Commission 92, 93, 95, 98; STAE 93 electricity 2, 19, 20, 28, 33, 67-9 passim, 78, 105, 150, 164, 192, 200 Elikana, Blandya 123 elites 79, 103, 106, 109, 117, 127-9 passim, 135, 140, 188, 200, 201 see also Frelimo employment 14-15, 36, 71, 75, 141, 154-5, 160. 162-3, 202, 203; self- 1, 63, 65-6, 69, 146, 200 energy sector 14-15, 145, 146 Entreposto 43 entrepreneurs/entrepreneurship 146, 152, 176, 188-91, 199, 204, 206 Ernesto, Manuel 17 Ernst & Young 148 Ethiopia 157, 216 Europe/Europeans 10, 21, 30, 31, 78, 119, 125, 141, 205; East 103, 108, 121, 125 European Commission 11, 136 European Investment Bank 37, 39 European Union 11, 46, 92, 139, 169 Evans, Brendon 27, 29 Evans, Peter 107 exchange rate 149, 150, 152, 216 expenditure, family 61; government 12, 13, 34, 82, 109, 148, 154, 201 experimentation 205 experts, foreign 151, 152, 186, 198, 204, 209 Export Marketing 23 exports 3, 10, 12, 20, 28-32, 36, 38, 39, 45, 4852 passim, 105, 140, 149, 150,152, 162, 163, 171, 174, 176, 186, 199 extension, agricultural 2, 17, 22, 33, 34, 47, 80, 127, 165-70 passim, 174, 204; business 194, 199 ‘failed’ states 139 family 188-91 FAO 52, 168 FARE 177, 179 Farrington, John 157, 159, 160, 165 Fawkner-Corbett, Katie 156 fees, school 75; user 128 Félix, José Alberto de Lima 113

INDEX Fernando,Antonio 172 Ferrão, João 32-3, 35, 206 fertiliser 23, 34, 53, 151, 152, 164, 166, 167, 170, 174, 188, 196, 206; summit 167, 206 finance 49, 169-70, 175-87, 204 Financial Times 137 Finflower 30 fish 17-18, 169, 175, 182, 204 Fivawo,Anna 49 Flodac 30 floods 141, 156, 157, 159 Flowers, Ken 8 food 141, 143, 161, 163-4, 172-3; allowances 156-7; prices 141, 159-60 formal sector 193, 202 Foster, Mick 150-2 passim Foy, Chris 192 fragmentation, policy 130-3 passim France 12 fraud 92-4, 97, 110-11, 113-15 passim, 122 freedoms 71-2 Frelimo 3, 7-10 passim, 29, 40n11, 41, 73, 80, 81, 83, 87-100, 106-20 passim,125, 129, 163, 179, 184, 185, 189, 197; Congresses, 3rd 161; 8th 114; 9th 97, 116; developmental group 108-10, 113-15 passim, 128, 129; elite 29, 41, 106, 108, 111, 118, 120, 135, 140, 177, 184; Political Commission 96, 97; predatory group 108-11, 114-17 passim, 121, 128-9, 136; unity 96-7, 110, 185; Verification Commission 77 fruit 141, 170, 192 Fundos de Fomento 177, 179, 183-5 passim furniture making 24-5, 183, 192-3, 206 G19 130-3 passim, 136 G20 176, 177, 202, 203 Galbraith, John Kenneth 128 GAPI 21-3 passim, 49, 50, 182-6 passim GAPVU 158 Garcias,Aly 18 Garrido, Ivo 77, 79 gas 15, 149 Gaspar, Manuel da Costa 60 Gastrow, Peter 112 Gaza 90, 92, 93, 164, 176 Germany 11, 12, 147, 178; KfW 178, 205 Gerster, Richard 119 Global Trading 45 global warming 140, 143, 173 globalisation 8, 71, 137, 138; anti- 41-2 Gore, Charles 151 Gouveia, Filipa 67 Gove, Ernesto 181 grading 170, 196 grants, cash 3, 157-9, 167

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INDEX Green Revolution 166, 188 growth, economic 1, 3, 10-13 passim, 15, 55, 69, 88, 119-22 passim, 138, 147, 148, 151, 154, 156, 199, 202, 205 guarantee funds 49, 170, 192, 199 Guebuza, President Armando 3, 6, 54-6 passim, 72, 79, 80, 82, 84, 90, 93, 97, 98, 114-16 passim, 124, 126, 135, 146, 147, 152, 163-4, 166, 176, 180, 185, 200-1, 205, 206 Gundana, Feliciano 6 Gurr,Ted 87 Hall, Margaret 8 Hanifo,Abdul Satar Mahomed 188-9, 191 Hanlon, Joseph 6, 9, 10, 39, 73, 77, 81, 102, 104, 105, 109, 117, 121, 124, 125, 135, 138, 156, 159 Harrison, Graham 122, 130-1 Harvey, Paul 160 health care 1-3, 8-10 passim, 12, 14, 71, 74, 768, 82, 96, 102, 109, 149-51 passim, 163, 200; posts 9, 73, 76, 82; and safety 196, 205, 206; standards 171 Helleiner, Gerald 123, 125 HelpAge International 157 High Veld 29 Hilmarsson, Hilmar 38, 39, 43 HIPC initiative 40, 114, 136 HIV/AIDS 10, 26, 72, 75-8 passim;ARV treatment 78, 150, 157, 158, 160 Hodges,Tony 119, 131, 133 Hoogvelt,Ankie 148n5 Honduras 157 horticulture 30, 192 Hortofutícola 105 Howell, John 165 IAF 61-2 Iapala 16-19 passim, 67, 81–2 ideology 3-4, 38, 109, 128, 147, 172, 179, 184, 205 IFAD 170, 198 Ikuru 21-3, 26, 48, 182, 204, 206 Ilha de Moçambique 92, 98 ILO 24 IMF 4, 7, 10, 12-14 passim, 36, 38, 40-1, 47, 48, 73, 74, 82, 89, 96, 98, 105, 106, 109-12 passim, 117, 119, 122, 125, 127, 128, 135, 138-45, 148-50 passim, 152, 154, 178-9, 191, 201, 210; and development banks 1789; Policy Framework Papers 38-9, 110; Policy Support Instrument 179; and structural adjustment 10, 12-14, 89, 96, 109, 113, 121-2, 201; and World Bank 109, 135 Impar 110

237 imperialism 139-40, 143 imports 105, 140, 149-52 passim, 155, 160, 162; -substitution 140, 143, 150, 162 impunity 114, 115, 121, 136, 179, 185 INAS 156, 158 Incaju 46-50 passim, 171, 174 income 1, 3, 21, 23, 26, 34, 37, 38, 53-5, 57-71 passim, 84, 138, 151, 152, 154, 160, 163, 168, 170; off-farm 59, 65, 66, 173 incubators 193-4, 199 India 37, 39, 43, 87, 88, 139, 140, 147, 152, 155, 160, 162, 180, 188, 191, 194, 203, 204; Employment Guarantee Scheme 155 Indonesia 155 industrialisation/industry 10, 13-15 passim, 55, 105, 106, 140, 143, 148, 151-3 passim,162, 176 INE 59, 62 inflation 12, 13, 61, 73, 121, 149, 150, 154, 159-60, 201 informal sector 4, 195, 200, 202, 205 informalisation 191, 201 information 198 infrastructure 2-4 passim, 12, 13, 29, 33, 67, 78-9, 84, 125, 145, 146, 149-52 passim, 168, 184, 192, 200, 206 inputs, agricultural 2, 152, 160, 162, 164-8 passim, 170, 183, 196, 204 inspection 197-9 Institute of Development Studies 165 insurance 170, 174, 192, 199, 204 integrity 22, 102, 104 intercropping 55 interest rates 10, 12, 32, 48, 49, 149, 150, 152, 170, 181-3 passim, 186, 191, 192, 196, 201, 203 International Finance Corporation 30, 38, 39, 182 international financial institutions 105, 125, 139-40, 151 see also individual entries Interquimica 167 intervention 8, 42, 46-7, 50, 162, 174, 188, 199, 201, 202, 206 Invester 110 investment 2, 3, 14-15, 35, 112, 118, 119, 146, 148, 150-4 passim, 160, 165, 167, 171, 174-6 passim, 186, 191, 192, 199; foreign 3, 4, 8, 12, 14-15, 27-30 passim, 33, 35, 55, 56, 108, 118, 136, 145-7, 152, 171, 176-7, 179, 182, 188, 199-202 passim, 206, 207, 215-16 Iraq 72 Ireland 11, 119 IRIN 129 irrigation 25-6, 28, 29, 33, 141, 142, 148, 154, 162, 164, 166 Italy 8, 11, 12, 125

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238 Japan 23, 32, 139, 178 jatropha 16, 171 João Ferreiro dos Santos 32, 43, 54 jobs 3, 13-15 passim, 27, 34, 35, 45, 65-6, 69, 75, 82, 146-9, 161-4 passim, 186, 205; creation 84, 141, 153, 162, 164, 173, 183, 185, 199, 201-3 passim, 206 Johnson, Phyllis 8, 9 joint ventures 182 Jubilee 2000 135 Julião, Felito 1, 4, 5, 69, 191, 206 justice system 96-8 passim, 108, 116-18 passim, 133, 136, 197, 205 Justino, Ebifànio Marío 26 Kanji, Nazneen 40, 45, 46, 48 Kaplinsky, Raphael 140, 141, 171-2 Kassamala, Daniel 54 Khan, Mushtaq 117, 118 Killick,Tony 119, 122, 126, 127, 147-52 passim Klaassens, Erik 30 Klesner, Joseph 89 Klijn, Gerard 45 Kohler, Horst 121-2 Konzo 62 KPMG 111 Kray,Aart 138 labour 1, 23, 50, 57, 140, 148-9, 154, 155, 162, 168, 191, 195; family 53; ganho-ganho 53, 65, 67, 69, 75, 162, 169; hired 65, 66, 162, 163, 173, 216 Lalji,Assok 164 Lalkaka, Rustan 193, 194 land 19, 28, 29, 35, 97, 108, 141, 162, 169, 179; reform 28, 33, 88 Landau, Luis 106 Langa, Francisco 101-2 Langa, Dr Joaquim 33 landlessness 28, 169 Latin America 78, 88, 203, 204 law/legal system 97, 170; electoral 100 laziness 102, 163-4 leadership, government 135, 136, 205-6 learning 192-4, 205 Lesotho 157 Levy, Sarah 158 liberalisation, trade 12, 38-42 passim, 47, 121, 124, 165, 168 liberation movement/war 6, 87, 205 Lichinga 85-6, 146, 154, 201 Limua, Ricardo 82 Lipsky, John 178 List, Friedrich 139 Litsure, Rev.Arao 98

INDEX living standards 71-2, 195, 200 loans/lending 23, 29, 30, 38, 48, 49, 105-7 passim, 111, 113, 176-85 passim, 196; directed 178-9; guarantees 182, 192, 204; repayment 34, 49, 105-7 passim, 177, 181-5 passim; royalty 182 local government 79-85, 90, 183-4 Lockwood, Richard 103 Lopes,Armando Jorge 108 Low, Jan 156 LSE Crisis States Research Centre 93 Lundin, Irae 9 Maast, Mette 34, 172 Mabor tyre factory 105 Mabote, Dr Quitéria 75 macadamia nuts 50, 171, 183, 204 Macamo, Elisio 98 Machel, Graça 106, 114; President Samora 8, 77, 101-3 passim, 105 machinery, farm 164, 178 Machingo, Clementina 47 Machirica,Victor 28 Machungo, Mario 105, 111n11 Macuacua,Antonio Siba-Siba 97, 113-16 passim, 122, 129, 136, 179, 185 Madavo, Callisto 39 Madeira, Joaquim 114 Maguru, Ruhinda 179 Mainato, Marcos 32, 33, 35, 206 maize 18, 19, 23, 29, 33, 34, 53, 62, 63, 67, 68, 141, 142, 155, 161, 166, 169-73 passim, 182, 183, 205 Malawi 9, 10, 20, 53, 54, 122, 142, 157-9 passim, 163, 166, 167, 170, 172, 190 Malaysia 110 Maleiane,Adriano 110, 111 malnutrition 57, 58, 60, 62, 68, 105, 200 Malonda Foundation 181-2 management/managers 43, 45, 145, 176, 185, 190; aid 134, 149-51 Mandela, Nelson 9 Mandlante, Francisco 81 Mangaze, Mario 117 mangoes 32, 167, 171, 183, 186 Manhangadzi, Luis Fazenda 33, 35 Manica 2, 16, 27-35, 52, 62, 65, 83, 90, 91, 162n3, 163, 170, 182-3, 194 Manoel,Alvaro 14, 15 Manuel, Herminio Torres 24-5 Mans, Darius 121 manufactures/manufacturing 140, 141, 152, 175, 176 maple syrup 32, 171 Maputo 1, 9, 13, 15, 20, 48, 61, 62, 92, 112, 113, 116, 154, 181

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INDEX marketing 3, 4, 18-22 passim, 26, 32, 33, 36, 45, 50, 145, 164-6 passim, 171-2, 174, 199, 204, 206; boards 165, 172, 203 markets 2, 10, 12-14, 18-20 passim, 25, 40, 81, 85-6, 105, 154, 165, 168, 169, 171-2, 174, 199, 203, 204; niche 141, 171-2; regional 142, 143 Martel, Pierre 62 Martin, David 8, 9 Martinez, Javier 76 Marxism/Marxists 7, 8, 105, 129 Mason, Martin 20, 22 Massingarela, Claudio 57, 61, 62 Matabele,Virgilia 77, 156-7 Matavele,Anastácio 164 Matohombe, João 76 Matola 9, 181 Matule, Raimundo 47-50 passim Mauritius 14 Mavie, Gustavo 163 Mavimbi 107 Maxixi 81 Maxwell, Simon 72, 166 Mazula, Brazio 99 McDonalds 195 McMillan, Margaret 39 MDGs 3-4, 12, 60, 71-4 passim, 79, 147-9, 151, 152, 200 Mecanegro 164 media 90, 97, 99, 100, 113, 163; Media Coop 113 Melanesia 145 Menon,Ashook 179 Meque, Francisco Itai 183 Metical 39, 113 Mexico 87-90 passim, 157, 158 PRI 87-90 Michigan State University 167 middle class 96, 109, 163, 188 migration 27-32 passim, 34, 162, 168, 169, 172 Milanovic, Branko 138 minerals/mining 14-15, 149 Ministerio de Saude 62 Miranda,Antonio 43, 45 Mlay, Gilead 64 Moçfer 31, 192 Mocimboa da Praia 92 Mocita 38, 39 Mocumbi, Pascoal 40 modernisation 90, 161, 176, 202 Mole, Paulo 161, 166, 168, 170 Monapo 23-5, 192-3 monitoring, of aid 122; Independent – Group 123 Moreno, Maria 95 mortality, child 60, 77; maternal 77, 200

239 mortuaries 81 Mosse, Marcelo 112 Mozal smelter 14, 59 Mozambique Leaf Tobacco 29, 53-5 passim, 196 Mpfumo, Gen. João Américo 107 Mualeia, Rosário 82 Muecate 3, 183 Mugabe, Robert 9, 28, 90, 94, 96 municipalities 80-1, 86, 92, 95, 98 Muteia, Helder 47, 146 Muthemba, Cadmiel 6 Muthemba, Octávio 110 Nacala 48, 81, 92, 98, 99, 112 Nahura,Abilio 17 Nakosso 182 Namaacha 181 Nametil 2, 4, 17-26 passim, 50, 194 Namibia 9, 159 Nampula 1-3 passim, 14, 16-26, 36-50 passim, 52, 62, 65, 67, 69n14, 74, 81–2, 84, 86, 90, 93, 112, 141, 162n3, 163, 189, 191 nationalisation 8, 109 Negrão, José 202 Negrão, Paulo 185 neoliberalism 3, 120, 128, 131, 136, 146-8 passim, 172, 188, 191, 193, 195, 200, 201, 203 Netherlands 11, 21-3 passim, 30, 55, 125, 149, 179; KNMI 141-2; NOVIB 21, 22; PSOM 30, 35; Rabobank 182; SNV 22, 45 networks, 194; social 67, 68 NGOs 4, 10, 18, 25, 76, 79, 82, 83, 109, 127, 130, 140,164; INGOs 10, 18, 19, 21-3 passim, 25, 26, 28, 32, 36, 46, 50, 82, 83, 104, 127, 139, 142, 143, 167, 168, 206 Nhaca, Governor Soares 28-9, 96 Nhate,Virgulino 67-8 Niassa 52, 53, 67, 68, 85-6, 90 Nicaragua 8, 23, 157 Nilsson,Anders 104 Nkanvendeka, Isabel 6 nomenklatura 106-10 passim, 113, 116, 117, 133, 135 Noormahomed,Abdul Razak 82 Nordic states 8, 11, 114, 125, 147, 179-80, 185, 205 Norsad 30, 35, 182 Norway 121, 131, 136 Noticias 15, 28, 53, 75, 78, 79, 84, 97, 98, 107, 156, 159, 163, 167, 176, 179, 181, 183, 188, 203 ODI 147, 158, 160, 165 OECD DAC 209

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240 officials, government 125-6, 129, 131, 132 oil 10, 141, 171; cooking 149, 153, 162, 170, 171, 173 Olam 45, 46, 48 old people 158, 160 Olipa 22 Oltremare 38 Omamo, Steven Were 165 onions 16, 18, 19 ONUMOZ 11 O Pais 27 Operation Production 163 opposition 94-5, 97-9 passim Osman,Abdul Magid 107, 176, 179, 186, 188, 203 OTM 96 outgrower schemes 169-71 passim, 198, 204 ownership 79, 120, 123, 133-6 passim, 205-6 oxen 19, 166, 183 OXFAM 21 Pacheco, José 6, 107 Pal, Shakti 43 palm oil 149, 153, 171 paprika 16, 23, 27, 29, 170 paternalism 79, 127 PARPA 25, 57, 98, 114, 121, 138, 143; II 74, 76, 78, 79, 131-6 passim, 161, 162, 165, 169, 176, 202, 206 participation 3, 88, 99, 162 partnerships, public-private 184, 204, 205 patronage 95, 97, 98, 106, 129, 140 Paulino,Augusto 115 Paulino, Julio 19 Paulo,Vincente 25, 82 Paúnde, Governor Filipe 25-6 peace accord, Nkomati 10, 105; Rome 9, 94 peace dividend 59, 91 peace negotiations, Frelimo/Renamo 9, 91, 94 peanuts 4, 20-1, 23, 26, 141, 169, 171, 173 peasants 4, 16-26, 161-74 passim; UNAC 164 Pemba 112 pensions 157 People’s Development Bank 9, 110-11 Performance Assessment Frameworks 130 pests 23, 32, 47; pesticides 166, 167, 196 Philip, George 89 phytosanitary conditions 49 pilot crops 170-1 Pitoro, Raúl 64 planning, central 103, 162, 190, 205; local 24 police 112, 116-17, 140 Polity IV project 87 Pomerantz, Phyllis 38-9, 41 population growth/density 61, 78, 161 Portadores da Horticola da Nameconha 16-17

INDEX Portugal/Portuguese 6-11 passim, 104, 125, 132, 190 poverty 1, 2, 4, 23, 53, 57-73 passim, 138, 151, 154-60 passim, 163, 168, 203, 205; Annual – Report 176, 177, 202-3; reduction 2, 25, 68, 73, 86, 120-2 passim, 169, 174, 203 see also PARPA Pradhan, Sanjay 103, 108 prawns 36 predominant-party states 87-90, 96-100 presidential term of office 89, 114 prices 12, 21, 34, 45, 48, 50, 54-5, 63, 105, 109, 140, 141, 149, 155, 159-60, 162, 167-73 passim, 194, 195 private sector 3, 8, 10, 15, 49, 104, 105, 117, 121, 128, 134, 135, 145, 150-2 passim, 164-5, 168, 171-6 passim, 180, 191, 199, 202-6 passim privatisation 8, 10, 12, 13, 36-9 passim, 89, 90, 105, 106, 110-11, 123, 124, 128, 135, 164-7 passim, 179, 180, 184, 201 ProAgri 127, 134, 162 productivity 69, 141, 142, 151-3 passim, 161, 162, 166, 169, 170, 178, 188, 192 Programme Aid Partners 130, 148 protection, social 155-7 passim; tariff 153, 171, 188 see also duties public works 154-5, 157, 160, 204 quality 48, 50, 151, 153, 162, 169-72 passim, 195 race/racism 28, 127 Radio Moçambique 97, 115 Ramaya,Vincente 111, 115 Raposo, Moises 21, 22 Ratilal, Prakash 176, 177, 179, 180 rationing 103 raw materials 162, 165 Reagan, President Ronald 8, 125 Rebelo, Jorge 114 reconciliation 10, 73 reconstruction/rehabilitation 13, 14, 135 registration 18, 75, 79 regulation 195-7 passim, 205 Renamo 8, 9, 73, 81, 83, 90-6 passim, 99, 104, 191 rent-seeking 3, 88, 108-9, 114, 116, 184, 185, 188 research 29, 34, 35, 166, 167, 174, 175, 177; World Bank 137-8, 140, 142-3, 167, 203 reserves, food 171-3 passim Rhodesia 8, 28, 122 Ribáuè 2, 16, 18, 19, 26, 67, 68, 81, 154 rights 71-3 passim, 85, 88, 99; Declaration of Human – 71-2, 76, 86, 156

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INDEX risk 23, 165, 168, 169, 173-5 passim, 186, 1912, 199, 200, 203, 204 roads 1, 2, 4, 13, 69, 78, 82, 84, 105, 145, 150, 154, 164, 166, 172, 184, 200, 206 Rohrbach, David D. 167 Roseboom, Johannes 168 roses 29-31, 35 Rowland, Jo 80 Ruotsi, J. 170, 198 Russell,Tim 17, 20, 23 SADC 142 salaries 22, 168, 196 sales 18, 19, 169, 170, 191; side-selling 170, 196 sanitation 72, 79 Santos, Fermino 110 Satar family 113; Nini 111, 115, 116n19 Saunders, Bryan and Kathryn 30 Savana 146, 201 Save the Children UK 157 savings 18, 175, 181, 191, 192 SBB 110 scanner, port 116, 185 Schlotthuer, Julius 104 schools 4, 9, 73-6 passim, 81, 85 Scoones, Ian 165, 166 seeds 34, 164, 166-7, 174, 183 Sender, John 163 Sergeant,Andrew 30, 31, 192 Serrano,Alexander 18 sesame 21, 23, 141, 170, 171, 186, 204 ‘7 million’ 83-4, 183-5, 187, 194 Shoprite 32, 142 Silva,Albano 107 Simango, Daviz 81, 94 Simão, Leonardo 102 Simões,Antonio 110 sisal 189 Sitoe, Rogério 183 Slater, Rachel 157, 159 Smart,Teresa 101, 103 social sectors 2, 4, 12, 134, 135, 147-51 passim, 210 social services 2, 12, 71, 73-8 socialism 8, 80, 94, 96, 102, 105, 106, 123, 146, 188, 190 Sofala 90, 91 South Africa 9, 10, 14, 15, 21, 28, 87-90 passim, 96, 104, 105, 122, 142, 157, 160, 171, 173, 176-7, 202, 216; DBSA 177 South Korea 88 Souto,António 182, 186, 198 Soviet Union 6, 8, 11, 125, 209-10 Spector, Bertram 102, 109 SPI 110, 116

241 Sri Lanka 155 Stancom 54 state capture 108, 116-17, 121, 136; involvement 4-5, 12, 25, 35, 50, 56, 146, 162, 164-6, 173-4, 184, 188-99, 202-6 passim Stern, Nicholas 121 subservience 119, 120, 122-4, 127, 130, 135, 136, 205-6 subsidies 3, 12, 28, 34, 50, 139, 148, 151, 152, 166, 167, 170, 173, 174, 184, 186, 188, 192, 193, 199, 205, 206 sugar 1, 14, 105, 145, 146, 169-71 passim Sulala,Agostinho 16-17 Sumbana, Fernando 107 sunflower 16, 18, 23, 27, 149, 166, 171, 204 supermarkets 32, 49, 141, 142, 194 supply 148-151 Supporting Team and Donor Committee Review 133-5 Sussendenga 32-3, 83 Sweden 11, 87, 90, 115, 125, 136, 179, 181-2, 191 Taipo, Helena 45, 196 Taiwan 88 Tanzania 14, 122-3, 131, 216; CCM 87, 89 targeting 158-9 tariffs 121, 164 taxes 14, 128, 195 tea 105, 170, 188 teachers 74-5 Tebbit, Norman 5 technical assistance 8, 11, 12, 27, 169, 186, 198, 209, 210 technology 43, 46, 50, 148, 151, 152, 162, 166-9, 174, 175, 193, 204, 216 Technoserve 30, 43, 45-50 passim telephones 69, 78–9, 150 Tete 52-5 passim, 62, 69n14, 90, 93, 170 Theses Explanatory Booklet etc. 97 Thomas,Alan 73, 206 TIA 58, 62-6 Tibana, Roberto 119, 131, 133 tobacco 2, 27, 29, 35, 51-6, 67, 146, 166-70 passim, 192, 196, 204;WHO Framework on 51, 52 tourism 15, 112, 141, 176-7 towns 68, 69, 79, 85, 161, 163, 168 traction, animal 19, 23, 164 trade 12, 13, 21, 36, 38, 48-9, 57, 102, 104-5, 121, 140-2, 162, 176, 181, 182, 189-91, 195 trade unions 39, 96, 198, 199, 205, 206 training 3, 19, 22-4 passim, 26, 28, 32, 48, 74-7 passim, 148, 151, 153, 155, 168, 173-7, 1817 passim, 194, 198, 204

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242 transparency 99-100, 185, 186, 197, 198, 205, 206 transport 13, 16, 105 trees 31-2, 171 truth commission 10, 185 Tschirley, David 161, 164 Tsvangirai, Morgan 96 Twin Trading 21 Uganda 120, 122, 131, 136, 178-9; Bonna Bagagawale scheme 178-9 UK 11, 121, 125, 132, 136, 139, 147, 148; DfID 156 Ukraine 194 UN 8, 11, 41, 60, 71, 94; Monterrey conference 121 UNCTAD 14, 42, 50, 146, 149, 151-2, 154, 160, 168, 203 UNDP 24, 59, 82, 122, 141, 156, 181, 209, 215, 216 unemployment 5, 13, 15, 24, 71, 99, 163 UNICEF 9, 57, 60, 72, 77, 79 urbanisation 59,173 US 6, 8, 10, 11, 21, 87, 104, 105, 125, 139, 141, 147, 148, 155, 171, 173, 174, 191, 193, 205; Clusa 18, 20-3 passim, 49; Millennium Challenge Corporation 194; Reconstruction Finance Corporation 178; -Mozambique Chamber of Commerce 54, 55; USAID 22, 30, 49, 104, 109, 117, 127, 156, 159, 179, 182 vaccination programmes 73, 77 value chains 31, 32, 36, 42, 43, 46-50, 141, 162, 171, 173, 174, 181, 182, 186, 192, 199, 204 van Hecken, Guido 129 Vaux,Tony 98-9 vegetables 16, 18, 27, 30-3 passim, 141, 166, 169 venture capital companies 175 Victor, Morais 24 Vieira, Sergio 114, 121, 136 Vietnam 8, 152, 178 Vijfhuizen, Carin 48 Vilmar Roses 20-30, 35, 179 Vodacom Moçambique 116

INDEX wages 1, 12, 13, 40, 45, 53-4, 65, 109, 141, 149, 163, 169, 191, 194-6 passim; minimum 135, 147, 154, 155, 169, 195-6, 205 Walker,T. 66, 68 Wallis, Darren 88, 89 Waluru 31 Wangwe, Samuel 123 war, Cold 2, 6, 8, 9, 15, 125, 203;‘proxy’ 2, 610 passim, 15, 36, 40, 41, 103-6 passim, 122, 125, 162, 163, 190-1 Washington Consensus 3, 12, 120, 128, 148, 151, 191, 203 water 2, 25-6, 71, 72, 79, 106, 145, 150, 163, 164 Watkins, Kevin 209 wealth 72, 103, 109 Whiteside, Martin 67 WHO 51, 52 Wolfensohn, James 39 Wolfowitz, Paul 203 women 3, 16, 40, 45, 48, 53, 66, 77, 82, 83, 156, 160, 163, 193 working conditions 46, 71, 141, 163, 195 World Bank 2, 4, 5, 7, 10-13 passim, 25, 30, 31, 34, 36, 38-42, 47-52 passim, 59, 74, 76, 81, 103-11 passim, 117, 120-8 passim, 135, 13748 passim, 150, 162, 164-8 passim, 172, 174, 184, 191-8 passim, 201, 203; CAS 38-9, 41, 110; CPIA 121, 178n7; and IMF 109, 135; and PARPAs 25, 121, 165; and structural adjustment 10-13 passim, 113, 123, 201 World Vision 10, 104 Wuyts, Marc 109-10, 162 Xai-Xai 38, 164, 176 Young,Tom 8 young people 99, 163, 164, 168, 187 Zambeze 95 Zambézia 16, 52, 90, 91, 93, 102, 162n3, 163, 188 Zambia 96, 152, 157, 158, 167 Zimbabwe 8-10, 27-34 passim, 54, 88, 96, 101-2, 142, 155, 168, 170, 172, 173, 185, 205;Agritex 34; Grain Marketing Board 34; ZANU 90, 96, 101 Zucas, Marieta 22-3

It has 7 per cent a year growth rate and substantial foreign investment. Fifteen years after the war of destabilisation, the peace has held. Mozambique is the donors’ model pupil, carefully following their prescriptions and receiving more than a billion dollars a year in aid.

The number of bicycles has doubled and this is often cited as the symbol of development In this book Joseph Hanlon & Teresa Smart challenge some key assumptions of both the donors and the government and asks questions such as whether there has been too much stress on the Millennium Development Goals, and too little support for economic development; if it makes sense to target the poorest of the poor, or would it be better to target those who create the jobs which will employ the poor; whether there has been too much emphasis on foreign investment and too little on developing domestic capital; and if the private sector really will end poverty, or must there be a stronger role for the state in the economy?

This book is about more than Mozambique

Joseph Hanlon is Senior Lecturer at the Open University and the author of Beggar Your Neighbours, Mozambique: Who Calls the Shots? and Peace without Profit which have all made influential interventions in the development debate; Teresa Smart is Director of the London Mathematics Centre, Institute of Education Contents: I IS THERE DEVELOPMENT IN MOZAMBIQUE? – Introduction: more bicycles, but.... – A brief history: war, peace & slow recovery – Can peasants pull Nampula out of poverty? – The Manica miracle is over – Cashew: from disaster to export model – Tobacco: hard choices – Has poverty decreased? – Is there development in Mozambique? II ACTORS & CONTEXT – Frelimo & the democratic one-party state – Corruption, rent-seeking, reform & a divided elite – Aid dependence & subservience: carrots & sticks – On the edge of the world III ALTERNATIVES & THE DEVELOPMENTAL STATE – Questioning the cargo cult – Increase demand to kick-start the economy – Agriculture & the new role for the state – Finance & a development bank – The developmental state builds capitalism – Can Mozambique stop putting its hand out & become a developmental state? – Appendices Cover photographs by the authors

James Currey www.jamescurrey.co.uk

An imprint of Boydell & Brewer Ltd PO Box 9, Woodbridge, Suffolk IP12 3DF www.boydell.co.uk and 668 Mt Hope Ave, Rochester, New York 14620, USA www.boydellandbrewer.com

25748_j-1.indd 1

Do Bicycles Equal Development in

MOZAMBIQUE? JOSEPH HANLON & TERESA SMART

MOZAMBIQUE?

Mozambique is an apparent success story that is used to justify the present post-Washington consensus development model. Here, the case of Mozambique is situated within the broader development debate

HANLON & SMART

DO BICYCLES EQUAL DEVELOPMENT IN

Is Mozambique an African success story?

JAMES CURREY

22/10/2008 14:43:50