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Mozambique: Cashew, Sugar Concessions
Mozambique: Cashew, Sugar Concessions
Date distributed (ymd): 010219
Document reposted by APIC
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Southern Africa
Issue Areas: +economy/development+
Summary Contents:
This posting contains two articles by Joseph Hanlon, as well as
several related news reports from the Mozambique News Agency, on
new IMF/World Bank concessions on Mozambique's export policies for
cashews and sugar, two of the country's principal exports. The
cashew issue in particular has long been a subject of dispute and
protest (see from 1997 'Can Mozambique Make the World Bank Pay for
Its Mistakes?' -
http://www.africafocus.org/docs97/moz9711.php,
and, recently 'Price of Cashew Nuts Collapses'
http://allafrica.com/stories/200011220025.html).
International institutions insisted on removing protection from
Mozambique's cashew-processing industry, in favor of theoretically
available gains from exporting raw cashew nuts. The recent
concessions come after years of criticism and protest from
Mozambican business, labor, media and government. Nevertheless the
new policy does not address the issue of compensation to Mozambique
for the damage resulting from the failed policies imposed at
creditor insistence.
+++++++++++++++++end profile++++++++++++++++++++++++++++++
Mozambique Wins Long Battles over Cashew Nuts and Sugar
Mozambique Bans Raw Cashew Exports after IMF Allows Cashew and
Sugar Protection
articles and clippings by Joseph Hanlon (j.hanlon@open.ac.uk)
January 30, 2001
Mozambique has banned the export of unprocessed cashew nuts, ending
a five-year battle with the World Bank and International Monetary
Fund. Meanwhile, the IMF has allowed Mozambique to protect its
expanding sugar industry; IMF directors overrode opposition from
their own staff.
Allowing Mozambique to protect its two most important
agro-industries is a remarkable reversal by the international
financial institutions. It results from intense pressure from the
Mozambican government, trade unions and business, taken up by
international campaign groups.
Cashew became a symbol of mindless trade liberalisation when in
1995 the World Bank forced Mozambique to allow the unrestricted
export of unprocessed cashew nuts to India. The World Bank argued
that peasant producers would gain higher prices from the free
market. But it did not happen -- as a monopoly buyer, India pushed
down the price; transfer pricing also lowered the price paid to
Mozambique; and traders within Mozambique pocketed larger margins.
So the peasants lost out, while nearly 10,000 industrial workers
(half women) became unemployed.
For five years Mozambique has campaigned against the ban. Finally,
on 18 December the IMF Executive Board agreed a policy under which
some cashew factories will be closed, but the rest will be
protected. The protection is two-fold, an 18 percent export duty on
unprocessed cashew nuts, plus the local industry given the right of
first refusal -- to purchase nuts before they are exported. In
light of this, the government banned the export of raw cashew nuts
in mid-January.
Clippings reproduced below set out the recent events. The long
history of the cashew saga was published last year in "Review of
African Political Economy" no 83, pages 29-45. The article is also
on the web, at
http://www.jubileeplus.org/analysis/reports/roape100400.htm
Meanwhile, the IMF Executive Board rejected a demand from its own
staff, and agreed that Mozambique can protect its sugar industry,
which is now being rehabilitated with major foreign investment. IMF
staff had argued that since Mozambique could import sugar cheaper
than producing it, it should allow duty-free import of sugar.
Investors had demanded protection and were backed by the
government. On 18 December, the IMF board agreed with the
government and not its own staff.
Cashew and sugar are both about similar issues: Mozambique wants to
create and protect tens of thousands of industrial jobs (cashew and
sugar are the country's two largest industries). On the other hand,
the international financial institutions (IFIs) argue that free
trade and globalisation will bring more long-term benefit,
outweighing the cost and disruption of massive unemployment. The
IFIs believed they could impose their policies, but the
international outcry over cashew made them rethink, and accept that
they had to listen more closely to elected national government.
IMF Relents on Cashew and Sugar
by Joseph Hanlon, 30.01.01
The IMF has quietly accepted a compromise in which some of
Mozambique's privatised cashew nut processing factories will be
closed and the rest will be protected. This interpretation comes
from a close reading of a set of documents issued by the IMF in
December and January. The decision to ban exports should be seen in
this context.
IMF directors also accepted Mozambique's rejection of IMF staff
demands on sugar.
CASHEW
On the surface, the IMF continues to take a hard line on cashew.
Notes of the 18 December Executive Board meeting, published 17
January, say: "Directors welcomed the authorities' commitment to
trade liberalization. They urged them to stay the course of trade
liberalisation, and to resolve the problems of the cashew
processing industry."
However, the line in the joint IMF/government Memorandum of
Economic and Fiscal Policies, published 19 December, is more
subtle: "The government is making progress in addressing the
problems of the cashew sector. Thus, the government has accepted in
principle the liquidation of several nonviable processing plants.
It has also decided that the export tax on raw cashew nuts remain
at 18 percent for the coming crop year, and that acceptable
modalities for the first-right-to-purchase -- granted by the law to
local processors -- be worked out by the exporters and processors
themselves under the auspices of the Cashew Institute. The
government has also endorsed the Cashew Institute's recent master
plan for the promotion of farm production of cashew nuts". The
government expects to pay Mt 100 billion (about $6 million) to
cashew processing companies to pay accumulated back wages to the
workers, according to the memorandum.
The IMF staff report on Mozambique was published on 17 January
2001, and on cashew it notes that in October 1999 parliament
(Assembly of the Republic) "passed a law providing for an increase
in the export tax on raw cashew nuts from 14 per cent to 18-22
percent and for a first right to purchase raw nuts for the benefit
of indigenous processors. In the wake of this law, the World Bank
sponsored an assessment of competitiveness and employment in the
cashew-processing industry in Mozambique. This study recommended
the liquidation of several non-viable processing plants, with
financial support from the government for the settlement of
outstanding wage claims. The study also found that newer factories,
using a more labor-intensive technology, did not require any
special assistance. Following these recommendations, the government
decided in September 2000 on a new policy for the cashew sector. It
set the export tax at 18 percent for the current crop year, invited
the cashew exporters and processors to agree among themselves on
possible modalities for the first right to purchase, and accepted
in principle the liquidation of unviable processing plants. The
government also expressed support for the Mozambican Cashew
Institute's efforts, formalised in a master plan, to stimulate farm
production of cashew nuts, which, for reasons of inadequate tree
maintenance and plants, remains near a historical low. The staff
welcomed these decisions, in particular the emphasis on expanding
cashew production and solving the problems of the processing
industry."
I read this to mean that in exchange for closing some factories,
the IMF now accepts the concept that the local industry must be
given a first right to purchase and that, as has happened, the
government can ban the export of raw nuts until the local
industry's needs have been satisfied. That was, in practice, what
Mozambique has been demanding for five years.
SUGAR
Sugar has been an issue, with the government wanting to impose an
import duty to protect the domestic sugar industry. It argued that
virtually all sugar producers do this (including the EU), and that
it was essential to protect the tens of millions of dollars in
investment planned for the industry. IMF staff had in late 1999
called for Mozambique to be the first big producer not to protect
its industry, but Mozambique has now won the battle to maintain
protection.
The joint Memorandum of Economic and Fiscal Policies says "Acting
on the recommendations of a recent study by the Food and
Agriculture Organization (FAO) for the sugar sector in Mozambique,
the government has decided to maintain the level of import
protection for sugar granted in September 1999, and it will review
this policy annually based on domestic and international sugar
market developments."
The staff study notes that "The government remains determined to
support the rebuilding of the sugar industry in Mozambique and has
therefore decided to uphold the increase in import surcharges for
sugar granted in September 1999. At that time, the staff had viewed
the increase in protection as troubling evidence of an
inward-oriented industrial police, quite apart from its running
counter to the government's commitment not to adopt new, or
increase existing, general import surcharges under the programme.
In the face of the authorities' wish to maintain the higher import
surcharges and raise them further according to a preannounced
schedule, the staff suggested that at least the further increases
be put on hold, pending the outcome of a cost-benefit analysis of
the intended policy, including its impact on the poor. At the
invitation of the government, the Food and Agriculture Organization
(FAO) undertook this analysis, coming out in support of the
government's approach. The staff accepted this position but
recommended that the additional protection granted in September
1999 be cut back again over a preannounced period of five years,
broadly in line with the time investors thought necessary for the
rebuilding of the industry. The government did not accept the
staff's recommendation and instead retained discretion to review
annual the level of protection based on domestic and international
sugar market developments."
With FAO support, government has rejected IMF staff views on sugar,
and IMF directors have backed this. Notes of the 18 December
Executive Board meeting say "A few Directors also stressed the need
to avoid increasing protection of the sugar industry". Thus only "a
few" directors backed their own staff in opposition to the
government.
The relevant documents are:
http://www.imf.org/external/NP/LOI/2000/moz/02/INDEX.HTM
Letter of Intent and Memorandum of Economic and Financial Policies
of the Government of Mozambique for 200001. Dated 1 Dec 2000,
published 19 Dec 2000 following Executive Board meeting of 18 Dec
2000.
http://www.imf.org/external/pubs/ft/scr/2001/cr0117.pdf
Mozambique: 2000 Article IV Consultation and Second Review Under
the Poverty Reduction and Growth Facility--Staff Report; Staff
Statement; Public Information Notice and Press Release on the
Executive Board Discussion; and Statement by the Authorities of
Mozambique, 17 Jan 2001
http://www.imf.org/external/np/sec/pr/2000/pr0073.htm
IMF Completes Second Review under PRGF for Mozambique and Approves
Second Annual PRGF Loan
Finally, Raw Cashew Exports Banned
Maputo, 26 Jan (AIM) - The Mozambican authorities have slapped an
embargo on the export of raw cashew nuts to India, reports Friday's
issue of the independent newsheet "Metical".
For years the local cashew processing industry has been demanding
a total ban on raw nut exports, arguing that the exporters compete
unfairly with the industry, and deprive it of its raw materials.
Liberalisation of the trade in cashews was one of the conditions
imposed by the World Bank in 1995, in exchange for access to soft
loans.
The government was forced to dismantle protection for the
processing industry, much of which had only recently been
privatised.
When it became evident that liberalisation was killing off the
processing industry, the government, with a reluctant World Bank
go-ahead, in 1999 raised the surtax on raw nut exports from 14 to
18 per cent. The industry said this was insufficient to save the
factories, and demanded the total prohibition of raw nut exports.
The industrialists have been proved right: currently the great
majority of cashew processing plants are closed, and over 8,500
workers have lost their jobs.
The sudden embargoing of raw nut exports does not mean, however,
that the government is making a last ditch attempt to rescue the
industry. Nor is the move likely to arouse the ire of the World
Bank and the IMF.
For, according to "Metical", the government moved because it
suspected massive underinvoicing on the part of the exporters. The
government could not believe that the export prices (on which the
companies would have to pay the 18 per cent surtax) could be as low
as the exporters claimed.
They alleged that this season's export price varied from 355 to 440
US dollars a tonne.
The government, however, does not want the nuts exported for
anything less than an FOB price of 650 dollars a tonne.
The exporters claim that the price is low because of the poor
quality of the Mozambican nuts, which have supposedly been assessed
by the Indian buyers and by a pre-shipment inspection company.
Mozambican customs does not believe this story. On 19 January the
customs service ordered that 8,000 tonnes of raw nuts currently in
the port of Nacala, should not be exported at the rock bottom
prices quoted by their owners.
Customs based its decision on the world market price of cashew as
cited by Mozambique's Export Promotion Institute (IPEX).
The IPEX bulletin for January gave the world market price of raw
cashews as between 660 and 800 dollars a tonne - about twice the
price the exporters say the Indian companies are paying them. (AIM)
IMF Agrees to Protect Sugar but not Cashew Industry
Maputo, 27 Dec (AIM) - Mozambique has said that it will not remove
the surtax that protects its sugar industry for the next five
years.
This is in line with the International Monetary Fund, which
initially had told the government that the protection for the
domestic sugar industry must be reduced drastically.
According to Wednesday's issue of the independent newsheet
"Metical", in a letter sent to the IMF, the Mozambican government
says that following the conclusions of a study conducted by the
United Nations Food and Agriculture Organisation has decided to
maintain, for next year, the level of protection tax that had been
established for September 1999, and adds that this policy will be
reviewed every year taking into account the changing prices of
sugar.
The new positions of the government and the IMF could well be
predicted if one takes into account recent statements by IMF
director Horst Kohler.
In September, Kohler aknowledged, in an interview to the Financial
Times, the importance of the protection to the sugar industry in
countries such as Mozambique.
He said then that the high customs duties applied on imported sugar
would end up being covered by the less well off people, but this
would not affect the macro-economic stability.
"I do not want to have the IMF indirectly being an instrument of
the rich countries to maintain the protection of their levels of
protection, while we continue saying to the poor countries to speed
up their structural adjustment.
Recently, Mozambican Prime Minister Pascoal Mocumbi was against any
impositions of policies by foreign powers. He thought that the
protection on the sugar industry was essential for the sector's
recovery.
However, the IMF still insists in not changing its policy towards
the cashew industry.
Because it is going to increase its public expenditure for 2001,
the government justified this by saying that money has to be
transferred to the cashew industry to compensate the workers who
lost their jobs as a consequence led to the closing of nearly all
cashew factories.
There are about 5000 such workers.
The document notes that these are just the social aspect of the
debts iuncurred, but one should also take into account all the
money the new owners invested to rehabilitate the factories.
The government also accepts the IMF principle to liquidate the
non-feasible factories, but does explain how this will be done, and
this leaves the factory owners apprehensive about whether the
government will return about 32 industrialists are owing to the
banks. (AIM)
More Workers Fall Victim to IMF Structural Policies
Maputo, 3 Jan (AIM) - Some 5,930 Mozambican cashew workers lost
their jobs in 2000, largely thanks to the International Monetary
Fund structural policies being followed by the country.
The country's cashew and shoe trade union branches said that the
biggest burden fell on the northern Nampula province which saw
3,000 workers be made redundant.
Maputo contributed with a further 1,200 workers, while the southern
provinces of Gaza and Inhambane collectively came up with 1,730.
If added to those who lost their jobs between 1997 to 1999, the
figure rises up to 8,800 - meanwhile, the cashew processing
industry is completely paralised.
Boaventura Mondlane of the cashew trade union branch, SINTIC,
blamed the paralisation of the sector on the liberalisation of the
export of raw nuts, mainly to India.
The farm-gate price has gone down, he said. India has driven the
price of raw nuts, and Mozambique is reeling under the impact of
low prices - it has no alternative but to sell at whatever price
India chooses. (AIM)
Most Cashew Workers Now Unemployed
Maputo, 20 Jan (AIM) - About 6,000 workers in Mozambique's cashew
processing industry lost their jobs in 2000, according to the
general secretary of the Cashew Workers Union (SINTIC), Boaventura
Mondlane, cited in Saturday's issue of the Maputo daily "Noticias".
This brings to 8,500 the number of workers who have definitively
lost their jobs since the crisis in the cashew sector began to bite
in 1997. In other words, the great majority of workers in this
industry are now unemployed.
"We have just ended a dark year for the cashew sector", said
Mondlane. Prospects for the future looked no better - he said there
was no money available to reopen factories that have closed because
of the liberalisation of the trade in cashews imposed on Mozambique
by the World Bank.
Since 1995, the World Bank had insisted that protection be removed
from the local processing industry: in effect, this meant that raw
cashew nuts were exported to India, for processing by child
labourers who shell the nuts by hand, rather than sold to the
Mozambican factories.
Liberalisation, the World Bank insisted, protected the interests of
the peasants who harvest the nuts, who would receive a greater
percentage of the cashew price.
But as the industrialists predicted, the opposite has happened.
With next to no competition from the local factories, the exporters
of raw nuts have been able to push prices down.
"The result of liberalisation, which we are now witnessing, is a
fall in the marketing price", said Mondlane. "The producers are
earning less and less, contrary to the arguments of the World Bank
and the government. Now that the industry has been put out of
action, prices are tumbling".
This year's cashew marketing campaign in northern Mozambique looks
good, but the bankrupt industries are unable to purchase nuts and
reopen their plants.
With the fading of all hope for the industry, workers who had been
kept on the books even though they were producing nothing, have now
been made definitively redundant.
The sacked workers are receiving their wage arrears and their
redundancy pay. "We are not satisfied at the payment of redundancy
money", said Mondlane. "Our objective is employment, and not the
laying off of workers". (AIM)
This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC). APIC provides
accessible information and analysis in order to promote U.S.
and international policies toward Africa that advance economic,
political and social justice and the full spectrum of human rights.
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