Niassa is the most northerly province in Mozambique, the least populated and the most isolated. Driving through it recently, I was struck by a sense of abundance. There is no shortage of land and agricultural production is evident.
Just five years ago it would have been impossible to drive through at all, due to the severity of the war. Grounds for optimism.
At a national level, Mozambique is exhibiting tiger-like qualities. Late last year the Agriculture Minister, Mr Carlos Agostinho do Rosario, announced that for the first time since independence in 1975, Mozambique has achieved self-sufficiency in maize. Gross Domestic Product growth for 1996 was registered at 6.4 per cent and is expected to be higher for 1997. In 1996 Mozambique achieved an inflation rate of 16.6 per cent, the lowest since the structural adjustment process began. Exports grew in 1996 by 30 per cent to a value of $225 million. Grounds for further optimism.
However, as with most tiger economies, further research reveals a much more precarious reality. In Niassa, conversation with local farmers reveals their inability to sell surplus production. Access to traders is hampered by impassable road networks. Credit for traders to re-establish their networks is not available. The International Monetary Fund insistence on controlling inflation by restricting money supply has strangled local trading networks. The World Bank emphasis on high quality national roads takes resources away from local feeder roads.
More than half the Mozambican population are living in absolute poverty. A 1995 UNDP/UNICEF study found two-thirds of Mozambican civil servants earn below this absolute poverty line. While exports grew to $225 million they remain only a quarter of the $801 million spent on imports. The national debt has risen from a pre-structural adjustment level of $2.8 billion in 1985 to $5.7 billion in 1996.
The International Monetary Fund and the World Bank have identified Mozambique as a success for their stabilisation and structural adjustment policies. However, this claim is weakened by the somewhat contradictory scenario outlined above. Recent events have also cast the World Bank in a less than positive light.
The Mozambican Cashew Industry Association is claiming $15 million in compensation from the World Bank, which required Mozambique to remove a 20 per cent export tax on raw cashews. A rapid reduction in the tax saw factories run out of nuts for processing by the middle of 1997, due to increased exports of the raw nuts. Most of the 14 factories are now closed and 7,000 of the 9,000 workers are now out of work.
Over the past year, the president of the World Bank reversed this position and ordered a new study.
This was carried out by Deloitte and Touche. It found that the World Bank position was wrong and that the raw cashew export tax should actually be increased, in light of the benefits accruing to the Mozambican economy from processing the raw nuts.
Further controversy now surrounds the new World Bank Country Assistance Strategy. This acknowledges the growing perception that most of the population has not yet reaped the benefits of peace, and that discontent could lead to violence. The Country Assistance Strategy is opposed in Mozambique due to a lack of consultation in its preparation, its emphasis on an unsustainable roads programme, its bias towards promoting exports, its preference for large foreign companies over Mozambican businesses, and its neglect of the rural poor. It is valid to question whether the optimistic features of the current Mozambican economic environment are a product of structural adjustment or a belated peace dividend. Mozambique suffered through the 1980s and early 1990s for its geographical proximity to apartheid South Africa. This involved a brutal war waged by RENAMO against the FRELIMO government, which ended by ceasefire in 1992. A remarkable peace process saw FRELIMO elected as the new government and RENAMO emerge as the dominant opposition party in parliament. If peace was one pre-condition for economic recovery, then debt cancellation is surely the other. The latter remains a problem.
In September last year, the World Bank and the International Monetary Fund agreed that Mozambique was eligible for the HIPC (Highly Indebted Poor Country) debt relief initiative. This initiative is designed to reduce debt to a sustainable level, so countries can pay without endangering human or economic development. It defines debt repayment at a maximum of 20 to 25 per cent of export earnings. As a result, the International Monetary Fund representative in Mozambique began to speak of an exit strategy for his organisation. This was welcomed by all. Those who support IMF stabilisation policies see it as a signal of success. Those who oppose these policies see it giving Mozambique a new space within which to pursue a more equitable model of development.
Again, the optimism hides a more precarious reality. It is not clear that calculating debt sustainability on export earnings is a valid measure. Mozambican export earnings are highly vulnerable. Cash crops, which are a key element, can fail and their prices can suffer great variations.
An even more serious problem has emerged due to a stalemate among creditors as to who should carry the cost. The Paris Club, which consists of most of Mozambique's bilateral creditors, has failed to reach agreement on providing the level of debt relief required of them by Mozambique. If it cannot provide adequate relief to one of the poorest countries in the world, then the HIPC initiative has failed. Without debt cancellation there can be no optimism for Mozambique's future.
A number of European governments have demonstrated a much more positive commitment to Mozambique's future, through contribution to a Mozambican Debt Alleviation Fund. This fund will cover multilateral debt service payments from 1997 to 1999 when the HIPC initiative is to become operational in Mozambique.
Niall Crowley is Chairperson of Irish Mozambique Solidarity. He has recently returned from Mozambique.