October 11, 2002

Mozambique's Economic Success: Real Or Imagined?

A high growth rate, a stable currency, low inflation - from a statistical viewpoint, everything seems to be going well for the Mozambican economy.

The latest figures from the Bank of Mozambique, covering the first half of this year, show an economy growing at an annual rate of 11,7%. The Mozambican currency, the metical, devalued by only 0,9% against the United States dollar between January and June 2002 (which compares with a 26% devaluation in the same period of 2001). From January to the end of August inflation was 2,5%. The government should have no problem in reaching its target of an annual inflation rate of less than 10%. Mozambique has therefore resumed the path of rapid growth and macro-economic stability that was brutally interrupted by the massive floods of February 2000.

But is the growth reflected in people's daily lives? This month saw another revealing statistic - only 10% of the money lent by the government's Economic Rehabilitation Support Fund (Fare) to shopkeepers in the central province of Sofala has been repaid. The money is for restoring rural shops, most of which were burned down by the apartheid-backed Renamo rebels during the war that ended in 1991. So do the shopkeepers just take the money and run?

While there are certainly some businessmen who assume that no loans from state bodies need be repaid, the real problem is that the shops are not profitable. Fare officials admitted that the money was not repaid because of lack of purchasing power in the countryside. The shopkeepers cannot sell enough goods to honour their repayment schedules, because the Sofala peasantry is too poor to buy them. Conclusion: high growth and low inflation means little in the Sofala countryside.

Urban wage earners are better off than the rural poor - but the trade unions complain bitterly that the fruits of economic growth are not reflected in decent wages. The current statutory minimum wage in industry is the equivalent of R340 a month. The union federation, the OTM, protests that this covers less than half the basic needs of a worker and his or her family. At this year's May 1 rally in Maputo, OTM general secretary Joaquim Fanheiro insisted that, if the government was serious about tackling poverty, a key factor must be "a more balanced distribution of the nation's wealth".

Macroeconomic aggregates also hide the collapse of whole industries. The classic example is cashew processing. Once Mozambique was the leading producer of processed cashew kernels -- now most of the factories are silent. The culprit is the policy of liberalising trade in raw cashews, which the World Bank forced on Mozambique in 1995. The practical result was to starve the local processing industry of its raw material: instead of going to Mozambican factories, the raw nuts were exported to India, to be shelled by hand (and often by child labour). Only two out of 16 sizeable cashew factories are still operating, and 80% of the cashew workers are unemployed. The textile industry is also in a state of meltdown. Fanheiro points out that giant textile factories, which once made a major contribution to the economy, "are now abandoned, they owe wages to their workers and the government is taking no measures to solve the problem". The Mozambican factories need major new investment if they are to compete on the world market -- and the shareholders (Portuguese in most cases) have refused to invest.

Of course, some sectors are very successful indeed. The showpiece of Mozambican industry is the Mozal aluminium smelter on the outskirts of Maputo. Despite the recent fall in the international price of aluminium, the ingots produced at this one factory account for more than half of Mozambique's commodity export earnings. The smelter is undergoing expansion that will double its capacity to 500 000 tonnes of ingots a year. It is this expansion that is largely responsible for the current impressive growth rate (more than 34%) of Mozambique's construction industry.

Export earnings will receive a further boost from the natural gas pipeline now being built by Sasol from the Inhambane province to Secunda. Later this year, a third mega-project -- a complex to mine and process titanium-bearing mineral sands at Chibuto in Gaza province -- should get under way.

One obvious problem with these huge investments is that they are all in the southern third of the country -- thus inviting opposition protests that the south gets all the money, while the north is left to stagnate. It is, however, not the government's fault. The government wanted to site Mozal in the northern city of Nacala, which has the best deep-water port on the East African coast. Foreign investors insisted on a site near the South African border. The government has offered generous tax breaks for any company investing in the Zambezi valley. But so far, the only takers have been the Mauritian consortium that rebuilt the ruined sugar mill at Marromeu.

Looked at in detail, the economic statistics show strong growth in and around Maputo and a few other enclaves, but precious few links to the rural economy. Unless they happen to live near Mozal (in which case they benefit from new schools and health posts), the rural poor see little benefit from the current rash of foreign investment. And not all foreign investors are good employers. While the lowest wage paid at Mozal is equivalent to more than R3600 a month, the Maragra sugar plantation, about 80km north of Maputo, where the majority shareholder is the South African Illovo group, pays its cane cutters the equivalent of R15 a day. Somebody who is expected to cut six tonnes of sugar cane a day to earn R15 might find claims that the Mozambican economy is one of the fastest growing in the world hard to stomach. (MAIL&GUARDIAN)

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