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Africa Policy E-Journal
Africa: World Bank and Africa Policy Africa Policy Electronic Distribution List: an information service provided by AFRICA ACTION (incorporating the Africa Policy Information Center, The Africa Fund, and the American Committee on Africa). Find more information for action for Africa at http://www.africapolicy.org +++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Continent-wide SUMMARY CONTENTS:
This posting provides two brief notes on issues where World Bank
policy continues to clash with alternatives proposed by African
civil society organizations and governments. The first, from
Jubilee 2000-Zambia, concerns the use of loans rather than grants
to address the HIV/AIDS pandemic. The second is an update from Joe
Hanlon reporting that the IMF and World Bank are still resisting
Mozambican efforts to protect its cashew industry, despite apparent
concessions earlier this year (see The posting begins with a brief cover note from Africa Action executive director Salih Booker. +++++++++++++++++end profile++++++++++++++++++++++++++++++ Who Pays for Damages? The documents below are two examples among many of specific policy areas exposing the 'democracy deficit' in the World Bank and other multilateral institutions which in practice make many key decisions for African countries. The balance of power in making decisions is tipped decisively towards decision-makers in Washington, yet those who pay for policy failures include patients seeking health care from impoverished health systems and unemployed cashew workers.
An internal Operations Evaluation Department report of the World
Bank's health projects concluded that the Bank 'has performed
poorly in analyzing the factors that lead to ill-health among the
poor.' (Cited in John Gershman, The World Bank and Health -
http://www.bicusa.org/ptoc/htm/gershman_health.htm). Bank-imposed
user-fees (required in nearly 75% of the Bank's health projects in
Africa) have driven the poor away from health care, thereby fueling
the HIV/AIDS pandemic. More than three years ago, Mozambican and
international critics identified the damages from Bank policy to
Mozambique's cashew industry and called for the Bank to pay
compensation Who owes whom? The precise figures may be hard to calculate, and the international legal system does not yet provide for juries to award damages as in domestic civil suits. But can there be any doubt that those who imposed failed policies should be liable to pay? Salih Booker P.S. In response to the most recent developments on the cashew nut policy, Representative Cynthia McKinney has initiated a congressional letter to U.S. Treasury Secretary Paul O'Neill on the issue (http://www.africapolicy.org/adna/moz0103.htm). Along with several other organizations in Washington, I am writing to the Department of Treasury to request a meeting to ask that the U.S. use its influence against this continuing pressure on Mozambique. ############################################################### Jubilee 2000 - Zambia 3 April 2001 PRESS RELEASE NO! LOANS: NOT A SOLUTION TO THE AIDS PANDEMIC IN ZAMBIA
For more information: Loans will not solve the AIDS/HIV pandemic that Zambia is currently facing. As Jubilee-Zambia, we are concerned with the World Bank's insistence that Zambia should acquire loans to tackle the AIDS problem. The World Bank should realise that Zambia is actually losing more lives as a result of servicing debts for the loans that we are being encouraged to borrow. Responding to press article in which World Bank Country Director for Zambia and Zimbabwe Yaw Ansu justified the need to borrow in order to overcome the problem, Jubilee-Zambia Acting Co-ordinator Charity Musamba explained that if indeed the World Bank is concerned about AIDS in Zambia, then it should change its approach to this crucial matter - HIV/AIDS. Loans are not the main option especially if "thousands of people are dying" as Mr Ansu noted. Instead, it would be important to empower countries such as Zambia to tackle this problem in a more sustainable way. The most critical question the World Bank must respond to is "why are thousands of people dying of HIV/AIDS in Zambia today?" Secondly, if the World Bank's concern is true, the solution to this problem should be "people-centred" as opposed to the current strict "monetary and commercial" approach the Bank is promoting. It is true that Zambia needs an urgent solution to the AIDS crisis but the solution is not "more loans." We are all aware of how loans affected our country today and one of the major results is that we are now failing to deal with the crisis. More loans will only continue to undermine the prosperity and opportunities of Zambia to deal with the AIDS crises and the related challenges such as poverty. Zambia is poor and heavily indebted to effectively deal with the problem at hand. Zambia needs grants and other non-exploitative forms of external assistance. World Bank can play a key and positive role by facilitating debt cancellation for poor nations so that they are empowered to take charge of challenges such as AIDS/HIV. Only when this is done will Zambia confidently acquire, effectively utilise and repay loans. As partners in development, let us show commitment to true human development by encouraging sustainable approaches in dealing with the crises that heavily indebted poor countries are facing. Serious and real assistance to Zambia will aim at avoiding any chances of worsening the country's debt problem. Let us fight AIDS by avoiding debt traps! Charity Musamba Acting Co-ordinator: Jubilee-Zambia
MOZAMBIQUE FORCED TO REVERSE CASHEW EXPORT BAN WHILE WORLD BANK DEFENDS ITS CASHEW POLICY article and clippings by Joseph Hanlon j.hanlon@open.ac.uk 17.03.01 Mozambique has been forced to back down somewhat on its ban on cashew export ban. In January we reported that "Mozambique has banned the export of unprocessed cashew nuts, ending a five-year battle with the World Bank and International Monetary Fund." But we appear to have been over-optimistic. According to Mozambican sources, the IMF was "furious" and demanded that Mozambique deny the that a ban existed. In late February, UTRA, the agency in the Ministry of Planning and Finance responsible for customs, told the press that there really never had been a ban, and that exports were permitted with restrictions. The World Bank and IMF had forced Mozambique to allow the free export of unprocessed nuts if India was prepared to pay a higher price than local industry. As predicted, once the factories in Mozambique closed, the Indian price plummeted to less than half the earlier price. But UTRA concluded that there was under-invoicing, and that traders were reporting export prices well below the real price, and were putting the difference in foreign bank accounts (and not paying local taxes on the difference). So UTRA agreed to allow exports only if exporters, in effect, allowed an independent adjudication of the export value. Nearly all of the cashew factories are now closed, and 8500 of 10,000 cashew processing workers are unemployed. while peasants are earning less than they were before. So, despite claims by the World Bank that making 10,000 cashew workers unemployed would bring higher earnings, both peasants and workers are now worse off. Meanwhile, last year there were two articles in US newspapers. In the New York Times economist Paul Krugman claimed that those of us who oppose World Bank cashew policy say that "the World Bank is evil, then, because it tried to end a policy that not only made Mozambique as a whole poorer, but directly hurt millions of impoverished small farmers." The response came in an article in the Washington Post, by a journalist who actually visited Mandlakaze in Mozambique, rather than writing from a US university, and generally supported the critics, calling the World Bank policy "a less than helpful hand". The Statistical Assessment Service (STATS) then gave the Krugman article one of its "Dubious Data 2000 Awards" for "The Top Ten Silliest, Most Misleading Stories of the New Millennium". It wrote: "Cashew, Cashew, We All Fall Down New York Times columnist Paul Krugman found another way to criticize anti-globalization protestors in his April 19 column, "A Real Nut Case." He claimed that the World Bank's intervention in Mozambique's cashew industry benefitted the country's poor farmers, who had suffered compared with the nation's 10,000 nut processing workers. Unfortunately for Mr. Krugman, and for Mozambique as well, investigations later in the year by the Washington Post ("A Less Than Helpful Hand; World Bank, IMF Blamed for Fall of Mozambican Cashew Industry," Oct. 18) and Knight Ridder ("World Bank Policies Had Mixed Results in Mozambique," Sep. 17) found that the World Bank's policies had not only put over 7,500 factory workers out of a job in one of the world's poorest countries, but that the farmers who were supposed to have benefitted had lost out to nut speculators, many of them foreign." But the World Bank jumped to defend its policies, issuing on 13 November 2000 a "Briefing Note on Cashew Policy in Mozambique" which used Krugman's article to defend itself against the Washington Post article. The briefing note contained a number of errors.
The background to the cashew dispute is detailed in an article
"Power Without Responsibility: the World Bank and Mozambican Cashew
Nuts" published in the Review of African Political Economy 83 March
2000. The article is on the web at EXPORTS OF RAW CASHEWS RESUME, UNDER CONDITIONS Maputo, 23 Feb (AIM) - The Mozambican government has once again authorised the export of raw cashew nuts, but the exporters, who are suspected of evading the export surtax on the nuts, must pay a deposit while customs investigates the real export price being paid. In late January, the independent newsheet "Metical" reported that the government had slapped an embargo on the export of raw nuts because it could not believe the low FOB prices that the exporters were quoting. Raw nuts pay an 18 per cent export surtax - a measure designed to protect Mozambique's near moribund cashew processing industry. There is therefore an incentive for exporters to lie about the prices paid for their nuts (all of which are exported to India). Exporters shipping unprocessed nuts out of the northern port of Nacala were quoting FOB prices that varied between 335 and 440 US dollars a tonne. But the current FOB price for raw cashews on the world market should not be less than 650 dollars a tonne. On Friday "Metical" reported that, after lengthy negotiations, UTRA, the customs restructuring unit in the Finance Ministry, has allowed the nuts to be exported - but only against a deposit, which takes the form of a banker's guarantee that will not be cashed if UTRA eventually concludes that the exporters are not trying to defraud the state. The traders will pay the 18 per cent surtax on the declared FOB prices - but they must also provide a banker's letter of guarantee pledging payment of surtax on the difference between the declared price and 650 dollars a tonne. The exporters claim they are paid low prices because the quality of Mozambican nuts is "very poor". Customs clearly finds it hard to believe that the nuts are so bad that the exporters can only pick up between a half and two thirds of the normal market price for them. So studies to ascertain the real price are to be undertaken. If the conclusion is that the nuts really are worth no more than the price the exporters have declared, then the banker's guarantee will not be claimed. If, however, customs concludes that the nuts have been underinvoiced, then the money will be claimed. A senior UTRA spokesman objected to "Metical"'s original use of the term "embargo", which had doubtless annoyed the IMF and World Bank ideologues who object to effective protection for the cashew processing industry. (AIM) pf/ (396)
[[JH COMMENT: The World Bank document below is seriously misleading. In some places I have added my own comments, like this one in brackets. Joseph Hanlon]] INTERNATIONAL DEVELOPMENT ASSOCIATION FROM: Vice President and Secretary November 13, 2000 Briefing Note on Cashew Policy in Mozambique Following publication of a recent Washington Post article on World Bank involvement in the cashew sector in Mozambique, the Africa Region prepared the attached note on cashew policy in Mozambique. Distribution:
Executive Directors and Alternates
The Republic of Mozambique Briefing Note on Cashew Policy 1. The cashew industry is the main source of income, and an important source of food security, for over one million small-scale farmers in Mozambique. It is also the second largest traditional source of export earnings after shrimp. Policy background and developments 2. In response to a request of the Mozambican Government, the World Bank initiated analytical work in the cashew sector in the early 1990s, when the industry was already in serious decline. By the end of the civil war in 1992, marketed production of raw nuts had dropped dramatically, from 200,000 tons a year in the 1970s (when Mozambique was the world's leading producer) to about 32,000 tons a year. This was due mainly to the collapse of the rural marketing network and war-related damage to the cashew tree stock ( estimated at 25 million trees). In addition, the domestic processing industry had failed to keep pace with international change in the industry. Using outdated technology and poor management practices, it was too inefficient to be viable at world prices for raw nuts. By 1993/94, only one of nine operable mechanized processors in Mozambique (viz., a private firm employing about 1,500 workers) was actually operating. Of the eight remaining operable processors, seven were controlled by Caju de Mozambique, the state-owned company which accounted for 80% of Mozambique’s processing capacity, and they had not been operating for at least a year pending their sale to the private sector. 3. As early as 1978, the Government had provided protection to the industry by placing restrictions on the export of raw cashew nuts. Initially, these restrictions took the form of an outright ban on exports, but by 1991/92 the ban had been replaced by a regime which permitted limited exports of raw nuts, subject to a 60 percent tax. These restrictions forced farmers to sell their raw nuts cheaply, at less than world prices, to domestic processors. In effect, the restrictions depressed farmers' incomes to protect jobs in the processing industry . Survey data from the Ministry of Agriculture show that in 1993/94, the last agricultural season before significant liberalization of cashew marketing, Mozambican farmers received only 19 percent of the international value of the cashew nut (by contrast, Tanzanian farmers received 50 percent). The beneficiaries of this protectionist policy were the owners of the industry and their employees. By 1995, the processors formerly owned by Caju de Mozambique were in private hands and operating again, and the industry as a whole employed about 6,800. By 1997, as the new owners continued to add capacity under the liberalized regime, the number of employees rose to about 10,100. 4. From the time of its initial engagement in the sector, the Bank has consistently recommended that the Government liberalize cashew marketing to improve farmers' incomes. In the early 1990s, when Mozambique was in the first stages of conflict recovery, this initiative was one of few available to improve the lot of the poor. As Princeton economist Paul Krugman noted in an April 2000 New York Times article (A Real Nut Case), the Bank's advice was appropriate to Mozambique's political economy:" In poor countries organized urban workers (and factory owners) typically have far more political clout than much more numerous but illiterate and unorganized farmers; the result is an often extreme policy bias against the countryside. Governments frequently tax the rural poor to subsidize urban industries. ...This case-in which peasants were forced to sell their crops cheaply in order to protect the jobs of 10,000 processing workers-fits right into the pattern."
[[JH COMMENTS:
5. In addition to recommending liberalization in cashew marketing, the Bank recommended as a subsequent step that the Government privatize the processing industry that it had nationalized some years before. On many occasions, the Bank has also offered to provide technical assistance to improve production efficiency in both the agricultural and processing areas of the sector. To date, the Government has used Bank resources to finance programs aiming to increase farmer productivity and evaluate marketing and processing practices, but it has not yet used Bank resources to support restructuring of the processing industry. 6. The Bank's Operations Evaluation Department endorsed these policies on several occasions in 1997 and 1998 ( see Mozambique Country Assistance Review, December 2, 1997 (paragraph 8.7); Mozambique: Taxation of Cashew Nut Exports, February 25, 1998; and Cashews: Contention in Mozambique, May 8, 1998). These policies are also consistent with the Bank's agriculture development strategy for Mozambique, which aims to increase production incentives to small-holders through gradual liberalization of marketing and prices. This strategy was presented to the Board in the November 1995 CAS (see paragraph 37). 7. From the beginning, the Bank and the Government agreed that liberalization and privatization were appropriate, with the Bank favoring immediate elimination of the export tax followed by privatization and the Government favoring privatization followed by phased elimination of the tax. (The processing industry, by contrast, favored a phased reduction of the tax to 8 percent.) In the end, the Government view prevailed. Although the 1995 CAS stated that failure to liberalize cashew marketing, exports and licensing could trigger the low case scenario (which proposed lending of $240 million as opposed to $665 million in the base case), the CAS did not set out an explicit schedule for liberalization. Moreover, liberalization of cashew marketing was initiated well before presentation of the 1995 CAS. Already in 1991/92, the Government had replaced the export ban with quantitative restrictions on exports subject to a 60 percent tax. Then, in 1994/95, it had eliminated the quantitative restrictions and introduced a graduated export tax which had the effect of reducing the tax to about 30 percent. In 1995/96, following agreement with the Bank, the Government lowered the export tax to 20 percent; and in 1996/97, it lowered the tax further to 14 percent.
[[JH COMMENT. This paragraph is extremely misleading.
8. Although a number of senior Government officials strongly supported the new cashew policy, many of the newly-privatized processors strongly opposed it, as it exposed their inefficiencies and reduced their economic returns. They mounted a well-organized political and mass-media campaign, arguing that lower tariffs were destroying the processing industry in Mozambique. Following contacts with the Bank , the Government decided in early 1997 to freeze the export tax at 14 percent-the rate at which it then stood-until a study of the cashew policy was completed.
[[JH COMMENT:
9. This study, commissioned by the Government and prepared by Deloitte & Touche, was issued in October 1997. It found that liberalization had increased farmers , incomes, stimulated development of a rural trading network, and increased production and efficiency in the processing industry. It also called attention to the critical state of the cashew tree stock, observing that an estimated one million trees were dying or going out of production each year because of age, disease or neglect, while only 300,000 were being planted to replace them. Even so, the study found that the net foreign exchange earned by exporting processed nuts exceeded that earned by exporting raw nuts by some $130 to $220 per ton and so it recommended protecting the processing industry from Indian competitors for raw nuts by freezing the export tariff at 14 percent for at least three years, after which a reassessment would take place. The Government therefore maintained the tariff at 14 percent. [[JH COMMENT: Deloitte & Touche said the World Bank's previous policy on cashew "should be abandoned". The Bank rejected this conclusion.]] 10. Nonetheless, pressure from the industry and the media to ban raw cashew nut exports continued. As a consequence, in 1999, a bill was introduced into the National Assembly to restore the export ban. Several members of the executive branch opposed the bill. With their successful intervention, a compromise bill was passed. This bill, which is still in effect, raises the export tax from 14 percent to a range of 18 to 22 percent, to be decided annually by the executive branch. The executive branch has maintained the export tax at 18 percent. [[JH COMMENT: 14 per cent had never been acceptable, but was the cap imposed by the World Bank and IMF after the Wolfensohn intervention. Deloitte & Touche recommended 20 per cent. The rise to 18 per cent was the most the Bank and Fund would accept.]] The impact of cashew policy on farmers and processors 11. As Professor Krugman noted in his April article, Bank advice in the cashew sector in Mozambique has been decidedly pro-poor. Eliminating the export ban and reducing the export tax has put more money into farmers' hands. Prices for raw nuts, after inflation, rose from 10 cents per pound in 1994 to 18 cents this year. The farmer's share of the export value of the nut also rose over that period, from 28 percent to 58 percent. Higher prices also encouraged farmers to increase production. Since the 1993/94 season, farmers have brought an average of about 48,000 tons of raw nuts to market each year, compared to an average of about 32,000 tons a year in the five years before liberalization. In addition, export earnings from raw nuts more than doubled, from $19.3 million in 1993/94 to $40.7 million in 1997/98.
[[JH COMMENT:
12. Since liberalization, the Government has given the processing industry substantial assistance to help it to adjust to international competition. This assistance includes several tax breaks, reduced customs charges for imports of capital equipment, and deferment of payments due to the Government for the purchase of factories. In addition, the National Cashew Institute (INCAJU), created to help rehabilitate the industry, receives all of the proceeds of the 18 percent export tax. 13. Even so, the larger antiquated factories are experiencing difficulties. As the industry resumed production and added capacity after liberalization (it rose from 20,000 tons in 1994/95 to 60,000 tons in 1996/97), operational processing capacity came to exceed the supply of locally-produced nuts. As a consequence, firms were required either to operate below capacity, or to pay world prices to import raw nuts to operate at full capacity. Some factories (mostly those using outdated capital-intensive technology, such as automated cutters and/or mass decorticators) found that they could not make a profit under these conditions. Poor nut quality also put pressure on profit margins. . As a result, many factories have simply closed their doors. By contrast, a few small labor-intensive processors have shown themselves to be highly competitive already, and cost analyses show that they would remain competitive even if required to pay substantially higher prices for nuts. 14. In 2000, the International Finance Corporation (IFC), made a $580,000 loan investment ($300,000 disbursed) in Cabo Caju, a small manual processor in Pemba (2,000 ton per annum capacity) which produces high-quality niche products for export; Cabo Caju is using the IFC loan to expand its already profitable operations. In addition, in 1996, the IFC loaned $2,350,000 to Caju Mocita, a rehabilitated processor in Xai Xai owned by the Anglo-American Corporation and Oltremare, which manufactures the highly-automated cutter technology used in the factory (8,000 ton per annum capacity); this loan was fully repaid in May 2000. 15. Although liberalization has exposed the serious inefficiencies of the processing industry, in the long-run it is expected to help restore the industry to prosperity. Higher producer prices, sustained over time, will encourage farmers to revitalize an aging, unhealthy, and low-yielding tree stock, which is the root cause of the calamitous decline in the industry. An improved and enlarged tree stock will lead over the medium-term to higher production of raw nuts. It will also improve the quality of raw nuts, thus enabling processors to derive significantly higher profits from the same output. [[JH COMMENT: liberalisation did not "expose serious inefficiencies" -- everyone knew they were they when the factories were privatised. Instead, liberalisation prevented the new buyers from correcting those inefficiencies. Also, it is an assumption (so far unproven) that higher producer prices will lead farmers to make the long term investments needed in new trees. Indeed, it is widely assumed that some government or industry subsidy will be needed for new trees, and this is not possible under a totally free market.]] Rehabilitation of the processing industry 16. To help rehabilitate the sector, the Government created INCAJU, which is linked to the Ministry of Agriculture. Under its leadership, master plans for improving the production, marketing, and processing of cashew nuts have been prepared and funded. The master plan for improving orchard productivity ($16 million over 5 years) is already being implemented with support from the Bank and other donors. This plan, carried out through NGOs and the private sector, entails two immediate lines of action: (i) replacing the tree stock (400,000 new trees a year); and (ii) treating the oidium anacardium fungus and the helopeltis insect, which have severely reduced productivity. These treatments, which can more than double productivity in a season, have been initiated in Nampula and Cabo Delgado. In addition, a research program is being put in place, building on successes achieved in Tanzania. 17. Trade in raw cashew nuts has increased since the liberalization of exports. As the Deloitte & Touche study indicates, "growth in this area suggests that liberalization has clearly provided an impetus for ambulant traders to penetrate deeper into the interior of rural districts in an effort to procure stock, and this is breaking down the isolation felt by rural communities and bringing 'the market' closer to the farm gate in many areas." Under the master plan for improving the marketing and processing of cashew nuts, the Government is engaged in (i) organizing farmers using the extension service and NGOs to enable farmers to facilitate the process of collection and marketing; (ii) promoting the idea of quality-based premiums for nuts; and (iii) expanding the rural road network. 18. Using Bank funding, the Government also retained Abt Associates to assess the processing industry. Completed in November 1999, the study (Assessment of the Status of Competitiveness and Employment in the Cashew Processing Industry in Mozambique) assesses the economic and financial performance of each processing factory with a view to establishing its competitiveness profile, identifying sources of inefficiency, and designing strategies to overcome them. The Government is using the results from this study, and others, to develop and implement its master plan for the processing industry. Features of this plan include (i) promoting labor-intensive technologies to be used in small factories located close to production sites, thus providing employment in rural areas and reducing transport costs; (ii) assisting factories that are unable to compete under the liberalized marketing regime to close down and retire their employees; and (iii) assisting factories that have the potential to become competitive to restructure their operations. Costs associated with retiring employees or changing their status from permanent to temporary are currently estimated at about $7.5 million. Future assistance may include support for studies and training as well as access to a line of credit, for example under the Bank-funded Enterprise Development Project. Conclusion 19. Going forward, the Bank will continue to offer support to the Government for the cashew sector both through our agricultural and private sector development programs and through our analytical work on rural poverty in general.
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Africa Policy E-Journal
