Mozambique private sector support program (656-0208/0218) evaluation

Interim evaluation covers the period 1991-5/95. The PSSP has successfully completed its initial Policy Agenda, implementing significant and fundamental changes in the agricultural and petroleum sectors. Although formal policy dialogue was sidelined in 1992 by the drought and then again by the transition period, policy advances have continued. Progress in the Policy Agenda's six areas have been as follows. (1) Despite some backsliding, price liberalization has progressed to cover nearly all agricultural products and has had a significant impact on production and on market availability of farm products. (2) Divestiture of state farms, previously an enormous financial drain, has been largely accomplished. However, equitable resolution of conflicting land claims engendered by divestiture and of overlapping claims to other land by family farmers, commercial interests, and speculators will be crucial -- not only to the development of agriculture but to political tranquility for the nation. (3) The Commodity Import Program (CIP) provided significant quantities of tractors, other farm equipment, and small trucks, thereby helping to reestablish farm production and improve the movement of people and products to and from market centers. The CIP also improved the supply of agricultural inputs. Policy dialogue promoted sector efficiency by privatizing parastatal agricultural input supply and service conglomerates. (4) The significant foreign exchange rate distortions of the past have been eliminated and private sector access to foreign exchange has improved. In the long run, availability of foreign exchange will depend on increasing export earnings, particularly from agriculture. (5) A functional free market trade in food grain and other foodstuffs has developed to replace the rationing system, which has become less able to satisfy food requirements in Maputo and Beira. Private sector wholesale and retail trade in food grains, beans, and other nonperishables have been reestablished, largely superseding AGRICOM, the Government purchasing agent. Retail trade has also been liberalized and expanded, as small itinerant traders supply consumer goods to rural areas and scour the countryside for farm products to retail in an increasing number of open-air markets. Domestic purchases of white maize and other products by PVOs is helping to reestablish the rural market structure. Marketing of export crops such as cashews and cotton, crucial to raising small farmers' incomes, has improved considerably in recent years with the privatization of marketing boards. Marketing channels have now been reestablished in most of the country, but barriers remain to new firms eager to export crops such as cashews and cotton. Removal of remaining restrictions on crop exports and of barriers to new crop exporting firms is crucial. (6) There is compelling evidence of a direct impact of the PSSP in the substantial policy reforms that have occurred in petroleum importation, pricing, and marketing. The PSS/TA project, implemented by Cornell, Michigan State, and the University of Wisconsin Land Tenure Center provided information and analysis on which to base food security, price and marketing, and land tenure policies within the framework of a market economy. The pilot market information service is widely recognized and needs expansion. Land issues have been brought to the forefront and much of the shape of the policy debate on land issues has been framed. On-the-job training, along with U.S. degree and nondegree courses, has prepared a small number of young Mozambican professionals to deal with these issues. The CIP has proven adequate to the program's needs and flexible in responding to a changing economic climate. At crucial moments, the CIP financed petroleum imports without which the economy, including agriculture, would have ground to a halt. Recent increased interest of U.S. manufacturers in the southern African market means that nearly all CIP-financed commodities are of U.S. origin. The Government has also adopted a more rational pricing policy toward foreign exchange, as long advocated by the United States and other donors. The CIP has been forced to take on some functions normally provided by commercial banks due to continuing weakness of the banking system and its failure to mobilize necessary financial resources. The CIP has also contributed to the Government of Mozambique's (GRM's) budget through generation of local currency amounting to approximately 1% of GRM total revenues over the program's life. Food aid also contributed to the program's policy agenda, as well as the country's food security. (Author abstract)