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Mozambique: Latest Economic Report Concerned About Mega-Projects
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Agencia de Informacao de Mocambique (Maputo)
11 May 2008
Posted to the web 12 May 2008
Maputo
While the Mozambican economy has shown "impressive growth" in recent years, it remains driven mainly by aid inflows, and mega-projects that provide little in the way of direct employment or tax revenue.
This is the assessment of Mozambique given in the latest edition of the "African Economic Outlook", a report published by the African Development Bank (ADB), the United Nations Economic Commission for Africa (ECA), and the Organization for Economic Cooperation and Development (OECD), and launched in Maputo on Sunday.
"Concerns about the limited job creation capacity of mega-projects lingers", remarks the Mozambique chapter of the report. "The capital intensive nature of these projects pushes up demand for skilled labour, doing little to absorb the surplus of unskilled labour".
Mega-projects such as the MOZAL aluminum smelter on the outskirts of Maputo received very generous tax incentives from the Mozambican government. The report admits that negotiating with multinational corporations is a challenge, and suggests that Mozambique "may not have secured the most favourable terms" in its dealings with MOZAL.
The counter-argument to this has always been that, without the tax concessions, MOZAL would not have been built, and MOZAL was needed as a beacon to attract other investors.
The report notes that the government has taken criticisms of the mega-project strategy seriously "and is now setting tougher conditions for new foreign investment projects".
The report's authors believe the government should, and can, collect more taxes. "More should be done to mobilise tax revenues", they urge, "especially from mega-projects, in order to reduce dependence on foreign aid, which currently finances more than 50 per cent of the budget".
"It is particularly important to strengthen fiscal transparency in light of the number of large investment projects and concessions in the pipeline", the report adds. Furthermore, foreign aid is expected to decline from 14.2 per cent of GDP in 2008 to 12 per cent in 2010 - additional tax revenue is thus crucial to compensate for the forecast decline in aid, as well as the falling customs revenue that is the inevitable result of the SADC (Southern African Development Community) Free Trade Area that took effect in January.
The report puts Mozambique's total debt servicing in 2007 at 54 million US dollars. But two thirds of this is domestic debt. The foreign debt has been slashed, thanks to Mozambique's successful completion of the two stages of the HIPC (Heavily Indebted Poor Countries) initiative, and the benefits of the Multilateral Debt Relief Initiative (MDRI). Foreign debt service fell from two per cent of GDP in 2005 to around 1.1 per cent in 2007.
But the gains from HIPC and MDRI have been compromised by rising levels of domestic debt (which cannot be rescheduled or cancelled), much of which arose from the need to rescue the two privatised banks, the BCM and Austral, which were looted between 1996 and 2001.
As for the balance of trade, this worsened in 2007, "reflecting the high oil import bill and the deterioration of the performance of traditional exports". The latter, the report claims, was caused mainly by the poaching of Mozambique's prawn resources by illegal foreign fishing vessels. Exports were thus overwhelmingly dominated by the products of three mega-projects - aluminium from MOZAL, natural gas from the plant operated by the South African petro-chemical giant SASOL in Inhambane province, and electricity from the Cahora Bassa dam.
The report warns of a likely further deterioration in the trade balance, as oil prices continue to rise, while aluminium prices are predicted to fall.
The report also notes the success of the Mozambican sugar industry. The area under sugar cane cultivation is rapidly expanding, and the four sugar mills are expected to produce 273,000 tonnes of sugar in 2008, an increase of 36.2 per cent on last year's figure.
But it adds the caveat that Mozambique's sugar mills "are small compared with those of the world's major sugar exporting countries, translating into higher milling costs. In addition, Mozambican competitiveness is hampered by poor transport links and lack of sugar storage and loading facilities at the port of Beira".
While acknowledged the sharp drop in poverty (by 22 percentage points) between 1997 and 2003, the report warns that since then "poverty reduction has apparently stalled, with some sectors and regions not benefiting from good economic performance".
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Turning to the political context, the report believes that President Armando Guebuza's appointment of Augusto Paulino as Attorney-General in August 2007 "sent a strong signal" of his commitment to the fight against corruption. This is because of Paulino's outstanding role in the fight against organised crime, shown in his jailing of the business figures found guilty of the murder of investigative journalist Carlos Cardoso in November 2000.
Nonetheless, the report notes concern "that the government's anti-corruption strategy has delivered too few visible results" - noting in particular "irregularity in the publication of data about the fight against corruption, and the lack of trials of corruption cases in 2006 and 2007".
Pf/ (831)
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| Copyright © 2008 Agencia de Informacao de Mocambique. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections -- or for permission to republish or make other authorized use of this material, click here. | |||||||||||||||||||||||||||||
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