Power Without Responsibility: the World Bank and Mozambican Cashew Nuts

 

Article published in the Review of African Political Economy 83
March 2000
For more information: www.roape.org

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Joseph Hanlon

Mozambique's cashew nut production failed to recover after the 1982-92 war, with serious implications for peasant producers and workers in the country's single largest industry. Cashew has the potential to regain its role as a major sector of the Mozambican economy, and this article looks at the fundamental problems relating to the growing and processing of cashew. Next the article shows how contradictory World Bank-imposed policies prevented Mozambique from resolving these problems. Cashew shows that World Bank staff sometimes have unchecked power to impose policies on poor countries, with no need to justify their actions. The article concludes by asking if the World Bank can be sole judge of the success of its policies.

The importance of cashew in Mozambique was shown by a question on the 1997 national census, which asked: `Do you have any cashew trees?'. In the 1960s, Mozambique produced half the world's cashew nuts. Cashew remained Mozambique's largest export until 1982. It involved literally millions of peasant growers. With more than 10,000 workers, cashew processing was the fourth largest employer – after railways, sugar, and textiles – with more than 5% of the formal sector non-government workforce (DNE 1985, 1989, 1992; Grupo de Trabalho Sobre o Caju, 1998). Today, Mozambique produces only 5 per cent of the world total, fewer than 1 million peasants are involved in growing cashew for the market, and the processing workforce is below 1000 (Grupo de Trabalho Sobre o Caju, 1998; Ministry of Planning and Finance et al, 1998: table 2.24).

Given the importance of cashew and the significance of its decline, it is hardly surprising that it attracted the attention of the World Bank. However, instead of opening a discussion of the issue, the Bank decided to impose a textbook free market policy. But it was to prove the imposition that provoked a backlash. As before, government bowed its head and humbly obeyed. But a newly confident press, civil society, domestic capital and parliament objected and stood up to the Bank and the International Monetary Fund. Unusually, the United Nations Development Programme (UNDP 1998) stepped in to support Mozambique and oppose the IMF and World Bank line. The result is a messy stalemate that continues four years later, with the Bank and Fund unable to impose a fully free market policy but unwilling to back down on the partial implementation of a discredited policy that destroyed an industry.

This article sets out the history and details of cashew processing, and then goes on to detail the World Bank's interventions and subsequent responses. But the issue is not cashew policy; the issue is poor governance and management and lack of transparency and accountability within the international financial institutions. The cashew example shows how senior individuals in the international financial institutions have unchecked power to impose policies and can cavalierly override public opinion, the views of government officials, and even United Nations agencies. World Bank President James Wolfensohn argues that the Bank is changing, because `it is clear to all of us that ownership is essential. Countries must be in the driver's seat and set the course' (Wolfensohn 1999: 9). This study shows that such reforms have not reached Mozambique, nor the World Bank officials who deal with Mozambique.

The cashew chain

There has been a long term decline in cashew production since 1972, before independence. But in good years, exports remained high: 21,100 tonnes of processed cashew kernels were exported in 1976, worth $33 million, 23% of export earnings; 16,700 tonnes were exported in 1982, worth $44 million, 19% of total export earnings (DNE, 1985). But then cashew production fell sharply, and prawns became Mozambique's main export. The main export market has always been the United States; it took 78% of cashew kernel exports in 1997 (Grupo de Trabalho Sobre o Caju 1998).

In Mozambique, cashew nuts are grown entirely by peasant families, mainly in coastal areas. A 1996-97 survey showed that 26% of all rural families have cashew trees, and 16% of rural families have more than 10 cashew trees. Even 10% of `urban' families have cashew trees (Ministry of Planning and Finance et al, 1998: table 2.24).

On the tree, the raw nut hangs beneath a false fruit or `cashew apple'. These are picked together and the cashew apple is eaten or used to make various alcoholic drinks. The raw nut has a hard and acidic outer shell which must be cracked to obtain the cashew kernel (see note 1). This is a five step process:

1) the raw nut is roasted or steamed to make it easier to break the shell,

2) the shell is then cut with a saw or cracked open with a hammer and the kernel is removed,

3) the kernel is then dried

4) the kernel has a thin skin which must be removed, and

5) finally the kernel is roasted (Torcato 1998: 31; Cramer 1999: 1254).

Peasants do carry out this process at home for personal consumption and sale in local markets. In India, cashew processing is done at home by family labour in an organised out-working system. But there are two problems with this:

1) the shell contains a harsh acid which damages workers' fingers, and

2) industrial or tightly organised production is needed to maximise the number of whole white kernels which are produced. Cashew remains a luxury product, and broken or scorched kernels attract a much lower price.

Health and safety considerations, as well as the desire to have tighter quality control, led to the growth of large factories in Mozambique to process cashew nuts. The nuts are broken open mainly by large mechanical hammers, or in some cases by automated cutters. In all cases, the skin is removed from the kernel by hand and sorting is by hand.

The acid in the shell, known as Cashew Nut Shell Liquid (CNSL) is a valuable by-product which is used in a substitute for asbestos in brake linings, among other things, although the market is declining due to the existence of synthetic alternatives (MAP 1995; Deloitte & Touche 1997). It is extracted during cooking before the nut is broken open. Brazil and Mozambique both extract the CNSL as part of the processing, while India generally does not. (See note 2)

Potential and problems

There are a number of reasons why cashew has the potential to regain substantial importance for Mozambique:

1) Cashew kernels are a high value luxury commodity with sales growing at a steady 7% per year 1991-96, and with every expectation that the market will remain strong (Cramer 1999: 1256).

2) Northern markets are not controlled, protected or cartelised, leaving substantial space for Mozambique to capture the value added by processing and marketing the kernels (Cramer 1999: 1256).

3) There is substantial potential to exploit cashew by-products such cashew butter from broken nuts, CNSL, and the juice of the cashew apple, which has a good flavour and is high in Vitamin C.

4) This is a good peasant crop. The climate in Mozambique is suitable. Cashew is considered by peasants to be one of their most lucrative crops, and the work needed comes at times which do not, for the most part, conflict with peak labour times for food crops (Deloitte & Touche 1997: 19).

Thus it has the potential to increase peasant earnings, create jobs, and increase exports. But these very advantages carry with certain problems.

+ Cashew production is very weather dependent, so supply is variable; world prices, although stable on average, are highly volatile in the short term.

+ Luxury goods must be of high quality. To compete directly in the world market requires standards, branding and marketing of a level never attempted in Mozambique.

+ Exploiting by-products requires new technology.

+ Production volume must be increased dramatically.

Cashew trees

Probably the most significant reason for the sharp fall in production after 1982 was apartheid South Africa's war of destabilisation. Up to half the rural population was forced to leave home, becoming refugees in neighbouring countries or moving to towns (Hanlon 1996: 15). Even peasants who were not displaced often were afraid to go to remote cashew trees to clean around them and harvest the crop.

But there was no significant increase in marketed production after the war. The biggest problem is the trees themselves. Most were planted in the colonial era and are reaching the end of their natural productive life. It is estimated that Mozambique has 26 million cashew trees but these are dying at the rate of 1 million a year (Deloitte & Touche 1997: 16). Trees are badly affected by pests and disease, and production per tree has fallen from 5-10 kg to 1-2 kg now (Torcato 1998). For many people, production only satisfies their own consumption needs and there is not sufficient surplus to be worth marketing. A 1996/97 survey showed that less than a quarter of rural families with cashew trees actually market any of their crop (Ministry of Planning and Finance et al 1998: table 2.24).

Thus Mozambique needs to plant millions of new trees each year if it is to return to being a major player in cashew. These need to be new hybrid trees resistant to current diseases, and with higher productivity. The difficulty is that cashew trees must be five years old before they produce. Few peasants would be willing to pay for cashew seedlings from commercial nurseries. Although the war ended seven years ago and most refugees were home five years ago, most peasants remain extremely poor and are still re-establishing their lives; making an investment that will only be productive in five years is not a priority.

One way forward is to encourage planting in larger units – either large farmers – some of whom already have more than 2000 trees (Deloitte & Touche 1997) – or commercial plantations. That would also make it easier to exploit the juice from the cashew apple. But few big investments are being made in Mozambique today which provide no return for the first five years; most investors are demanding a return in two years.

Factories

Mozambique's cashew processing factories were nearly all opened in the colonial era. Contrary to a common myth, after independence in 1975 Frelimo nationalised relatively few companies (Hanlon 1984: 75, 1996:11). But many owners, convinced by Portuguese propaganda that Frelimo would murder them in their beds, fled and abandoned their businesses. Others carefully stripped the assets and then went home to Portugal. In order to keep the factories running, Frelimo developed a system called `intervention', akin to bankruptcy, in which a new management was appointed but the formal status remained unchanged. But other private owners stayed, which led to a complex mix – in tea and sugar, for example, there were intervened estates side by side with private ones.

Most cashew factories were abandoned in the late 1970s, but Anglo-American Corporation of South Africa only abandoned its two cashew factories in 1981, participating in defacto sanctions imposed on Mozambique by South Africa in early 1981 as part of its new programme of destabilisation (Hanlon 1986: 135). Christopher Cramer is wrong when he says `the industry was nationalized shortly after independence in 1975 from Portugal' (Cramer 1999: 1247). The intervened factories were run by a new state holding company, Cajú de Moçambique.

Great emphasis was put on improving wages and working conditions, particularly for the women who made up half the workforce. There were creches, literacy classes, maternity leave, etc (Urdang 1989: 177). The new state managers were able to keep the factories running, but there was no new investment, and over two decades machinery began to wear out. Many factories are in rural areas, and transport and electricity supplies were affected by the war.

Frelimo had only wanted to control `strategic sectors of the economy', and as early as 1980 began to selling off and even giving away small businesses which had been intervened (Hanlon 1984: 75). In 1989 the government started a serious programme to privatise small and medium size businesses, almost entirely to a growing domestic private sector confident that it could operate in Frelimo's mixed economy (Hanlon 1996: 78). In the early 1990s the World Bank pushed privatisation of larger companies, and by 1999 virtually all government-controlled parts of the economy had been privatised.

All of the biggest companies – cement, breweries, banks – were sold to foreign companies. But in 1994-95 six cashew factories were unexpectedly bought for $9.1 million by six local businesses – mainly trading companies (some controlled by Asian-origin families) which decided to move into production. No other large company had been privatised to Mozambicans. And the buyers promised to invest a further $17 million in rehabilitating the antiquated factories (UTRE 1995).

Five cashew factories were given back to the original owners; Anglo-American took back a cashew processing unit it abandoned 13 years before. Finally, six new factories were opened in this period. Thus in 1997 there were 15 operational cashew factories, with an installed capacity of 144,000 tonnes of raw nuts but an actual capacity to process 75,000 tonnes of raw nuts per year – more than had been commercialised by peasants in any year since 1981 (Deloitte & Touche 1997: 25; Grupo de Trabalho Sobre o Caju 1997).

Exporting unprocessed cashew

From the colonial period the export of raw (unprocessed) cashew nuts had been prohibited by law until the capacity of the local processing industry had been met, although in the 1960s there were some exports to raw nuts to India (then the second largest producer of cashew). In the 1980s and 1990s, India rapidly expanded its production of cashew, to become the world's biggest producer. Processing capacity expanded faster than trees, so Indian imports of raw nuts increased rapidly, reaching 203,000 tonnes in 1996 (of which 41% came from Tanzania and 13% from Mozambique). India is the only importer of raw nuts, but India's 8th National Development Plan said that agricultural production should match processing capacity by 2000 (Deloitte & Touche 1997: 8-10).

About half of Indian production is in Kerela state and much of the rest in Goa, another former Portuguese colony (Deloitte & Touche 1997: 41). Kerela has a centralised procurement system and much of the processing is done on an outworker basis by families (Aicajú 1996; Deloitte & Touche 1997: 52).

In 1992, Mozambique replaced its export ban with an export tax on raw (but not processed) nuts. In 1994, the year of privatisation, only $2.5 million of cashew kernels were exported, compared to $16.9 million of raw nuts. This was in part because the factories had been allowed to run down prior to privatisation, so production was low in the transitional year, but picked up under the new management. In 1995 $9.7 million of kernels were exported compared to $5.6 million of raw nuts (Grupo de Trabalho Sobre o Caju 1998).

There was an informal agreement with the owners of the newly privatised companies that they would be given a period of protection while they rehabilitated and modernised the factories. In April 1995 the government changed the export tax on raw nuts to 25% on sales up to $600 per tonnes and 70% thereafter. But for the 1995/6 season (see note 3) it set the export duty at a flat 26%, and further specified that it would fall to 20% the next year, followed by annual drops to 16%, 12% and 8% (by 1999/2000) where it would remain (Deloitte & Touche 1997: 29). This revised policy was never implemented, however, because in 1995 the World Bank intervened.

The first study

In 1994 the World Bank commissioned a study of the cashew industry by Hilmar Hilmarsson which was released in mid-1995. The study was caustic. It said that Mozambique's industry was so inefficient that `the value of the processed kernels was less than the value of the raw nuts had they been exported directly. Cashew processing thus is a foreign exchange loosing [sic] industry in Mozambique.' Further, it argued that `Mozambique's smallholder producer has the distinction of being the poorest paid cashew producer in the world.' The only choice was to liberalise exports. `Some factory employees will lose jobs ... but increased cashew production and multiplier effects will more than make up for that' (Hilmarsson 1995: 2-4).

The processing industry was angry, and claimed that Hilmarsson knew nothing of the industry and had not talked with them. It said all of his data was based on the worst possible year – the transition year from state to private ownership – and took no account of the modernisation that was taking place. It also took no account of the special costs imposed by damage from the war which had only concluded two years earlier – many roads were closed or in bad condition, making transport costs much higher, and electricity supplies remained irregular.

The Cashew Industry Association (Aicajú, Associação dos Indústriais de Cajú) attacked Hilmarsson on most of his specific points (Aicajú 1996). Hilmarsson said peasants earned only 20% of the world market price, compared to 50% in other countries.; the producer price in 1993/94 was the lowest in a decade and was 34% of the export price of raw nuts, but in the following year it had already moved back to 41%. Hilmarsson said only 1500 people worked in the factories, so that was the maximum number of workers would lose their jobs. This was the number working at the time of his survey. But by the time of the rebuttal memo in mid-1996 the workforce had already increased to 8867, close to its normal level of 10,000.

Hilmarsson claimed the industry lost foreign exchange because the value of the processed kernels was less than the value of the raw nuts had they been exported directly because Mozambican factories produce only 43% whole white kernels (demanded by the luxury US market) compared to 70% for India (Hilmarsson 1995: 4, 27, 34). The industry challenged Hilmarsson's calculations, argued that low productivity was because the factories had not been modernised, and also cited the problem of raw cashew nuts being smaller in Mozambique than India due to tree disease and age.

Perhaps most importantly, Hilmarsson argued that free export of raw cashew would lead to such a huge jump in peasant income that this would more than compensate for any industrial jobs lost. Peasant income would rise from what he said was $4 million in 1993/4 to $20 million in five years and $70 million in 15 years (Hilmarsson 1995: 34). Industry sources countered that government data showed peasants earning $7 million in 1993/94 (nearly double what Hilmarsson claimed) and had already risen to $23 million two years later, without a significant freeing of the market, and then fell to $14 million by 1997/98 when the free market was taking effect (Grupo de Trabalho Sobre o Caju, 1998).

To get his estimates of a huge leap in peasant earnings, Hilmarsson (1995: 38) assumed a normal price elasticity that can be applied to many crops – that doubling the producer price brings a doubling of peasant output (price elasticity is 1). He ignored data published at the time he was doing his study showing that cashew is a unique crop having a very low price elasticity in Mozambique – 0.25 compared to 2 for maize and 1.8 for cotton, for example (Mosca & Delgado, 1994: 7). In an earlier study of Mozambican crop marketing, Finn Tarp (1990) had argued that although price reforms are important, they have proved much less influential in increasing production in Mozambique than outsiders like the World Bank claim. In other words, introducing a free market is not going to increase cashew production.

Despite the unusually strong criticisms of the Hilmarsson study, it was adopted as policy by the World Bank, which demanded rapid liberalisation of raw cashew exports. There was an outcry from the government, industry and trade unions, who demanded reconsideration. They said:

1) the study had been done without talking to people in the industry, and had fundamental flaws;

2) globalisation was forcing a lowering of standards of health and safety at work;

3) it was a myth that peasants would gain;

4) there was a serious danger in becoming dependent on a single buyer, India;

5) they study was carried out before privatisation without telling potential buyers, and was only published after privatisation; and

6) buyers of the newly privatised factories had been cheated because they had an implicit (and in some cases explicit) promise that there would be protection until they got the industry back on its feet.

Dependence on India is repeatedly stressed. India has a policy of expanding the cashew orchard to completely meet the demand of its own industry, and who will buy Mozambican nuts then if the factories are already closed? (Torcato 1998: 32) Furthermore, the price India has been paying and quantities it has bought are very variable – in the two years before the Hilmarsson study, 1992 and 1993, the price paid by India for raw cashew varied between $290 and $1151 per tonne.

Hilmarsson (1995: 20, 21) admits that both the World Bank's International Finance Corporation (IFC) and the European Investment Bank had given loans for rehabilitation on the basis that farm-gate prices would not increase. Indeed, in a confusing letter, IFC suggested that it would withdraw its loan if Mozambique continued to follow the policy of reducing protection, as demanded by IFC's parent, the World Bank (Metical 3 October 1997).

Industry people said privately that they are convinced that study would never have been released if the industry had been privatised to foreign companies as had been expected, and that the World Bank was only prepared to force the free market on domestic capital and not foreign investors.

World Bank imposes free market

The issue finally came to a head in mid-1995 when Mozambique was negotiating the Country Assistance Strategy (CAS) with the World Bank. Conditionality makes a CAS essential. All aid and loans to poor countries are conditional on recipient countries having structural adjustment programmes with the International Monetary Fund and the World Bank. This requires a World Bank CAS and IMF Policy Framework Paper (PFP) and Enhanced Structural Adjustment Facility (ESAF) agreement. This gives the IMF and World Bank dictatorial power, which the Bank used over cashew.

Phyllis Pomerantz, the World Bank's Washington-based country operations director, was in Maputo in 1995 to negotiate the details of the CAS. She met with several Mozambican ministers around the dining room table of the World Bank house on Av Kenneth Kaunda in Maputo. Cashew was high on the agenda, and ministers put up a stiff resistance. Finally Pomerantz said that if ministers did not accept a free market in raw cashew, she would refuse to submit the CAS to the World Bank executive board. Since this would have halted aid to Mozambique, ministers caved in (Confidential interviews with participants at the meeting).

In 1995, the CAS was still a secret document, but when it was issued in November 1995 it soon went into circulation. Clearly the World Bank did not trust Mozambican ministers, because the 1995 CAS unexpectedly made `cashew marketing, export and licensing liberalization' a `necessary condition' of its programme to Mozambique. It was the only `necessary condition' linked to such a detailed policy point, and the report said that `failure to liberalize' would lead to a sharp cut in the World Bank's programme. This hard line was all the more unexpected because a draft written a month earlier had not included `necessary conditions' nor the threat that failure to carry out `any one' of the conditions would lead to a cut in the programme (World Bank 1995a: 23; 1995b: 17,18).

The IMF's secret 1996 Policy Framework Paper for Mozambique also required the removal of the cashew export tax, and set an explicit timescale: `1995/96 - 20 percent; 1996/97 - 12 percent; 1997/98 - 7 per cent; 1998/99 - 5 percent; 1999/2000 - 0 percent' (IMF 1996: 25). This compares with the 26%, 20%, 16%, 12% and 8% (by 1999/2000) which had been agreed by the industry. But the government accepted the World Bank and IMF instruction and set the export tax at 20% for 1995/96. The outcry grew from civil society, particularly the trade unions and the press, who argued that the Bank policy was based on false premises.

The World Bank response was to raise the ante again. In October 1996 a World Bank delegation led by vice president for Africa Callisto Madavo visited Mozambique. Madavo was firm: `We have an agreement with government on cashew, and we expect that agreement to be followed. We believe the export tax on cashew should be removed,' he told a press conference.

In closed meetings, the Bank team went further. One Mozambican official said privately `the World Bank told us we must say this is our policy and to stop staying it is imposed by the Bank. We know aid is conditional on World Bank approval, and now we must lie to get World Bank approval. And we will. But we remain totally opposed to a policy that will destroy our cashew industry.' As required, Mozambique reduced the export duty for 1996/97, but to 14% instead of 12%.

When World Bank President Wolfensohn visited Mozambique in February 1997 he came under heavy pressure on the issue. Wolfensohn said he wanted to meet `civil society' and the cashew issue came up several times. At a dinner with President Joaquim Chissano, Wolfensohn was seated next to someone from the cashew industry, and Chissano again raised the issue during his talk. Wolfensohn responded more favourably and totally reversed Madavo's line. He ordered a new study, and suspended the demand for further cuts in the export duty on raw nuts from the then level of 14%. When Wolfensohn returned to Washington, at a meeting with Bank staff he strongly criticised Bank handling of the Mozambique cashew saga.

When the 1997 IMF Policy Framework Paper was issued in May, there were no numbers attached to cashew and it only said `revise the cashew sector policy in light of the result of the cashew liberalization impact study after consultation with growers, traders, industrialises, NGOs and interested external partners' (IMF 1997: 22).

New study says `abandon' Bank-imposed policy

The new study was carried out by international consultants Deloitte & Touche and released in September 1997 (Deloitte & Touche 1997). It says the World Bank's previous policy `should be abandoned'. It agrees with the industry and trade unions and `disagrees with the previous finding'. It argues that the previous policy `will dismantle the processing industry', and that there should be a `fundamental change' in policy.

The new study made several key points:

1) Indian subsidies to its industry `tilt the playing field' and make competition unfair.

2) `Improved management practices continue to contribute to factory efficiency' in the newly privatised Mozambican factories, with a steady increase in the percentage of `whole white' nuts. Mozambican workers are as efficient as Indian ones.

3) Mozambique earns an extra $130 per tonne by processing its own cashew kernels, in contrast to earnings from exporting raw nuts. This extra earning `alone is sufficient reason to support the processing industry against competition from India.' The study calls for an increase in the cashew export tax.

4) Peasants did not gain anything from liberalised exports; extra profits were all held by the traders.

The final point is not surprising. Elsewhere in Africa, liberalisation of the trade in export crops has benefited `private traders at the expense of farmers,' according to UNCTAD (1997: 144, 145). `Market-based reforms have not so far had a great impact on farm incomes in much of Africa,' notes UNCTAD. `Producer prices have continued to be depressed, particularly in regions with poor infrastructure and low population density.' So it should not be surprising that this has happened in Mozambique.

The World Bank response was to reject and misinterpret the study. The initial response in October 1997 was to not respond to any of the substantive points, but to simply say that the `terms of reference have not been addressed by the consultants' (World Bank 1997a: 1).

The Bank's Country Operations Director for Mozambique, Phyllis Pomerantz, gave a briefing to the Bank's Nordic-Baltic office on 20 November 1997 in which she said that the cashew policy had not been imposed by her, but was a government policy. She said that the export tax on raw nuts `hurts the poor most and that cashew farmers could raise their income substantially (up to 50 percent) if the tax was diminished. These conclusions were drawn in a study on the issue, that was conducted by a consultant company after the visit by the President Wolfensohn earlier in the year' (World Bank 1997b). In fact, as noted above, the study said just the opposite.

In the Country Assistance Strategy (CAS) for Mozambique – written largely by Pomerantz and agreed on by the Bank's board in November 1997 – removed the necessary condition, but contained the petulant comment that those opposed to sacking women cashew workers are `powerful elites who oppose some reforms' (World Bank 1997c). In an angry statement on 10 December 1997, the Mozambican Debt Group, a coalition of non-government organisations active on World Bank and debt-related issues, declared that the `CAS is a misrepresentation of the amount of local “opposition” to the World Bank's cashew nut policy.'

Similarly, in the CAS and in the Nordic-Baltic briefing, Pomerantz talks of frequent consultations with NGOs. The Debt group replied that `despite Bank claims to the contrary, there was absolutely no consultation with Mozambican “civil society” on the 1997 CAS.'

Cashew was debated in parliament (Assembleia da República) on 24 November 1997 and several members called for a ban on exports. But Trade and Industry Minister Oldemiro Baloi said that the World Bank had privately told the government that the export duty could not be raised above 14%, and asked: `what power do we have to storm that rampart?' If any change was made to the cashew export system, he continued, `we will be applauded here, but the World Bank will point to the clauses in our agreement, and we'll all face the consequences.' He stressed that the restriction cashew was `a condition to obtain funds' and thus the price of supporting the cashew industry would be very high and paid by the rest of the country. Prime Minister Pascoal Mocumbi went further in a press conference four days later, when he said that if Mozambique asks money `From the World Bank, then the Bank imposes its conditions. But sometimes w have to accept things that are not in our interest, because there is no other way out.' (AIM 24, 25, 28 November 1997)

Industry and unions wrote to Wolfensohn in November to ask for a formal change in policy and compensation for the costs of a policy Deloitte Touche said was wrong. The reply on 17 December came not from Wolfensohn, but from Callisto Madavo, vice president for Africa, who had previously demanded unquestioning acceptance of the Bank's demand to close the Mozambican factories and let Indian children shell the nuts. Madavo wrote that `It is our view that there already have been considerable benefits of market liberalization. As the draft Deloitte Touche study confirms, processing capacity in the industry has increased, particularly among those firms using small-scale labor-intensive processing methods.'

Indeed, there had been a growth in processing capacity, but not due to liberalisation. The Deloitte & Touche (1997: 47) study actually showed that the newly privatised companies had raised the capacity from less than 20,000 tonnes a year to 45,000 tonnes, while hand processing capacity had grown to 15,000 tonnes.

Kekobad Patel, head of Mozambique's Cashew Industry Association (Aicajú), wrote directly to Wolfensohn on 12 January 1998. Patel said that on the evidence of the Madavo letter, `it seems that the copy of the study, elaborated by Deloitte & Touche, in possession of the World Bank staff is not the same as in our hands, and which was publicly presented by the consultants.' He goes on to say `We simply cannot read [any of Madavo's conclusions] from our copy.'

Stand-off

For the next 18 months, the issue remained stalemated. The export duty remained at 14%, which was ironic because by 1998/99 this was actually higher than it would have been if the World Bank had allowed the original agreement with the industry to go ahead. Privately, World Bank officials made clear that they would not force the duty lower, but they would not allow it to increase.

Meanwhile, the World Bank worked to shift government policy, particularly by promoting small factories which used Indian-style hand processing and which Hilmarsson said would be viable in Mozambique even under a free market. One World Bank loan was given for a factory owned by the wife and minor children of Agostinho do Rosário, the Minister of Agriculture and Fishing and thus a key person in deciding whether or not to challenge World Bank cashew policy. But it might have the opposite effect, because the factory manager, Alberto Simbine, admitted that `as a small company dependent on local bank credit, we cannot survive against the competition' of traders directly exporting raw cashew. The company has also had trouble keeping workers because wages are so low that workers often prefer to go to their fields (Metical, 10 February 1999).

Meanwhile, the big factories closed as raw nuts were exported, while the world price remained volatile as it was determined entirely by Indian surplus capacity. By September 1999, only one factory was open with fewer than 1000 workers. `We have lost more than $15 million,' said Aicajú's Patel. The buyers of the factories have only paid the first instalment on the purchase price. `The government still expects us to pay the next instalment on the privatisation, and we need to invest millions of dollars to modernise the factories. But we now have big debts to the banks from the past two years on which we are paying 30% interest. We cannot pay everything. If the World Bank or the government cannot give us the conditions to work, we will just hand back the factories,' Patel said (interview).

The industry wants a commitment to a long term policy with at least some protection. And it feels the World Bank or the government must provide a long term low interest loan to allow the industry to clear its debts and modernise. `We are actually prepared to assume these losses, but in the long term, not immediately,' said Patel.

Parliament takes a cautious stand

Public pressure meant that the issue was raised again in parliament (Assembleia da República). The unions and industry called for a complete ban on exporting unprocessed nuts – up to the capacity of the factories – to allow the factories to reopen, recoup their losses, and modernise; as during the colonial era, after the demand of the factories had been met, then remaining nuts could be exported. Frelimo (the government party) submitted a bill to this effect to parliament in February 1999 (AIM 2 February 1999). But as discussions continued, government ministers put pressure on Frelimo members to opt for something less strong. Finally, several Frelimo members of parliament instead proposed a simple increase in the export duty.

The reason for government pressure became clear. On 28 June the IMF board met in Washington to approve debt relief under the Heavily Indebted Poor Countries Initiative. Mozambique will gain $31 million a year, because the IMF estimates that Mozambique's debt service payments will fall from the $104 million actually paid in 1998 to a 1999-2005 average of $73 million (IMF 1999c).

But a condition of debt relief was that Mozambique have a new ESAF (Enhanced Structural Adjustment Facility) Policy Framework Paper, and this was approved by the IMF board on 28 June just before HIPC debt relief was approved. Part of the ESAF agreement is the `Letter of Intent' and it says that `the government will not adopt new, or increase existing, general import surcharges or export taxes and restrictions' (IMF 1999b: ¦17). This was clearly aimed at the proposed cashew law already being discussed in parliament.

Nevertheless, parliament went ahead and on 30 September 1999 approved a law calling for the government to set the export duty at between 18% and 22% for the next five years. Prime Minister Pascoal Mocumbi had already told a press conference on 24 September that the government would not veto the new law, and would put it into effect. `We have to explain to the IMF that a sovereign parliament decided this,' Prime Minister Mocumbi said. Privately, government officials said they thought that the IMF would accept an increase in the export tax to 20%, but would not accept a total ban on exports as called for by the industry, trade unions and opposition Renamo party.

The test will be when Mozambique returns to the IMF and World Bank in mid-2000 for the extra debt relief promised by the G7 (leaders of the Group of seven richest countries) at Cologne (Köln) in June 1999. Mozambique's debt service could fall by an additional $20 million, but that extra debt relief is conditional on Mozambique faithfully following its IMF ESAF agreement.

The anger against the World Bank and IMF are clear. Abdul Carimo, a Frelimo leader and deputy speaker, told parliament on 22 September that `the growth of Asia and Latin America in cashew production has been on the basis of national policies of protection and incentives, and not on today's Bretton Woods prescriptions, which are publicly recognised as having failed in the case of Mozambique.' Carimo went on to complain that the European Union gives at least $30 billion per year in subsidies for its agriculture, yet these same countries use the IMF and World Bank to prevent Mozambique from protecting its cashew producers.

A problem for the government was that it was facing national elections on 3-4 December and Frelimo only held an eight seat majority in parliament. More than 9000 cashew factory workers were unemployed by then, which had a devastating impact on the economies of several small cities. If the cashew workers and their friends and neighbours voted against Frelimo, that could have been enough to swing the election.

And the opposition did make political capital over Frelimo backing down from a ban on exports. David Alone, a leading Renamo MP, accused Frelimo of opposing a ban because some Frelimo leaders are getting rich through these exports. `Our leaders are compromised to the point where they mortgage our national sovereignty in exchange for commissions,' and this leads them into collusion with the World Bank and IMF, he said.

No policy

The new law gives some help to the industry, which will receive 20% of the export taxes collected. The new law also calls for some government money to help those processing companies which can reopen and operate profitably. Had this law been passed four years ago, the industry and the trade unions would have been satisfied. But they argue that it is now too late. The industry is millions of dollars in debt because of exports of raw nuts over recent years, and needs extra protection to recuperate.

The underlying problem is that production has been falling for 30 years and peasants are not been replacing their cashew trees. Mozambique's rural economy remains extremely fragile, and few peasants are prepared to buy tree seedlings which will only produce nuts in five years. This means that the government or the industry must subsidise nurseries and the massive planting of new trees, and the industry wanted the money from the export tax to go to this. The remaining 80% of the export tax is intended to go toward promoting cashew farming, but there is no detail as to how this is to be done.

So, four years after the debate started, cashew production remains low, the export duty is higher than the industry had originally proposed and the World Bank demanded for 1999/2000, and most of the factories are closed. And so much time and energy has been wasted fighting the World Bank's policy that Mozambique still has no cashew policy.

A new policy would have to cover the industry from end to end. At the farmer end, it is necessary to select new varieties of trees appropriate for peasant cultivation, set up the nurseries, and provide the seedlings to the farmers. Peasants need support and assistance if they are to treat existing trees to curb the fungus and pests which now affect the national orchard.

It may make sense to encourage plantation cultivation, which might require some initial subsidy. Another alternative, suggested by the government, is to follow the pattern used for cotton and, to a lesser extent, sugar, under which a company (processor or trader) is given an exclusive `zone of influence' where they must supply all inputs (seed, pesticides, etc) but have exclusive rights to buy the product at a fixed price (Metical 23 September 1999).

There is a need to raise the quality of the nuts, because traders are imposing no quality requirements. There is also a question of should the government intervene in marketing, for example by setting a minimum price (Deloitte & Touche 1997: 27, 35).

The United Nations Development Programme (1998: 74, 75), in a detailed study of the cashew sector, calls for Mozambique to adopt what it calls `infant agriculture policies' for cashew. These would be similar to policies which were used to develop asparagus for canning in Taiwan, tomatoes for canning in Thailand and tea in Kenya. Such policies `are anathema to the proponents of free market ideals, but they have been extremely successful in other cases, especially when linked to processing. ... There is no universal recipe for pursuing these objectives, but policy makers should at least commit themselves to exploring the range of possibilities rather than slavishly surrendering to the seductive elegance of the free market model. There is abundant evidence that sub-Saharan African agriculture has not responded as hoped to price liberalisation and trade deregulation.'

And at the processing end, an industry recently fragmented by privatisation needs to work much more closely together. The Deloitte & Touche report (1997: 45) notes that `most of the factories do not meet internationally acceptable food handling, health or safety standards and it may only be a short time until this becomes a problem for the factories.' UNDP (1998: 71) noted that `if Mozambique wishes to maximise foreign exchange earnings through cashew processing, and particularly through climbing up the value chain toward branded retail packaging, it is urgent that the government take steps to ensure high standards of kernel quality. One option would be to establish an agency to set standards and monitor them.' Deloitte & Touche (1997: 50) argues in a similar vein that `a key factor in the retail marketplace will be the promotion of a name, common to all, for Mozambican nuts (of a good and reliable quality) and possibly the creation of an industry exporter who will be able to export material from qualifying factories.' This is something Mozambique has never attempted, and requires setting up an organisation like Outspan, the successful citrus marketing body for South Africa.

UNDP (1998: 64, 72, 73) states simply that `if Mozambique pursues a free trade policy in marketing raw nuts, within a short period it will cease to have a competitive processing industry.' Instead, `the Mozambican government should learn from the industry supports offered to, for example, Indian cashew processors, and should adopt similar measures.' This would involve low interest credit, support for processors to meet rigorous international standards, and training for workers. UNDP and Cramer (1999: 1260) even suggest that Mozambique take advantage of its higher labour standards and improved working conditions by selling the cashew in Europe with a `fair trade' label.

UNDP (1997: 76, 77) challenges World Bank and IMF policy directly. It says `the insistence on “market friendly” policy is irrelevant where the real focus should be on production and processing friendly policies.' It notes that `the World Bank is nervous of any policy that might entail inefficiencies. But policy makers have to judge whether a degree of inefficiency in the short to medium term might be justified.'

Governance and the driver's seat

The issue of free export or not is, in many ways, a side-show imposed on Mozambique by the World Bank. Mozambique has never been able to have a public debate and set its own cashew policy. The issue is extremely complex and needs extensive discussion. But the 1995 change in policy was imposed in a dictatorial fashion by a single person, Phyllis Pomerantz, who was and is World Bank country operations director for Mozambique. There was no public debate. There was never a parliamentary hearing which tried to balance the interests of industry, workers, and peasant growers (indeed, the peasant voice has not been heard at all in the discussion, so far). The World Bank never defended her policy to parliament or the public, and simply imposed it. Once the policy had been imposed by the Bank, the IMF joined in – again without discussion.

World Bank President James Wolfensohn says “countries must be in the driver's seat and set the course.” This seems to be contradicted by this study, which makes clear that individuals within the World Bank and IMF continue to have the right to impose policies which are deeply disputed. Perhaps Wolfensohn means that countries can “set the course” only if it is the World Bank's course, and not if it is the one proposed by UNDP. Alternatively, the management of the World Bank is so weak that staff are free to ignore their president.

In either case, the issues of transparency, governance and accountability come to the fore.

+ Transparency: The process by which the Bank commissioned and released the Hilmarsson study and rejected the Deloitte and Touche report remains totally obscure; this is particularly important at a time when the World Bank is promoting itself as the pre-eminent source of information on development. The process by which the policy on cashew was determined remains hidden. Even now, World Bank and IMF papers remain secret until they are approved by the boards, which provides no opportunity to challenge the imposition of conditions such as the ones for a free market in raw cashew.

+ Governance and management: On the surface, it appears that World Bank staff are free to ignore the pronouncements of their own president. Even when problems are serious enough to require presidential intervention, there is no follow-up to see that they are resolved. Is this a sign of weak management, or of presidential speeches as window dressing?

+ Accountability: There is no independent check, audit or appeal process. The Bank and Fund monitor themselves, and not surprisingly conclude that they do relatively well. Cashew workers have no right of appeal; even the government has no route to object to a policy imposition without a suspension of the programme and thus, because of conditionality, a halt to aid. Finally, there is no independent check on the success or failure of a policy or project, and no compensation for the failures.

Indeed, it appears that the World Bank violates all the guidelines for “good governance” that it tries to impose on developing countries. The result is an agency with overwhelming power, but whose decisions cannot be challenged and which takes no responsibility for its mistakes.

Joseph Hanlon is policy advisor to the Jubilee 2000 Coalition UK, and is a senior research fellow at the Open University, Milton Keynes, UK. He is the author of four books on Mozambique.

 

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Endnotes

(1) Terminology is important. We use `raw nuts' to mean the unprocessed cashew nuts after harvesting but without further processing (other than drying). We use `kernel' to mean the cashew nut as eaten by the consumer. In Portuguese, the term `castanha de caju' is sometimes misused for both raw nuts and kernels, so Mozambican writers tend to use `castanha de caju em bruto' for raw nuts and `amêndoa de caju' for kernels.

(2) There is confusion as to which processing method is used to produce CNSL. Torcato (1998) says that CNSL is extracted only during steam processing and not during roasting, while Deloitte & Touche(1997: 14) say it can only be extracted if nuts are roasted and not if they are steam processed. Deloitte & Touche also note the demand for CNSL has now fallen to the point where it is more economic to burn it as fuel for the factory, but exports in 1997 were 2000 tonnes of CNSL valued at $300,000 (Grupo de Trablaho Sobre o Caju 1998).

(3) The main commercialisation period is October through February, so the `season' is considered to start in October.

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This article was published in the Review of African Political Economy 83
March 2000
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