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Factories have closed and thousands of workers have been laid off in the poorest country on Earth as a result of World Bank-ordered policies that have now been shown to be wrong. As Joseph Hanlon of the Gemini News Service reports from Maputo on November 24, 1997, the institution is being urged to pay for its mistake.

Joseph Hanlon is author of several books about Mozambique, including Peace Without Profit: How the IMF Blocks Rebuilding in Mozambique. He is editor of the Mozambique Peace Process Bulletin.


World Bank Urged To Shell Out Over Nuts Blunder

Bu Joseph Hanlon

Cashew-nut processors in Mozambique are demanding $15 million in compensation from the World Bank in a ground-breaking attempt to force the international financial institution to pay for its mistakes.

The claim follows the release in September of a World Bank study which said a policy the bank imposed on Mozambique was totally wrong and should be "abandoned".

More than 7,000 workers have been laid off this year, and the newly privatised cashew-processing industry virtually bankrupted. Kekobad Patel, head of the Mozambique Cashew Industry Association, says that even if the policy is now reversed, most factories cannot be reopened without financial help.

The case will be a personal test for James Wolfensohn, president of the World Bank, who asked for the study to be carried out after he visited Mozambique in February.

Other bank officials had earlier insisted on the policies that have led to the factory closures, and had effectively threatened to cut off the country's lifeline of foreign aid if it did not comply.

Mozambique,currently listed by the bank as the world's poorest country, had no choice but to agree.

Wolfensohn has stressed his desire to change the culture of the World Bank. While in Maputo, he said officials should not be forcing policies on the government. But they already had done so, and now that the cost is being counted, the bank is under pressure to pay for its error.

Cashew nuts are Mozambique's second-largest export. Tens of thousands of peasants cultivate cashew trees, and the country has developed a relatively sophisticated processing industry, employing 9,000 people, mainly women, to crack the nut's hard shell to expose the kernels.

At World Bank insistence, these state enterprises were privatised in 1994-5. High bidders at $9 million for the factories were local businesses and not transnational corporations, as had been expected by the bank and many observers. But when the local business people took over, the bank disclosed a study which said the processing industry was so inefficient that the country lost money on every nut processed. The bank insisted that raw nuts must be exported to India, where kernels are cracked by families working at home in poor conditions.

Mozambique had imposed an export tax to compensate for Indian subsidies to the industry and to protect its own industry. The World Bank demanded that the tax must be removed and exports of unprocessed nuts "liberalised".

There was an outcry from the government, industry and trade unions, who demanded reconsideration. They said the study was flawed and had been carried out without talking to people in the industry.

Instead of engaging in discussion, the bank raised the stakes. Its 1995 "Country Assistance Strategy" made free export of cashews a "necessary condition" of its programme to Mozambique. The 1996 joint World Bank-International Monetary Fund "Policy Framework Paper for Mozambique" also required the removal of the export tax.

A "necessary condition" is a powerful demand. For many years, Mozambique was ravaged by a war, supported by South Africa's former apartheid government, which killed a million people and inflicted an estimated $30 billion in damage. As a result of this destruction, Mozambique is now one of the world's most aid-dependent countries, receiving more than $500 million a year. But all this aid is conditional on Mozambique having programmes with the IMF and World Bank.

In October 1996, the bank's vice-president for Africa, Callisto Madavo, visited Mozambique and insisted that the government had made a pledge and could not back down.

In closed meetings, his team went further. One Mozambican official said privately: "They told us we must say this is our policy and we cannot say 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 the cashew industry."

When Wolfensohn visited in February, he responded more favourably. He ordered a new study, and made clear that closure of the industry was no longer a condition.

The latest study was carried out for the bank by international consultants Deloitte and Touche and released in early September. It says the previous policy "should be abandoned". It agrees with the industry and trade unions and "disagrees with the previous finding".

In particular, the new study concludes that Mozambique earns an extra $130 per tonne by processing its own cashew kernels, in contrast to earnings from exporting raw nuts. "This alone is sufficient reason to support the processing industry against competition from India." The study calls for an increase in the cashew export tax.

In particular, it praises the "improved management practices" and "efficiency" of the newly privatised companies, compared with the old studies which said the industry was hopelessly inefficient.

Although this research was carried out soon after Wolfensohn's promise, it may have come too late. Because of the cut in the export duty, most of Mozambique's cashew crop this year was exported as raw nuts to India. Most factories have closed after running out of raw nuts. Thousands of workers have been laid off.

"In the past two years we have lost more than $15 million," said Kekobad Patel, of the cashew industry association. "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 on which we are paying 30 per cent interest. We cannot pay everything."

The industry says it needs a commitment to a long-term policy with at least some protection. And it wants the World Bank or the government to provide a long-term, low-interest loan to allow it to clear its debts and modernise.

"But if the World Bank or the government cannot give us the conditions to work," said Patel, "we will just hand back the factories", and they are unlikely to reopen.

Mozambique has one of the best privatisation programmes in Africa, according to Phyllis Pomerantz, a World Bank official. Yet the bank's own policies have placed in serious jeopardy one of the best parts of that programme.

- GEMINI NEWS


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