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8EDF National Indicative Programme

Spanish translation: Programa Indicativo Nacional del 8º FED

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English term or phrase:8EDF National Indicative Programme
Spanish translation:Programa Indicativo Nacional del 8º FED
Entered by: Elena Vazquez Fernandez
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13:09 Apr 4, 2002
English to Spanish translations [PRO]
/ European Union
English term or phrase: 8EDF National Indicative Programme
...the mid-term review laid down in the 8EDF National Indicative Programme was held in Brussels...

Mi pregunta es: esto se epresaría "la revisión a medio plazo expuesta en el Programa Indicativo Nacional (PIN) del 8º FED"?

Es que estoy segura de la relación entre el FED y el PIN, y por eso dudo.

Gracias de antemano por vuestra ayuda.
Elena Vazquez Fernandez
Spain
Local time: 09:01
vid. expl.
Explanation:
Mientras te envío la explicación, puedes consultar este sitio en la Red.
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Mozambique – European Community



Country Strategy Paper


and National Indicative Programme


for the period 2001 - 2007







The Government of the Republic of Mozambique and the European Commission hereby agree as follows:


The Government of the Republic of Mozambique, represented by <name and title>, and the European Commission, (represented by <name and title>,) hereinafter referred to as the Parties, held discussions in <place> from …..… to …….. with a view to determining the general orientations for co-operation for the period 2001 – 2007. The European Investment Bank was represented at these discussions by <name and title>.
During these discussions, the Country strategy paper and an Indicative Programme of Community Aid in favour of Mozambique were drawn up in accordance with the provisions of Articles 2 and 4 of Annex IV to the ACP-EC Partnership Agreement, signed in Cotonou on 23 June 2000. These discussions complete the programming process in Mozambique.

The present Country Strategy Paper and the Indicative Programme are annexed to the present document.

As regards the indicative programmable financial resources which the Community envisages to make available to Mozambique for the period 2001-2007, an amount of € 274 million is foreseen for the allocation referred to in Article 3.2 (a) of Annex IV of the ACP-EC Partnership Agreement (A-allocation) and of € 55 million for the allocation referred to in Article 3.2 (b) (B-allocation). These allocations are not entitlements and may be revised by the Community, following the completion of mid-term and end-of-term reviews, in accordance with Article 5.7 of annex IV of the ACP-EC Partnership Agreement.
The A-allocation is destined to cover macroeconomic support, sectoral policies, programmes and projects in support of the focal or non-focal areas of Community Assistance. The indicative programme under chapter VI concerns the resources of the A-allocation as well as uncommitted balances of former EDFs, for which no projects and programmes have been identified under the respective National Indicative Programmes. It also takes into consideration financing from which the Republic of Mozambique benefits or could benefit under other Community resources. It does not pre-empt financing decisions by the Commission.
The B-allocation is destined to cover unforeseen needs such as emergency assistance where such support cannot be financed from the EU budget, contributions to internationally agreed debt relief initiatives and support to mitigate adverse effects of instability in export earnings. The B-allocation shall be triggered according to specific mechanisms and procedures and does therefore not yet make part of the indicative programme.
Pending the entry into force of the Financial Protocol of the ACP-EC Partnership and within the framework of the present Country Strategy Paper and Indicative Programme, financing decisions for projects and programmes can be taken by the Commission at the request of the Government of Mozambique, within the limits of the A- and B-allocations referred to in this document and under the condition that sufficient resources are available in the general reserve of the eighth EDF. The respective projects and programmes shall be implemented according to the rules and procedures of the eighth EDF until entry into force of the Financial Protocol for the Ninth European Development Fund.
The European Investment Bank may contribute to the implementation of the present Country Strategy Paper by operations financed from the Investment Facility and/or from its own resources, in accordance with Articles 3 (a) and 4 of the Financial Protocol of the ACP-EC Partnership Agreement (see Chapter 5 and Section 6.2.3 for further details).


(7) In accordance with Article 5 of Annex IV to the ACP-EC Partnership Agreement, the National Authorising Officer and the Head of Delegation shall annually undertake an operational review of the Indicative Programme and undertake a mid-term review and an end-of-term review of the Country Support Strategy and the Indicative Programme in the light of current needs and performance.

The mid-term review shall be undertaken within two years and the end-of term review shall be undertaken within four years from the date of signature of the Country Support Strategy and the National Indicative Programme. Following the completion of mid-term and end-of term reviews, the Community may revise the resource allocation in the light of current needs and performance.

The agreement of the two parties on this Country Strategy Paper and the National Indicative Programme, subject to the ratification and entry into force of the ACP-EC Partnership Agreement, will be regarded as definitive within eight weeks of the date of the signature, unless either party communicate the contrary before the end of this period.


Signatures


For the Government of Mozambique For the Commission





Country Strategy Paper

C O N T E N T S

Page

part a : CO-OPERATION STRATEGY


executive summary ……………………………………………………. 2


1 - EC Co-operation Objectives ……………………………………… 3


2 - POLICY AGENDA OF THE GOVERNMENT OF MOZAMBIQUE ……. 3


3 - COUNTRY ANALYSIS …………………………………………………… 9


4 - ASSESSMENT OF PAST AND ONGOING CO-OPERATION …………… 15


5 - RESPONSE STRATEGY …………………………………………………… 18


PART B : INDICATIVE PROGRAMME


6 – PREsentation of the indicative programme ………………. 24

6.1 Introduction ……………………………………………………………… 24

6.2 Financial Instruments …………………………………………………… 24

6.3 Focal Sectors …………………………………………………………… 24

6.4 Macro-economic Support ……………………………………………… 25

6.5 Other Programmes ……………………………………………………… 26

6.6 Indicators at macro and sectoral level…………………………………… 27

6.7 Indicative Commitment and Disbursement Timetables ………………… 31

6.8 Activity Pipeline Chronogramme ………………………………………. 32


Annexes :


Annex 1 Projected Commitments of EC Financial Support

Annex 2 Projected Disbursements of EC Financial Support

Annex 3 Monitoring and Evaluation Indicators of the PARPA

Annex 4 Selected Economic and Financial Indicators 1999 – 2010

Annex 5 Main ongoing projects and programmes financed by the EC

Annex 6 Donor Matrix

Annex 7 Assessment of the national policy and policy implementation in the focal sectors

Annex 8 Key indicators for review



part a : CO-OPERATION STRATEGY



EXECUTIVE SUMMARY


The major challenges for Mozambique in the coming years are two-fold : the very weak capacity of human resources needs to be robustly addressed, and the country needs economic growth, at the household as well as the national level.


The issue of lack of capacity is apparent in all sectors and at all levels of society, and results in the vicious circle of weak public finance management and limited delivery of services to the population, which in turn causes, and is caused by long-term lack of access to, and poor, education and health.


Economic growth at household level is essential to creating not only a domestic market supply, but, more importantly, a domestic market demand in a country where 70% of the population live below – and many far, far below – the absolute poverty line. Where there is no domestic market, measures to improve trade flows can have only a limited effect, and “globalisation” will be an alien concept.


The main objective of this Country Strategy Paper is to seek to address some of the key determinants of poverty identified by the Government of Mozambique, and to support the Government in its overall objective of alleviating, and eventually eradicating, poverty. At the same time, the paper recognises that development co-operation funding can have a better impact when it is concentrated, when it is targeted, and when it is delivered in a complementary and co-ordinated manner with that of other donors.


This has led the EC to examine its past co-operation strategy in Mozambique, as well as the input of EU Member States and other donors, in order to establish where we have a relative comparative advantage. Many hours of discussions with Government and Member States in Maputo, including close co-operation and a shared analysis with Sweden, have led to the conclusion that the EC should continue with its interventions in the areas of transport - concentrating largely on periodic maintenance and capacity building, food security and agriculture, and macro-economic budgetary support. These are, indeed, the areas where the EC has most weight in the policy dialogue, considerable past experience and where large amounts of funds are required to the extent that few, if any, other donors would be in a position to fill the financial or policy gap.


At the same time, the EC acknowledges that the health sector will require substantial funding in the future, more particularly to deal with the ravages caused by HIV/AIDS and other communicable diseases. For this reason, the EC proposes to also contribute to the sector on a non-focal basis, through pooling mechanisms for essential medicines, for example. Again conscious of the fact that political stability and good governance are essential pre-conditions for effective development, the EC proposes to provide funding on a non-focal basis as and when reforms in the area of good governance and the rule of law make feasible its sustainable delivery.


The overall indicative distribution of funds is as follows : macro-economic budgetary support 45-55%, transport 25-35%, food security and agriculture 0-15%, to be allocated if required at the review stage should there be a shortfall in the Community budget line which has traditionally provided financing to this sector. In addition, 10-15% of the envelope will be allocated to health-HIV/AIDS, good governance and capacity-building for civil society 10-15%.



1. EC CO-OPERATION OBJECTIVES


In accordance with Article 177 of the Treaty establishing the European Community, community policy in the sphere of development co-operation shall foster:

The sustainable economic and social development of the developing countries, and more particularly the most disadvantaged among them;
The smooth and gradual integration of the developing countries into the world economy;
The campaign against poverty in the developing countries.


These objectives have been confirmed and reinforced in Article 1 of the ACP-EC Partnership Agreement, signed in Cotonou on 23 June 2000, which puts main emphasis on the objective of reducing and eventually eradicating poverty. Co-operation between the Community and Mozambique shall pursue these objectives, taking into account fundamental principles laid down in Article 2 of the Agreement – especially the principle of encouragement of the development strategies by the countries and populations concerned - and essential and fundamental elements as defined in Article 9.

In their Statement on the European Community’s Development Policy of 10 November 2000, the Council of the European Union and the European Commission determined a limited number of areas selected on the basis of their contribution towards reducing poverty and for which Community action provides added value: link between trade and development; support for regional integration and co-operation; support for macro-economic policies; transport; food security and sustainable rural development; institutional capacity-building, particularly in the area of good governance and the rule of law. The Statement also specifies that, in line with the macro-economic framework, the Community must also continue its support in the social sectors (health and education), particularly with a view to ensuring equitable access to social services.


The Treaty establishing the European Community foresees that the Community and the Member States shall co-ordinate their policies on development co-operation and shall consult each other on their aid programmes, including in international organisations and during international conferences. Efforts must be made to ensure that Community development policy objectives are taken into account in the formulation and implementation of other policies affecting the developing countries. Furthermore, as laid down in Article 20 of the Agreement, systematic account shall be taken in mainstreaming into all areas of co-operation the following thematic or cross-cutting themes: gender issues, environmental issues and institutional development and capacity building.


The above objectives and principles and the national policy agenda presented in the next chapter constitute the starting point for the formulation of the present Country Strategy Paper, in accordance with the principle of national ownership of development strategies.

2. Policy Agenda of the Mozambican Government
National policy and planning documents in Mozambique all have poverty reduction as a key objective. The Government’s Five-Year Plan, approved in February 2000, provides the framework of guidelines and development objectives that constitute a broad platform for other policy statements. Four central policy objectives are identified: reduction in the incidence of absolute poverty; broad-based rapid and sustainable growth ; regional economic development; and the consolidation of peace, national unity, justice and democracy.


In 2000, the Government prepared its Action Plan for the Reduction of Absolute Poverty 2001-5 (PARPA), which was updated and improved during a more ambitious exercise in 2000-01. The



PARPA now represents a comprehensive and detailed articulation of the Government’s strategy for poverty reduction. Though it also refers to growth, it actually lacks a growth strategy. The PARPA (or PRSP) incorporates and captures the core elements with high impact on poverty reduction of other policy statements, in particular sector policies. The PARPA reflects a high level of ownership and commitment to a wide and evolving consultation process, which is a prerequisite for its sustainability. It outlines the basis for monitoring implementation and assessing the impact of Government policies and actions in relation to poverty reduction. Regular evaluation and updating will allow for continued improvements in focus and content of priority measures.


The overall – rather ambitious - objective of the PARPA is to reduce the incidence of absolute poverty from 69.4% of the population to about 59% by 2005 and to 50% by 2010 (in actual figures, this means pulling 1.2 m. people out of poverty by 2005, and a further 1.2 m. by 2010). The PARPA is anchored on the assumption that poverty reduction needs a strong broad-based and non-inflationary growth that benefits the poor, combined with pro-poor oriented social and rural development policies, as well as higher and more effective poverty-oriented public expenditure. The Government intends to create macroeconomic and business conditions conducive to an ambitious average annual real rate growth of 8% - though there is little indication of what new sources of economic growth are to emerge in response to policy changes. The effects of HIV/AIDS could reduce this growth by 1% per annum. Whilst it has been possible to achieve such rates in recent years, the PARPA makes it clear that it aims at poverty-reducing growth, namely through private sector development and appropriate public policy measures benefiting the poor.


Central to the discussion on the growth model to be favoured by the Government in the allocation of public resources, in the delivery of public services and in exercising its regulatory powers over public investment, is a profound concern at the substantial poverty imbalances between provinces, as well as between urban and rural areas. The Government has drawn lessons from the impact thus far of the ”mega-projects” experience, and is aware of the risks of geographical and sectoral polarisation resulting from this approach. Whilst such projects are largely contributing to economic growth, the PARPA itself recognizes that “the poor do not benefit automatically from good macro-economic statistics”.


The PARPA has built and improved upon the previous analysis of the main determinants of poverty, identifying a key set - slow economic growth until the beginning of the 1990s, mainly due to the civil war; low education and training levels, particularly amongst women; poor basic health services; high household dependency rate; low agricultural productivity, particularly in the smallholder sector; lack of employment opportunities and; weak infrastructure, particularly in the rural areas. To this list, must now be added the devastating impact of AIDS on the national economy. The focus on six main areas - good governance, legality and justice; macroeconomic, financial and trade policies; education; health; agriculture and rural development; and infrastructure - transports, energy and water supply - is designed to address the above key determinants of poverty.


PARPA clearly states that good governance is one of the fundamental conditions for a successful strategy of poverty reduction. The vital role of deconcentration, as well as administrative and financial decentralisation to provincial and central level, is also recognised. In the area of governance, the EC would encourage the Government to examine how it envisages its own role, as well as that of donors and of the different members of civil society, in being able to contribute to creating an environment conducive to the reinforcement of democracy on the political front, and to sustaining investor confidence on the economic front.



The Public Sector Reform is the core element to strengthen the institutional capacity of the Government at central and local level to define, implement and monitor sound policies aimed at promoting economic growth and reduce poverty. The outline of a plan for reform addresses a wide range of problems, including salaries, capacity, corruption and policy coordination.


The main objective of the macroeconomic, financial and trade policies is to maintain macroeconomic stability and create conditions conducive to promote private sector-led growth, with exchange rate stability and low inflation in the context of a more open economy, whilst allocating more budget resources to poverty reduction activities. Increasing domestic revenue collection over the medium term is a priority for the Government to correct fiscal imbalances and to finance increasing expenditures and service delivery in key sectors of the PARPA, with a view to reducing dependence on external financing. The Government is preparing a new package of measures that should give a fresh impetus to the public expenditure reform initiated in 1997, focused on financial management and controls.


The Government’s monetary and financial policies aim at promoting a sound financial system, based on a more independent role for the Central Bank. The recent financial crisis, brought on in particular by the solvency problems of the Banco Austral, highlights the need for a comprehensive reform of the financial sector, not least to maintain investor confidence.


Concerning trade policy, Mozambique, a WTO member since 1995, adopted in 1999, and is now implementing, a formal Trade Policy Strategy (TPS) as part of its effort to modernize the economy. At a regional level, Mozambique, as a member of the Southern African Development Community (SADC), signed a Trade Protocol that became effective in 2000, and whose main objective is the establishment of a SADC Free-Trade Area. Finally, the Cotonou Agreement establishes preferential trade and aid links with the E.U. Most-favoured nation (MFN) import duties range from 2.5% to 30% ad valorem, and the simple average applied MFN tariff rate is 13.8%, among the lowest in southern Africa.


Given its impact on the development of human capital, education - particularly of girls - plays a decisive role in promoting broad-based economic growth that is inclusive, as well as contributing to the reduction of poverty. The PARPA’s main objectives in the education sector are to expand access, to improve quality and efficiency, and to reduce costs. It also recognizes that ethical problems (e.g. corruption, sexual harassment) negatively affect the education system. The PARPA expresses concern with the lack of availability of qualified human resources and institutions. The reform of the public sector, and the capacity of human resources in general in Mozambique, is inextricably linked to education.


The Education Sector Strategic Plan (ESSP), adopted in 1998, is a well-defined sector programme approach with a positive vision and clear objectives and priorities, which targets all levels of education. The lack of primary school teachers is, however, perhaps the major constraint in the sector, limiting the numbers of students who pass into the secondary level and, by the same token, to higher education.


Health is a key element of the PARPA, which makes the link between better health and breaking the poverty cycle. It also results in greater economic security and higher productivity at the household level. Hence, expansion of the network and delivery of good quality sustainable health care, particularly for the poorest, are primary objectives of the PARPA. The last five-year programme set out an ambitious decentralisation strategy, which required all provinces to execute the national health policy through locally managed services.



The Strategic Plan which is now being developed reinforces this emphasis on decentralization to improve access to health care, particularly to the poorest sections of the population. A period of consolidation of assets is now needed, in terms of maintenance, human resources and equipment. The Plan, together with the preparation of a Medium Term Expenditure Framework for the health sector (both documents expected to be approved in June 2001) should, furthermore, provide the policy framework for the development of a health sector wide approach (SWAP), in which the government will work with donors to develop joint procedures for budgetary support in the sector. This latter development translates a gradual shift in Government policy over the last few years. Joint working arrangements between donors and the Government have already resulted in a number of “building blocks” being laid in the form of a series of pooled funding arrangements for budget support to the provinces, essential medicines and technical assistance.


With regard to budget support to the provinces, funds provided by the central level through the donor pool are now managed at provincial level. In spite of acknowledged huge capacity constraints, the provincial health departments are now able to disburse about 70% of the funding available to them. Moreover, a new programme of $ 12M, financed by USAID, will concentrate exclusively on financial and human resource management at provincial level. This programme will benefit not only the Ministry of Health, but also other donors wishing to channel funds at this level. The main benefit will, indeed, accrue to the local populations in terms of improved service delivery. A constraint to delivering funding at the provincial level is still, however, the weak capacity of the provincial departments of the Ministry of Plan and Finance.


The National Health Sector Policy stresses the importance of developing a multi-sectoral poverty reduction approach to improve health care. Medium term policy objectives in the

PARPA therefore include improvements of access and quality of health care, focusing on women, children and other disadvantaged groups. A reduction in the impact of AIDS is also an objective, including access to voluntary testing and counselling as well as assistance to sufferers. Interventions focus mainly on the primary and secondary levels of care, and this policy is also reflected in the PARPA as a priority to improve the situation for the poorest.


The EC would encourage the Government to examine the role of other actors, including the private sector, in the preparation of the new Plan. Furthermore, whilst fully agreeing on the importance of all of the components of the Government’s programme in the area of health, the EC feels that stronger emphasis should be placed on family planning mechanisms in the light of the strong demographic increase (2.6% in 2000), and of the direct impact of such measures on poverty alleviation. Corruption, mainly due to low salaries in the sector, needs to be addressed.


The Government has recently taken a robust stance in addressing the HIV/AIDS epidemic. A National Strategic Plan (PEN) was approved in 1999, and in 2000 the National AIDS Council (CNCS) was set up. A multi-sectoral action plan - based on the PEN and involving all Ministries - was presented by the CNCS in December 2000. The CNCS, together with its provincial and regional offices, will have a co-ordinating role and an overview of all AIDS-related activities.


Given the importance of agricultural activities for the large majority (almost 80%) of the population, as well as the concentration of poverty in rural areas (82% of poor), agriculture and rural development is one of the key areas of the PARPA. The two main pillars of the Government’s strategy are to empower the agricultural producers to increase their productivity, and to transform public services into facilitators and supporters of the producers, through the provision of essential extension services.



The key role played by food security in the Government’s poverty reduction policy is reflected in the Food Security Strategy, the National Programme for Agricultural Development (PROAGRI), and the National Food Security and Nutrition Strategy (NFSNS). The latter, approved in 1998, delegates the responsibility for the formulation of its action plan to the Ministry (MADER). The strategy mainly aims to link food security to rising production and diversification of food crops, better and more diversified sources of non-farm income, and improved knowledge of appropriate technologies for food production and conservation. Agriculture is seen largely as a factor of growth in PARPA, with an emphasis on areas of higher potential and improved productivity. The EC feels that a more pronounced poverty reduction bias could be achieved through the targeting of household poverty.


PROAGRI, launched in January 1999, is a key element in the Government’s strategy to improve food security. As a sector-wide approach, it is essentially a process of institutional reform, an instrument through which the capacity of MADER to undertake its newly defined core functions efficiently and effectively can be transformed and enhanced. The programme is making good, though slow, progress, as reflected in the May 2000 GoM-Donors Aide-Memoire, particularly in terms of the convergence of projects in the Ministry and the progressive adoption by donors of common implementation arrangements. PROAGRI tackles some of the key determinants of poverty, though some adjustments to better fit the needs of the PARPA could be addressed by the EC and other donors in the context of the policy dialogue.


In parallel to the development of the sector programmes, the Government also recognised that tackling the multi-dimensional nature of rural poverty required a co-ordinated effort, focusing on the most vulnerable groups. Indeed, unless the energies of public, non-state and private agents could be effectively mobilised and co-ordinated, the state alone would not be able to make sufficient progress. In response, the Government approved new Guidelines in 1998, which defined four central themes of the administration’s role in rural development, with decentralisation probably being the most important, particularly in assessing the impact of projects on poverty. The EC is ready to help the Government prepare a strategy to prioritize planning at local level.


The development of infrastructure is instrumental in attaining the PARPA objective of promoting broad-based growth, and reducing poverty and regional asymmetries. To this end, the PARPA clearly underlines the importance of the provision of basic infrastructure linking rural areas to markets and basic social services. In this context, the soon-to-be-finalized Integrated Road Sector Strategy, which is a 10-year investment plan, calls for almost doubling the maintained tertiary network – including feeder roads – in order to extend economic and other opportunities to rural populations. The thrust of the strategy for secondary roads is to connect poles of economic activity, tourist sites and provincial and district capitals to the national network, whilst ensuring good access to the main ports and railways to encourage trade.


The PARPA also emphasises that the development of the private sector as an engine of economic growth depends on the availability of good infrastructure. The current policy, approved in 1996, identifies as a priority the involvement of the private sector in the construction and rehabilitation of transport infrastructure, in the management by contract or concession of the ports, railways and airports, and in the companies involved in air services and shipping. The Government retains the role of facilitator, responsible for defining policies and creating an environment conducive to attract investment, as well as being responsible for the establishment of regulations, the licensing of transport activities, and supervision and control. The PARPA’s emphasis on infrastructure cannot, however, be to the detriment of services, or
ignore the effects on poverty alleviation of addressing the issue of non-motorized transport. This is a challenge for further improvements in developing the sector-wide approach, which should be reflected in an updated PARPA.


In the regional context, Mozambique plays a crucial role as a transit country for several of its land-locked neighbours, but this has not been addressed by the PARPA. The Government has, however, ratified the SADC Protocol on Transport, Communications and Meteorology (MTC), which deals with issues such as axle load, truck combinations, calculation of cross border road user charges, and driving licenses. Furthermore, Mozambique has created a concept of Economic Zones – coupled with a special fiscal regime – to attract investment to the Zambezi River Basin, the Maputo Development Corridor and the Beira corridor. These aspects should be linked to the analysis of sources of growth, and also reflected in an updated PARPA.


Neither does PARPA address the issue of road safety, which is a directly pro-poor objective. In this context, road accidents have now reached epidemic proportions in Mozambique, which places an added strain on an already overburdened health system.


PARPA’s main objectives in terms of energy policy are to expand access to energy sources, to reduce the environmental impact of the use of non-renewable sources, as well as to promote the use of new and renewable energy sources, to contribute to the supply of energy in the main, as well as more remote, regions of the country, and to encourage private sector activities.



The 1995 National Water Policy (NWP) identifies integrated water resource management,

expansion of basic water and sanitation services, and the economic value of water services as priorities for poverty alleviation and sustainable development. A first major step in the implementation of this policy was the creation of a water investment fund (FIPAG) in 1998. On an international level, the Government signed in 2000 the revised Protocol on Shared Watercourses in the SADC region.


Substantial progress has been noted as the PARPA has advanced as a major policy document for the Government, which makes it possible – and indeed even necessary – for the EC to use it as a framework for its development co-operation. Though a move to consolidate the PARPA as the overarching poverty strategy could be supported, the quest for coherence between the

complementary policy documents (5-Year Plan, annual budget, MTEF) can only be undertaken by the Government. The EC should be ready to support a gradual evolution towards a closer methodological integration between sector approaches and the overall poverty reduction strategy. As the PARPA is a roll-over strategy, the EC would suggest incorporating into the process, elements of consultation with representatives of various government bodies (central, provincial and district), National Assembly, private sector, civil society in general, and donors ; linkages to the MTFF (Medium-Term Fiscal Framework) in order to prioritise activities in the light of limited resources ; identification of the main sources of growth and how they interact at national and regional level; and improvement of public finance management.


There are, certainly challenges and risks inherent in implementing the PARPA. Though the Government stresses the development of a strong institutional capacity to counter a crippling shortage of qualified human resources, there is a risk that implementation will be seriously affected by the weak civil service capacity, including at all stages of the budget process and public service delivery. The challenges ahead are to: move ahead quickly with the reform of the civil service, elaborate an economic diversification strategy, including an enabling environment for the private sector and regional integration; to further integrate the various planning and budgeting instruments; to select key performance indicators to monitor impact on poverty. In this context, the lack of monitoring indicators for some of the sectors, particularly
those where there is no clearly defined sector programme, could be overcome as work on the definition of indicators for other sectors progresses. The selection of such indicators should, however, be validated by all other donors. Building monitoring capacity is essential to this goal. To ensure effective contribution to the implementation of the PARPA, there is also a need to improve and implement the public sector reform programme and public expenditure management reforms, as well as related capacity building.


As the objectives and results expected of PARPA in the medium term are particularly ambitious, in terms both of budgetary management and poverty alleviation, their implementation will require an unfailing commitment to financial regulation and management, and to the social services, particularly in rural areas. More concretely, budgetary support as a way of financing the fight against poverty implies making the accompanying structures in the technical ministries more functional, in terms of technical and financial aspects and the production of regular and reliable statistics on the different sectors.

3. Country Analysis


On the political front, general elections have been held twice in Mozambique since the 1992 Peace Agreement. The democratic process is fragile, but though risks of conflict and political tension exist - as evidenced by the events of November 2000 - there is a widespread war-weariness and a continued strong wish for peace. Though it has been launched, the process of political dialogue is still a faltering one. The weak political culture in the country is obvious at the level of parliament, due in part to lack of experience and resources, as well as to a certain mistrust among its members. A growing feeling of exclusion among those who have not seen the benefits of development since 1992 seems to have increased the social and political tensions in Mozambique. The connection between power and money in Maputo City, where the elite has visibly benefited from rapid liberalisation, has contributed to these perceptions.


The fact that state apparatus is weak and has a limited absorption and implementation capacity constitutes a major obstacle to the efficient development of the country. Corruption is in evidence in the absence of appropriate public financial management systems and public procurement of goods and services, and against a background of pitifully low wages in the public sector. A chronic lack of resources – both human and financial – limit the conditions for the decentralisation which is necessary for the reduction of regional imbalances and the effective delivery of services at local level. This lack of resources is also reflected in the weakness of the judiciary system and law enforcement institutions, which in turn has serious implications for the rule of law and human rights. In spite of improvements, the human rights situation remains mitigated, with several areas demanding continued attention and reform. These governance issues have both political and economic implications.


Freedom of the press was granted by the 1990 Constitution. The media is now becoming more open and outspoken than previously, and is helping to create conditions for a critical debate of society. One big setback in this context was, however, the November 2000 murder of the famous investigative journalist, Carlos Cardoso.


In the short-term, there is an urgent need for the Government and the opposition to find a political solution to the crisis for stability’s sake. However, in the medium-term the political and institutional systems need reform, in order to bolster good governance and to deepen and strengthen the democratic process. In this context, the 1990 wartime Constitution, which marked an important step in the democratic process by separating the functions of the executive,



legislative and judicial powers, and creating the legal framework for a multi-party political system, would probably benefit from a revision to take account of the changed circumstances.


The relationship between Government and civil society organisations remains weak, though the government should be given credit for trying to improve the dialogue. The initiatives towards civil society are, however, quite new, and have yet to show substantial concrete results. The dialogue with the private sector has been going on for a number of years, but results are apparently constrained by red tape, heavy bureaucracy and lack of incentive schemes.


On the economic front, a rapid recovery and catching-up process took place after the peace agreement in 1992, though from very low base levels. Thanks largely to the combination of increased political stability, sound economic reforms, good weather conditions and substantial financial support from the international community, the real GDP grew at an average annual rate of 7.7% from 1993 to 1999, with a cumulative rate of 68.2%. During the same period, real GDP per capita improved by 48.2%. The severe emergency caused by the 2000 and 2001 floods has, however, significantly affected immediate economic prospects. In 2000, growth slowed to 2.1%. In spite of this, the Government is confident that growth will regain momentum in the foreseeable future, though it is unclear how such growth is to be achieved.


The current account deficit before grants improved from -45.7% of GDP in 1994 to –28.5% of GDP in 2000, although this is unsustainably high. More robust export-based growth is required for further improvements. Over the last ten years, external assistance has allowed a reduction of the current account deficit after grants by more than one-third, mitigating the constraint imposed by the high investment savings gap. Given the bleak prospects for improving domestic savings, the country will continue to depend significantly on external aid.


Since 1994, Mozambique’s trade in goods by destination has undergone fundamental changes. This finds its most striking expression in a considerable narrowing of trade with the E.U. (34.7% of exports and 33% of imports in 1994, 27% and 15.8% respectively in 1999) and a corresponding expansion of trade in the sub-region in general (21% of exports in 1994, 31% in 1999), and with South Africa – now the leading source of imports (44% in 1999) - in particular. Although the E.U. is still the main destination for Mozambique’s exports, S. Africa has become increasingly important. This reflects the benefits of closer integration with neighbouring SADC member countries (S. Africa, Zimbabwe, Malawi), whose market shares represent more than 40% of Mozambique’s trade, and shows the importance to the economy of regional links. Mozambique provides access to the sea for several landlocked neighbours, whilst the regional transport corridors to Mozambican ports are an important source of foreign revenue. Hydro-electricity from the Cahora Bassa dam and gas from the Pande fields are also important potential sources of export revenue. These ties provide a basis for further economic integration into the region.


Trade in fisheries products - mainly crustaceans – provides almost 40% of foreign exchange earnings, ($ 88 M in 1999 of total exports of $268 M) though few benefits accrue directly to the

population in terms of employment and value-adding processes.


Public expenditure management policies have generally supported macro-economic stability, whilst allowing for piecemeal reforms of the budgetary system. With the aid of the international community, which supplies 50% of budget needs, the Government was able to finance its ambitious post-war reconstruction programme and reduce fiscal imbalances. One of the key issues is off-budget expenditure. Progress has been made in public expenditure management since the late 1990s by strengthening the legal framework, public resource
programming and budgeting, public accounting, budget reporting on implementation and financial audits. Renewed reform efforts in public expenditure management can be noted in the following specific : a new comprehensive Public Finance Law has been drafted, which is to provide a legal basis for reforms and facilitate the introduction of generally accepted accounting standards in the public sector and reforms of the cash management system, as well as ensuring budget comprehensiveness; a more detailed system of budget classification has been implemented, which will allow budgeting and tracking of expenditures for priority sectors as identified in the PARPA; the closure of state accounts has been made more regular, whilst the regular production of quarterly budget execution reports since the first quarter of 2000 has begun to form the basis for a meaningful policy dialogue between the government and donors; the MPF has established a unit (UTRAF) to co-ordinate the reform programme.


The Government, increasingly concerned with the quality of public expenditure and financial accountability issues, has undertaken a public expenditure review and a Country Financial Accountability Assessment (CFAA) with WB assistance. The on-going reforms, however, include many elements and parallel activities whose links and sequencing do not yet appear to be thought through. There is, therefore, a need for a comprehensive government action plan which ensures the comprehensiveness of all budget resources by enforcing legislation and putting into place new accounting and cash management systems. The Joint Donor Group is using the policy dialogue to call for further improvements in the systems, procedures and in capacity building for internal and external financial controls. A comprehensive government action plan is expected to feature in the future and annual update of the PARPA, thus allowing for better donor co-ordination in providing financial and technical assistance. This action plan would certainly benefit from the findings and recommendations of financial management assessments carried out by the JDG, as well as from the ongoing PER and CFAA.


Monetary indicators showed, until 1999, a policy consistently in line with the pursuit of medium-and long-term sustainable economic growth, low inflation, and stable exchange rate. The central bank then started to lose full control over the monetary aggregates, adversely affecting both price and currency stability. Inflation reached 11.4% at the end of 2000. This reflects the combined effects of a excess monetary expansion, temporary shortages caused by the floods, and increases in oil prices. The Bank of Mozambique’s control over the monetary and credit markets has been severely tested by the serious liquidity and solvency problems of two important commercial banks – Banco Comercial de Moçambique and Banco Austral - where the Government has a 49% share and 100% share respectively. Addressing these issues will have a major impact on the effective use of limited budget resources, and raise serious governance concerns. In addition, inadequate solutions in the financial sector pose serious risks to macroeconomic stability, thus jeopardizing the achievement of PARPA objectives.

Mozambique successfully attained the completion point under the HIPC initiative in June 1999, and received $3.7 billion in debt relief ($1.7 billion in today’s values), the largest operation under HIPC so far. Furthermore, the country reached the completion point under the enhanced HIPC in September, adding M$ 600 to that figure. The HIPC initiative will provide additional budgetary savings of about $115 million a year (2.8% of GDP) from 2000-2005, to be reallocated to the priority sectors for poverty reduction as outlined in the PARPA.
Over the last few years, significant progress has been achieved in liberalising and opening up the economy, moving away from a closed, centrally planned model toward reliance on market mechanisms underpinned by private ownership. Investments worth $3 billion (97-99) have been made in industry, agriculture, tourism, fisheries, transportation and banking/insurance. A return towards isolationism is, however, evidenced by the Labour Law, which effectively acts as a disincentive to private foreign investment.



The private sector is, however, still undergoing considerable rationalisation, trying to overcome bottlenecks such as administrative red tape (a governance issue), under-capitalization, lack of skilled labour and infrastructure. Furthermore, the cashew sub-sector - once a major contributor to export revenue and employment - is facing a severe crisis due to the uncertainties of the current policy (a thorny issue with the WB). Production has dropped dramatically and the majority of cashew-processing plants have been forced to close. The situation of this sub-sector illustrates the need for a more strategic policy linking agriculture to agro-processing.


On the social and developmental front, projections from the 1997 census indicate a total population of 17.2 m. in 2000, of whom 52% are women. With an estimated population growth rate of 2.3% (2.6% in 2000), the country’s population would be expected to reach 19.3 m. by 2005, without taking into account the impact of HIV/AIDS. The great majority - 79.7% -of the population live in the rural areas. Indeed, Mozambique has one of the lowest rates of urbanisation in the world. One of the poorest countries in the world with a per capita GDP of about $237, the UNDP Human Development Index (HDI) places Mozambique in last position among the 14 SADC countries and 169th out of 174 countries overall. Although it is difficult to compare Mozambique’s performance with that of other low human development countries, their average HDI improved by only 7.2% over the last 8 years in comparison with Mozambique’s 14.8% in five years. This progress has, though, come from a very low level, and is in no way commensurate with the significant economic performance during the same period.


According to the Government’s national assessment of 1997 – the first serious attempt to provide a global and comprehensive view of poverty in Mozambique - poverty is very widespread, with more than 11 million people, or 69.4% of the population, affected. About 82% of the poor

live in rural areas with poor social and economic infrastructures, in part as a result of the 10-

year civil war that ended in 1992. The ever-present danger of landmines hampers many aspects of normal life and impedes economic development, as large tracts of the countryside – often uncharted – are still no-go areas.


Productivity in agriculture is very low and about 57.5% of agriculture production is for own consumption. Female-headed households in rural areas are especially vulnerable. Urban poverty is also widespread, caused largely by lack of employment or exceptionally low wages. About 62% of the urban population are also estimated to live below the poverty line.


A common thread running through the analysis of the different sectors, is that of low capacity of human resources, caused by the poor situation in the social sectors. Although there has been a significant improvement in the health status since the end of the civil war, it remains amongst the worst in the world (WHO ranks Mozambique 180th out of 191 countries for average level of population health), with access to health services limited to 39% of the population. The 1997 Census indicates that access to education is very low, at 39.6%. The average literacy rate is 25% for women and 54% for men.


There are significant regional differences in poverty levels, with the provinces in the central region of the country particularly badly affected. The regional incidence of poverty is related to an unbalanced growth process and an unequal income distribution mechanism within the Provinces. These regional imbalances find illustration not only in economic terms, but also in terms of health and education. There is a significant disparity in life expectancy between the provinces (national average 42.3 years for women and 40.6 for men, compared to 61.8 and 55.1 in Maputo province and 38 and 36 in Zambezia.) The under-5 mortality rate (U5MR) tells a similar story, to the extent that the WHO ranks Mozambique as the second most unequal country



in the world of “equality of child survival” (national average U5MR of 246 per 1000 live births, 97 per 1000 in Maputo province, 319 and 322 per 1000 respectively in Nampula and Zambezia). The main causes of child deaths are malaria and chronic malnourishment.


Equally, statistics on education reveal the significance of the regional imbalances. The 1997 Census shows that, in the north, only 14% of the women and 44% of the men are literate, as opposed to 21% and 55% in the centre of the country, and 77% and 93% respectively for Maputo City. Similarly, 28% of the population in the rural areas are literate, against 65% in the urban areas. These statistics also illustrate in a telling manner the huge inequality in the education of women, which has been identified as a key determinant of poverty.


The nature of food insecurity also illustrates the differences between rural and urban areas. The rural population faces very serious problems of income and physical access to food, and to a

lesser extent, of utilisation of food. The agriculture sector comprises a large and heterogeneous smallholder sector - responsible for 94.9% of the value-added produced by the agriculture sector - and a very small number of commercial enterprises – generating only 5.1% of the value-added. The lack of diversification of most rural households, and their dependency on a limited number of crops, together with lack of access to markets, creates a situation of extreme vulnerability to adverse market or weather conditions. The level of social infrastructures is very weak, in particular in the rural areas. In rural and peri-urban areas, the provision of basic services depends heavily on the efforts and motivation of the local community. The lack of access to reliable water supplies, to sanitation and to secondary roads seriously undermines agriculture development and limits general economic growth.


The AIDS epidemic will produce dramatic changes in population structure, with projections showing a dramatic drop in the population growth rate from 2.3% to some 1.0%, or 18.1 m. people in 2005 instead of 19.3 m. The alarming rise in the number of HIV infections – more than 20% infection rate in the central regions - has transformed AIDS from a health crisis to a development catastrophe with serious implications in all sectors. UNAIDS predicts that the number of people living with AIDS will reach more than 1,6 m. in 2002. Life expectancy will drop to 35.9 years by 2010, compared to 50.3 years without AIDS. Though the impact will be most serious at the household level, it will also put an ever-increasing burden on the health system. The economic impact will be devastating, as the infection rate is highest among those of productive age. The quality and quantity of human resources will further deteriorate, and the capacity to deliver social services will be further impaired as doctors, nurses and teachers fall victim to the disease.


Important gender inequality, further accentuated by regional differences, and differences between urban and rural areas, is still evident. The Government is committed to implementing the Post Beijing Action Plan to promote the situation of women and reduce discrimination. A strategic plan, approved in 1997, includes poverty reduction initiatives through education programmes, credit, technical assistance and the development of the informal sector.


Although the level of vulnerability to natural disasters is high, with the poor the worst affected, the policy response has been more reactive than proactive. The high degree of exposure to hydro-meteorological hazards of sufficient magnitude to threaten millions of human lives and their well-being is evidenced by twelve major floods, nine major droughts, and four major cyclones between 1965-99. The 2000 floods were an unprecedented natural disaster. This chronic vulnerability brings deep and sudden collapses in economic growth, particularly in agriculture, whilst poverty is sharply increased by human and capital losses. Dealing with the



aftermath also represents a huge drain on human and financial resources. Economic vulnerability is also high in Mozambique, due to the weakness of the private sector, exposure to external economic shocks, and the enormous macroeconomic imbalances, which are currently met by external aid funds. As the country’s economy depends on natural resources, the protection of the environment to ensure the sustainability of economic growth is a key issue.


Mozambique’s main transport system (ports and three railway lines) originally consisting of transit corridors in an east-west direction to serve the neighbouring landlocked countries, was largely annihilated during the civil war. Commercial interests in the post-war rehabilitation of these corridors have led to a relative neglect of infrastructure serving the needs of the domestic transport network. Though the ports and railway lines play an important role here, they do not constitute the backbone of a network that ties the nation together. The only modes of transport that provide a truly national network are the roads and the domestic air transport system. The major part of domestic transport in the country is by road. Although transport facilities between Mozambique and its neighbouring countries are improving, driven by the demand from those countries, links between the north and the south of the country are still very poor and vulnerable to natural disasters.


The road sector strategy pursues the development and reform of the road sector that was initiated in two Roads and Coastal Shipping Projects, implemented with the support of the EC, the World Bank and other donors. Though nearly half of the classified roads have been reopened and rehabilited, promoting mobility and providing enhanced access to most regions, the very weak culture of maintenance will reduce the longer-term benefits of the investments. Institutional reforms to ensure sound, sustainable and commercial management of the roads infrastructure are, therefore, crucial. Of importance here is the establishment of a new road management system, including the creation of an autonomous entity to manage the country's roads - the National Roads Administration (ANE) – and of a soon-to-be-autonomous Road Fund. This latter is, though, far from self-sufficient, and greatly relies on donor contributions.


The state-owned port and railway company, CFM, has been restructured – not without difficulty - into a holding company. Together with the Government, it is now committed to completing the concessioning of the main port and railway systems, as well as to bringing all three transport corridors under private sector operation. This restructuring process will, however, make about 12.000 people redundant. The involvement of the private sector, with the associated increase in competition, should have a beneficial effect on services and costs. The Government intends to extend the granting of concessions to other tertiary ports. Coastal shipping and air transport are to be liberalised gradually, so as to reduce the costs of domestic and international trade. Though the regulatory frameworks are being adapted, competition in the areas of coastal shipping and domestic air routes is still limited or non-existent. This sector, like many others, is characterized by weak institutional capacity. The development of national contractors who are able to contribute significant capacity in the execution of road maintenance and rehabilitation works is a key factor in the success of the road programme, in particular on the regional road network.


When looking back over the last 8 years, there is no doubt that Mozambique has come a long way from the highly centralised political system and a devastated economy it was. However, serious challenges still need to be met in terms of good governance and political stability to remove institutional obstacles blocking the path of effective development, and thus to increase the impact of development co-operation funds. Public sector reform – involving the crucial issues of decentralisation, public enterprise sector and public financial management - and the



reform of the judicio-legal system, are at the top of the list. Such difficult issues can only be addressed against a background of political stability and cohesion, as well as a national consensus on priorities and their sequencing.


The economy’s development is likely to be based on natural resources, drawing on agriculture, fishery, forestry, minerals and energy. The country has an important and little known potential for growth in agro- and industrial processing, transport and other services. Public sector reform, as well as a legal environment which inspires the confidence of domestic and foreign investors, and which tackles corruption and red tape, would vastly benefit economic development. A comprehensive pro-poor growth strategy should encourage labour-intensive activities, promote export-oriented activities, link agriculture to agro-processing, and promote efficient transfer mechanisms to target the regions with most development difficulties.


The improvement of human capital, through education and health, is a fundamental challenge, and would again benefit from public sector reform in general, and more particularly from an effective decentralisation. Macroeconomic stability and an efficient expenditure programme that favours the social sectors, rural development and infrastructure are instrumental for the Government in reaching its ultimate objective of growth with significant poverty reduction– but macro-economic stability and an efficient expenditure programme are dependent on sound pubic financial management. In this context, the ability of the Government to mobilise and sustain a high level of budget support to underpin implementation of the PARPA will depend crucially on the concrete reforms and capacity improvements in this area.


4. ASSESSMENT OF PAST AND ONGOING CO-OPERATION


The 8th EDF National Indicative Programme was signed in March 1997, and was designed as the country was emerging from a period of intense internal conflict. Effective implementation started only in the second half of 1999, practically at the end of the rehabilitation process. As a result, NIP interventions were adapted as the macro-economic environment strengthened and as the Government started to develop detailed longer-term sector policies, especially for agriculture, health, education and infrastructure. In practice, this facilitated the avoidance of making sectoral choices, allowing continued involvement in many sectors through a large number of small interventions. Dispersion was further reinforced by the multiplicity of instruments.


The estimated distribution of the 6th, 7th and 8th EDF (M€823) by area of intervention is as follows: transport infrastructure 33.5%; macro-economic budgetary support 33.4%; health 7.1%; governance 6.6%; rural development 6.5%; water 4.9% and others 6.1%. The EC also provides substantial support through the food security and other budget lines.


Many other bi- and multi-lateral donors are active in Mozambique. Thirteen EU Member States are represented in Maputo (excl. LX and GK), with Switzerland, Norway, U.S.A., Canada, the World Bank, the IMF, the AfDB and the UN system also contributing more or less substantial funding. The EC is the biggest single grant donor overall, with the World Bank providing significant amounts of credit funding on IDA terms.


The Member States place a high or medium focus on the following areas of their interventions :

Austria : agriculture and rural development, water, good governance

Denmark : macro support, good governance, education, rural development, energy, health

Finland : education, health, good governance, agriculture and rural development

France : education, health, agriculture and rural development, water

Germany : agriculture and rural development, transport, energy, education, health



Ireland : macro support, education, health, agriculture and rural development, good governance

Italy : health, agriculture and rural development, water, good governance, education

Netherlands : macro support, good governance, education, health, water, environment

Portugal : education, agriculture and rural development, good governance

Spain : health, education, agriculture and rural development, good governance

Sweden : macro support, good governance, education, rural development, transport, energy

U.K. : macro support, health, education, rural development, good governance, transport


As far as the main areas of intervention to achieve impact on poverty reduction are concerned, the
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Mozambique – European Community



Country Strategy Paper


and National Indicative Programme


for the period 2001 - 2007







The Government of the Republic of Mozambique and the European Commission hereby agree as follows:


The Government of the Republic of Mozambique, represented by <name and title>, and the European Commission, (represented by <name and title>,) hereinafter referred to as the Parties, held discussions in <place> from …..… to …….. with a view to determining the general orientations for co-operation for the period 2001 – 2007. The European Investment Bank was represented at these discussions by <name and title>.
During these discussions, the Country strategy paper and an Indicative Programme of Community Aid in favour of Mozambique were drawn up in accordance with the provisions of Articles 2 and 4 of Annex IV to the ACP-EC Partnership Agreement, signed in Cotonou on 23 June 2000. These discussions complete the programming process in Mozambique.

The present Country Strategy Paper and the Indicative Programme are annexed to the present document.

As regards the indicative programmable financial resources which the Community envisages to make available to Mozambique for the period 2001-2007, an amount of € 274 million is foreseen for the allocation referred to in Article 3.2 (a) of Annex IV of the ACP-EC Partnership Agreement (A-allocation) and of € 55 million for the allocation referred to in Article 3.2 (b) (B-allocation). These allocations are not entitlements and may be revised by the Community, following the completion of mid-term and end-of-term reviews, in accordance with Article 5.7 of annex IV of the ACP-EC Partnership Agreement.
The A-allocation is destined to cover macroeconomic support, sectoral policies, programmes and projects in support of the focal or non-focal areas of Community Assistance. The indicative programme under chapter VI concerns the resources of the A-allocation as well as uncommitted balances of former EDFs, for which no projects and programmes have been identified under the respective National Indicative Programmes. It also takes into consideration financing from which the Republic of Mozambique benefits or could benefit under other Community resources. It does not pre-empt financing decisions by the Commission.
The B-allocation is destined to cover unforeseen needs such as emergency assistance where such support cannot be financed from the EU budget, contributions to internationally agreed debt relief initiatives and support to mitigate adverse effects of instability in export earnings. The B-allocation shall be triggered according to specific mechanisms and procedures and does therefore not yet make part of the indicative programme.
Pending the entry into force of the Financial Protocol of the ACP-EC Partnership and within the framework of the present Country Strategy Paper and Indicative Programme, financing decisions for projects and programmes can be taken by the Commission at the request of the Government of Mozambique, within the limits of the A- and B-allocations referred to in this document and under the condition that sufficient resources are available in the general reserve of the eighth EDF. The respective projects and programmes shall be implemented according to the rules and procedures of the eighth EDF until entry into force of the Financial Protocol for the Ninth European Development Fund.
The European Investment Bank may contribute to the implementation of the present Country Strategy Paper by operations financed from the Investment Facility and/or from its own resources, in accordance with Articles 3 (a) and 4 of the Financial Protocol of the ACP-EC Partnership Agreement (see Chapter 5 and Section 6.2.3 for further details).


(7) In accordance with Article 5 of Annex IV to the ACP-EC Partnership Agreement, the National Authorising Officer and the Head of Delegation shall annually undertake an operational review of the Indicative Programme and undertake a mid-term review and an end-of-term review of the Country Support Strategy and the Indicative Programme in the light of current needs and performance.

The mid-term review shall be undertaken within two years and the end-of term review shall be undertaken within four years from the date of signature of the Country Support Strategy and the National Indicative Programme. Following the completion of mid-term and end-of term reviews, the Community may revise the resource allocation in the light of current needs and performance.

The agreement of the two parties on this Country Strategy Paper and the National Indicative Programme, subject to the ratification and entry into force of the ACP-EC Partnership Agreement, will be regarded as definitive within eight weeks of the date of the signature, unless either party communicate the contrary before the end of this period.


Signatures


For the Government of Mozambique For the Commission





Country Strategy Paper

C O N T E N T S

Page

part a : CO-OPERATION STRATEGY


executive summary ……………………………………………………. 2


1 - EC Co-operation Objectives ……………………………………… 3


2 - POLICY AGENDA OF THE GOVERNMENT OF MOZAMBIQUE ……. 3


3 - COUNTRY ANALYSIS …………………………………………………… 9


4 - ASSESSMENT OF PAST AND ONGOING CO-OPERATION …………… 15


5 - RESPONSE STRATEGY …………………………………………………… 18


PART B : INDICATIVE PROGRAMME


6 – PREsentation of the indicative programme ………………. 24

6.1 Introduction ……………………………………………………………… 24

6.2 Financial Instruments …………………………………………………… 24

6.3 Focal Sectors …………………………………………………………… 24

6.4 Macro-economic Support ……………………………………………… 25

6.5 Other Programmes ……………………………………………………… 26

6.6 Indicators at macro and sectoral level…………………………………… 27

6.7 Indicative Commitment and Disbursement Timetables ………………… 31

6.8 Activity Pipeline Chronogramme ………………………………………. 32


Annexes :


Annex 1 Projected Commitments of EC Financial Support

Annex 2 Projected Disbursements of EC Financial Support

Annex 3 Monitoring and Evaluation Indicators of the PARPA

Annex 4 Selected Economic and Financial Indicators 1999 – 2010

Annex 5 Main ongoing projects and programmes financed by the EC

Annex 6 Donor Matrix

Annex 7 Assessment of the national policy and policy implementation in the focal sectors

Annex 8 Key indicators for review



part a : CO-OPERATION STRATEGY



EXECUTIVE SUMMARY


The major challenges for Mozambique in the coming years are two-fold : the very weak capacity of human resources needs to be robustly addressed, and the country needs economic growth, at the household as well as the national level.


The issue of lack of capacity is apparent in all sectors and at all levels of society, and results in the vicious circle of weak public finance management and limited delivery of services to the population, which in turn causes, and is caused by long-term lack of access to, and poor, education and health.


Economic growth at household level is essential to creating not only a domestic market supply, but, more importantly, a domestic market demand in a country where 70% of the population live below – and many far, far below – the absolute poverty line. Where there is no domestic market, measures to improve trade flows can have only a limited effect, and “globalisation” will be an alien concept.


The main objective of this Country Strategy Paper is to seek to address some of the key determinants of poverty identified by the Government of Mozambique, and to support the Government in its overall objective of alleviating, and eventually eradicating, poverty. At the same time, the paper recognises that development co-operation funding can have a better impact when it is concentrated, when it is targeted, and when it is delivered in a complementary and co-ordinated manner with that of other donors.


This has led the EC to examine its past co-operation strategy in Mozambique, as well as the input of EU Member States and other donors, in order to establish where we have a relative comparative advantage. Many hours of discussions with Government and Member States in Maputo, including close co-operation and a shared analysis with Sweden, have led to the conclusion that the EC should continue with its interventions in the areas of transport - concentrating largely on periodic maintenance and capacity building, food security and agriculture, and macro-economic budgetary support. These are, indeed, the areas where the EC has most weight in the policy dialogue, considerable past experience and where large amounts of funds are required to the extent that few, if any, other donors would be in a position to fill the financial or policy gap.


At the same time, the EC acknowledges that the health sector will require substantial funding in the future, more particularly to deal with the ravages caused by HIV/AIDS and other communicable diseases. For this reason, the EC proposes to also contribute to the sector on a non-focal basis, through pooling mechanisms for essential medicines, for example. Again conscious of the fact that political stability and good governance are essential pre-conditions for effective development, the EC proposes to provide funding on a non-focal basis as and when reforms in the area of good governance and the rule of law make feasible its sustainable delivery.


The overall indicative distribution of funds is as follows : macro-economic budgetary support 45-55%, transport 25-35%, food security and agriculture 0-15%, to be allocated if required at the review stage should there be a shortfall in the Community budget line which has traditionally provided financing to this sector. In addition, 10-15% of the envelope will be allocated to health-HIV/AIDS, good governance and capacity-building for civil society 10-15%.



1. EC CO-OPERATION OBJECTIVES


In accordance with Article 177 of the Treaty establishing the European Community, community policy in the sphere of development co-operation shall foster:

The sustainable economic and social development of the developing countries, and more particularly the most disadvantaged among them;
The smooth and gradual integration of the developing countries into the world economy;
The campaign against poverty in the developing countries.


These objectives have been confirmed and reinforced in Article 1 of the ACP-EC Partnership Agreement, signed in Cotonou on 23 June 2000, which puts main emphasis on the objective of reducing and eventually eradicating poverty. Co-operation between the Community and Mozambique shall pursue these objectives, taking into account fundamental principles laid down in Article 2 of the Agreement – especially the principle of encouragement of the development strategies by the countries and populations concerned - and essential and fundamental elements as defined in Article 9.

In their Statement on the European Community’s Development Policy of 10 November 2000, the Council of the European Union and the European Commission determined a limited number of areas selected on the basis of their contribution towards reducing poverty and for which Community action provides added value: link between trade and development; support for regional integration and co-operation; support for macro-economic policies; transport; food security and sustainable rural development; institutional capacity-building, particularly in the area of good governance and the rule of law. The Statement also specifies that, in line with the macro-economic framework, the Community must also continue its support in the social sectors (health and education), particularly with a view to ensuring equitable access to social services.


The Treaty establishing the European Community foresees that the Community and the Member States shall co-ordinate their policies on development co-operation and shall consult each other on their aid programmes, including in international organisations and during international conferences. Efforts must be made to ensure that Community development policy objectives are taken into account in the formulation and implementation of other policies affecting the developing countries. Furthermore, as laid down in Article 20 of the Agreement, systematic account shall be taken in mainstreaming into all areas of co-operation the following thematic or cross-cutting themes: gender issues, environmental issues and institutional development and capacity building.


The above objectives and principles and the national policy agenda presented in the next chapter constitute the starting point for the formulation of the present Country Strategy Paper, in accordance with the principle of national ownership of development strategies.

2. Policy Agenda of the Mozambican Government
National policy and planning documents in Mozambique all have poverty reduction as a key objective. The Government’s Five-Year Plan, approved in February 2000, provides the framework of guidelines and development objectives that constitute a broad platform for other policy statements. Four central policy objectives are identified: reduction in the incidence of absolute poverty; broad-based rapid and sustainable growth ; regional economic development; and the consolidation of peace, national unity, justice and democracy.


In 2000, the Government prepared its Action Plan for the Reduction of Absolute Poverty 2001-5 (PARPA), which was updated and improved during a more ambitious exercise in 2000-01. The



PARPA now represents a comprehensive and detailed articulation of the Government’s strategy for poverty reduction. Though it also refers to growth, it actually lacks a growth strategy. The PARPA (or PRSP) incorporates and captures the core elements with high impact on poverty reduction of other policy statements, in particular sector policies. The PARPA reflects a high level of ownership and commitment to a wide and evolving consultation process, which is a prerequisite for its sustainability. It outlines the basis for monitoring implementation and assessing the impact of Government policies and actions in relation to poverty reduction. Regular evaluation and updating will allow for continued improvements in focus and content of priority measures.


The overall – rather ambitious - objective of the PARPA is to reduce the incidence of absolute poverty from 69.4% of the population to about 59% by 2005 and to 50% by 2010 (in actual figures, this means pulling 1.2 m. people out of poverty by 2005, and a further 1.2 m. by 2010). The PARPA is anchored on the assumption that poverty reduction needs a strong broad-based and non-inflationary growth that benefits the poor, combined with pro-poor oriented social and rural development policies, as well as higher and more effective poverty-oriented public expenditure. The Government intends to create macroeconomic and business conditions conducive to an ambitious average annual real rate growth of 8% - though there is little indication of what new sources of economic growth are to emerge in response to policy changes. The effects of HIV/AIDS could reduce this growth by 1% per annum. Whilst it has been possible to achieve such rates in recent years, the PARPA makes it clear that it aims at poverty-reducing growth, namely through private sector development and appropriate public policy measures benefiting the poor.


Central to the discussion on the growth model to be favoured by the Government in the allocation of public resources, in the delivery of public services and in exercising its regulatory powers over public investment, is a profound concern at the substantial poverty imbalances between provinces, as well as between urban and rural areas. The Government has drawn lessons from the impact thus far of the ”mega-projects” experience, and is aware of the risks of geographical and sectoral polarisation resulting from this approach. Whilst such projects are largely contributing to economic growth, the PARPA itself recognizes that “the poor do not benefit automatically from good macro-economic statistics”.


The PARPA has built and improved upon the previous analysis of the main determinants of poverty, identifying a key set - slow economic growth until the beginning of the 1990s, mainly due to the civil war; low education and training levels, particularly amongst women; poor basic health services; high household dependency rate; low agricultural productivity, particularly in the smallholder sector; lack of employment opportunities and; weak infrastructure, particularly in the rural areas. To this list, must now be added the devastating impact of AIDS on the national economy. The focus on six main areas - good governance, legality and justice; macroeconomic, financial and trade policies; education; health; agriculture and rural development; and infrastructure - transports, energy and water supply - is designed to address the above key determinants of poverty.


PARPA clearly states that good governance is one of the fundamental conditions for a successful strategy of poverty reduction. The vital role of deconcentration, as well as administrative and financial decentralisation to provincial and central level, is also recognised. In the area of governance, the EC would encourage the Government to examine how it envisages its own role, as well as that of donors and of the different members of civil society, in being able to contribute to creating an environment conducive to the reinforcement of democracy on the political front, and to sustaining investor confidence on the economic front.



The Public Sector Reform is the core element to strengthen the institutional capacity of the Government at central and local level to define, implement and monitor sound policies aimed at promoting economic growth and reduce poverty. The outline of a plan for reform addresses a wide range of problems, including salaries, capacity, corruption and policy coordination.


The main objective of the macroeconomic, financial and trade policies is to maintain macroeconomic stability and create conditions conducive to promote private sector-led growth, with exchange rate stability and low inflation in the context of a more open economy, whilst allocating more budget resources to poverty reduction activities. Increasing domestic revenue collection over the medium term is a priority for the Government to correct fiscal imbalances and to finance increasing expenditures and service delivery in key sectors of the PARPA, with a view to reducing dependence on external financing. The Government is preparing a new package of measures that should give a fresh impetus to the public expenditure reform initiated in 1997, focused on financial management and controls.


The Government’s monetary and financial policies aim at promoting a sound financial system, based on a more independent role for the Central Bank. The recent financial crisis, brought on in particular by the solvency problems of the Banco Austral, highlights the need for a comprehensive reform of the financial sector, not least to maintain investor confidence.


Concerning trade policy, Mozambique, a WTO member since 1995, adopted in 1999, and is now implementing, a formal Trade Policy Strategy (TPS) as part of its effort to modernize the economy. At a regional level, Mozambique, as a member of the Southern African Development Community (SADC), signed a Trade Protocol that became effective in 2000, and whose main objective is the establishment of a SADC Free-Trade Area. Finally, the Cotonou Agreement establishes preferential trade and aid links with the E.U. Most-favoured nation (MFN) import duties range from 2.5% to 30% ad valorem, and the simple average applied MFN tariff rate is 13.8%, among the lowest in southern Africa.


Given its impact on the development of human capital, education - particularly of girls - plays a decisive role in promoting broad-based economic growth that is inclusive, as well as contributing to the reduction of poverty. The PARPA’s main objectives in the education sector are to expand access, to improve quality and efficiency, and to reduce costs. It also recognizes that ethical problems (e.g. corruption, sexual harassment) negatively affect the education system. The PARPA expresses concern with the lack of availability of qualified human resources and institutions. The reform of the public sector, and the capacity of human resources in general in Mozambique, is inextricably linked to education.


The Education Sector Strategic Plan (ESSP), adopted in 1998, is a well-defined sector programme approach with a positive vision and clear objectives and priorities, which targets all levels of education. The lack of primary school teachers is, however, perhaps the major constraint in the sector, limiting the numbers of students who pass into the secondary level and, by the same token, to higher education.


Health is a key element of the PARPA, which makes the link between better health and breaking the poverty cycle. It also results in greater economic security and higher productivity at the household level. Hence, expansion of the network and delivery of good quality sustainable health care, particularly for the poorest, are primary objectives of the PARPA. The last five-year programme set out an ambitious decentralisation strategy, which required all provinces to execute the national health policy through locally managed services.



The Strategic Plan which is now being developed reinforces this emphasis on decentralization to improve access to health care, particularly to the poorest sections of the population. A period of consolidation of assets is now needed, in terms of maintenance, human resources and equipment. The Plan, together with the preparation of a Medium Term Expenditure Framework for the health sector (both documents expected to be approved in June 2001) should, furthermore, provide the policy framework for the development of a health sector wide approach (SWAP), in which the government will work with donors to develop joint procedures for budgetary support in the sector. This latter development translates a gradual shift in Government policy over the last few years. Joint working arrangements between donors and the Government have already resulted in a number of “building blocks” being laid in the form of a series of pooled funding arrangements for budget support to the provinces, essential medicines and technical assistance.


With regard to budget support to the provinces, funds provided by the central level through the donor pool are now managed at provincial level. In spite of acknowledged huge capacity constraints, the provincial health departments are now able to disburse about 70% of the funding available to them. Moreover, a new programme of $ 12M, financed by USAID, will concentrate exclusively on financial and human resource management at provincial level. This programme will benefit not only the Ministry of Health, but also other donors wishing to channel funds at this level. The main benefit will, indeed, accrue to the local populations in terms of improved service delivery. A constraint to delivering funding at the provincial level is still, however, the weak capacity of the provincial departments of the Ministry of Plan and Finance.


The National Health Sector Policy stresses the importance of developing a multi-sectoral poverty reduction approach to improve health care. Medium term policy objectives in the

PARPA therefore include improvements of access and quality of health care, focusing on women, children and other disadvantaged groups. A reduction in the impact of AIDS is also an objective, including access to voluntary testing and counselling as well as assistance to sufferers. Interventions focus mainly on the primary and secondary levels of care, and this policy is also reflected in the PARPA as a priority to improve the situation for the poorest.


The EC would encourage the Government to examine the role of other actors, including the private sector, in the preparation of the new Plan. Furthermore, whilst fully agreeing on the importance of all of the components of the Government’s programme in the area of health, the EC feels that stronger emphasis should be placed on family planning mechanisms in the light of the strong demographic increase (2.6% in 2000), and of the direct impact of such measures on poverty alleviation. Corruption, mainly due to low salaries in the sector, needs to be addressed.


The Government has recently taken a robust stance in addressing the HIV/AIDS epidemic. A National Strategic Plan (PEN) was approved in 1999, and in 2000 the National AIDS Council (CNCS) was set up. A multi-sectoral action plan - based on the PEN and involving all Ministries - was presented by the CNCS in December 2000. The CNCS, together with its provincial and regional offices, will have a co-ordinating role and an overview of all AIDS-related activities.


Given the importance of agricultural activities for the large majority (almost 80%) of the population, as well as the concentration of poverty in rural areas (82% of poor), agriculture and rural development is one of the key areas of the PARPA. The two main pillars of the Government’s strategy are to empower the agricultural producers to increase their productivity, and to transform public services into facilitators and supporters of the producers, through the provision of essential extension services.



The key role played by food security in the Government’s poverty reduction policy is reflected in the Food Security Strategy, the National Programme for Agricultural Development (PROAGRI), and the National Food Security and Nutrition Strategy (NFSNS). The latter, approved in 1998, delegates the responsibility for the formulation of its action plan to the Ministry (MADER). The strategy mainly aims to link food security to rising production and diversification of food crops, better and more diversified sources of non-farm income, and improved knowledge of appropriate technologies for food production and conservation. Agriculture is seen largely as a factor of growth in PARPA, with an emphasis on areas of higher potential and improved productivity. The EC feels that a more pronounced poverty reduction bias could be achieved through the targeting of household poverty.


PROAGRI, launched in January 1999, is a key element in the Government’s strategy to improve food security. As a sector-wide approach, it is essentially a process of institutional reform, an instrument through which the capacity of MADER to undertake its newly defined core functions efficiently and effectively can be transformed and enhanced. The programme is making good, though slow, progress, as reflected in the May 2000 GoM-Donors Aide-Memoire, particularly in terms of the convergence of projects in the Ministry and the progressive adoption by donors of common implementation arrangements. PROAGRI tackles some of the key determinants of poverty, though some adjustments to better fit the needs of the PARPA could be addressed by the EC and other donors in the context of the policy dialogue.


In parallel to the development of the sector programmes, the Government also recognised that tackling the multi-dimensional nature of rural poverty required a co-ordinated effort, focusing on the most vulnerable groups. Indeed, unless the energies of public, non-state and private agents could be effectively mobilised and co-ordinated, the state alone would not be able to make sufficient progress. In response, the Government approved new Guidelines in 1998, which defined four central themes of the administration’s role in rural development, with decentralisation probably being the most important, particularly in assessing the impact of projects on poverty. The EC is ready to help the Government prepare a strategy to prioritize planning at local level.


The development of infrastructure is instrumental in attaining the PARPA objective of promoting broad-based growth, and reducing poverty and regional asymmetries. To this end, the PARPA clearly underlines the importance of the provision of basic infrastructure linking rural areas to markets and basic social services. In this context, the soon-to-be-finalized Integrated Road Sector Strategy, which is a 10-year investment plan, calls for almost doubling the maintained tertiary network – including feeder roads – in order to extend economic and other opportunities to rural populations. The thrust of the strategy for secondary roads is to connect poles of economic activity, tourist sites and provincial and district capitals to the national network, whilst ensuring good access to the main ports and railways to encourage trade.


The PARPA also emphasises that the development of the private sector as an engine of economic growth depends on the availability of good infrastructure. The current policy, approved in 1996, identifies as a priority the involvement of the private sector in the construction and rehabilitation of transport infrastructure, in the management by contract or concession of the ports, railways and airports, and in the companies involved in air services and shipping. The Government retains the role of facilitator, responsible for defining policies and creating an environment conducive to attract investment, as well as being responsible for the establishment of regulations, the licensing of transport activities, and supervision and control. The PARPA’s emphasis on infrastructure cannot, however, be to the detriment of services, or
ignore the effects on poverty alleviation of addressing the issue of non-motorized transport. This is a challenge for further improvements in developing the sector-wide approach, which should be reflected in an updated PARPA.


In the regional context, Mozambique plays a crucial role as a transit country for several of its land-locked neighbours, but this has not been addressed by the PARPA. The Government has, however, ratified the SADC Protocol on Transport, Communications and Meteorology (MTC), which deals with issues such as axle load, truck combinations, calculation of cross border road user charges, and driving licenses. Furthermore, Mozambique has created a concept of Economic Zones – coupled with a special fiscal regime – to attract investment to the Zambezi River Basin, the Maputo Development Corridor and the Beira corridor. These aspects should be linked to the analysis of sources of growth, and also reflected in an updated PARPA.


Neither does PARPA address the issue of road safety, which is a directly pro-poor objective. In this context, road accidents have now reached epidemic proportions in Mozambique, which places an added strain on an already overburdened health system.


PARPA’s main objectives in terms of energy policy are to expand access to energy sources, to reduce the environmental impact of the use of non-renewable sources, as well as to promote the use of new and renewable energy sources, to contribute to the supply of energy in the main, as well as more remote, regions of the country, and to encourage private sector activities.



The 1995 National Water Policy (NWP) identifies integrated water resource management,

expansion of basic water and sanitation services, and the economic value of water services as priorities for poverty alleviation and sustainable development. A first major step in the implementation of this policy was the creation of a water investment fund (FIPAG) in 1998. On an international level, the Government signed in 2000 the revised Protocol on Shared Watercourses in the SADC region.


Substantial progress has been noted as the PARPA has advanced as a major policy document for the Government, which makes it possible – and indeed even necessary – for the EC to use it as a framework for its development co-operation. Though a move to consolidate the PARPA as the overarching poverty strategy could be supported, the quest for coherence between the

complementary policy documents (5-Year Plan, annual budget, MTEF) can only be undertaken by the Government. The EC should be ready to support a gradual evolution towards a closer methodological integration between sector approaches and the overall poverty reduction strategy. As the PARPA is a roll-over strategy, the EC would suggest incorporating into the process, elements of consultation with representatives of various government bodies (central, provincial and district), National Assembly, private sector, civil society in general, and donors ; linkages to the MTFF (Medium-Term Fiscal Framework) in order to prioritise activities in the light of limited resources ; identification of the main sources of growth and how they interact at national and regional level; and improvement of public finance management.


There are, certainly challenges and risks inherent in implementing the PARPA. Though the Government stresses the development of a strong institutional capacity to counter a crippling shortage of qualified human resources, there is a risk that implementation will be seriously affected by the weak civil service capacity, including at all stages of the budget process and public service delivery. The challenges ahead are to: move ahead quickly with the reform of the civil service, elaborate an economic diversification strategy, including an enabling environment for the private sector and regional integration; to further integrate the various planning and budgeting instruments; to select key performance indicators to monitor impact on poverty. In this context, the lack of monitoring indicators for some of the sectors, particularly
those where there is no clearly defined sector programme, could be overcome as work on the definition of indicators for other sectors progresses. The selection of such indicators should, however, be validated by all other donors. Building monitoring capacity is essential to this goal. To ensure effective contribution to the implementation of the PARPA, there is also a need to improve and implement the public sector reform programme and public expenditure management reforms, as well as related capacity building.


As the objectives and results expected of PARPA in the medium term are particularly ambitious, in terms both of budgetary management and poverty alleviation, their implementation will require an unfailing commitment to financial regulation and management, and to the social services, particularly in rural areas. More concretely, budgetary support as a way of financing the fight against poverty implies making the accompanying structures in the technical ministries more functional, in terms of technical and financial aspects and the production of regular and reliable statistics on the different sectors.

3. Country Analysis


On the political front, general elections have been held twice in Mozambique since the 1992 Peace Agreement. The democratic process is fragile, but though risks of conflict and political tension exist - as evidenced by the events of November 2000 - there is a widespread war-weariness and a continued strong wish for peace. Though it has been launched, the process of political dialogue is still a faltering one. The weak political culture in the country is obvious at the level of parliament, due in part to lack of experience and resources, as well as to a certain mistrust among its members. A growing feeling of exclusion among those who have not seen the benefits of development since 1992 seems to have increased the social and political tensions in Mozambique. The connection between power and money in Maputo City, where the elite has visibly benefited from rapid liberalisation, has contributed to these perceptions.


The fact that state apparatus is weak and has a limited absorption and implementation capacity constitutes a major obstacle to the efficient development of the country. Corruption is in evidence in the absence of appropriate public financial management systems and public procurement of goods and services, and against a background of pitifully low wages in the public sector. A chronic lack of resources – both human and financial – limit the conditions for the decentralisation which is necessary for the reduction of regional imbalances and the effective delivery of services at local level. This lack of resources is also reflected in the weakness of the judiciary system and law enforcement institutions, which in turn has serious implications for the rule of law and human rights. In spite of improvements, the human rights situation remains mitigated, with several areas demanding continued attention and reform. These governance issues have both political and economic implications.


Freedom of the press was granted by the 1990 Constitution. The media is now becoming more open and outspoken than previously, and is helping to create conditions for a critical debate of society. One big setback in this context was, however, the November 2000 murder of the famous investigative journalist, Carlos Cardoso.


In the short-term, there is an urgent need for the Government and the opposition to find a political solution to the crisis for stability’s sake. However, in the medium-term the political and institutional systems need reform, in order to bolster good governance and to deepen and strengthen the democratic process. In this context, the 1990 wartime Constitution, which marked an important step in the democratic process by separating the functions of the executive,



legislative and judicial powers, and creating the legal framework for a multi-party political system, would probably benefit from a revision to take account of the changed circumstances.


The relationship between Government and civil society organisations remains weak, though the government should be given credit for trying to improve the dialogue. The initiatives towards civil society are, however, quite new, and have yet to show substantial concrete results. The dialogue with the private sector has been going on for a number of years, but results are apparently constrained by red tape, heavy bureaucracy and lack of incentive schemes.


On the economic front, a rapid recovery and catching-up process took place after the peace agreement in 1992, though from very low base levels. Thanks largely to the combination of increased political stability, sound economic reforms, good weather conditions and substantial financial support from the international community, the real GDP grew at an average annual rate of 7.7% from 1993 to 1999, with a cumulative rate of 68.2%. During the same period, real GDP per capita improved by 48.2%. The severe emergency caused by the 2000 and 2001 floods has, however, significantly affected immediate economic prospects. In 2000, growth slowed to 2.1%. In spite of this, the Government is confident that growth will regain momentum in the foreseeable future, though it is unclear how such growth is to be achieved.


The current account deficit before grants improved from -45.7% of GDP in 1994 to –28.5% of GDP in 2000, although this is unsustainably high. More robust export-based growth is required for further improvements. Over the last ten years, external assistance has allowed a reduction of the current account deficit after grants by more than one-third, mitigating the constraint imposed by the high investment savings gap. Given the bleak prospects for improving domestic savings, the country will continue to depend significantly on external aid.


Since 1994, Mozambique’s trade in goods by destination has undergone fundamental changes. This finds its most striking expression in a considerable narrowing of trade with the E.U. (34.7% of exports and 33% of imports in 1994, 27% and 15.8% respectively in 1999) and a corresponding expansion of trade in the sub-region in general (21% of exports in 1994, 31% in 1999), and with South Africa – now the leading source of imports (44% in 1999) - in particular. Although the E.U. is still the main destination for Mozambique’s exports, S. Africa has become increasingly important. This reflects the benefits of closer integration with neighbouring SADC member countries (S. Africa, Zimbabwe, Malawi), whose market shares represent more than 40% of Mozambique’s trade, and shows the importance to the economy of regional links. Mozambique provides access to the sea for several landlocked neighbours, whilst the regional transport corridors to Mozambican ports are an important source of foreign revenue. Hydro-electricity from the Cahora Bassa dam and gas from the Pande fields are also important potential sources of export revenue. These ties provide a basis for further economic integration into the region.


Trade in fisheries products - mainly crustaceans – provides almost 40% of foreign exchange earnings, ($ 88 M in 1999 of total exports of $268 M) though few benefits accrue directly to the

population in terms of employment and value-adding processes.


Public expenditure management policies have generally supported macro-economic stability, whilst allowing for piecemeal reforms of the budgetary system. With the aid of the international community, which supplies 50% of budget needs, the Government was able to finance its ambitious post-war reconstruction programme and reduce fiscal imbalances. One of the key issues is off-budget expenditure. Progress has been made in public expenditure management since the late 1990s by strengthening the legal framework, public resource
programming and budgeting, public accounting, budget reporting on implementation and financial audits. Renewed reform efforts in public expenditure management can be noted in the following specific : a new comprehensive Public Finance Law has been drafted, which is to provide a legal basis for reforms and facilitate the introduction of generally accepted accounting standards in the public sector and reforms of the cash management system, as well as ensuring budget comprehensiveness; a more detailed system of budget classification has been implemented, which will allow budgeting and tracking of expenditures for priority sectors as identified in the PARPA; the closure of state accounts has been made more regular, whilst the regular production of quarterly budget execution reports since the first quarter of 2000 has begun to form the basis for a meaningful policy dialogue between the government and donors; the MPF has established a unit (UTRAF) to co-ordinate the reform programme.


The Government, increasingly concerned with the quality of public expenditure and financial accountability issues, has undertaken a public expenditure review and a Country Financial Accountability Assessment (CFAA) with WB assistance. The on-going reforms, however, include many elements and parallel activities whose links and sequencing do not yet appear to be thought through. There is, therefore, a need for a comprehensive government action plan which ensures the comprehensiveness of all budget resources by enforcing legislation and putting into place new accounting and cash management systems. The Joint Donor Group is using the policy dialogue to call for further improvements in the systems, procedures and in capacity building for internal and external financial controls. A comprehensive government action plan is expected to feature in the future and annual update of the PARPA, thus allowing for better donor co-ordination in providing financial and technical assistance. This action plan would certainly benefit from the findings and recommendations of financial management assessments carried out by the JDG, as well as from the ongoing PER and CFAA.


Monetary indicators showed, until 1999, a policy consistently in line with the pursuit of medium-and long-term sustainable economic growth, low inflation, and stable exchange rate. The central bank then started to lose full control over the monetary aggregates, adversely affecting both price and currency stability. Inflation reached 11.4% at the end of 2000. This reflects the combined effects of a excess monetary expansion, temporary shortages caused by the floods, and increases in oil prices. The Bank of Mozambique’s control over the monetary and credit markets has been severely tested by the serious liquidity and solvency problems of two important commercial banks – Banco Comercial de Moçambique and Banco Austral - where the Government has a 49% share and 100% share respectively. Addressing these issues will have a major impact on the effective use of limited budget resources, and raise serious governance concerns. In addition, inadequate solutions in the financial sector pose serious risks to macroeconomic stability, thus jeopardizing the achievement of PARPA objectives.

Mozambique successfully attained the completion point under the HIPC initiative in June 1999, and received $3.7 billion in debt relief ($1.7 billion in today’s values), the largest operation under HIPC so far. Furthermore, the country reached the completion point under the enhanced HIPC in September, adding M$ 600 to that figure. The HIPC initiative will provide additional budgetary savings of about $115 million a year (2.8% of GDP) from 2000-2005, to be reallocated to the priority sectors for poverty reduction as outlined in the PARPA.
Over the last few years, significant progress has been achieved in liberalising and opening up the economy, moving away from a closed, centrally planned model toward reliance on market mechanisms underpinned by private ownership. Investments worth $3 billion (97-99) have been made in industry, agriculture, tourism, fisheries, transportation and banking/insurance. A return towards isolationism is, however, evidenced by the Labour Law, which effectively acts as a disincentive to private foreign investment.



The private sector is, however, still undergoing considerable rationalisation, trying to overcome bottlenecks such as administrative red tape (a governance issue), under-capitalization, lack of skilled labour and infrastructure. Furthermore, the cashew sub-sector - once a major contributor to export revenue and employment - is facing a severe crisis due to the uncertainties of the current policy (a thorny issue with the WB). Production has dropped dramatically and the majority of cashew-processing plants have been forced to close. The situation of this sub-sector illustrates the need for a more strategic policy linking agriculture to agro-processing.


On the social and developmental front, projections from the 1997 census indicate a total population of 17.2 m. in 2000, of whom 52% are women. With an estimated population growth rate of 2.3% (2.6% in 2000), the country’s population would be expected to reach 19.3 m. by 2005, without taking into account the impact of HIV/AIDS. The great majority - 79.7% -of the population live in the rural areas. Indeed, Mozambique has one of the lowest rates of urbanisation in the world. One of the poorest countries in the world with a per capita GDP of about $237, the UNDP Human Development Index (HDI) places Mozambique in last position among the 14 SADC countries and 169th out of 174 countries overall. Although it is difficult to compare Mozambique’s performance with that of other low human development countries, their average HDI improved by only 7.2% over the last 8 years in comparison with Mozambique’s 14.8% in five years. This progress has, though, come from a very low level, and is in no way commensurate with the significant economic performance during the same period.


According to the Government’s national assessment of 1997 – the first serious attempt to provide a global and comprehensive view of poverty in Mozambique - poverty is very widespread, with more than 11 million people, or 69.4% of the population, affected. About 82% of the poor

live in rural areas with poor social and economic infrastructures, in part as a result of the 10-

year civil war that ended in 1992. The ever-present danger of landmines hampers many aspects of normal life and impedes economic development, as large tracts of the countryside – often uncharted – are still no-go areas.


Productivity in agriculture is very low and about 57.5% of agriculture production is for own consumption. Female-headed households in rural areas are especially vulnerable. Urban poverty is also widespread, caused largely by lack of employment or exceptionally low wages. About 62% of the urban population are also estimated to live below the poverty line.


A common thread running through the analysis of the different sectors, is that of low capacity of human resources, caused by the poor situation in the social sectors. Although there has been a significant improvement in the health status since the end of the civil war, it remains amongst the worst in the world (WHO ranks Mozambique 180th out of 191 countries for average level of population health), with access to health services limited to 39% of the population. The 1997 Census indicates that access to education is very low, at 39.6%. The average literacy rate is 25% for women and 54% for men.


There are significant regional differences in poverty levels, with the provinces in the central region of the country particularly badly affected. The regional incidence of poverty is related to an unbalanced growth process and an unequal income distribution mechanism within the Provinces. These regional imbalances find illustration not only in economic terms, but also in terms of health and education. There is a significant disparity in life expectancy between the provinces (national average 42.3 years for women and 40.6 for men, compared to 61.8 and 55.1 in Maputo province and 38 and 36 in Zambezia.) The under-5 mortality rate (U5MR) tells a similar story, to the extent that the WHO ranks Mozambique as the second most unequal country



in the world of “equality of child survival” (national average U5MR of 246 per 1000 live births, 97 per 1000 in Maputo province, 319 and 322 per 1000 respectively in Nampula and Zambezia). The main causes of child deaths are malaria and chronic malnourishment.


Equally, statistics on education reveal the significance of the regional imbalances. The 1997 Census shows that, in the north, only 14% of the women and 44% of the men are literate, as opposed to 21% and 55% in the centre of the country, and 77% and 93% respectively for Maputo City. Similarly, 28% of the population in the rural areas are literate, against 65% in the urban areas. These statistics also illustrate in a telling manner the huge inequality in the education of women, which has been identified as a key determinant of poverty.


The nature of food insecurity also illustrates the differences between rural and urban areas. The rural population faces very serious problems of income and physical access to food, and to a

lesser extent, of utilisation of food. The agriculture sector comprises a large and heterogeneous smallholder sector - responsible for 94.9% of the value-added produced by the agriculture sector - and a very small number of commercial enterprises – generating only 5.1% of the value-added. The lack of diversification of most rural households, and their dependency on a limited number of crops, together with lack of access to markets, creates a situation of extreme vulnerability to adverse market or weather conditions. The level of social infrastructures is very weak, in particular in the rural areas. In rural and peri-urban areas, the provision of basic services depends heavily on the efforts and motivation of the local community. The lack of access to reliable water supplies, to sanitation and to secondary roads seriously undermines agriculture development and limits general economic growth.


The AIDS epidemic will produce dramatic changes in population structure, with projections showing a dramatic drop in the population growth rate from 2.3% to some 1.0%, or 18.1 m. people in 2005 instead of 19.3 m. The alarming rise in the number of HIV infections – more than 20% infection rate in the central regions - has transformed AIDS from a health crisis to a development catastrophe with serious implications in all sectors. UNAIDS predicts that the number of people living with AIDS will reach more than 1,6 m. in 2002. Life expectancy will drop to 35.9 years by 2010, compared to 50.3 years without AIDS. Though the impact will be most serious at the household level, it will also put an ever-increasing burden on the health system. The economic impact will be devastating, as the infection rate is highest among those of productive age. The quality and quantity of human resources will further deteriorate, and the capacity to deliver social services will be further impaired as doctors, nurses and teachers fall victim to the disease.


Important gender inequality, further accentuated by regional differences, and differences between urban and rural areas, is still evident. The Government is committed to implementing the Post Beijing Action Plan to promote the situation of women and reduce discrimination. A strategic plan, approved in 1997, includes poverty reduction initiatives through education programmes, credit, technical assistance and the development of the informal sector.


Although the level of vulnerability to natural disasters is high, with the poor the worst affected, the policy response has been more reactive than proactive. The high degree of exposure to hydro-meteorological hazards of sufficient magnitude to threaten millions of human lives and their well-being is evidenced by twelve major floods, nine major droughts, and four major cyclones between 1965-99. The 2000 floods were an unprecedented natural disaster. This chronic vulnerability brings deep and sudden collapses in economic growth, particularly in agriculture, whilst poverty is sharply increased by human and capital losses. Dealing with the



aftermath also represents a huge drain on human and financial resources. Economic vulnerability is also high in Mozambique, due to the weakness of the private sector, exposure to external economic shocks, and the enormous macroeconomic imbalances, which are currently met by external aid funds. As the country’s economy depends on natural resources, the protection of the environment to ensure the sustainability of economic growth is a key issue.


Mozambique’s main transport system (ports and three railway lines) originally consisting of transit corridors in an east-west direction to serve the neighbouring landlocked countries, was largely annihilated during the civil war. Commercial interests in the post-war rehabilitation of these corridors have led to a relative neglect of infrastructure serving the needs of the domestic transport network. Though the ports and railway lines play an important role here, they do not constitute the backbone of a network that ties the nation together. The only modes of transport that provide a truly national network are the roads and the domestic air transport system. The major part of domestic transport in the country is by road. Although transport facilities between Mozambique and its neighbouring countries are improving, driven by the demand from those countries, links between the north and the south of the country are still very poor and vulnerable to natural disasters.


The road sector strategy pursues the development and reform of the road sector that was initiated in two Roads and Coastal Shipping Projects, implemented with the support of the EC, the World Bank and other donors. Though nearly half of the classified roads have been reopened and rehabilited, promoting mobility and providing enhanced access to most regions, the very weak culture of maintenance will reduce the longer-term benefits of the investments. Institutional reforms to ensure sound, sustainable and commercial management of the roads infrastructure are, therefore, crucial. Of importance here is the establishment of a new road management system, including the creation of an autonomous entity to manage the country's roads - the National Roads Administration (ANE) – and of a soon-to-be-autonomous Road Fund. This latter is, though, far from self-sufficient, and greatly relies on donor contributions.


The state-owned port and railway company, CFM, has been restructured – not without difficulty - into a holding company. Together with the Government, it is now committed to completing the concessioning of the main port and railway systems, as well as to bringing all three transport corridors under private sector operation. This restructuring process will, however, make about 12.000 people redundant. The involvement of the private sector, with the associated increase in competition, should have a beneficial effect on services and costs. The Government intends to extend the granting of concessions to other tertiary ports. Coastal shipping and air transport are to be liberalised gradually, so as to reduce the costs of domestic and international trade. Though the regulatory frameworks are being adapted, competition in the areas of coastal shipping and domestic air routes is still limited or non-existent. This sector, like many others, is characterized by weak institutional capacity. The development of national contractors who are able to contribute significant capacity in the execution of road maintenance and rehabilitation works is a key factor in the success of the road programme, in particular on the regional road network.


When looking back over the last 8 years, there is no doubt that Mozambique has come a long way from the highly centralised political system and a devastated economy it was. However, serious challenges still need to be met in terms of good governance and political stability to remove institutional obstacles blocking the path of effective development, and thus to increase the impact of development co-operation funds. Public sector reform – involving the crucial issues of decentralisation, public enterprise sector and public financial management - and the



reform of the judicio-legal system, are at the top of the list. Such difficult issues can only be addressed against a background of political stability and cohesion, as well as a national consensus on priorities and their sequencing.


The economy’s development is likely to be based on natural resources, drawing on agriculture, fishery, forestry, minerals and energy. The country has an important and little known potential for growth in agro- and industrial processing, transport and other services. Public sector reform, as well as a legal environment which inspires the confidence of domestic and foreign investors, and which tackles corruption and red tape, would vastly benefit economic development. A comprehensive pro-poor growth strategy should encourage labour-intensive activities, promote export-oriented activities, link agriculture to agro-processing, and promote efficient transfer mechanisms to target the regions with most development difficulties.


The improvement of human capital, through education and health, is a fundamental challenge, and would again benefit from public sector reform in general, and more particularly from an effective decentralisation. Macroeconomic stability and an efficient expenditure programme that favours the social sectors, rural development and infrastructure are instrumental for the Government in reaching its ultimate objective of growth with significant poverty reduction– but macro-economic stability and an efficient expenditure programme are dependent on sound pubic financial management. In this context, the ability of the Government to mobilise and sustain a high level of budget support to underpin implementation of the PARPA will depend crucially on the concrete reforms and capacity improvements in this area.


4. ASSESSMENT OF PAST AND ONGOING CO-OPERATION


The 8th EDF National Indicative Programme was signed in March 1997, and was designed as the country was emerging from a period of intense internal conflict. Effective implementation started only in the second half of 1999, practically at the end of the rehabilitation process. As a result, NIP interventions were adapted as the macro-economic environment strengthened and as the Government started to develop detailed longer-term sector policies, especially for agriculture, health, education and infrastructure. In practice, this facilitated the avoidance of making sectoral choices, allowing continued involvement in many sectors through a large number of small interventions. Dispersion was further reinforced by the multiplicity of instruments.


The estimated distribution of the 6th, 7th and 8th EDF (M€823) by area of intervention is as follows: transport infrastructure 33.5%; macro-economic budgetary support 33.4%; health 7.1%; governance 6.6%; rural development 6.5%; water 4.9% and others 6.1%. The EC also provides substantial support through the food security and other budget lines.


Many other bi- and multi-lateral donors are active in Mozambique. Thirteen EU Member States are represented in Maputo (excl. LX and GK), with Switzerland, Norway, U.S.A., Canada, the World Bank, the IMF, the AfDB and the UN system also contributing more or less substantial funding. The EC is the biggest single grant donor overall, with the World Bank providing significant amounts of credit funding on IDA terms.


The Member States place a high or medium focus on the following areas of their interventions :

Austria : agriculture and rural development, water, good governance

Denmark : macro support, good governance, education, rural development, energy, health

Finland : education, health, good governance, agriculture and rural development

France : education, health, agriculture and rural development, water

Germany : agriculture and rural development, transport, energy, education, health



Ireland : macro support, education, health, agriculture and rural development, good governance

Italy : health, agriculture and rural development, water, good governance, education

Netherlands : macro support, good governance, education, health, water, environment

Portugal : education, agriculture and rural development, good governance

Spain : health, education, agriculture and rural development, good governance

Sweden : macro support, good governance, education, rural development, transport, energy

U.K. : macro support, health, education, rural development, good governance, transport


As far as the main areas of intervention to achieve impact on poverty reduction are concerned, the


    Reference: http://www.delmoz.cec.eu.int/en/word_docs/country_strat.doc
    Reference: http://logos.it
Egmont
Spain
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Native speaker of: Native in SpanishSpanish
PRO pts in pair: 8110
Grading comment
Thank you, great reference, I could unserstand the relation between 8EDF and National Indicative Programme
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