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Conditionality

News

Mozambique sugar industry threatened

11 August 2000

The IMF looks set to repeat mistakes which led to the demise of Mozambique’s cashew processing industry. This time the sugar industry, which employs 17,000 people, is threatened. New private investors, attracted to Mozambique by assurances that the domestic market for sugar was protected, are threatening to pull out if the government yields to pressure from the IMF to remove protection.

The investors claim that the IMF knew that their investments were conditional on the measures staying in place and that staff initially expressed no opposition. However, in November, a visiting IMF team told the government that the protection on sugar should be cut over the next two years. Investors protest that this timetable would not enable them to recover their investments nor to compete with world market prices.

“If the IMF forces these impositions on the government, the result will be the closure of the factories,” warned an investor.

Both the World Bank and Government agree that only after the industry is fully operational and competitive should tariffs come down. The World Bank’s International Finance Corporation has lent money to a sugar mill and sees the industry as important for attracting foreign investment. Mozambican President Joaquim Chissano said his administration will continue to protect the sugar industry. “We see no reason why we should be excluded from a resource we have in our hands.”

Representatives of the US Congress wrote to President Clinton calling on the President to “strongly encourage the IMF and the World Bank to remove any conditions on the cashew nut processing industry and the sugar industry from their negotiations with Mozambique, so that debt relief for Mozambique will not be delayed by irrelevant and inappropriate conditionalities.”

A study has been commissioned to examine options and negotiations will restart when it is completed.