Mozambique

FY 2001 Program Description and Activity Data Sheets

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FY 2001 Program Much of the USAID program will continue to focus on Mozambique's center-north provinces, which were most affected by war; have 55% of the country's population; and have the greatest agricultural potential. Democracy, private sector, and HIV/AIDS programs are national in scope. Income growth will stimulate on-farm investment and expand rural enterprises. USAID will participate through the Africa Food Security Initiative in the rehabilitation of farm-to-market roads, expansion of farmer business associations and rural enterprises, and increased capacity of the Ministry of Agriculture to provide core services. In FY 2001, USAID will continue support for the multidonor sector investment program to enhance the effectiveness of public sector support for private sector-led agricultural development. In the democracy/governance area, USAID will continue to support capacity building of the national legislature; civil society development; development of more effective judicial processes; and activities to strengthen newly elected municipal governments. In the health sector, USAID will continue to build the local capacity of both public and nongovernmental institutions to provide sustainable access to basic services, especially those related to child survival, malaria, and polio immunization. The program to combat HIV/AIDS will expand throughout the country, with an increased emphasis on major transportation corridors where infection risk is growing rapidly. In conjunction with the Africa Trade and Investment Program, USAID will continue to support private sector-led growth and development, building the capacity of business associations to work with government and the legislature to develop trade- and investment-friendly regulations. This program advocates major tax, tariff, and trade reform, and is assisting in the establishment of a nongovernmental alternative dispute resolution system to relieve an overburdened civil court system. Activities to improve communications and access to information in Mozambique will expand to provincial capitals and other cities through the Leland Initiative. [an error occurred while processing this directive] ACTIVITY DATA SHEET PROGRAM: Mozambique TITLE AND NUMBER: Increased Rural Household Income in Focus Areas, 656-001 PLANNED FY 2000 OBLIGATION AND ACCOUNT: : $25,427,000 (DA), $17,650,000 (P.L. 480 Title II) PROPOSED FY 2001 OBLIGATION AND ACCOUNT: $22,946,000 (DFA), $19,332,000 (P.L. 480 Title II) STATUS: Continuing INITIAL OBLIGATION: FY 1996 ESTIMATED COMPLETION DATE: FY 2003 Summary: Most Mozambicans are rural and dependent on agriculture and related businesses; more than two-thirds live in abject poverty. Given the country's stunning macroeconomic performance, the deep and pervasive poverty affecting this majority of Mozambicans is of concern to both the public and private sectors. Efforts are needed to ensure that this majority does not remain below the poverty threshold while the economy as a whole continues to grow significantly. This program increases the income of nine million rural inhabitants of central Mozambique, over half of the country's population of 16.6 million. It addresses U.S. national interests of economic prosperity, humanitarian response, and global issues by promoting poverty alleviation and food security while integrating Mozambique into the global economy. It mitigates against environmental degradation and builds women's participation. The contributions of P.L. 480 Title II-generated local currency in support of food security and sustainable agriculture have been crucial to this program. Past P.L. 480 Title III resources have supported policy reforms to enable the development of private sector-led competitive markets. Key Results: USAID helps poor rural households to raise their incomes through: (1) increased access to markets, through road rehabilitation and market information; (2) expanded rural enterprises, through access to financial and business services; and (3) increased sustainable agricultural output, through access to technology, improved land tenure security, and effective public sector support. Average rural per capita income in USAID focus areas rose from $49.28 in 1996 to $55.14 in 1998, a 6% annual increase. Female-headed households increased their incomes at the same rate, from $41.77 to $46.63 per capita. These gains came from increased involvement in markets. The sale of surplus agricultural produce, increased non-farming enterprises, and increased wage employment together represented 40% of household income in 1998, compared with only 27% in 1996. Policy reforms continued to support the growth of competitive markets, with significant impact on rural households. For example, the mean volume of corn sold by households increased 44% from 1996 to 1998, while the prices received rose 65%. Given their greater integration into the rural cash economy, poor families are increasingly able to buy not just food but other goods and services in the market using income earned from sales of cash crops and off-farm employment. Performance and Prospects: Mozambique's rural economy continued to grow in FY 1999. In USAID's focus areas, agricultural production and marketing and the growth of the private commercial sector continued their upward trend. Available data (in a year when broad household surveys were not conducted) indicate that where USAID field-based activities are underway (such as road rehabilitation, producer association development, and agricultural extension and research), per capita income continued to rise, increasing more than 10% every year since 1996. Participation in markets, crucial to family income opportunities, depends on improved roads. During 1999, USAID-funded labor-intensive contracts provided temporary employment for hundreds of rural Mozambicans, rehabilitating more than 300 kilometers of farm-to-market roads and bridges. Also in 1999, a contract was signed for construction of a road to fill the 140-mile gap in the heart of Mozambique's north-south national trunk road. USAID is financing 80% of this $45 million contract. When construction is complete in 2002, focus-area households and businesses will at last have access to central and southern Mozambique ports, export markets, and major urban markets. Through applied research and extension, USAID activities continue to provide farmers with improved technologies that increase environmentally sustainable production. Coarse grain production, an indicator of national food security, again surpassed the country's requirements in 1999, while production of other important food crops such as cassava, beans and peanuts also rose. Cashew, an environmentally friendly tree crop, is produced by about 40% of focus area households. Its production, which increases income, employment, and exports, is promoted through several USAID activities. Marketed production of cashew rose from 22,000 tons in 1995 to 45,000 in 1999. With improved marketing and increased production, the price farmers received for their cashews rose to more than 50% of the world market price in 1999, up from 38% in 1995. In areas where field-based activities are underway to improve sustainable agricultural production, the value of key crops produced by families--crucial for both household food security and cash income--increased about 37% from 1997 to 1999. These increases largely were a result of farmer adoption of improved seeds with much higher yields than traditional varieties. USAID partners helped farmers obtain improved seed through community-based seed multiplication and sales activities tied into commercial markets. The number of households using improved seed increased 13% from 1996 to 1999. Farmer adoption of integrated soil fertility management techniques also was a factor in increased production: row planting increased from 22% of households in 1997 to 43% in 1999, while contour planting adoption increased 33% since 1996. Use of organic fertilizer and improved storage technologies also significantly increased. The expansion of farmer associations had a very positive impact on market development and on farmer access to credit and agricultural extension services. The number of such associations increased from 65 in 1996 to 369 in 1999, with membership growing from 2,740 to 24,000 families. Woman-owned and -managed associations rose from 27 in 1997 to 55 in 1999. Members' average annual gross sales increased from $54.70 in 1996 to $82.60 in 1998, a significant boost to household income. Farmer associations facilitate business expansion into rural areas, reducing marketing costs and transaction risks by aggregating demand for inputs, facilitating delivery of products, ensuring quality control, and guaranteeing credit repayment. During the 1998-1999 agricultural cycle, 254 assisted associations received commercial bank credit worth nearly $180,000 for inputs provided by agricultural and seed companies; repayment rates are excellent. USAID continues to help Mozambique strengthen the land tenure security of both smallholder farmers and large investors. A new land law was enacted in 1998, with implementing regulations approved in 1999. The challenge now is to assist the Government of the Republic of Mozambique (GRM) to develop cost-effective procedures to ensure timely resolution of both land concession requests and community land delimitation. The GRM's 1998 formulation of a multidonor-supported five-year sector investment program in agriculture (ProAgri) was an important step from institutional fragmentation toward sustainable development. Under ProAgri, the GRM will develop management systems to ensure transparent and efficient resource allocation to provide core public services. By joining other donors in support of ProAgri, through both project assistance and budget support, USAID is influencing and accelerating this capacity building and reform process. ProAgri's market-oriented approach will lead to improved sustainable sectoral policies as well as to improved technology and information services by both the public and private sectors, with important income effects for rural Mozambicans. In 1999 ProAgri made significant progress in establishing mechanisms to streamline disbursements, ensure transparent financial management, and develop the tools for decentralized (provincial-level) planning. A functional analysis begun in 1999 will limit the GRM's role to a set of core functions and further clarify the nature of institutional reforms. By 2000-2001, this improved environment will increase private sector involvement in agricultural input markets and extension services delivery. The rapid recovery of the rural economy, the movement from subsistence to commercial agriculture, and the institutional reforms in the agricultural sector all have implications for activities over the remainder of the strategy period. USAID has placed more emphasis on fostering Mozambican private-sector capacity to: (1) develop more sophisticated markets and market mechanisms for agricultural products; (2) establish rural financial services and institutions; and (3) improve delivery systems for technologies to increase agricultural productivity and post-harvest processing. Accelerated activities in these areas, coupled with expected progress in policy dialogue, road rehabilitation and maintenance, enterprise development, and the adoption of sustainable agricultural production technologies, will permit the program to meet or exceed targets through 2001. Possible Adjustments to Plans: None. Other Donor Programs: Key donors and the GRM regularly consult on policy and implementation issues. Other donors involved in areas addressed under this program include the World Bank, Sweden, Denmark, Germany, the United Kingdom, and the European Community. Mozambique's Ministry of Public Works and Housing coordinates donor assistance for rehabilitation of rural roads. The Ministry of Agriculture and Fisheries and the Ministry of Plan and Finance lead the implementation of the agriculture sector investment program. The IMF, the World Bank, and some bilateral donors also are active in macroeconomic and sectoral policy dialogue with the GRM. Principal Contractors, Grantees or Agencies: U.S. private voluntary organization implementers of USAID activities include World Vision, CARE, Africare, Food for the Hungry, National Cooperative Business Association, Save the Children, the Adventist Development and Relief Agency, and Technoserve. U.S. university partners include Michigan State University and the University of Wisconsin. A new agreement is planned with a Collaborative Research Support Program (CRSP) of U.S. land grant universities to build Mozambican capacity through U.S. graduate degrees and collaborative research. Selected Performance Measures: Baseline (1995) Actual (1998) Target (1999) Target (2000) Target (2001) Increased rural per capita income $50 (1996) $55 $57 $62 $66 Increased average annual value of Transactions per household having micro or small enterprises $48.55 (1996) $72.84 $55 $60 $64 Increased volume (tons) of marketed produce (selected crops)  -- corn    -- cashew     185,000 (1996) 22,000 190,000   39,600 233,000   39,800 251,000   44,700 271,000   49,000 Increased corn production (tons) 596,500 689,000 750,000 810,000 875,000 Increased average annual return per Household participating in rural group Enterprises $17.22 $82.60 $85 $92 $100 U.S. Finance Table (Microsoft Excel file) ACTIVITY DATA SHEET PROGRAM: Mozambique TITLE AND NUMBER: Government and Civil Society Are Effective Partners in Democratic Governance at the National and Local Levels, 656-002 PLANNED FY 2000 OBLIGATION AND ACCOUNT:$1,872,000 (DA) PROPOSED FY 2001 OBLIGATION AND ACCOUNT: $2,390,000 (DFA) STATUS: Continuing INITIAL OBLIGATION: FY 1996 ESTIMATED COMPLETION DATE: FY 2003 Summary: Mozambique represents one of the few "transition-to-democracy" success stories in Africa. USAID has played a key role in this transition, providing crucial support for the 1994 and 1999 national elections, both of which were highly praised by international observers. USAID also supports the consolidation of democracy in Mozambique through assistance to both government institutions and civil society organizations. While political stability and significant progress in democratization have spurred economic investments and social improvements, challenges remain. The weakness of many institutions, some fundamental to the further development of democracy and intrinsic to the rule of law, inhibits effective citizen representation and the provision of public services. For example, while the multiparty legislature has steadily improved its legislative and analytical capabilities, the legislators' links with constituents, particularly in rural areas, remain weak. With the exception of the Supreme Court, the judiciary remains largely dysfunctional. Civil society is stronger and more vocal but remains financially dependent on external donors. In many rural areas, the people-level impact of democracy is difficult to discern. At the same time, the human rights situation continues to improve; press freedom is noteworthy; and some elected municipal governments are increasingly responsive to residents. This program contributes directly and significantly to U.S. national interests, as identified in the U.S. Embassy's Mission Performance Plan, by supporting the institutionalization of democracy through activities promoting democratic pluralism, accountability of democratic institutions, and respect for human rights. Key Results: The purpose of this program is to promote citizen participation and increase the effectiveness of both government and civil society in democratic governance. Two results are being achieved: (1) increased citizen participation in governance at national and local levels, brought about through broadening debate and discussion of public policies and increasing informed participation in the electoral process; and (2) more effective and accountable key democratic institutions, resulting from human resource capacity building and greater transparency of public policy making. Performance and Prospects: USAID activities help to create the environment for improved public debate on key issues by developing fora for discussion and improving the substantive content of debate. USAID support to the National Assembly provided for public hearings on proposed legislation, including revisions to the constitution; these hearings demonstrated the capacity of civil society organizations to effectively and constructively participate in public policy debates, and resulted in the incorporation of citizen viewpoints into important legislation such as new labor and electoral laws. Alternative dispute resolution legislation drafted with USAID support in 1998 was passed unanimously by the Assembly in 1999, and the country's most important civil court in Maputo now is able to manage its workload with a computerized case-tracking system financed by USAID. Mozambique's second multiparty general elections, held in December 1999, were an extremely significant milestone in continued democratic consolidation. Former U.S. President Jimmy Carter led a 50-member electoral observation mission jointly supported by USAID and the United Kingdom. The Carter Center praised the voting, while the head of an observation mission from the European Union stated that the electoral process was "second to none." The independent National Electoral Commission (CNE) announced the results of the vote count and, following a careful review of protests raised by the opposition, the Supreme Court performed its constitutional duty by validating and proclaiming the final results. Two notable facts have emerged. First, the presidential election was extremely close, with a margin of victory of less than five percentage points. This shows increased voter support for the opposition candidate since the 1994 election. Second, support for both of the major parties has generally broadened since 1994: the opposition received more votes in urban areas, and the ruling party gained support in many rural areas. This shift indicates the strengthening of a multiparty system based on issues rather than on ethnic or regional identities. The narrow margin of victory and shifting voting pattern also suggest that the new government will be attentive to the ideas and needs of the electorate, which in turn strengthens prospects for achieving USAID performance targets through FY 2001. USAID supported the electoral process in a variety of ways. Training of political party electoral monitors meant that nearly all of the 8,300 voting tables had monitors from at least two parties. In a program cofinanced with Denmark and Germany, over 3,000 Mozambican civil society observers were trained and fielded during voter registration, balloting, and vote counting. Along with the Netherlands, Sweden, Switzerland, and the Mozambique government, USAID supported a public campaign finance program administered by the CNE. USAID also assisted the CNE in improving communications between Maputo and provincial electoral offices through e-mail links made possible through previous activities under USAID's Leland Initiative. Possible Adjustments to Plans: In recognition of the growing capabilities and importance of Mozambican nongovernmental organizations in the democracy and governance sector, USAID will begin to directly support some of these groups, particularly to improve advocacy skills and to promote greater transparency and combat corruption in government and political functions. Other Donor Programs: The United Nations Development Program, the European Union, and bilateral donors have programs in the democracy and governance sector that are highly complementary to USAID efforts. As noted above, collaboration with other bilateral donors was particularly effective in supporting the 1999 electoral process; USAID leadership in these activities leveraged over $1.85 million from other donors. USAID coordinates closely with other donors through the Development Partners Group, as well as through several technical-level working groups. USAID chairs the group on parliamentary assistance. Principal Contractors, Grantees, or Agencies: Democracy activities are implemented primarily through U.S. organizations that provide assistance to local governmental and nongovernmental entities. U.S. grantees involved with the current program include the National Democratic Institute for International Affairs; America's Development Foundation; the Educational Development Center; the State University of New York Research Foundation; and Private Agencies Cooperating Together. Selected Performance Measures: Baseline (1995) Actual (1998) Target (1999) Target (2000) Target (2001) Citizen perceptions of influence on public decisions (% of public surveyed who agree that citizens influence public decisions) 37% (1997) * * * 45% Citizen perception that government works for citizens (% of public surveyed) 15% (1997) * * * 33% National Assembly provides substantive input into legislation proposed by the Executive Branch (% of legislation) 0% 78% 90% 75% 90% Times nongovernmental political actors testify before parliamentary committees 0 22 23 22 25 * Survey-based data for these indicators are not collected every year; other progress indicators are closely monitored. U.S. Finance Table (Microsoft Excel file) ACTIVITY DATA SHEET PROGRAM: Mozambique TITLE AND NUMBER: Increased Use of Essential Maternal and Child Health and Family Planning Services in Focus Areas, 656-003 PLANNED FY 2000 OBLIGATION AND ACCOUNT: $6,100,000 (DA), $11,400,000 (CSD) PROPOSED FY 2001 OBLIGATION AND ACCOUNT: $12,854,000 (CSD), $7,000,000 (DFA) STATUS: Continuing INITIAL OBLIGATION: FY 1996 ESTIMATED COMPLETION DATE: FY 2003 Summary: Mozambique has some of the worst health conditions in the world. USAID provided emergency health assistance in the years following the 1992 Peace Accord, opening access to services in areas hardest hit by war and drought. Now the country is establishing a rural primary care network to improve the health status of the general population and a management system for this expanded network. Progress is constrained by high rates of infectious disease and malnutrition, growing prevalence of HIV/AIDS, inadequate access to potable water, and limited capacity to deliver basic health services. While 60% of Mozambicans now have access to health services (compared with 30% in 1992), quality remains a concern. Staff in many rural facilities have only rudimentary training, trained managers are rare, and basic equipment and supplies are scarce at all levels. This program contributes to U.S. national interests related to the global issues of stabilizing world population growth, protecting human health, and reducing the spread of infectious diseases. USAID activities are essential to reaching key objectives identified in the U.S. Embassy Mission Performance Plan, including HIV/AIDS prevention, family planning, and reduced childhood disease. USAID focuses on rural areas where health conditions are worst. The program supports U.S. and international private voluntary organizations (PVOs) and contractors working with the Ministry of Health (MOH) in community-based delivery of basic information and services. USAID-funded PVOs work in 70 districts with a population of 9.5 million; 1.9 million women of childbearing age and 665,000 children under five directly benefit. USAID also improves management skills at MOH clinics and provides technical assistance to support decentralization. As a result, MOH capacity for provincial level planning, human resource management, and budgeting and financial management has been significantly strengthened. The program uses Child Survival and Diseases funding to increase immunization coverage; prevent and treat diarrheal disease and combat child malnutrition by breastfeeding, proper weaning, and micronutrient supplementation; improve maternal health services; prevent and control malaria and other infectious diseases; and prevent HIV/AIDS by building awareness and by social marketing of condoms. USAID uses Development Assistance funding to expand quality family planning and related reproductive services by integrating them into community-based and outreach programs. Key Results: This program increases the use of essential maternal and child health and family planning services through increased access to and demand for community-based services, and through strengthened policy and management of decentralized services. USAID activities contribute to increased immunization coverage; prevention and treatment of diarrheal disease; malaria prevention and treatment; prevention and treatment of acute respiratory infections; improved reproductive health (family planning, prenatal care, care during labor and delivery, breast-feeding and weaning, maternal nutrition); and HIV/AIDS awareness and prevention, including social marketing of condoms. USAID activities have made a significant difference in child survival and maternal health. In Zambezia province, diphtheria-pertussis-tetanus (DPT3) coverage increased from 20% to 62%; use of oral rehydration therapy (ORT) for child diarrhea from 54% to 82%; and exclusive breastfeeding from 67% to 82%. In Gaza province, DPT3 coverage increased from 37% to 80%; ORT use from 47% to 64%; and exclusive breastfeeding from 10% to 30% over two years. In Manica province, DPT3 coverage increased to 86%, while births assisted by trained personnel increased from 41% to 60% (compared with national estimates of less than 40%). At the national level, USAID played a major role in multidonor support for National Immunization Days, initiated as part of the global effort to eradicate polio; coverage increased stunningly from 70% in 1997 to 95% in 1998 and 110% in 1999 (this figure is greater than 100% as some children older than the target group also received vaccinations). Performance and Prospects: Expanding and maturing activities contributed to a significant increase in access to and demand for essential health services. This community-based orientation brings health care services closer to the people through a strong outreach program in the focus provinces. The MOH, in cooperation with PVOs, emphasizes both outreach from fixed facilities and the placement of health volunteers in communities to improve access. The number of communities receiving outreach services from fixed facilities in the focus area increased from 448 in 1997 to 1,065 in 1998 and 1,264 in 1999, while those receiving services from community-based volunteers increased from 187 in 1997 to 265 in 1998 and 1,814 in 1999. These results significantly exceeded performance targets. USAID emphasizes improving both the quality and the quantity of clinic-based health services. The program helps to ensure the availability of essential commodities while expanding and improving the capacity to provide basic care, including the development of functional referral systems that are essential to an effective health system. Increased capacity to provide services is reflected in the number of first-time maternal-child visits to MOH facilities, which more than doubled since 1996. Knowledge and use of safe child spacing methods are very limited; increased awareness of the importance of reproductive health and availability of services are high priorities. USAID works with the MOH to expand family planning services into basic health programs. This effort is proceeding more quickly than expected; by 1999, 123 health posts in Nampula and Zambezia provinces were providing family planning services, compared with a 1997 baseline of zero and a 1998 figure of 79. The one area of disappointment in 1998 was the HIV/AIDS condom social marketing program, which failed to meet very ambitious targets. While achievements were considerable (2,600 commercial sales outlets, selling over 10 million condoms), the figures were virtually unchanged from 1997 due to a lengthy nationwide stockout followed by a price increase. Adjustments were made in 1999 to address these problems. In addition, given the increasing urgency of factors in HIV/AIDS prevention other than condom availability, USAID's HIV/AIDS activities in Mozambique will significantly expand during FY 2000, targeting major transport corridors where risk of infection is increasing most quickly. These expanded HIV/AIDS prevention efforts will be partly funded through the Presidential Initiative for Leadership and Investment in Fighting an Epidemic ("LIFE"). During 1998, the MOH continued its planned move toward a sector-wide assistance program and began developing the centerpiece of the effort, a health sector financing strategy. USAID contributed to this process by financing four key studies and supporting a national seminar. These efforts led to a profound debate on the role of government in the health sector, and to an acceptance of an expanded role for private voluntary and for-profit health care organizations. During 1999, with continued USAID support, the MOH moved forward with strategy development and capacity building for a future sector approach to Mozambique's health challenges. USAID support also improved MOH provincial-level management, pharmaceutical management, and systems for data collection and analysis, thereby also strengthening government capacity to develop policies to expand effective and efficient public and private health service delivery. Possible Adjustments to Plans: In 1998 USAID and the Government of the Republic of Mozambique (GRM) agreed on a strategic framework for USAID health sector assistance through FY 2002. This process led during 1999 to modifications in implementation approaches, and some contracts and grants will be phased out based upon joint review of impact and effectiveness. In particular, activities contributing to "strengthened policy and management of decentralized, essential services" will be restructured to reflect MOH momentum toward a sector strategy and to build MOH capacity to implement an eventual sector-wide assistance program. In addition, HIV/AIDS prevention activities will significantly increase in importance and coverage to address the rapidly rising prevalence rates, especially along Mozambique's dynamic and economically important transport corridors. Other Donor Programs: About 90% of Mozambique's health sector investment budget and over 70% of the recurrent budget come from donor resources. The GRM plans to increase budget allocations for health to $1.48 per capita by 2002 (from $1.19 in 1993), but reliance on donors will continue. Donors participate in an active sector working group chaired by the MOH. In addition to USAID, major donors include Canada, Denmark, the Netherlands, the European Union, the United Kingdom, Finland, Ireland, Italy, Norway, Spain, Switzerland, U.N. agencies, and the World Bank. Principal Contractors, Grantees or Agencies: USAID works with the MOH and with U.S., international, and local organizations. PVO grantees include World Vision, Save the Children, CARE, Health Alliance International, Medical Care Development International, Pathfinder, Project HOPE, and Population Services International; many of these partner with local nongovernmental organizations. U.S. contractors include Management Sciences for Health and John Snow, Inc. During FY 2000, one or more new long-term partners will be selected to provide technical assistance and capacity building services related to the program adjustments described above. Selected Performance Measures: Baseline (1997) Actual (1998) Target (1999) Target (2000) Target (2001) Children 12-23 months of age vaccinated with diphtheria, pertussis and tetanus (third dose) 39% * 50% 55% 60% Infants fed exclusively on breast milk 35% * 38% 40% 42% Percent of child diarrhea cases receiving oral rehydration therapy treatment 37% * 43% 47% 50% Children under 2 years of age whose birth was attended by a trained health worker 41% * 45% 47% 50% Women using a modern contraceptive method 6% * 9% 11% 13% Condom use with last non-regular sexual partner 28% 27.7% 40% 50% 60% * Survey-based data for these indicators are not collected every year; other progress indicators are closely monitored. U.S. Finance Table (Microsoft Excel file) ACTIVITY DATA SHEET PROGRAM: Mozambique TITLE AND NUMBER: Improved Enabling Environment for Private Sector-Led Growth and Development, 656-004 PLANNED FY 2000 OBLIGATION AND ACCOUNT: $300,000 (DA) PROPOSED FY 2001 OBLIGATION AND ACCOUNT: $382,000 (DFA) STATUS: Continuing INITIAL OBLIGATION: FY 1998 ESTIMATED COMPLETION DATE: FY 2003 Summary: Through the economic restructuring success of the Government of the Republic of Mozambique (GRM), Mozambique has achieved exceptional gross domestic product (GDP) growth while maintaining a stable currency, dramatically lowering inflation and interest rates, and increasing fiscal allocations for social sector investments. GDP growth has been strong since 1993, with exceptionally high rates of 11% and 10% (estimated) achieved in 1998 and 1999, respectively. Preliminary 1999 figures also indicate that inflation will continue to be under 5%. Economic stability has generated great investment interest and a significant increase in first-round foreign investment totaling about $8 billion (1998-2001), including significant U.S. investment. Nevertheless, much work remains to be done before Mozambique can sustain the benefits of growth through a truly open economy. Red tape and antiquated regulations, an outdated tax system, trade barriers, inadequate telecommunications and transport infrastructure, and underdeveloped capital markets all urgently require attention before Mozambique can attract the levels of foreign and domestic investment required for fast-track growth. To meet these challenges, the active leadership of an informed private sector is crucial to ensure that the GRM reform agenda best promotes trade and commercial interests. Key Results: The overall objective of this program is to improve the enabling environment for private sector-led growth and development. To achieve this, USAID focuses on: (1) increasing the role of the private sector in the development of economic policy, legislation and regulations; and (2) improving policies and facilities to encourage trade and investment. Activities under the first area include institutional and analytical support to the Confederation of Mozambique Business Associations (CTA), a private sector group dedicated to improving policy and eliminating red tape and serving as the government's principal private sector interlocutor on policy and reform issues; and expansion of internet services throughout the country by the private sector. Under the second area, USAID supports tax system reforms, reduction of red tape, trade openness, and the completion of the privatization of Mozambique's three main rail lines, which serve much of the eastern area of Southern Africa. Performance and Prospects: While this is a new program, many of the activities began on a pilot basis in 1997-1998. USAID provides a combination of technical assistance resources to the private and public sectors and nonproject assistance to the GRM to compensate for temporary revenue shortfall resulting from tax and tariff reforms. These efforts are partly financed through the Africa Trade and Investment Initiative (ATRIP) and the Leland Initiative. USAID provided modest assistance to CTA during 1997-1998, which made it possible for CTA to remain actively engaged in red tape issues and to pursue in greater depth issues of particular importance to the private sector. In 1998 these issues included most notably trade, labor law, the introduction of a value-added tax, and changes to the regulatory framework governing imports and exports. As a result, through the joint efforts of CTA, the Ministry of Industry, Commerce, and Tourism (MICTUR), and the Ministry of Plan and Finance, significant steps were taken in 1998 to reduce red tape. Simplified registration procedures were issued and widely promulgated for commercial and industrial licensing; a single document was introduced for imports; and the requirement for multiple licensing by class of importer (there were over 20 categories, based on the type of good imported) and by transaction was replaced by a general importer's license and a single expert/import document. These new measures, despite start-up problems, are leading to significant improvements in the time and effort required to set up businesses and to effect imports or exports. CTA, with USAID assistance, also undertook a comprehensive study of 1998 labor legislation, including analysis of its implications for employment and business expansion. This effort provided valuable lessons to CTA members, including the need to weigh in early on proposed legislation affecting the private sector and the importance of sharing such analyses with the press and the public rather than relying solely on "back channels" to influence legislation. Along with the successes achieved, these efforts showed that in order to take on the wide range of issues where the private sector has a critical interest, CTA needed to become more professional in its ongoing operations and to develop better and more regular communications with its member associations, particularly those based outside Maputo. In 1999 CTA was legally registered as an association and established a secretariat with professional staff. This new institutional arrangement, directly supported by a USAID grant, will permit the private sector to engage more systematically and profoundly in discussions of policy, legislation and regulation affecting business and investment. As a follow-up to CTA work on trade, through which a consensus in favor of liberalization was achieved in 1998, USAID provided technical support to the GRM trade negotiating team during the 1999 negotiations of the Southern Africa Development Community (SADC) Free Trade Area. As a result, Mozambique is now fully committed to the regional free trade area envisaged by the SADC protocol, a major policy transformation achieved in a very short period. In addition, the government, spurred by the private sector, has continued to make progress in reducing red tape constraints to investment and the day-to-day operation of business. Competitive private-sector internet services were introduced in Maputo in 1997 under the Leland Initiative. Access expanded considerably during 1999; there now are more than 10,000 subscribers in the capital city, from a baseline of 250 in 1997 and 3,347 at the end of 1998. In the first half of 2000, USAID will support the expansion of full internet service by private providers to two provincial capitals in the USAID focus area. In 1999 USAID joined other major donors to support Mozambique's introduction of a value-added tax to replace a cascading sales tax and the government's review of other taxes that distort economic incentives or discourage business and investment. As a result, corporate and income taxes were adjusted downward to improve business competitiveness. Also in 1999, USAID began a program to support the MICTUR "Trade Technical Unit" in order to accelerate Mozambique's reduction of regional and general trade barriers. These reforms will entail significant short-term revenue losses that USAID assistance will partially and temporarily compensate with budget support. Finally, USAID supports the restructuring and privatization of Mozambique's three main rail lines, which directly link Swaziland, South Africa, Zimbabwe, and Malawi to Mozambique's Indian Ocean ports. The first major concession, for the northern rail and port that serve Malawi, will become operational in January 2000, with concessioning of the Maputo corridor (the largest, with lines to Swaziland, South Africa, and Zimbabwe) expected by mid-2000. Possible Adjustments to Plans: None. Other Donor Programs: USAID is the largest source of direct assistance to CTA and to the public-private sector dialogue in general. The IMF supports the introduction of the value-added tax and related reforms. Sweden assists CTA and other business associations to improve their organizational sustainability, especially revenue generation through member fees. The World Bank provides support to the Private Sector Unit of the Ministry of Industry, Commerce, and Tourism, which works with CTA and other ministries on red tape reduction. The United Kingdom has provided a modest level of support to CTA for analysis of issues related to trade and the informal sector. Principal Contractors, Grantees, or Agencies: A long-term U.S. institutional contractor for policy and red tape reform will be selected in early 2000. Selected Performance Measures: Baseline (1997) Actual (1998) Target (1999) Target (2000) Target (2001) World Economic Forum Competitiveness Index (survey of 23 African countries, scale -1 to +1) Rank Index 18 -0.32 *   15 -0.2 *   10 0 Time required to register a business (weeks) Up to 52 (1998) Up to 52 12-20 10-15 8-10 Number of internet subscribers (full service) 250 3,347 3,500 4,000 10,000 Trade openness (IMF index, 1=open, 10=closed; in 1990, score was 10) 6 * 5 * 4 * Survey-based data for these indicators are not collected every year; other progress indicators are closely monitored. U.S. Finance Table (Microsoft Excel file)

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