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Competitiveness of Mozambican Agriculture
October 2008
2
Executive Summary
3
CONTENTS
Review economic indicators
Discuss enabling environment
Examine trends in investment landscape
Present priorities and recommendations
Agriculture comprises a substantial component of the national economy, with small holders as the primary driver of production
4
0
50,000
100,000
150,000
200,000
250,000 GDP by industry, 2007
Source: Instituto Nacional de Estatística, FAO “Mozambique Factsheet”, 2007, SACD Trade Industry and Investment Review (2007/2008)**Note: Agriculture includes livestock, hunting and forestry
GD
P (
MM
of
MT
)
• Agricultural production highly dependent upon the estimated 3.2 million small farmers,
which account for 95% of total production
• The remaining 5% of production is attributable to roughly 400 commercial farmers, which
tend to focus on cash crops and export products
Agriculture production has grown at a health rate, however growth rates in the sector have been comparable to growth within the economy as a whole
5
2000 2001 2002 2003 2004 2005 2006 20070%
5%
10%
15%
20%
25%
30%
Share of GDP – selected industries
Agricultura
Manufactura
Comércio
Actividades imobiliárias
Construção
Transportes, armazenagem e comunicações
Sh
are
GD
P
Source: Instituto Nacional de EstatísticaNote: Agriculture includes animal production, hunting and forestry
2000 2001 2002 2003 2004 2005 2006 20070
10,000
20,000
30,000
40,000
Agricultural Production (2003 prices)
Tota
l Pro
ducti
on
(MM
Meti
cais
) Compound Annual Growth rate of 8.1% between 2000 and 2007
Agriculture’s share of GDP has remained largely constant in recent
years
6
Add slide on number of different stake holders – commercial farmers, traders, small holders, agro-processors, financiers, etc.
7
Niassa
C. Delgado
Nampula
Zambezia
Tete
Manica
Sofala
Inhambane
Gaza
Maputo Prov.
Map. Cidade
Total
5%
9%
19%
25%
5%
7%
8%
11%
6%
4%
0%
100%0.332117655738385 0.215183931629759
Zambezia and Nampula account for the largest contributions to agricultural production, with nearly a half of total output derived from the two provinces
1.1
Population, Millions, 2007
1.7
3.9
3.9
1.6
1.4
1.7
1.4
1.4
1.1
1.3
20.4
Share of agriculture production by provincePercentage, 2006
Source: INE; Team analysis
45%
High agricultural potential
Large current production
Niassa, Manica and Sofala: high potential due to fertile soil, adequate rainfall and good water balance
Production is well correlated with the distribution of population
8
Agricul-tural
products; 16%
Fuels and mining products; 76%
Manufacturing; 7%
19981999
20002001
20022003
20042005
050
100150200250300350400450 Imports
Exports
Despite the fact that agriculture is the largest sector of the economy in terms of output, it comprises only a small component of total exports
Merchandise exports Break-down by main commodity group2006
Evolution of agricultural exports Vs agricultural imports from MozambiqueIndexed
Agricultural exports comprise only 16% of total exports, which pales in comparison to the contribution by fuels and mining products
Source: WTO; FAO; Team analysis
Despite the considerable growth in agricultural production in recent years, the country continues to be a net importer of agricultural products
66% of total exports due to aluminum
70%
86%
30%
14%70% 86%
The vast majority of the population depends on agriculture as the primary source of livelihood, overwhelming the case in rural areas
Urban
RuralAgriculture
Non-Agriculture
Primary Economic Activity
Population distribution
94%
6%
Rural Population
Agricultural
Non-Agricul-tural
56%44%
Urban Population
Agricultural
Non-Agricul-tural
Primary Economic Activity by Setting
Source: Instituto Nacional de EstatísticaNote : Economic Activity Chart refers to Distribuição Percentual da População de 15 e mais anos Empregada Por Conta Própria na Actividade Económica Principal, por Sector de Actividade - 2004/05
10
Lack of training and education among non-commercial producers negatively impacts opportunities for productivity gains within the agricultural sector
Adult literacy ratePercentage, 2005
Mozambique has the lowest literacy relative to neighboring countries…
89%82%
69% 68% 64%
39%
Combined elementary, secondary and tertiary gross enrollment ratePercentage, 2005
… and its work force is likely to remain the most unskilled in the forthcoming years
52%
77%
50%
61% 63%53%
Source: Human Development Report (UNDP); Team analysis
11
Mozambique contains ample land suitable for agricultural production, yet sub-optimal utilization of land has resulted in untapped potential for increased output
Non-A
rable
Lan
d
Arable
Lan
d, n
ot in
use
Arable
land
in u
se, n
on ir
rigat
ed
Irriga
ted
land
Total
Area
0%
20%
40%
60%
80%
100%
54%
36%
7%3%
100%
Utilization of landTotals
(MM hect.) 42.3 28.2 5.5 2.3 78.3
• Less than half of the arable land is currently utilized for crop production
• However, much of the arable land not in use may lie in inaccessible or economically nonviable areas
• Irrigation systems are underdeveloped, negatively impacting crop yields
• Lack of sufficient irrigation systems also accentuates the negative impact of droughts and floods, which afflict much of the country**
• The extensive river network provides conditions suitable for considerable expansion of irrigation systems
Opportunities exist to increase agricultural output through increased utilization of land as well as expanded irrigation systems
** Of the 128 districts, 30are “highly prone” to floods, 20 to droughts, and 7 to both floods and droughts (SACD Review)Source: FAO Mozambique Factsheet July 2007, SACD Trade Industry and Investment Review (2007/2008)
12
TOURIS
M
EXTRACTIVE IN
DUSTRY
CONSTRUCTIO
N**
COM
MERCE
TRANSPORT A
ND CO
MM
.
MANUFACTURIN
G
ELECTRIC
ITY, G
AS, WATER
AGRIC
ULTURE*
FINANCE
0%5%
10%15%20%25%30%35%
Commercial credit use (as % of GDP contribution, 2007)
Working Capi-tal Credit
Investment Credit
Cre
dit
/ G
DP
Commercial lending to agriculture lags behind nearly all sectors in terms of levels of credit relative to contribution to GDP
Decreasing access to credit
Source: Bank of Mozambique (credit figures for Dec. 2007) , Instituto Nacional de Estatística *Note: Agriculture includes livestock, hunting and forestry**Note: Construction includes public works
Insufficient access to credit in agriculture has negatively impacted levels of investment aimed at increasing output
2001 2002 2003 2004 2005 2006 2007
-10%
-5%
0%
5%
10%
15%
Agriculture’s share of Total Investment*
% F
DI
Foreign investment in agriculture has been inconsistent, inhibiting efforts to encourage development and fully tap into the potential within the sector
2001 2002 2003 2004 2005 2006 2007-100
0
100
200
300
400
500
Foreign Direct Investment (FDI) in Agriculture*
Others
Transport,Storage and Commun.
Finance
Agriculture***
Manufacturing
Extractive Industry**
FDI
(MM
US$
)
13
Source: Bank of Mozambique*Note: Figures include Equity Investment plus Supplemental Capital**Note: Extractive industries include coal, petroleum, gas and minerals***Note: Figures shown include Agriculture, Livestock and Forestry
Manufacturing accounted for the majority of FDI in
2001 and 2002, but extractive industries
have emerged as the primary target of FDI
in recent years
Much of the investment in agriculture in 2007 is likely
directed towards bio-fuels
14
Productivity in agriculture
The low productivity in the agricultural sector is caused by a wide variety of factors
% Workers % GDP (2007)0%
20%
40%
60%
80%
100%
Non-agricul-ture
Agriculture
Low
Productivity
• Traditional crops – use of modern seeds, inorganic fertilizers, pesticides and herbicides is uncommon
• Low technology methods – sparse use of mechanical traction and irrigation systems largely not used by
small farmers
• Lack of education
• Underfunded infrastructure – geographically dispersed population, making provision of services and
transport links difficult
• Minimal access to markets for supplies and products
• Underinvestment – difficulties in accessing capital
Causes of low productivity
Source: Nathan Associates, USAID/Mozambique Trade and Investment Project (TIP), Private Investment in the Agriculture Sector in Mozambique, June 2008, Draft / INE
15
CONTENTS
Review economic indicators
Discuss enabling environment
Examine trends in investment landscape
Present priorities and recommendations
Uncertainty surrounding foreign investment is attributable to some degree to challenges that exist within the business environment
16
World Bank Ease of Doing Business Ranking: Selected Metrics
Source: Doing Business 2009 Report, World Bank, covers the period from April 2007 – June 2008
Countries are ranked from 1-181 according to ten factors, with first place being the best ranking. A high ranking corresponds to an environment that is conducive to doing business
SACD Country (plus Kenya)
Ease of Doing Business
RankProtecting Investors
Getting Credit
Paying Taxes
Trading Across
BordersEmploying Workers
Dealing with Construction
Permits
Mauritius 24 11 84 11 20 64 36South Africa 32 9 2 23 147 102 48Botswana 38 38 43 17 149 73 119Namibia 51 70 12 96 150 34 38Kenya 82 88 5 158 148 68 9Zambia 100 70 68 38 153 135 146Tanzania 127 88 84 109 103 140 172Malawi 134 70 84 58 167 96 156Mozambique 141 38 123 88 140 161 153Madagascar 144 53 172 92 109 153 102Zimbabwe 158 113 84 157 162 127 174Angola 168 53 84 130 172 174 125Congo, Dem. Rep. 181 150 163 153 160 175 141
Nearly all SACD
countries rank poorly
in cross-border
transactions
Accessing credit is
difficult in Mozambique
relative to neighboring
countries
Relative to South Africa, Mozambican businesses are considerably disadvantaged in nearly all metrics of the business environment
Current strengths lie in investor confidence and property protection while constraints include accessing capital and employment issues
Strengths
Investor protection – strong
rankings for transparency and
shareholders rights
Paying taxes – total tax rate low
relative to region
Opening a business – time to
open a business is fairly short (26
days vs. 48 for Africa as a whole)
Enforcing contracts
Challenges
x Access to capital – difficulties for
mid-size farmers in gaining capital
(loans between $100k and $1MM)
x Employing workers – low
productivity, rising minimum wage,
high costs to reduce workforce
x Obtaining construction permits -
may take upwards of 381 days
x Cross border trade
17
Business environment evaluation
Sources: Doing Business 2009 Report, World Bank, covers the period from April 2007 – June 2008, Team AnalysisSource: USAID/Mozambique Trade and Investment Project (TIP), Private Investment in the Agriculture Sector in Mozambique, June 2008
18
CONTENTS
Review economic indicators
Discuss enabling environment
Examine trends in investment landscape
Present priorities and recommendations
Source: Source: (World Bank (2005b:9). World Bank staff estimates
Mandioca, milho e cana-de-ãçúcar são as culturas mais importantes em termos de produção
20
Cultura Produção ('000 tons)
Área ('000 hás)
Rendimento Agrícola (ton/há)
% Familiares Cultivando
Mandioca 8.463 1.173 7,2 79%
Milho 1.678 1.556 1,1 72%
Mapira 366 575 0,64 -
Feijões 240 481 0,50 50%
Arroz 206 207 0,97 20%
Amendoim 144 327 0,44 -
Meixoeira 46 104 0,42 -
Produção das Principais Culturas Alimentares, 2007/08
Source: CEPAGRI Report, “AGRONEGÓCIOS EM MOÇAMBIQUE:OPORTUNIDADES E DESAFIOS” , 22 Septembro 2008
Produção das Principais Culturas de Rendimento, 2007/08
Cultura Produção ('000 tons)
Cana-de-Açúcar 2.028
Castanha de Caju 95
Algodão 74
Tabaco 64
Change slide to compare current production to production potential – use Technoserve crop reports as basis for potential estimates
There are a number of growth opportunities for agro-business, a number of which have are competing in international markets
21
Product NotesExisting exports
Arroz • Domestic production meets 38% of domestic demand (2007) -
Cana-de-Açúcar • Main export markets include EUA, UE and SADC, with opportunities for future expansion -
Biodiesel e Óleos Vegetais (soja, girassol, jatropha curcas, coco)
• Proposals for foreign investment in jatropha• One processing plant currently operating• Lethal yellowing disease has negatively impacted
coconut production
Hortícolas e Frutas Tropicais
• Strong growth in banana production and export predicted for 2008/2009 -
Algodão • Only 5% of production derived from commerical producers, which likely impacts productivity -
Madeira • Studies underway to evaluate opportunities for additional domestic contributions to the value chain -
Avicultura• Domestic production meets 58% of domestic
demand• Not viable for export due to sanitary regulations
Gado Bovino • Not viable for export due to sanitary regulations
Source: CEPAGRI Report, “AGRONEGÓCIOS EM MOÇAMBIQUE:OPORTUNIDADES E DESAFIOS” , 22 Septembro 2008
Opportunities for agrobusiness growth• Castanha de cajú and mandioca
not included in opportunities?
Total amount of credit has remained largely constant over the past three years
2003 2004 2005 2006 20070
500
1,000
1,500
2,000
2,500
3,000
Agricultural Bank Credit
FISHINGFORESTRYANIMAL HUSBANDRYOtherCottonCopraCashewSugarTea
Tota
l Cre
dit (
MM
Meti
cais
)
22Source: Bank of Mozambique
Among agricultural crops, cotton and sugar have had the greatest access to
capital
Foreign direct investment (FDI) in agriculture does not exhibit any clear trends and does not constitute a large component of total FDI
2001 2002 2003 2004 2005 2006 2007
-20-10
0102030405060
Foreign Direct Investment (FDI) in Agriculture
Supplemental Capital
Equity Investment
FDI
(MM
US$
)
23
Source: Bank of Mozambique*Note: Figures include Equity Investment plus Supplemental CapitalNote: Figures shown include Agriculture, Animal Husbandry and Forestry
2001 2002 2003 2004 2005 2006 2007
-10%
-5%
0%
5%
10%
15%Agriculture’s share of Total Investment*
% F
DI
24
CONTENTS
Review economic indicators
Discuss enabling environment
Examine trends in investment landscape
Present priorities and recommendations
25
CONTENTS
Back-up slides
There are a number of challenges that currently face the private agro-business sector
• Fracas infraestruturas nas áreas rurais (transporte, electricidade, etc.)• Produção instável e, geralmente com standards de qualidade baixos
para a exportação• Níveis baixos de produtividade agrícola• Problemas na fase pós-colheita: manuseamento, embalagens e altos
custos de transacção• Accesso limitado ao crédito para farmeiros
– Juros muito altos nos Bancos Comerciais (23% por ano em MT)– Agricultura visto como sector de alto risco por os bancos
• Falta de experiência anterior em lidar com o mercado externo e procedimentos de exportações
• Necessidade de formação do pessoal não qualificado• Falta de sistema de informação sobre os mercados nas áreas rurais
26
Key Challenges
Source: CEPAGRI Report, “AGRONEGÓCIOS EM MOÇAMBIQUE:OPORTUNIDADES E DESAFIOS” , 22 Septembro 2008 Source:KPMG/Mozambique, Índice de Ambiente de Negócios em Moçambique/Business Confidence Index, No.19, 2008.
Discuss key issues and highlight them here
Change section
The largest provincial producers of agriculture are found within the northern provinces Mozambique
27
Zambe
zia
Nampu
la
Inha
mba
ne
C. Del
gado
Sofal
a
Man
icaGaz
aTet
e
Niass
a
Map
uto
Prov.
Map
. Cid
ade
0%
10%
20%
30%
40%
50%
Agricultural Production by Province, 2006
% National Agricultural Production
% Provincial GDP in Agriculture
Note: GDP figures shown refer to Precos CorrentesSource: Instituto Nacional de Estatística
• Among the largest agricultural producing provinces, agriculture comprises
approximately a third of the total local economies
• …
28
REGIONAL ECONOMIC INFORMATION IN MOZAMBIQUE (1/2)
AreaThousand Km2
Source: INE; Team analysis
PopulationMillions, 2007
Niassa
C. Delgado
Nampula
Zambezia
Tete
Manica
Sofala
Inhambane
Gaza
Maputo Prov.
Map. Cidade
1.0
1.6
3.7
3.7
1.5
1.3
1.6
1.4
1.3
1.0
1.2
Series1 129
83
82
105
101
62
68
69
76
26
0
Series1 6
5
7
5
8
6
14
8
6
29
30
Per Capita GDPThousands MT, 2006
29
Mozambique
Niassa
C. Delgado
Nampula
Zambezia
Tete
Manica
Sofala
Inhambane
Gaza
Maputo Prov.
Map. Cidade
47
45
42
45
49
44
47
45
50
49
54
59
REGIONAL ECONOMIC INFORMATION FOR MOZAMBIQUE (2/2)
Adult literacyPercentage, 2006
* Mozambique ranks 172 out of 177 countries
Source: INE; Team analysis
Life Expectancy2006
Series1
48%
37%
33%
36%
40%
42%
56%
49%
55%
54%
76%
88%
Series1 0.44
0.38
0.34
0.37
0.40
0.38
0.43
0.44
0.47
0.44
0.62
0.66
Human Development Index*, 2006
Education enrollment ratePercentage, 2006
Series1
53%
53%
49%
45%
50%
53%
57%
51%
58%
56%
67%
61%
0,67
RSA
77%82%51
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