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