WO R LD BANK O PER AT I ON S EVALU AT IO N DEPART ME NT OED I Ss5 8 5one I148 Rebuilding the Mozambique Economy COUNTRY ASSISTANCE REVIEW bJ I I|: 1' " .........+ /1 / #02' ABBREVIATIONS AND ACRONYMS ARD Agricultural Rehabilitation and MAE Ministry of State Administration Development MAF Ministry of Agriculture and Fisheries ASRD Agricultural Services Rehabilitation MFP Ministry of Finance and Planning and Development MICOA Ministry of Environmental BCM Banco Comercial de Mo ambique Coordination BFE Banco de Fomento e Exterior MINED Ministry of Education BPD Banco Popular de Desenvolvimento NEMP National Environmental Management BST Banco Standard Totta de Mocambique Program CAS Country Assistance Strategy NGO Nongovernmental Organization CESP Country Environmental Strategy Paper OED Operations Evaluation Department CFM Caminhos de Ferro de Mo,ambique PAU Poverty Alleviation Unit CG Consultative Group PCU Project Coordination Unit DDA Direcc,o Distrital de Agricultura PETROMOC Petroleos de Mocambique DNEP National Directorate of Roads and PFIs Participating Financial Institutions Bridges PIU Project Implementation Unit DPA Direcc,o Provincial de Agricultura PROAGRI Agricultural Sector Investment Program EDM Electricidade de Mocambique PROL Local Government Reform and ENH Empresa Nacional de Hidrocarboneras Engineering Project ERP Economic Rehabilitation Program PROLEC Household Energy Project ESW Economic and Sector Work PRU Urban Rehabilitation Project EFMTAC Economic and Financial Management RENAMO Resistencia Nacional Mo,ambicana Technical Assistance Credit ROCS Roads and Coastal Shipping FRELIMO Frente de Libertacao de Mocambique RRP Rural Rehabilitation Project FSCBP Financial Sector Capacity Building SADC Southern Africa Development Project Community GAPROMAR Bureau of Maritime Projects SDA Social Dimensions of Adjustment GDP Gross Domestic Product SERC Second Economic Recovery Credit GEF Global Environment Facility SIDA Swedish International Development HQ Headquarters Authority HRDP Human Resources Development SIP Sector Investment Program Project SMEDP Small and Medium Enterprise ICR Implementation Completion Report Development Project IDA International Development Association TA Technical Assistance IERP Industrial Enterprise Restructuring TFCA Transfrontier Conservation Areas Project TM Task Manager IMF International Monetary Fund UN United Nations LIBOR London Interbank Offered Rate WO R L D BANK O PE RAT IO NS EVA LU AT IO N D E PART ME NTB Assessment of a Development Partnership COUNTRY ASSISTANCE REVIEW Luis Landau 1998 The World Bank Washington, D.C. Copyright C 1998 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing June 1998 The opinions expressed in this report do not necessarily represent the views of the World Bank or its member governments. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. Design: The Magazine Group/Jeff Kibler Cover photo: National Geographic (Workmen Drying Sisal) ISSN 1019-4363 ISBN 0-8213-4292-4 Library of Congress Cataloging-in-Publication Data Landau, Luis, 1936- Rebuilding the Mozambique Economy: Assessment of a Development Partnership Country Assistance Review/Luis Landau. p. cm - (A World Bank operations evaluation study) ISBN 0-8213-4292-4 1. World Bank-Mozambique. 2. Economic assistance-Mozambique. 3. Mozambique-Economic conditions-1975. 4. Mozambique-economic policy. I. Title. II. Series. HG3881.5.W57L358 1998 338.9679-dc2l 98-36253 CIP V Printed on recycled paper. Contents vii Acknowledgments ix Foreword, Prefacio, Pr6face xiii Executive Summary, Resumen, Resume Analytique I 1. Conflict and Its Aftermath 5 2. Evolution of the Bank's Strategy and Portfolio 5 Rehabilitation and Adjustment 5 A Broader Focus 6 A New Strategic Principle and a Broader Portfolio 6 Normalization and Consolidation 9 3. Private Sector Development: Bank Strategy in the Enterprise and Financial Sector 10 Instruments of the Bank's Assistance for Private Sector Development 10 Enterprise Lending: A Dismal Early Record, but Recent Improvements in the Business Climate 10 Assistance to the Financial Sector: Sequencing Missteps, but Eventual Restructuring of the Sector 11 Privatization: Substantial Progress 11 Recommendations 11 Financial and Enterprise Reform: Better Sequencing and New Tools 12 Business Environment: Business Legislation Still Needs Reform 12 Recommendations 15 4. Instruments of Bank Assistance for Infrastructure Development 15 Railroads 16 Roads and Ports 16 Recommendations 17 Energy: Need for a New Look at the Sector 17 Strategy and Implementation 17 Recommendations 17 Urban Development: Too Complex and Too Little 18 Recommendations 19 Environment: Turning Policy into Action 20 Recommendations 23 5. Social Amelioration: Reducing Poverty Through Agricultural Growth 24 How Appropriate Was the Bank's Poverty Strategy? 24 Recommendations 24 Attention to Gender Issues Has Been Sporadic 25 Recommendations 26 The Bank in the Health Sector 26 Background 27 Bank/IDA Studies and Assistance (1986-97) 29 Assessment of Results 29 The Future of IDA Assistance iii Rebuilding the Mozambique Economy: Assessment of a Development Partnership 30 Education 30 Implementation Experience 31 Recommendations 33 6. Assistance for Agriculture and Rural Development: Rebuilding the Sector 33 Bank Strategy: The Right Direction 34 Consistency with the Strategy 34 Implementation 34 Recommendations 35 7. Portfolio Management: Quality at Entry 35 Economic and Sector Work 36 State of Preparation/Readiness of Project by Time of Approval 37 Complexity of Projects 37 Relations with Development Assistance Partners 38 Quality of Bank Supervision 38 Adequacy of Bank Supervision 40 Attention to Policy, Institutional, and Physical Aspects of Project Implementation 40 Adapting Projects to Changing Circumstances and Using Review Processes for Improving the Portfolio 41 Procurement and Disbursement 42 Role of the Resident Mission 42 Recommendations 43 8. Policy Issues: Reform Initiatives 47 9. Conclusions 48 Recommendations 49 Endnotes 51 Annexes 51 Statement of Bank's Loan Portfolio to Mozambique as of 11/97 52 Project Summary Sheet 1 and Preliminary Evaluation Rehabilitation Program (Project ID 1760, Credit C1610), as of 11/97 53 Project Summary Sheet 2 and Preliminary Evaluation Energy TA and Rehabilitation Project (Project ID 1764, Credit C1806), as of 11/97 54 Project Summary Sheet 3 and Preliminary Evaluation Rehabilitation II (Project ID 1761, Credit C1841), as of 11/97 55 Project Summary Sheet 4 and Preliminary Evaluation Education 1 (Project ID 1763, Credit C1907), as of 11/97 56 Project Summary Sheet 5 and Preliminary Evaluation Urban Rehabilitation (Project ID 1789, Credit C1949), as of 11/97 57 Project Summary Sheet 6 and Preliminary Evaluation Health & Nutrition (Project ID 1787, Credit C1989), as of 11/97 58 Project Summary Sheet 7 and Preliminary Evaluation Rehabilitation III (Project ID 1773, Credit C2021), as of 11/97 iv Contents 59 Project Summary Sheet 8 and Preliminary Evaluation Urban Household Energy Credit (Project ID 1793, Credit C2033), as of 11/97 60 Project Summary Sheet 9 and Preliminary Evaluation Beira Corridor (Project ID 1770, Credit C2065), as of 11/97 61 Project Summary Sheet 10 and Preliminary Evaluation Economic and Financial Management (Project ID 1762, Credit C2066), as of 11/97 62 Project Summary Sheet 11 and Preliminary Evaluation Industrial Enterprise Restructuring Project (Project ID 1784, Credit C2081), as of 11/97 63 Project Summary Sheet 12 and Preliminary Evaluation Small and Medium Enterprise Development Project (Project ID 1794, Credit C2082), as of 11/97 64 Project Summary Sheet 13 and Preliminary Evaluation Agricultural Rehabilitation & Developmert (Project ID 1765, Credit C2175), as of 11/97 65 Project Summary Sheet 14 and Preliminary Evaluation Education II (Project ID 1776, Credit C2200), as of 11/97 66 Project Summary Sheet 15 and Preliminary Evaluation Agricultural Services Rehabilitation (Project ID 1781, Credit C2337), as of 11/97 67 Project Summary Sheet 16 and Preliminary Evaluation First Road and Coastal Shipping (Project ][D 1790, Credit C2374), as of 11/97 68 Project Summary Sheet 17 and Preliminary Evaluation Economic Recovery Credit (Project ID 1775, Credit C2384), as of 11/97 69 Project Summary Sheet 18 and Preliminary Evaluation Capacity Building: Human Resource Development (Project ID 1797, Credit C2436), as of 11/97 70 Project Summary Sheet 19 and Preliminary Evaluation Legal & Public Sector Capacity (Project I:D 1810, Credit C2437), as of 11/97 71 Project Summary Sheet 20 and Preliminary Evaluation Maputo Corridor (Project ID 1802, Credit C2454), as of 11/97 72 Project Summary Sheet 21 and Preliminary Evaluation Rural Rehabilitation (Project ID 1796, C:redit C2479), as of 11/97 73 Project Summary Sheet 22 and Preliminary Evaluation Food Security (Project ID 1801, Credit C2487), as of 11/97 74 Project Summary Sheet 23 and Preliminary Evaluation Local Government Reform: PROL (Project ID 1791, Credit C2530), as of 11/97 75 Project Summary Sheet 24 and Preliminary Evaluation Second Road and Coastal Shipping (Project ID 1804, Credit C2599), as of 11/97 76 Project Summary Sheet 25 and Preliminary Evaluation Financial Sector Capacity (Project ID 1811, Credit C2607), as of 11/97 77 Project Summary Sheet 26 and Preliminary Evaluation Second Economic Recovery Credit: SERC (Project ID 1777, Credit C2628), as of 11/97 78 Project Summary Sheet 27 and Preliminary Evaluation Gas Engineering (Project ID 1780, Credit C2629), as of 11/97 79 Project Summary Sheet 28 and Preliminary Evaluation Health Sector Recovery (Project ID 1792, Credit C2788), as of 11/97 80 Project Summary Sheet 29 and Preliminary Evaluation Economic Recovery Credit III (Project ID 35922, Credit CN010), as of 11/97 v Rebuilding the Mozambique Economy: Assessment of a Development Partnership 81 Comments on Management Portfolio/Banco de Mocambique 83 Ministerio do plano e financas direccao nacional do tesouro 85 Rebuilding the Mozambique Economy: Assessment of a Development Partnership/Management Response 88 Report from CODE/Committee on Development Effectiveness Boxes 2 1.1 A Unique Set of Historical Circumstances 12 3.1 Case Studies in Enterprise Restructuring 14 3.2 IFC and FIAS: Strategy and Activities in Mozambique 26 5.1 Gender Dimensions of the Bank's Lending Program 30 5.2 Confronting AIDS 31 5.3 Experience with Bilingual Education Tables 39 7.1 Staffyears by Main Service 39 7.2 Supervision Effort 39 7.3 Supervision Intensity by Sector vi Acknowledgments This report was prepared by Luis Landau (Task This report was produced as part of the OEDPK Manager). The Swiss Agency for Development and Coop- publication series by a team under the direction of eration made valuable financial and intellectual contribu- Elizabeth Campbell-Pag6, consisting of Marie Daramy, tions. Major contributors to the study were: Eugene Leo Demesmaker, Tsige Kagombe, Roshna Kapadia, Gurenko, Robert Muscat, Severino Ngoenha, Hans Wyss Kathy Strauss, arid Brigitte W. Wittel. (Consultants); JoAo Barbosa-De Lucena (LAC); Monica A Portuguese language ve:rsion of this publication Fong (PRMGE); John Redwood (LCSES). Other contrib- will be issued separately. utors included: Julianne Altieri (Projects Assistant); Ziauddin Choudhury (PBDCP); Koffi Edoh (EDI); Joerg Frieden, of the Swiss Agency for Development and Coop- eration; Julius Gwyer (OEDCR); Nydia Maraviglia, _________________________ Arnaldo Pessoa (Consultants); Olikoye Ransome-Kuti Director-Genieral, Operations Evaluation Department: Robert Picciotto (member of the Bank's "Better Health for Africa" Panel); Director, Operations Evaluation lDepartment: Elizabeth McAllister Araceli de Leon, Takuro Kimura, Robb Smith (IFC). Mvanager, OEDCR: Ruben Lamdany Norma Namisato provided administrative support. Task Manager: Luis Landau vii Foreword FOREWORD PREFACIO PREFACE This Country Assistance En el presente Examen de la La presente ftude de l'aide Review (CAR) incorporates asistencia a Mozambique se han apport&e au pays integre les the findings of an OED team incorporado las conclusiones de conclusions d'une mission qu'une that visited Mozambique in un equipo del DEO que visit6 el equipe du Departement de October 1997. The Swiss pais en octubre de 1997. El l'evaluation des operations Agency for Development Departamento Suizo de (OED) a effectuee au Cooperation provided valuable Desarrollo y de Cooperaci6n Mozambique en octobre 1997. La financial support and intellectual proporcion6 valioso respaldo Direction suisse du developpement et guidance throughout all stages of financiero e intelectual durante todas de la cooperation a fourni un concours CAR preparation. However, las etapas de preparaci6n del Examen. financier et intellectuel precieux tout responsibility for the content and Sin embargo, el contenido y las au long de la preparation de cette conclusions of this report is exclu- conclusiones del informe son de 6tude. La teneur et les conclusions de sively OED's. responsabilidad exclusiva del DEO. ce rapport n'engagent cependant que la The OED team held extensive El equipo del DEO sostuvo responsabilite de l'OED. discussions with government offi- extensas conversaciones con L'equipe de l'OED a eu de longs cials, representatives of Mozam- funcionarios gubernamentales, entretiens avec des agents du bique's civil society, other donors representantes de la sociedad civil de gouvernement, des representants de la and NGOs, as well as with Bank Mozambique, otros donantes y ONG, societe civile mozambicaine, d'autres Staff. With the support of the asi como con personal del Banco. Con bailleurs de fonds et des ONG, ainsi Bank's Resident Mission, the team el respaldo de la Misi6n Residente del qu'avec les services de la Banque. Avec distributed questionnaires to the Banco, el equipo distribuy6 l'appui de la Mission residente de la ministries that had participated in cuestionarios a los ministerios que Banque, elle a distribue des Bank-financed operations. At the habian participado en las operaciones questionnaires aux ministeres qui end of the mission, the team orga- financiadas por el Banco. Al finalizar avaient participe aux operations nized a workshop in Maputo for la misi6n, el equipo organiz6 en financees par l'Institution. A la fin de other donors, civil society represen- Maputo un curso practico para otros sa mission, l'equipe a organise une tatives and NGOs, to exchange donantes y para representantes de la reunion a Maputo pour permettre aux views on donor coordination. The sociedad civil y ONG, con objeto de representants des autres bailleurs de valuable cooperation of all the intercambiar opiniones acerca de la fonds, de la societe civile et des ONG individuals consulted is gratefully coordinaci6n de los donantes. d'echanger leurs vues sur la acknowledged. Agradecemos sinceramente la coordination de l'aide. Nous tenons ici In line with the practice estab- cooperaci6n de todas las personas a a remercier toutes les personnes lished in recent CARs, the present quienes se consult6. consultees de leur tres utile report contains brief evaluations of De conformidad con la practica cooperation. all the projects in the Bank's establecida en recientes examenes de la Conformement a la pratique Mozambique portfolio, including asistencia a los paises, el presente adoptee dans les 6tudes les plus ongoing operations. These can be informe contiene breves evaluaciones recentes, le present rapport donne en found in an Annex to the report. de todos los proyectos comprendidos annexe une breve evaluation de tous During the critical early stages en la cartera del Banco relativa a les projets inscrits au portefeuille de la of the country's emergence from a Mozambique, incluidas las operaciones Banque pour le Mozambique, les devastating military conflict, the actualmente en curso. Las evaluacioncs activites en cours y comprises. Bank contributed advice for most figuran en el anexo del informe. La principale conclusion de l'etude aspects of the reform program, par- La conclusi6n principal del est que la Banque a su adapter son ticularly in launching social pro- Examen es que la asistencia prestada aide a la situation particuliere dans grams and helping key ministries in por el Banco en apoyo de la laquelle se trouvait la nouvelle nation their capacity-building efforts. In reconstrucci6n econ6mica de independante. addition, the Bank funded priority Mozambique se adapt6 Au debut de la periode critique oui investments to rebuild the physical satisfactoriamente al conjunto de le pays sortait d'un conflit d6vastateur, ix Rebuilding the Mozambique Economy: Assessment of a Development Partnership infrastructure and spear- circunstancias u'nicas a que se elle a fourni des conseils sur la headed the effort to arrange enfrenta esa naci6n recientemente plupart des aspects du critically needed debt relief independizada. programme de reformes, en from the nation's creditors. Durante las primeras y particulier pour faciliter le The CAR's main criticas etapas en que el pais salia lancement de programmes conclusion is that the Bank's de un conflicto militar sociaux et le renforcement des assistance in support of devastador, el Banco aport6 capacites des ministeres cles. Elle Mozambique's economic recon- asesoramiento sobre la mayoria de los a par ailleurs prete son concours struction responded well to the aspectos del programa de reforma, financier a la realisation des unique set of circumstances facing especialmente sobre la iniciaci6n de investissements les plus urgents pour the newly independent nation. programas sociales y la asistencia a los reconstruire les infrastructures et joue Mozambique has made principales ministerios en su labor de un r6le moteur dans la mise en place remarkable progress in financial fortalecimiento de las capacidades. de dispositifs qui ont permis d'obtenir stabilization, economic liberaliza- Ademas, el Banco financi6 inversiones des creanciers les allegements de dette tion, privatization of the banking prioritarias destinadas a la dont le pays avait cruellement besoin. system and much of the state-owned reconstrucci6n de la infraestructura Le Mozambique a enterprises, and recovery of eco- fisica, y encabez6 los esfuerzos considerablement progresse sur la voie nomic growth. But severe problems, encaminados a que los acreedores de la de la stabilisation financiere, de la inherited from the past, remain naci6n concedieran el tan necesario liberalisation economique, de la unsolved: extreme poverty, weak alivio de la carga de la deuda. privatisation du systeme bancaire et de institutions, dual economy with a Mozambique ha logrado la plupart des entreprises publiques, et majority of the population sub- progresos extraordinarios en lo que de la relance de la croissance merged in subsistence agriculture, respecta a la estabilizaci6n financiera, economique. II reste cependant a limited access to elementary social la liberalizaci6n econ6mica, la resoudre de tres graves problemes services, and excessive concentra- privatizaci6n del sistema bancario y de herites du passe: pauvrete extreme, tion of economic growth among gran parte de las empresas de faiblesse des institutions, dualisme de narrow segments of the economy. propiedad estatal, y la recuperaci6n del 1'economie qui reegue la majorit6 de la Many donors, official and non- crecimiento econ6mico. Pero hay population dans l'agriculture de governmental, are helping Mozam- todavia graves problemas, heredados subsistance, acces limite aux services bique overcome these problems. del pasado, que es preciso resolver: la sociaux de base et croissance But the proliferation of donors extrema pobreza, la debilidad de las |conomique trop compartimentee. imposes excessive administrative instituciones, una economia dual en Par leurs financements, nombre burdens on the thin layer of gov- que la mayoria de la poblaci6n esta d'organismes d'aide publique et ernment officials, wasteful duplica- dedicada a la agricultura de d'organisations non gouvernementales tion of efforts, and initiation of subsistencia, el acceso limitado a los aident le Mozambique a surmonter ces projects in excess of the country's servicios sociales elementales, y una obstacles. Mais la proliferation des absorptive capacity or with ques- concentraci6n excesiva del crecimiento bailleurs de fonds fait peser un lourd tionable economic priority. econ6mico en unos pocos segmentos fardeau administratif sur une fonction The ongoing Country Assis- de la economia. publique aux effectifs restreints, tance Strategy process provides an Muchos donantes, oficiales y no entraine une rep6tition inutile des opportunity to enhance the efficacy gubernamentales, estdn ayudando a taches et aboutit au lancement de of aid coordination. Looking to the Mozambique a superar esos projets qui depassent la capacite immediate future, it appears advis- problemas. Pero la proliferaci6n de d'absorption du pays ou dont la able for the Bank and donors to donantes impone una carga priorite economique est contestable. initiate intensive consultation with administrativa excesiva a la escasa La definition en cours de la the Government regarding aid dotaci6n de funcionarios Strat6gie d'assistance au pays offre la coordination arrangements in sup- gubernamentales, y es causa de una possibilite de mieux coordonner l'aide. port of agreed policy reforms and duplicaci6n antiecon6mica de S'agissant de l'avenir immediat, il capacity-building priorities. esfuerzos y de la iniciaci6n de semble souhaitable que la Banque et x Foreword proyectos que superan la les bailleurs de fonds engagent capacidad de absorci6n del pais o des consultations suivies avec les cuya prioridad econ6mica es pouvoirs publics afin de definir cuestionable. les modalites de coordination de El proceso actual de l'aide a l'appui des reformes aplicaci6n de la estrategia de convenues et des priorites asistencia al pais ofrece la retenues pour le renforcement des oportunidad de hacer mas eficaz la capacites. coordinaci6n de la ayuda. Pensando en el futuro inmediato, parece aconsejable que el Banco y los donantes inicien consultas intensivas con el Gobierno acerca del establecimiento de mecanismos de coordinaci6n de la ayuda en apoyo de las reformas de politica convenidas y las prioridades en materia de fortalecimiento de las capacidades. Robert Picciotto Director-General, Operations Evaluation Department xi Executive Summary EXECUTIVE SUMMARY RESUMEN RESUME ANALYTIQUE Mozambique joined the Bank Mozambique ingres6 como Le Mozambique est devenu in September 1984, while in miembro del Banco en membre de la Banque en the midst of its third consecu- - septiembre de 1984, cuando se septernbre 1984, alors meme qu'il tive war. The extended con- encontraba en medio de su traversait sa troisieme guerre flict had resulted in the tercera guerra consecutiva. El consecutive. Les conflits destruction of the country's prolongado conflicto habia prolonges qui dechiraient le pays economic and social infrastructure, provocado la destrucci6n de su avaient d6truit son infrastructure in massive population displacement infraestructura econ6mica y social, &onomique et sociale, provoque des and in economic disruption. The desplazamientos masivos de su deplacements massifs de population et newly independent country had poblaci6n y la perturbaci6n de su bouleverse l'activite economique. Le inherited from its colonial past a economia. El pais, que habia obtenido pays avait herit6 de son passe colonial highly dualistic economy, with few la independencia hacia poco tiempo, encore recent une economie fortement Mozambicans educated for govern- habia heredado de su pasado colonial dualiste et sa population etait mal ment, the professions or commerce. una economia sumamente dual, en la preparee a la fonction publique, aux Social conditions were among the que pocos mozambiquenos habian sido professions lib6rales et au commerce. worst in the world: life expectancy educados para la funci6n p6blica, los Au plan social, la situation etait l'une was estimated at 41 years, the liter- estamentos profesionales o el des pires du monde : 1'esperance de vie acy rate was a mere 7 percent, and comercio. Las condiciones sociales 6tait estim6e a 41 ans, le taux the population was ethnically and figuraban entre las peores del mundo: d'alphabetisation n'atteignait que 7 % linguistically heterogeneous. Faced la esperanza de vida al nacer se et la population se caracterisait par son with such constraints, the govern- calculaba en 41 afnos, la tasa de heterogen6ite ethnique et linguistique. ment chose the path of central alfabetizaci6n era de tan s6lo el 7% y Devant de telles difficultes, le planning, and failed to promote an la poblaci6n era etnica y gouvernerment a choisi la voie de la entrepreneurial class or the institu- lingilisticamente heterogenea. Ante planification centralisee, ce qui I'a tional framework needed for a tales limitaciones, el Gobierno opt6 empeche de promouvoir l'emergence market economy. por la planificaci6n centralizada y no d'une classe d'entrepreneurs et de That history left the country promovi6 la formaci6n de una clase mettre en place le cadre institutionnel with little capacity for economic empresarial o el marco institucional qu'exige une economie de marche. governance or for managing a necesario para una economfa de Dans ces conditions, le pays ne development process. Out of a mercado. disposait que de moyens limites pour decade of failed socialism and after Con ese pasado, el pais tenia gerer l'conomie et le processus de years of internal conflict, Mozam- escasa capacidad de gesti6n econ6mica developpement. A l'issue d'une bique has enjoyed a commendable o de administraci6n del proceso de decennie marquee par l'echec de and sustained period of recovery, desarrollo. Sin embargo, a pesar de 1'experience socialiste et de longues economic transition, and adherence una decada de experiencia socialista annees de conflits internes, un effort of all parties to the peace process. fracasada y afios de conflictos internos, louable et soutenu a permis au Starting from daunting conditions Mozambique ha disfrutado un largo y Mozambique d'entrer dans une phase of extreme poverty (among the meritorio periodo de recuperaci6n, de de redressement, de transition very poorest countries of the transici6n econ6mica y de adhesi6n de economique et d'adhesion de toutes les world) and of heavily damaged todas las partes al proceso de parties au processus de paix. Une aide economic and social infrastructure, pacificaci6n. Partiendo de condiciones importanite de la communaute the country received substantial abrumadoras de pobreza extrema (se internationale est venue l'aider a faire support from the international contaba entre los paises absolutamente face a une situation d'une extreme community. pobres del mundo) y con una gravite, caracterisee par la misere (le Mozambique launched an eco- infraestructura econ6mica y social mr.y Mozambique etait l'un des pays les nomic transition process while the dafiada, el pais ha recibido un apoyo plus pauvres du monde) et le internal conflict was still underway. considerable de la comunidad delabrement de l'infrastructure Peace was achieved in 1992; elec- internacional. economique et sociale. xliii Rebuilding the Mozambique Economy: Assessment of a Development Partnership tions in 1994. The Bank has Mozambique inici6 el Le Mozambique a been instrumental to Mozam- proceso de transici6n econ6mica commence sa transition bique's recovery process, in estando todavia vivo su conflicto I conomique alors qu'il etait several respects: assessing the - belico interno. La paz se logr6 en encore aux prises avec un conflit country's economic and insti- 1992 y en 1994 hubo elecciones. interne. La paix a et conclue en tutional requirements; helping El Banco ha tenido una 1992 et des elections ont eu lieu the government design the importancia decisiva en et en 1994. La Banque a contribue specifics of the evolving policy proceso de recuperaci6n de au relevement du Mozambique par agenda; helping to mobilize donor Mozambique, en varios aspectos: plusieurs interventions : elle a evalue support through the CG; and pro- evalu6 las necesidades econ6micas e les besoins economiques et viding substantial IDA resources, institucionales del pais; ayud6 al institutionnels du pays, aide les initially to jump-start the economy, Gobierno a formular los rasgos autorites a organiser, dans les details, and subsequently for sector invest- especificos del programa de politicas, |l'volution de leur programme ment programs, capacity building, en evoluci6n; contribuy6 a movilizar la d'action, contribue a mobiliser l'appui and balance of payments support asistencia de los donantes a trav6s del des bailleurs de fonds par for a stabilization and adjustment Grupo Consultivo, y facilit6 un l'intermediaire du Groupe consultatif, process. The Bank has clearly made considerable volumen de recursos de la et fourni des ressources importantes de critical financial, administrative, Asociaci6n Internacional de Fomento l'IDA, d'abord pour relancer and intellectual contributions to (AIF), en un principio para dar un l'&conomie, puis pour financer des Mozambique's transition and peace impulso inicial a la economia y programmes d'investissement sectoriel, processes. despues para programas de inversiones de renforcement des capacit6s et de Inevitably, some aspects of the sectoriales, fortalecimiento de la soutien a la balance des paiements recovery program have fallen short capacidad y ayuda para balanza de dans le cadre d'un processus de of potential-through errors of pagos dentro del proceso de stabilisation et d'ajustement. De toute pace, sequence or resource alloca- estabilizaci6n y ajuste. Es indudable evidence, la contribution financiere, tion, and through inadequate que el Banco ha hecho aportaciones en administrative et intellectuelle de la implementation. Lessons can be los campos financiero, administrativo e Banque a joue un r6le crucial dans la learned, and are suggested in this intelectual de importancia critica para transition et le processus de paix du review, respecting both policy and los procesos de transici6n y Mozambique. implementation. The Bank has sup- pacificaci6n de Mozambique. Inevitablement, sur un certain ported the gradualist pace of Inevitablemente, en algunos nombre de points, le programme de reform chosen by the government. aspectos del programa de recuperaci6n rekvement n'a pas produit tous les This pace delayed progress in no se ha alcanzado todo el potencial resultats escomptes du fait d'erreurs achieving price stability and in previsto, debido a errores en el ritmo o dans le rythme d'intervention, la improving resource allocation effi- secuencia de las medidas o en la programmation des activites ou ciency. But it has had the great asignaci6n de los recursos, o a defectos Il'affectation des ressources ainsi que benefit of ensuring government en la ejecuci6n de los programas o dans l'execution des operations. ownership of the economic proyectos. Se puede aprender de la L'experience est toutefois porteuse reform program. experiencia, y en este examen se d'enseignements, comme le signale le In being a donor, the Bank indican algunas de sus ensefianzas, en present rapport, tant au plan des developed a wide array of sectoral lo que respecta tanto a las politicas politiques qu'a celui de l'execution. La operations over more than a como a la ejecuci6n de las actividades. Banque a souscrit a l'echelonnement decade. By now, the government's El Banco ha respaldado el ritmo des r6formes voulu par les pouvoirs capacities in some areas have gradual de reforma elegido por el publics. Ce choix a retarde une relative gained considerable depth of Gobierno. Este ritmo ha demorado el stabilisation des prix, et les gains qu'on knowledge and experience particu- logro de la estabilidad de precios y ha aurait pu escompter sur le plan de larly in sectors such as structural impedido lograr un mayor avance en l'affectation des ressources ne se sont adjustment, banking reform, and cuanto a eficiencia en la asignaci6n de pas materialis6s. Il a eu en revanche le transport. The Bank has demon- recursos, pero ha tenido la enorme grand avantage de faire totalement xiv Executive Summary strated some comparative ventaja de garantizar que el adherer le gouvernement au advantages (and disadvan- Gobierno asumiera como propio programme de reformes tages) that appear clear to the el programa de reforma economiques. major donors. In some social econ6mica. En plus de dix ans sectors the bilaterals are pro- En su funci6n de donante, el d'intervention au Mozambique viding, on a grant basis, all Banco ha Ilevado a cabo una en tant que bailleur de fonds, la the external funding that the amplia gama de operaciones Banque a pu lancer toute une concerned ministries can absorb sectoriales a lo largo de mas de diez gamme d'operations sectorielles. Les effectively: in some areas the gov- afios. Ahora, hay ciertas areas en las connaissarices et l'experience du ernment prefers not to incur debt, que el Gobiemo ha adquirido gouvernement se sont even on IDA terms. capacidad, conocimientos y considerablement ameliorees dans Looking to the future, there- experiencia considerables, certains domaines, notamment dans fore, it appears advisable for the especialmente en sectores como el celui de l'ajustement structurel, de la Bank, in close consultation with ajuste estructural, la reforma bancaria reforme du secteur bancaire et des the government and the donors, to y los transportes. El Banco ha transports. Les avantages comparatifs take stock of where Mozambique demostrado algunas ventajas (y que la Banque a (et n'a pas) sur has arrived at present, and decide desventajas) comparativas que parecen certains plans sont aujourd'hui clairs how the Bank can most effectively evidentes a los principales donantes. aux yeux des principaux bailleurs de play its role in the next few years. En ciertos sectores sociales, los fonds. Dans certains secteurs sociaux, The development of the new CAS donantes bilaterales proporcionan en les organismes d'aide bilaterale and the writing of this CAR can calidad de donaci6n todo el fournissent, sous forme de dons, provide a suitable opportunity for financiamiento externo que los 1'ensemble des financements exterieurs such a review. The CAR's overall ministerios interesados pueden que les ministeres concernes peuvent conclusions for such a consultation absorber eficazmente, y en ciertos absorber de maniere efficace. IL existe are as follows: campos el Gobierno prefiere no en effet des domaines dans lesquels le The Bank should remain the incurrir en endeudamiento, ni siquiera gouvernernent prefere ne pas lead agency in assisting the en las condiciones de la AIE contracter de dettes, meme aux government as it continues to Asi pues, de cara al futuro parece conditions de l'IDA. develop the policies and aconsejable que el Banco, en estrecha S'agissant de l'avenir, il semblerait capabilities for economic consulta con el Gobierno y los judicieux que la Banque dresse un governance, including expen- donantes, haga balance de a que punto bilan de la situation du pays, en etroite diture management, invest- ha Ilegado Mozambique en este consultation avec les pouvoirs publics ment planning, revenue momento y decida cual seria la manera et les bailleurs de fonds, et determine enhancement, civil service mas eficaz de desempefiar su funci6n en les modalites les plus efficaces de son and pay reform, trade poli- los pr6ximos anios. La formulaci6n de intervention au cours des prochaines cies, and financial sector la nueva estrategia de asistencia al pais, annees. L'elaboration de la nouvelle reform and development. asf como la redacci6n del presente Strategie d'aide pour le Mozambique The Bank has demonstrated documento pueden ofrecer una et la redaction de la pr6sente Etude de comparative advantage in oportunidad apropiada para tal I'assistance offerte au pays pourraient economic governance assis- examen. Las conclusiones generales del. s'y preter. Les conclusions generales de tance and in policy-based examen de la asistencia a Mozambique, I'Etude dans la perspective de adjustment lending. How- en cuanto a dicha consulta se refiere, 1'etablissement de ce bilan concerte ever, the Bank's development son las siguientes: sont les suivantes: effectiveness has been limited * El Banco deberia seguir siendo el * La Banque doit rester le chef de by weaknesses in aid coordi- organismo principal de file des organismes qui aident le nation as well as excessive asistencia al Gobierno a medida gouvernement a elaborer les focus on investment projects que este continuia desarrollando politiques et se doter des and traditional technical sus politicas y capacidad de capacit6s necessaires a une assistance at the expense of gesti6n econ6mica, con inclusiOn bonne gestion de l'economie, xv Rebuilding the Mozambique Economy: Assessment of a Development Partnership capacity building and de la administraci6n del gasto notamment en matiere results-based sectorwide puiblico, la planificaci6n de las d'administration des depenses, programs. inversiones, el acrecentamiento de planification des Mozambique will continue de los ingresos fiscales, la investissements, d'accroissement to receive large aid flows reforma de la funci6n publica y des recettes, de r6forme de la from numerous donors. It is su remuneraci6n, las politicas fonction publique et du bareme incumbent upon the donors comerciales y la reforma y des traitements, de politiques to look for ways to increase desarrollo del sector financiero. commerciales, et de the effectiveness of these El Banco ha demostrado tener transformation et de flows. While the donors ventaja comparativa en los developpement du secteur have much to contribute in campos de la asistencia para la financier. En matiere d'aide a la terms of their experience gesti6n econ6mica y del gestion economique et de prets a and comparative advan- financiamiento para fines de l'appui de r6formes, la Banque tages in Mozambique, they ajuste en apoyo de reformas de possede un avantage comparatif still look to the Bank for polfticas. Ahora bien, la eficacia av&e. En revanche, les faiblesses intellectual leadership in the del Banco en cuanto al de la coordination de l'aide et dialogue with the govern- desarrollo se refiere se ha visto une attention excessive accord6e ment on sector strategies. limitada por fallos en la aux projets d'investissement et a They also rely on the Bank coordinaci6n de la ayuda, asi l'assistance technique to lead dialogue on critical como por una orientaci6n traditionnelle, aux depens du policies they deem too sen- excesiva hacia los proyectos de renforcement des capacites et sitive for close bilateral inversi6n y la asistencia tecnica des programmes sectoriels avec intervention. A strong Bank tradicional, a expensas del contrat d'objectif, ont limite performance in upstream fortalecimiento de la capacidad l'efficacite de son impact sur le ESW, adequately funded y de los programas de ambito d6veloppement. and effectively connected to sectorial basados en los | Le Mozambique continuera a the government's own resultados. recevoir une aide importante de resource allocation * Mozambique seguira recibiendo nombreux bailleurs de fonds. 11 processes as well as to the cuantiosos flujos de ayuda incombe a ceux-ci de s'attacher a aid efforts of other multilat- proveniente de numerosos accroltre l'efficacite de eral and bilateral donors, donantes. Incumbe a estos l'assistance pretee au pays. Si leur would strengthen the Bank buscar los medios de acrecentar concours peut etre tres precieux in raising the quality of sec- la eficacia de esas corrientes de du fait de leur experience et de tor investments and public asistencia. Si bien los donantes leurs avantages comparatifs, les sector management. tienen mucho que aportar en bailleurs de fonds continuent a Accordingly, the Bank should terminos de su experiencia y avoir besoin de l'autorite deliver advisory and analyti- ventajas comparativas en intellectuelle de la Banque dans le cal services for sectoral and Mozambique, siguen buscando dialogue sur les strategies thematic programs in the en el Banco liderazgo intelectual sectorielles avec le gouvernement. context of the government's en su dialogo con el Gobierno Ils se tournent aussi vers elle own public expenditures sobre estrategias sectoriales. pour engager le dialogue sur des management program and in Tambien confian en el Banco politiques essentielles, mais trop close collaboration with UN para que encabece el dialogo delicates, a leur sens, pour etre agencies and lead donors. sobre politicas de importancia abordees dans le cadre etroit de This would be facilitated by critica que consideran consultations bilat6rales. Une shifting more responsibility demasiado delicadas para una solide performance de la Banque from the Bank's country intervenci6n bilateral de primera au niveau d'etudes economiques assistance program to the mano. Una actividad vigorosa et sectorielles preparatoires, field. del Banco en materia de estudios adequatement financees et xvi Executive Summary The nature of Bank econ6micos y sectoriales efficacement liees aux involvement in sectoral lead- innovadores, con financiaci6n m1caanismes d'affectation des ership should vary among sec- suficiente y conectada ressources publiques ainsi qu'a tors, depending on the Bank's eficazmente con los I'aide multilaterale et bilaterale own comparative advantages procedimientos de asignaci6n de d'autres sources, renforcerait and proven performance; on recursos del propio Gobierno, I'action de l'institution en the government's preferences, asi como con las operaciones de ameliorant la qualite des which should be informed by the asistencia de otros donantes investissements sectoriels et de la Bank's intellectual inputs; and on multilaterales y bilaterales, gestion du secteur public. donor comparative advantages, ayudaria al Banco a elevar la * II conviendrait en consequence que with care to avoid supplanting calidad de las inversiones la Banque fournisse ses services de grant flows. The Bank might pro- sectoriales y la administraci6n conseil et- d'analyse au titre de vide limited and more selective del sector publico. programmes sectoriels et lending in a particular sector in * Por consiguiente, el Banco deberia thematiques dans le cadre du conjunction with a policy dialogue prestar servicios de asesoramiento y programme de gestion des depenses or coordination role (as in the early anilisis para programas sectoriales y publiques du gouvernement et en Beira Corridor project). Greater tematicos en el contexto del etroite cooperation avec les concentration of Bank efforts and programa de gesti6n del gasto organisrres des Nations Unies et les improved coherence of the overall publico del propio Gobierno y en principaux bailleurs de fonds. Dams development program would best estrecha colaboraci6n con los cette optique, il serait souhaitable de be achieved through results-ori- organismos de las Naciones Unidas y confier aux services de la Banque sur ented management coalitions los principales donantes. le terrain de plus grandes involving government agencies, Contribuiria a facilitar esto que el responsabilites dans la gestion du local communities, voluntary orga- Banco traspasara mas programme d'assistance au pays. nizations and external assistance responsabilidades de su programa de Le r6le moteur joue par la Banque agencies for priority sectoral and asistencia al pais a las actividades en sur le plan sectoriel prendra des thematic programs. In this context, el terreno. formes differentes d'un secteur a imaginative use of the Bank's non- La indole de la participaci6n del I'autre en fonction des avantages lending services and adaptable Banco en el liderazgo sectorial deberia comparatifs propres a l'institution et lending instruments would facili- variar de un sector a otro, dependiendo des r6sultats d6ja enregistres dans le tate a participatory approach to the de sus propias ventajas comparativas y domaine considere, des options implementation of the new country desempefio comprobado, de las choisies par le gouvernement, qui assistance strategy. preferencias del Gobierno -a las cuales devraient etre eclair6es par la el Banco deberia hacer una aportaci6n contribution intellectuelle de la intelectual- y de las ventajas Banque, et des avantages comparatifs comparativas de los donantes, con des bailleurs de fonds, de sorte que les cuidado de evitar la suplantaci6n de los concours fournis par la Banque ne flujos de ayuda en calidad de donaci6n viennent pas se substituer a leurs dons. El Banco podria facilitar financiamiento La Banque pourrait octroyer des prets limitado y mas selectivo en un limites de maniere plus selective dans determinado sector, en conjunci6n con un secteur donne, paralklement a un un dialogo en materia de politicas o dialogue sur les r6formes a asumiendo una funci6n de coordinaci6a entreprendre et/ou des fonctions de (como en el proyecto inicial del coordination (comme au debut du Corredor de Beira), o ambas cosas. La projet consacre au couloir de Beira). mejor manera de conseguir una mayor La meilleure facon de mieux focaliser concentraci6n de las actividades del I'action de la Banque et d'accroitre la Banco y el mejoramiento de la coherence globale du programme de coherencia del programa de desarrollo developpement consisterait a xvii Rebuilding the Mozambique Economy: Assessment of a Development Partnership global seria a traves de coaliciones constituer des groupes soumis a de gesti6n orientadas a los des criteres de performance, qui resultados en las que participaran rassembleraient des services 6rganos gubernamentales, publics, des communautes comunidades locales, locales, des organisations organizaciones de voLuntarios y ben6voles et des organismes organismos de asistencia externa d'aide exterieure, et qui para la realizaci6n de programas interviendraient au niveau des sectoriales y tematicos prioritarios. En programmes sectoriels et thematiques este contexto, el uso imaginativo de prioritaires. Dans cette perspective, une los servicios del Banco distintos de los utilisation ingenieuse des services hors crediticios y de sus instrumentos de prets de la Banque et d'instruments de financiamiento adaptables facilitaria la prets souples aiderait a adopter une adopci6n de un enfoque participatorio demarche interactive dans la mise en para la puesta en practica de la nueva oeuvre de la nouvelle strategie estrategia de asistencia al pais. d'assistance au Mozambique. xviii Conflict and Its Aftermath v e -hen Mozambique joined the World Bank in September 1984, the country was in the midst of its third consecutive war. The conflict led to the destruction of the v V country's economic and social infrastructure and. to massive population displace- ment and economic disruption. This compounded the severe difficulties Mozambique had faced when it emerged as an independent state in June 1975. The colonial economy had been highly dualistic. The nonAfrican, mainly Portuguese, minority had staffed the government machinery and the industrial, plantation management, and com- ports, well situated for providing external trade access mercial sectors. When Portugal withdrew, most of the to its land-locked neighbors), its modest capital stock 250,000 Portuguese living in Mozambique fled. Their had been crippled by the "scorched-earth" policy of the departure left the country without the skills that had departing settlers. The country's difficulties were com- been operating the transport system, factories, wholesale pounded over the next decade by flooding, prolonged and urban retail trade, the professions, and government. droughts, and extensive loss of human life. Economic Few Mozambicans had been educated for entrance into activity was severely constrained by border closures and government or nonagricultural occupations. Social con- the consequent loss of transit traffic and Mozambican ditions were among the worst in the world. Life expec- employment in South African mines. tancy was estimated at 41 years and literacy was a mere The government established a one-party state sys- 7 percent. The population of 11-12 million was ethni- tem closely based on the East European model, espe- cally and linguistically heterogeneous. cially the reliance on a dirigiste, rather than market- While Mozambique had underlying conditions based, econonic system. The socialist or statist route favorable for economic growth (good agricultural con- was seen as the only viable option for a country that ditions in parts of the country; promising mineral poten- now lacked both an entrepreneurial class and the insti- tial including natural gas; large-scale hydropower tutional framework for a market economy. In the first potential; tourism; low population density; and good 2-3 years after Independence, the government's effort to 1 Rebuilding the Mozambique Economy: Assessment of a Development Partnership transform Mozambican society along revolutionary RENAMO (Resistencia Nacional Mocambicana) party, lines alienated some of the support FRELIMO (Front for created through external intervention, developed consid- the Liberation of Mozambique) had enjoyed during the erable support among the populace in the central struggle for independence. The more radical FRELIMO provinces. In the orderly post-conflict election of Octo- faction was dominated by southerners, mainly from the ber 1994, RENAMO received 38 percent of the votes Shangane ethnic group. The perception of southern for parliamentary seats while FRELIMO attracted 44 dominance was reinforced by the historic location of the percent of the votes. capital in the country's deep south. The opposition BOX 1.1: A UNIQUE SET OF HISTORICAL CIRCUMSTANCES ozambique Mozambique. When as commendable, espe- country has been heavily gained indepen- Mozambique joined the cially when compared to favored in the location of dence from World Bank in September a number of other devel- public investment. The Portugal on 13 June 1984, the country was in oping countries that are Maputo region in particu- 1975, after more than 10 the midst of its third con- post-conflict and under- lar will benefit from the years of guerrilla warfare secutive war, and while taking transitions from a recovery and enhance- == waged by the movement the country had underly- dirigiste to a market ment of the east-west FRELIMO. However, ing conditions favorable economy. The process transport corridors that independence was not fol- for economic growth, its began in 1989 as both provide access to Mozam- lowed by peace and sta- modest capital stock had parties recognized that bique's ports for its land- bility, as the country was been crippled. The con- neither could win by locked neighbors and for = soon embroiled in further flict brought on a collapse force of arms. The the northeastern region of warfare arising out of the of production, trade, and domestic and external South Africa. National complex conflicts under- social services, and exten- interests that had engen- integration is also ham- way in the region. Four sive cultural rupture and dered the long conflict pered by inadequate road years (1976-79) of incur- psychosocial damage. were now lined up to transport and by cultural sions from (then) Rhode- Real per capita GDP had support the peace and langauge differences. sia were followed by an fallen by half compared process. A UN operation Growing regional imbal- internal war which lasted with pre-independence. was established to moni- ance of this kind could be from 1981 until 1992. The peace process in tor and facilitate the worrisome in a country The civil conflict pitted Mozambique has been terms of the agreement, still recovering from years the government of FRE- generally seen as one of including demobilization, of bitter conflict. The sec- LIMO against RENAMO, the most successful tran- cease-fire monitoring, the ond issue is that of distri- a rebel group that had sitions from internal con- reconstitution of bution of investment, on been created by the flict to peace in recent RENAMO as a political the one hand foreign ver- Rhodesian intelligence years. Mozambique's party, and the elections. sus national investment, service and that was sub- recovery and the govern- Two distributional and on the other, invest- sequently supported by ment's policy perfor- issues have emerged. The ment by Mozambican South Africa as a destabi- mance have been first is the concern that nationals themselves. Par- lizing force inside internationally recognized the southern region of the ticipation by Mozambi- 2 Conflict and Its Aftermath BOX 1.1: A UNIQUE SET OF HISTORICAL CIRCUMSTANCES (CONTINUED) cans in the ownership of the GDP. Despite these endorsement of th e gov- should not be expected privatized enterprises has unfavorable conditions, ernment's prograrn at CG to become financially been limited to a rela- the reform strategy, sup- meetings (the most recent self-sustaining, in the tively small group of indi- ported by substantial was in May 1997) and sense of zero dependence viduals. Although, as a aid, has succeeded in sta- the continuing high levels on concessional flows, for Bank study showed, 92 bilizing the economy and of aid, and in the donor some considerable time to percent of privatized launching growth. Infla- willingness to participate come. On the other hand, SOEs as of March 1996 tion was brought down in the recurrent debt relief dependence at present were sold to Mozam- to single digits in 1997 exercises. The steady levels exposes the econ- bique nationals and after running between course of reform has also omy to the vagaries of firms, thereby not sub- 30-70 percent since led to a revival of direct aid flows, and should be stantiating assertions that 1988. GDP has grown at investment inflow from reduced through major Mozambique is being an average of 5 percent Portuguese and South revenue enhancement "recolonized" or that the over the 1990s, over 6 African investors., who are measures. Heavy privatization program percent in 1996, reflect- likely to have a better dependence also creates has been "selling out" the ing healthy expansion in knowledge basis for risk problems of coordinating country to foreigners, agricultural production assessment, and for the numerous donor pro- ownership is extremely and exports and an start of investor interest grams that reflect donor concentrated among a upturn in industrial out- and inflow from further priorities and preferences handful of Mozambican put after years of decline afield, e.g. Malaysia and not always well integrated entrepreneurs. as the SOE sector under- the US. A dynanic with the government's It is worth reempha- went closure and privati- private sector response own strategies or adminis- sizing the adversity of the zation. The government is emerging to reinforce trative mechanisms. conditions that the Gov- of Mozambique has pur- the effectiveness of the Mozambique's post- ernment of Mozambique sued its reform agenda government's economic conflict experience thus faced at the start of the without significant rever- strategy. In sum., the far, and the adherence of stabilization and reform sal of either strategic accomplishments of the the former combatants to process, since Mozam- purpose or any major past decade can be inter- a rule of law framework bique was among the component. Soon after preted as having brought for orderly political com- very poorest countries of Mozambique joined the Mozambique in a virtu- petition, have been the world. During the Bank, Bank staff pro- ous circle. While the high viewed rightly as a rela- conflict, about one-third vided technical policy levels of aid have facili- tively successful case- of the population was advice that was critical tated recovery, they also combining conflict displaced, and many of for the design of the pol- reflect the country's heavy resolution, economic Mozambique's human icy agenda-critical dependence on tnilateral transition and creation of and physical resources because the government transfers to cover its large political and economic were destroyed. The of Mozambique policy- fiscal and external imbal- rules of the game that country's independent makers had had no pre- ances, including service on break substantially from experience in economic vious experience in its heavy external debt Mozambique's historical management had been nonsocialist economic (even after extraordinary experience. Nevertheless, entirely dirigiste, based management. refinancing). In 1996, the fragility of this still on East European models Donor satisfaction external aid financed brief experience must be and tutelage. Crop fail- with Mozambique's around two thirds of ernphasized. ures in 1986 and 1992 progress has been Mozambique's imports. caused contractions in reflected in recurrent Of course, Mozambique 3 Evolution of the Bank's S,.trategy and Portfolio 77 or the first five years of Mozambique's mnembership (1984-89), the Bank's program included three credits totaling US$205 million (June 1985 for US$45 million; October 1987 for US$70 million; and August 1989 for US$90 million) for balance of payments support keyed to the government's macro stabilization program and the needs of post-conflict rehabilitation. The first sector credit was initiated in 1987. Of the five project credits that became effective by 1990, two were sectoral (energy and transportation) and three pursued the economic reform agenda (economic management, industrial restruc- adjustment credits supported sequences of incremental turing, and small and medium-scale enterprises). Thus, of steps to tackle price and exchange rate distortions, the total credits effective through 1990 of US$390 mil- macroeconomic imbalances, trade reform measures, lion, the macro reform program accounted for about 80 and initially a r-estructuring rather than privatization of percent, including balance of payments support com- state enterprises.1 prising 53 percent of the total. A Broader Focus Rehabilitation and Adjustment In 1991, with some prospect of peace, the Bank began The core of the Bank's initial strategy was to provide to develop a comprehensive assistance strategy for the foreign exchange and technical support for rehabilita- rehabilitation and reform of the economy. The first tion and adj'ustment. Stabilization, growth, and Country Strategy Paper (June 1991) laid out directions improved resource allocation were the broad objectives, for the Bank's portfolio evolution: these have not The Bank recognized that the extremely adverse condi- changed substantially. The Bank judged the govern- tions prevailing until a peaceful settlement could be ment's initial policy performance as satisfactory, reflect- reached greatly constrained the extent and pace of the ing a high level of political commitment to reform. The effort to stabilize the economy and lay a foundation for paper saw two risks to the strategy: weak local capacity post-conflict recovery and growth. Thus, the first and the uncertain political situation. The strategy called 5 Rebuilding the Mozambique Economy: Assessment of a Development Partnership for limiting operations to 2-3 new projects a year (pro- attempting so much as to cause the whole process to jects had grown from 3 in 1987, to 14 in 1990) to focus abort."3 Although this principle has enabled the Bank supervision efforts on economic and sector work (ESW) and the government to maintain substantial agreement and on addressing capacity deficiencies. on the reform process on a strategic level, the formula- The paper identified five priority policy areas for tion was imprecise, and differences have arisen between government and Bank attention: (i) public expenditure the Bank and the government, mostly around pace, management, foreign exchange and trade policy reform, reflecting different judgments as to the potential effects and financial sector reform; (ii) state enterprise restruc- of specific measures on the "whole process." During turing and privatization; (iii) poverty reduction, includ- Board discussion of the strategy paper, Executive Direc- ing access to basic services and adjustment of the safety tors cautioned that this assistance strategy was highly net system; (iv) improved food security; and (v) capacity ambitious, and would need careful monitoring and building. To help the government develop policies and coordination with other donors. They urged staff to programs, the Bank would continue its high level of devote much more attention to creating public adminis- ESW, focusing on capacity building and studies to assist tration capacity, civil service rationalization, and to in postwar planning, including environmental issues. implementation problems.4 The portfolio would gradually shift from macroeco- By 1994 the Bank had a fully worked-out assistance nomic to sectoral adjustment.2 strategy that continued to adopt the government's objec- In the next four years, 1991-94, IDA projects of tives and policies as the Bank's own framework and US$922 million (including US$13 million of IFAD funds) reflected the declining priority of short-run measures. extended Bank operations into agriculture, education, While the continuing large aid inflows were essential, the institutional capacity building need to move toward financial (and implementational) (legal; local government), the self-reliance had emerged as a high-priority objective. Poverty reduction financial sector, and natural gas, The areas for Bank assistance remained wide-ranging: assumed formal with substantial additional macro reform, capacity building, agricultural recovery resources going to transportation and infrastructure reconstruction, poverty reduction, and stature as the infrastructure and further financ- access to basic social services. The Bank's portfolio had Bank's essential ing of the government's macro to be revised to take account of the changed circum- objective in program. By the end of 1994, the stances: the cessation of conflict, access to the country at assisting cumulative Bank program was large, and the resettlement of refugees and the displaced. large in relation to domestic capac- It included modest Bank support to the government's Mozambique. ities. It amounted to US$1,127 safety net programs for the vulnerable urban poor. million, of which balance of pay- Finally, the strategy statement records that the Bank had ments (or adjustment) support accounted for US$585 mil- developed activities within sector projects or through lion, or 52 percent; transport US$313 million, 28 percent; ESW work addressing gender issues, environmental agriculture US$73 million, 6 percent; energy US$43 mil- problems, and private sector development, and that lion, 6 percent; and the industrial sector US$82 million, 7 activities in these areas would continue. The Executive percent. Although many projects had technical assistance Directors again expressed concern about the level of pro- and institution-building components, the Bank character- posed project lending, and the need to address imple- ized five projects as a capacity-building group (amounting mentation problems and intensify supervision. They to US$100 million, or 9 percent): economic management, called on staff to cooperate with bilateral donors and education, legal and public administration, food security, address the proliferation of donor-funded projects. and the financial sector. Normalization and Consolidation A New Strategic Principle and a Broader Portfolio In the next CAS, issued in November 1995 after a third After the peace settlement in 1992, the Bank's strategy year of peace and normalization, the Bank's strategy was (and its characterization of the strategic principle for all reoriented, and development effectiveness assumed parties in Mozambique, as laid out in the Second Eco- greater importance. Poverty reduction assumed formal nomic Recovery Credit [SERC] report), called for pro- stature as the Bank's essential objective in assisting ceeding "as quickly as possible without going so fast or Mozambique. The strategy was to be built around three 6 Evolution of the Bank's Strategy and Portfolio elements: continued restoration of a stable macroeco- about US$99 million, followed by a US$100 million nomic framework and removal of cross-cutting impedi- loan for economic recovery support in 1997. In October ments to growth; human resources development; and 1997 there were 18 active IDA credits with an original promotion of sectors with high growth potential. The volume of US$8.37 million (US$821 million after cancel- Bank would increase the effectiveness of its assistance lations). The active portfolio (including projects near through improved portfolio management, ESW, closer close-out) still covered a wide range of activities in aid coordination, and more selective lending. health, education, transportation, agriculture and rural The Executive Directors welcomed this CAS, and its development, natural gas, public administration, eco- emphasis on poverty reduction, governance, and devel- nomic management, industry, household energy, legal oping human resources. Some Executive Directors ques- and other capacity building, and policy-based economic tioned whether there was a strong link between the support. In addition, project components addressed poverty focus and the proposed lending program, and urban, environmental, and water problems. The Bank's whether the Bank was overcommitted in too many ESW activities included poverty assessment and work on fields, with insufficient implementation capacity, and in the structural adjustment process and economic policy some areas where the Bank did not necessarily have a dialogue (fiscal management, public expenditures, capi- comparative advantage. They urged the Bank to concen- tal markets development, and privatization). trate in areas in which it excelled, such as economic Following a period of rapid growth and diversifica- analysis and policy dialogue. The Bank's ESW had been tion in the Bank's country assistance program, the time highly relevant and useful, and had helped in donor has come to streamline and reform Bank activities to coordination. The resident mission had also contributed enhance development impact. The major challenge of the effectively to enhance donor coordination. new CAS is to achieve greater development effectiveness In 1995 the Bank made no new loans. Many pro- through strategic selectivity and enhanced partnership. jects in the portfolio were encountering implementation The record of Bank operations suggests that improved delays. The government agreed to conduct a portfolio management of the portfolio of ongoing projects, more review, which resulted in the restructuring of several systematic focus on capacity building and policy reform, projects and reduction or cancellation of several compo- and greater attention to aid coordination should animate nents. Lending resumed in 1996 with a health loan for further Bank operations in Mozambique. 7 Private S..ecto r Development: Banka Strategy in the Enterprise and Financial Sector ~,ince 1989, assistance with financial sector reform and privatization has been key to the 41"Bank's GAS. The Bank's strategy evolved from support for rehabilitation of state-owned 9banks and enterprises to promoting active participatiorn of the private sector in all sec- tors of the economy. In 1989 the Bank originated two loans--Small and Medium Enterprise Development Project (SMEDP) and Industrial Enterprise Restructuring Project (IERP)-to resuscitate industrial production by rehabilitating state-ownedenterprises. Unfortunately, this lending was not based on solid financial sector work new vision of the sector was greatly advanced by exten- and proceeded despite conspicuous price, foreign sive sectoral work and was clearly articulated in the exchange, and interest rate distortions and the absence policy conditionalities under the Second Economic of creditworthy companies.1 All lending to enterprises Recovery Credit (SERC), which included the reform of ended up going through state-owned banks. However, Banco Comercial de Moqambique (BCM) and large these banks had neither the institutional capacity nor state-owned enterprises, reduction of subsidies to other the right incentives to perform the pivotal role of enter- state-owned companies, and liberalization of prices. prise restructuring. Again in 1992, in its first financial IERP was restrusctured to give UTRE, a unit within the sector study, the Bank failed to diagnose the weak cor- Ministry of Finance, responsibility solely for privatiza- porate governance in state-owned financial institutions tion, while putting enterprise rehabilitation into a and the potentially disastrous implications for the subloan compovr ient to be carried out through the bank- financial system and macroeconomic stabilization.2 ing system. Technical assistance for the financial sector In 1994 the Bank shifted toward a more decisive reforms was carried out under the Financial Sector course ongh privatization-and,o if nee ssoary rolerI - Capacity Building Project (FSCBP), which was instru- corise oprivatizatu ion-.A aindi19, ifnecessafry, f'qidanca IEPwsrsrcue1ogv TE ntwti h tion-of state-owned banks and large enterprises. Fur- mental in the privatization and financial strengthening thermore, the Bank recognized the need for enterprise of the Mozambican financial system. Since 1995 the and banking sector reform to proceed in tandem. This Bank's major focus has been on improving a highly 9 Rebuilding the Mozambique Economy: Assessment of a Development Partnership cumbersome and overregulated business environment, gauge the credit quality of the banks' subloans, the accelerating privatization, and completing reforms in improved macroeconomic environment and the larger the financial sector. size of subborrowers have reduced the risks of default. The recent privatization of BCM should also have a pos- Instruments of the Bank's Assistance for Private Sector itive impact on its incentives to service and collect on the Development loans made by its state-owned predecessor. The Bank's technical advice and policy dialogue have Despite an initially ineffective enterprise lending been crucial to the development of the private sector, record, the IERP, following three formal restructurings, which currently accounts for more than 75 percent of has become an important source of financial support for the country's GDP, and to financial sector reform, enterprise reform. It has also provided technical assis- including privatization of the former state-owned and tance for privatization, legal reform, investment and bankrupt financial system. But the challenge of imple- export promotion, conferences on private sector devel- menting private sector reforms in parallel with substan- opment, capacity building in statistical collection and tial volumes of lending in a country with virtually no analysis, and capacity building in the Ministry of Indus- market institutions carried risks. Rushed lending to the try, Trade, and Tourism for implementing reforms in the emerging private sector through state-owned financial business environment. In particular, the project provided intermediaries that were not ready to bring about the valuable technical assistance in institutional strengthen- restructuring of state-owned enterprises proved costly. ing of government privatization agencies. Despite initially misguided efforts to support the The overall perception of country risk by foreign rehabilitation of bankrupt state-owned enterprises investors, while still adverse, has improved somewhat through undercapitalized state-owned banks, the Bank's over the past several years. Notable achievements overall assistance to the financial sector and to enterprise include improvements in financial incentives (prices and privatization provided important support to Mozam- foreign exchange), the emergence of markets for foreign bique's program of structural reforms. The Bank's strat- exchange and credit, the adoption of a revised invest- egy resulted in a somewhat more business-friendly ment code, approval of export processing zones, privati- environment, a sounder financial system, and what may zation of customs, and a drastic reduction in the notary be the most successful privatization program in Africa. fees on the registration of collateral. On the negative side, corruption remains a serious problem. Enterprise Lending: A Dismal Early Record, but Recent Improvements in the Business Climate Assistance to the Financial Sector: Sequencing Missteps, Despite the precarious financial situation, weak corpo- but Eventual Restructuring of the Sector rate governance, and nonexistent credit underwriting The Bank's strategy in the financial sector has been car- skills of the state-owned banks, the Bank went ahead ried under the Economic and Financial Management with SMEDP. As a result, in 1996 the rate of default on Technical Assistance Credit (EFMTAC) and the FSCBC. the loans made by BCM and Banco Popular de Desen- The EFMTAC laid the groundwork for subsequent volvimento (BPD), the two largest lenders, was more financial sector reforms by separating the commercial than 50 percent for loans whose grace period had lending functions of the Bank of Mozambique from its passed. The final default rate is expected to approach 90 central banking functions; the FSCBP moved on to pri- percent. vatization of the commercial bank functions and the The Bank, through UTRE, had little choice but to strengthening of the central bank's supervision capabili- rely on BCM for the rehabilitation component of the ties through a twinning arrangement with the South IERP. BCM underwrote almost 60 percent of the total African Reserve Bank supervisors. loan amount-US$18.5 million-by making two large There were many missteps along the way to this ulti- subloans to just two companies. Only recently were the mately successful outcome. From 1992 until July 1995- remaining funds utilized through private banks (Banco when the decision was made to privatize BCM-the de Fomento e Exterior (BFE) and Banco Standard Totta Bank devoted substantial financial resources to its de Mocambique (BST) and a newly established leasing restructuring and technical strengthening, despite BCM's company (United Leasing Company [ULC]). Although almost total deficiency of corporate governance and its the grace period of up to 5-7 years makes it difficult to widespread practice of politically motivated lending. The 10 Private Sector Development: Bank Strategy in the Enterprise and Financial Sector Bank's technical assistance fell short of improving the infrastructure privatization efforts, including technical interim governance of state banks and of imposing studies on the feasibility of private concessions for the clearly monitorable restrictions on the banks' lending Maputo, Beira, and Nampula ports and railroad corri- activities. As a result, shortly after its recapitalization, dors, and a toll road from Maputo to South Africa. and despite the Bank's technical assistance and policy advice, BCM engaged in uncontrolled credit expansion Recommendations and had to be recapitalized again before privatization. A The Bank's support to Mozambique's privatization year after BCM's privatization, the second largest state- program and financial sector reforms has been highly owned bank (BPD) was privatized, marking a new stage relevant to the country's eco- in the development of the Mozambican financial system. nomic needs. The efficacy of The Bank's technical assistance during this period Bank support was high in adjust- The Bank's focused on strengthening the commercially viable banks ment operations, where enforce- support to and building the supervisory skills of the central bank ment of policy conditionalities .m e through the FSCBC. Mozambique's bank supervisory resulted in highly visible eco- Mozambiques standards are now at par with some neighboring coun- nomic reforms. Lending pro- privatization tries at a more advanced stage of development. grams for techinical assistance program and Since the Commercial Bank of Mozambique was and institution-building in the financial sector separated from the Bank of Mozambique, there has been financial sector have also been reforms has been a profound transformation in the structure of the finan- successful in transforming state- cial sector. Lending and deposit rates were fully liberal- owned banks into more commer- highly relevant ized in June 1994, and the authorities have maintained cially viable and efficient market to the country's positive real discount rates since 1995. Significant institutions. Technical assistance economic needs. progress has been achieved in transforming an under- for development of the private developed, state-owned financial system into a viable sector facilitated enterprise pri- and fully privately owned banking sector. The restruc- vatization and improved the country's business envi- turing and privatization of state-owned BCM and BPD ronment. have ended the uncontrolled expansion of credit to * The Bank's assistance to the enterprise and finan- bankrupt enterprises and have been keys to the success cial secters has been accomplished at excessive of the macroeconomic stabilization program. Today, cost because of the initial misuse of resources there are six private banks, a credit cooperative, a leas- resulting from an improper sequencing of reforms. ing company, three insurance companies, and 18 foreign * A stronger Bank presence, better sectoral work, exchange bureaus. In June 1996 the shares of non- and more policy dialogue with the government in government deposits and of lending to nongovernment the late 1980s and early 1990s might have helped sectors in the hands of the smaller private banks (exclud- to yield better results. The losses incurred by the ing BCM) were 30 and 23 percent, respectively, and state-owned banks under the SMEDP alone are growing steadily. Moreover, the ownership of private likely to cost the government around US$20 mil- financial institutions has been diversifying, with increas- lion dollars, while the cost of the final "clean-up" ing participation of domestic and foreign capital. of the banking system after its initial recapitaliza- tion in 1993 has already reached US$93 million, Privatization: Substantial Progress and may rise further. Since 1989 the Mozambican enterprise restructuring program, supported by the restructured IERP, has Financial and Enterprise Reform: Better Sequencing resulted in the privatization of over 800 of 1,250 public and New Tools enterprises, including 70 large companies. Today the pri- The lack of credit underwriting skills and weak corpo- vate sector accounts for over 70 percent of GDP. The rate governance made state-owned banks highly inap- privatization succeeded in increasing the efficiency and propriate conduits for channeling credit to enterprises. competitiveness of privatized firms and in attracting The capital needs of start-up small companies can best new investment. The Bank provided extensive technical be addressed through nontraditional lenders or equity assistance and financial support to the government's investors, such as venture capital funds or the IFC. 11 Rebuilding the Mozambique Economy: Assessment of a Development Partnership OIn light of the poor performance of enterprise Business Environment: Business Legislation Still Needs credit efforts and the rapidly developing Mozam- Reform bican commercial banking system, the Bank's Mozambique's economic legislation remains highly con- presence in the enterprise sector ought to be lim- voluted, inconsistent, and difficult to enforce. It falls ited to policy dialogue with the government and short of clearly defining and protecting property rights technical assistance to small firms and govern- and setting rules for their exchange. This results in high ment institutions. transaction costs, which are prohibitive for small- and * Less distorting ways should be used to provide medium-size entrepreneurs. In addition, there are serious assistance to the emerging Mozambican private omissions in the rules for entry and exit. The Bank, sector than the current practice of providing funds through the IERP, is currently providing assistance for at subsidized interest rates. the reform of business laws, including the commercial * Such assistance can be provided in the form of code. The IERP is also providing support for the Min- matching grant schemes to small- and medium- istry of Industry, Trade, and Tourism to carry out the rec- size firms to develop better management and ommendations of the Impediments to Industrial Sector information systems, improve their technical Reform study and the follow-on FIAS red-tape analysis. capabilities, and train workers. The government's initial privatization program did Recommendations not envisage any coherent social policy response to the * The Bank should be more active in policy dialogue problem of labor retrenchments following privatiza- with the government and in providing technical tion. Although the IERP has a component for assistance for land reform. retrenched workers, it was never used by the govern- * Lack of clear property rights to land in agriculture, ment-which did not want to develop a worker train- which employs 70 percent of the population, is the ing program-in large part because of lack of interest main obstacle to the emergence of small companies. by workers. A study on Evaluating the Impact of the Investors are still uncertain about the sustainability Enterprise Restructuring Program, carried out jointly of many institutional reforms because of potential with the government, addressed the major concerns of setbacks in economic policies and the anticorruption workers and their unions with respect to the impact of campaign. Corruption, a poorly trained and unmo- privatization. What workers wanted if they were laid tivated civil service, outdated and cumbersome busi- off was what was due to them by law: back wages, pen- ness legislation, and lack of business services and sions, and a severance allowance from the proceeds of basic infrastructure still contribute substantially to the privatization sales. the cost of doing business in Mozambique. BOX 3.1: CASE STUDIES IN ENTERPRISE RESTRUCTURING gua de Maputo, a ment is metered, only 50 low, at about 50 percent The revenue loss due to publicly owned percent of meters are oper- of the actual cost recovery underpriced service is only ^ and managed ational. Although the rate. Until May 1997, the partially compensated by water company, provides reported unaccounted-for- government had not raised the government capital service to 50 percent of all water rate is 23 percent, rates for two years, despite grants, which have been registered households in there are strong reasons to an upsurge of inflation rapidly declining over the Maputo. The company believe that the real figure forcing the company to past few years. The com- exhibits all the problems is much higher. For politi- underbudget its mainte- pany, however, manages to of a traditional public cal reasons, water tariffs nance and amortization pay wages without delays. water utility. On average, for residential con- expenditures-which are Despite its vigorous dis- water is available for sumers-which account currently funded at 70 per- connection policy, in 1997 10-12 hours a day. Al- for over 90 percent of the cent and 50 percent of the company's collection though almost every apart- revenue-are kept very required costs, respectively. rate was under 70 percent. r 12 Private Sector Development: Bank Strategy in the Enterprise and Financial Sector BOX 3.1: CASE STUDIES IN ENTERPRISE RESTRUCTURING (CONTINUED) The company consistently founded in 1977. It is the a debt restructuring agree- improve collection. To fails to generate enough only national power com- ment with the government. supplement its domestic revenue to cover its oper- pany, which operates all Nevertheless, the corpora- revenue, EDM will be ating expenses, and as a generation and transmis- tization of EDM, with the exporting energy to Zim- result has accrued large sion as a vertically inte- subsequent conclusion of a babwe. Its future export accounts receivable. For grated, state-owned performance agreement, revenues are expected to instance, its annual debt to monopoly. In 1995 the has had a positive impact account for 8 percent of the local power company company was transformed on the company's bottom the total domestically gen- amounts to US$4 million. into a public company, line. Substantial progress erated revenues. Despite Under these circumstances, solely owned by the state. has been made in improv- the politically constrained the company is unable to In 1996 EDM entered into ing revenue collection, tariff-setting mechanism, expand the service cover- a performance agreement reducing energy distribu- the company is expected age to new customers or with the government, tion losses, and cutting to break even for the first to make even marginal which specified the right operational costs. In 1996 time ever in 1998, which improvements in the qual- to operate the assets and EDM launched an active presents an opportunity ity of service to present collect the revenues. The loss reduction canmpaign in for its privatization. consumers. Currently, with agreement also set out the Maputo, which targeted All this clearly illus- the World Bank's assis- main service, operational, energy losses and losses trates the need to insulate tance, the government is and maintenance quality caused by poor collection. Agua de Maputo and considering bringing in a standards, as well as the A special disconnection EDM from politically private operator through a tariff escalation schedule. task force has been motivated government long-term concession. Under the contract, the formed. EDM's efforts to interventions. As has been However, in the absence of company has assumed all collect from the govern- demonstrated by EDM, a an economically viable tar- the debts of its predeces- ment institutions, however, performance agreement iff-setting mechanism, such sor. Unfortunately, most of have failed, as threats to which spells out the rights an undertaking would the loan proceeds had cut off the service could and contractual obligations require major government been used to pay for devel- never be enforced. In less of the parties can become subsidies, making the eco- oping the power infra- than two years, the collec- the first important step nomics of the project con- structure that subsequently tion ratio has improved- toward financial sustain- tingent upon an unpredict- was destroyed by the war. from 75 percent in 1995 ability of public utilities, able government budgeting As with many other to 93 percent, at the end improved cost efficiency, process. Unless the govern- state-owned utilities, for of 1997-while energy and better-quality service ment is prepared to set the political reasons, EDM's losses have declined from for consumers. Yet restruc- rates at least equal to the electricity prices are kept 41 percent in 1995 to 26 turing and performance cost recovery level, and well below production percent in 1997. Similar agreements fall short of use alternative regulatory costs. For almost two costs and loss-reduction achieving these objectives. instruments (for instance, years the government programs are cur-ently While the shape of reform rate-of-return caps), it may delayed a recent 1997 tar- under implementation in has yet to be finalized, it is prove difficult to attract iff increase. This has had a Beira and Nampula. At the clear that the problems of new investment for negative impact on the moment, the company is a politically controlled tar- extending the service cov- company's financial posi- introducing an inregrated iff-setting mechanism and erage and improving the tion. As a result, the com- customer information and poorly enforceable collec- quality of service. pany postponed its plans billing system, which will tion can only be addressed Electricidade de to expand service to new provide faster response to through more private par- Mocambique (EDM) was customers and entered into technical problems and ticipation in these sectors. 13 Rebuilding the Mozambique Economy: Assessment of a Development Partnership rE rNr MaS-Xm,mis-t:Z^3_r3rEr S^grwW ^ MNr 3 9zM_ - U 2 BOX 3.2: IFC AND FIAS: STRATEGY AND ACTIVITIES IN MOZAMBIQUE r>, < V rhen Mozam- ernment. In FY94-95 FIAS The current strategy of In 1997 IFC assigned I XAI \ bique became a was requested to review the IFC is in line with these an investment officer to the r vV member of IFC legal framework for foreign developments, and the Bank's Maputo office to in 1984, the country was direct investment. FIAS con- increasing interest in reinforce its ties with the still in the middle of a war, cluded that many of the Mozambique from private local business community. X and its economy was dev- measures proposed by the investors, including foreign- The improved business envi- X astated. IFC made its first government changes were ers. IFC's priority is to focus ronment and the increased investment in a cotton pro- counterproductive, and the on sectors in which the interest from the private sec- duction project, (Lomaco) in government subsequently country has competitive tor translated into record M 1987, which was followed revised its proposals, in part. advantages. Those sectors approvals in 1997, in- by another investment for This exercise also analyzed include: (i) transport and cluding an investment in the rehabilitation of the the legislative framework port infrastructure Mozal-an aluminum g Polana Hotel in 1992. and operations of the because of the country's smelter-of up to US$120 In July 1990 FIAS was Investment Promotion strategic location as a million and investments in 2 asked to assist the Banco de Centre (CPI) and made rec- gateway for surrounding agriculture and the fishing g Mozambique in reviewing ommendations for a legal! countries; (ii) mineral industries. As of Septem- i 21 its debt-for-equity conver- operational structure of the extraction sectors includ- ber 1997, IFC's total com- i sion program. FIAS found CPI which were subse- ing natural gas; (iii) export- mitted and approved that the legal framework for quently implemented. oriented sectors, in partic- investments amounted to 2 @ debt conversion was seri- Following the presiden- ular energy-intensive indus- US$144 million. g ously flawed, and proposed tial and legislative elections tries and agriculture; (iv) the IFC will continue allo- Z changes necessary to make in 1994, a joint Bank-IFC financial sector which needs cating significant resources the program more effective. report on conditions for pri- further diversification and to Mozambique in these - These were accepted by the vate sector development depth; and (v) small- and sectors. IFC sees its role as: 0 government. Subsequently, was issued in 1995. This medium-enterprises (SMEs). (i) providing scarce long- i FIAS was asked to conduct report concluded that the IFC's first investment in term financing; (ii) helping P a study of the investment main constraints to private the SME sector through the establish Mozambique as a o climate. The report reviewed business were to be found in Africa Enterprise Fund good business address; (iii) m Iissues and procedures from the excessive transaction (AEF) was approved in ensuring that projects meet a foreign investor's perspec- costs facing private com- 1995. In 1995-96 IFC the requirements of IFC/ X E tive and suggested mea- panies, partly due to inor- approved its first invest- World Bank Environmen- Isures to improve the dinately high bureaucratic ments in support of the tal guidelines; (iv) con- 0 investment framework. The barriers. In 1996 IFC and country's comprehensive tributing to capacity- E study recommended adop- FIAS put together a report privatization program (a building in the private sectorW | tion of a swift registration on administrative barriers to cement company and through its special initia- I , process and enactment of a business. This report was cashew nut processor). IFC tives-the Africa Project new company law. Other drafted with the cooperation also approved its first invest- Development Facility S recommendations related of the government agencies ment in the financial sector, (APDF) and African Man- g to investment incentives, involved. The conclusions of in a recently established pri- agement Service Company taxes, ownership restric- the report were presented in vate commercial bank. (AMSCO); and (v) helping t tions, foreign exchange allo- various international forums These investments have not to implement the World cation process, land and have been the basis yet been evaluated. IFC Bank Group strategy for ownership and labor laws. for an administrative also conducted a study to private sector develop- I Many recommendations reform which the govern- establish regulations for the ment in coordination withl' were adopted by the gov- ment is now undertaking. leasing industry. the Bank and FIAS. 14 Instruments of Bank Assistance fcr Infrastructure Development I he government's strategy for the transport sector was to catch up on deferred main- tenance of rail and port infrastructure in the three east-west corridors linking Mozambique's main ports to neighboring countries, to improve railroad transport through better maintenance and rehabilitation, to improve north-south connections within the country through strengthened coastal shipping, and to maintain the existing road sys- tem. The Bank considered the strategy to be sound, althouglh it put rehabilitation of fixed facilities (rail tracks, ports) as a second priority, behind ership in a large, capital-intensive sector where a multi- maintenance. tude of donors were operating with little if any coher- The Bank's knowledge of the transport sector evolved ence. With the 1992 peace agreement, the Bank was in a gradually. Bank assistance to the sector started with the good position to address the critical transportation First Rehabilitation Credit in 1985, followed by support development issues for integrating Mozambique along for the Beira Corridor rail and ports rehabilitation pro- its unusually long north-south distances (some 2,500 gram in 1989. The first transport sector review took km) and the east-west main transport corridors of vital place in 1988-89. It recommended infrastructure and importance for Mozambique and its neighboring coun- equipment investment in transit routes to the sea, devel- tries to the west. opment of feeder roads to the railway system, rehabili- tation and maintenance of roads to the small and major Railroads ports, and development of appropriate capacities to Mozambique has three international corridors-Beira in transport commodities by road, rail, and coastal ship- the center, Nakala in the north, and Maputo in the ping. This incremental approach was realistic, given the south-that are important to Mozambique as a source continuing conflict in the country until the 1992 peace of income and employment, and to its landlocked north- agreement. This strategy provided a strong basis for the western neighbors and South Africa as gateways. The Bank's operational involvement and for providing lead- Bank's contribution through the Beira Corridor Project, 15 Rebuilding the Mozambique Economy: Assessment of a Development Partnership mainly at the institutional and human resource levels, was made a higher priority. The attention given in the has been helpful despite various delays. It confirmed the sector report to major policy issues and in particular to Bank's concern that major improvements in the effi- the urgent need for catching up at the institutional and ciency of the large investments of the Mozambique rail- human resource development levels, helped shape the road (CFM) required some form of privatization or initial strategy for the sector. concessioning. This approach was developed under the Bank performance under the four project operations second credit for railways, the Maputo Corridor Revi- was basically sound. Major Bank efforts went into talization TA. After many delays and considerable effort preparation and supervision. The Bank worked closely by the Bank, the government and CFM recently agreed with the government and donors to achieve a stream- on an international tender for the concessioning of lined, well-prioritized (but still very ambitious) invest- CFM's southern system. ment program. A large number of donors have felt comfortable with Bank leadership. Excellent communi- Roads and Ports cations have been maintained, although no project offi- On the basis of the 1989 transport sector report and cer has been stationed in Maputo. Progress in much project preparation work, the Bank extended two liberalizing and privatizing coastal shipping and truck- credits, in 1992 and 1994, for the rehabilitation and ing has also been favorably affected by Bank assistance. strengthening of the road and coastal shipping infrastruc- The Bank should have taken a harder look at the fis- ture, which is essential for Mozambique's north-south cal feasibility of the agreed large investment program on integration. An initial project focused on improvements in the Second Roads and Coastal Shipping Credit. How- policy, institutions, and human resources. Major progress ever, the establishment of a Road Fund was an impor- has been made, with important benefits for the economy tant step toward ensuring that road user charges are as a whole. The second project was part of a major invest- channeled into the roads. ment program in the sector, cofinanced at more than There are several recommendations for future work US$400 million by a large number of donors. The Bank in the sector: played a useful role as leader in this effort. However, the * The Bank's initiative to seek major efficiency government has reduced the annual level of expenditure improvements in the railways-ports corridors on the program. Moreover, differences in donor proce- through privatization and concessioning should be dures have resulted in important delays in the implemen- continued, especially the efforts to address the tation of major road rehabilitation work, including some excess personnel issue, as long as government sup- financed by the European Union (EU). port, in the context of the broader country dia- Despite the large volume of work required, espe- logue, remains strong. cially on the Road and Coastal Shipping Projects, and * The "big push" approach in the roads sector has the many cofinanciers, supervision has been successfully already resulted in important progress on the pol- carried out from HQ-and even with remarkably lim- icy and institutional and human resources develop- ited inputs-a reminder that high-quality staff inputs are ment fronts. However, deeper fiscal and economic more important than quantity. analysis is needed to ensure that investments are The Bank not divorced from fiscal realities. Recommendations * Strong aid coordination leadership, based on thor- contributed to The Bank contributed to shaping ough analytical work, should continue and should shaping the the sectoral strategy for transport lead to greater use of common procedures, espe- sectoral strategy from the beginning of its involve- cially on procurement. But donor rigidities in this for transport from ment in Mozambique. The 1989 area persist. sector report was a healthy coun- * In light of experience so far, a good case can be the beginning of Its terpoint to the government's ini- made for continued substantive Bank involvement involvement in tial focus on the country's in the sector, both in railways and ports (east-west Mozambique. traditional transit function for the corridors) and roads and coastal shipping (north- neighboring inland countries. As south), taking into account the need for closer a result, the north-south transport system, which offered linkages between the Bank's fiscal work and sector major opportunities for greater national integration, investment programs. 16 Instruments of Bank Assistance for Infrastructure Development Energy: Need for a New Look at the Sector electricity sector has been uneven. Although the recent As a result of strong initial sector work in 1985-86, the electricity law will open the sector to private activities, Bank was able to establish soundly based dialogue with the financial soundness of the national electricity com- the government on an energy sector strategy and to pany, EDM, has remained shaky. The Gas Engineering develop a sequence of priority operational activities. Project helped strengthen ENH and increased its ability This initial effort was especially important in a sector to negotiate a satisfactory joint venture agreement with with a wide range of primary energy resources and a a major foreign partner on use of the gas reserves. The consumption base that relied mainly on traditional fuel- energy sector is changing quickly, however, and there is wood sources. This dependency caused serious environ- an urgent need for a fresh review of the sector. mental problems. Energy pricing was highly distorted, with fuelwood trading freely, but other sources of energy Recommendations sold at well below economic cost. While the Bank's effectiveness in the energy sector has been mixed, the sector is too important for the develop- Strategy and Implementation ment of Mozambique not to give it the attention which The Bank's strategy emphasized meeting Mozambique's the Bank could bring by using its comparative advantage. energy needs from domestic sources, where economic; Bank performance was highly satisfactory in the ini- developing the country's potential to benefit from tran- tial strategy development, but mixed in project concep- sit trade in energy products for neighboring (inland) tion and preparation and during supervision, and in countries and trade in electricity; and investing in continued strategy development and aid coordination. energy-intensive industries for export only if certain eco- Substantial Bank involvement in the energy sector, nomic, financial, and market conditions were met. The where there are many other donors, requires not only strategy was underpinned by detailed recommendations intellectual leadership, which the Bank demonstrated in to secure stable energy supplies, strengthen institutions the initial energy sector work, but active leadership dur- dealing with energy, remove distortions in energy pric- ing implementation, with both government entities and ing, address the urban household energy crisis, and pro- donors. The Bank seems to have been more timid than mote the interest of foreign oil companies in petroleum in other sectors in coordinating activites and in seeking exploration. to influence these donors providing grant funds. The The Energy TA and Rehabilitation Project of 1987 Bank should have been able to exert a healthy presence addressed institutional and policy issues, and financed in the sector since there were relatively few donors-and some emergency requirements in power and petroleum many other opportunities for their grant financing in supply. The project relied heavily on foreign experts. An Mozambique. Urban Household Energy Project followed in 1989, * It is important to get across the message that grant focusing on temporarily increasing fuelwood supplies financing cannot be considered "free" when it while substituting commercial energy supplies for fuel- supports Low-priority and unnecessary projects, woods (by financing household wiring and coal stove and thereby impedes future, more important oper- construction) and correcting distorted prices. These ations. ambitious projects involved several executing agencies and considerable coordination. In 1993 the Bank Urban Development: Too Complex and Too Little extended a credit for a Gas Engineering Project, after Rapid urbanization in recent decades, much of it a another energy project had provided useful assistance to response to the protracted civil conflict, has placed a sig- the Empresa Nacional de Hidrocarboneras (ENH). The nificant burden on Mozambique's urban infrastructure, project proved the existence of additional gas reserves. housing, and institutional capacity. Close to 40 percent The Bank's role in the energy sector has been gener- of the population now live in cities, about one-third of ally positive. The Energy Rehabilitation and Urban them in absolure poverty. Poor urban neighborhoods Household Energy projects have led to important lack access to water, sanitation, and adequate health progress in the sector. The fuelwood program has been care, and crime is rampant. Environmental degradation remarkably successful, as has the new pricing policy for is a serious problem. petroleum. But the household program for electricity In the past decade, the Bank has undertaken two wiring and coal stoves largely failed, and success in the urban development projects-one completed, the other 17 Rebuilding the Mozambique Economy: Assessment of a Development Partnership ongoing-and a sector review of urban local govern- mentation suffered from procurement and disbursement ment and environment. Two water projects are currently problems, changes in task managers, and coordination under preparation and an "urban environment" project difficulties with some executing agencies. The credit is in the pipeline. The Urban Rehabilitation Project lines for small enterprises and the acquisition of building (PRU), approved in August 1988 and closed in October materials failed, and the project proved generally unsuc- 1996, was intended to assist the government in stem- cessful in institution building, cost recovery, and other ming the rapid deterioration of basic urban infrastruc- policy objectives. As a result, many of its benefits are of ture and services in Maputo and Beira, the country's doubtful sustainability. Both Borrower and Bank perfor- largest cities, and to mitigate some of the social costs of mance were mixed: an undisbursed IDA credit balance structural adjustment through: (i) rehabilitation of of some US$7.4 million was canceled. The ICR's overall urban infrastructure (roads, water, waste management) "unsatisfactory" rating for the project outcome is justi- and housing; (ii) employment generation; (iii) strength- fied, although the extremely dynamic and difficult cir- ening local institutions; and (iv) support to government cumstances under which PRU was prepared and initiatives in cost recovery, institutional reform, and new implemented should be clearly recognized. The sector policy directions. review gave insufficient attention to the lack of capacity A sector review was completed in 1991. It con- in the central government to effectively implement rapid cluded that local governments lacked legal, administra- decentralization in Mozambique. The study also under- tive, financial, and political autonomy and that estimated the importance of transparency and political institutional reforms to decentralize decisionmaking and consensus building among the major stakeholders, strengthen municipal governments were essential for including the political parties and other representatives more effective management of urban development. The of civil society, with respect to the decentralization review found that Mozambique's urban environment process. These continue to be major constraints that was degrading rapidly because of deferred maintenance, have contributed directly to the sluggish performance lack of skilled personnel and financial resources, and the and limited results of PROL. wide disparity between supply of and demand for urban PROL has proceeded slowly and has generated infrastructure and basic services. The review proposed a few concrete results to date. The project appears to Local Government Reform and Engineering Project share many of the problems experienced by PRU, (PROL), which was approved in September 1993. Its including over-ambitious objectives, poor interinstitu- objective was to support the government's decentraliza- tional coordination, and lack of government owner- tion program by assisting with its municipal reform and ship of some subcomponents. The project underwent a capacity-building initiatives. The principal output of the mid-term review in September 1996, and its original project has been a new legal framework for local gov- closing date (March 1998) is likely to be extended for ernments, which is expected to lead to the first munici- one year. Given the critical importance and complex- pal elections (for some 33 provincial capitals and other ity of local government reform, the Bank's decision to urban areas) in April 1998. Other than that, the most extend PROL, despite its limited results thus far, is tangible products associated with PROL-rapid map- reasonable, but the project will continue to require ping in the five participating cities-are those whose close supervision. funding was picked up by other donors. Despite these efforts, urban development has Recommendations received insufficient attention from the Bank to date. * Urban productivity is important for sustainable Urban productivity is important for sustainable national national economic growth, and persisting prob- economic growth, and the persisting problems of lems of poverty and environmental degradation poverty and environmental degradation associated with associated with rapid urbanization and weak local rapid urbanization and weak local institutions need to institutions need to be systematically addressed by be systematically addressed. PRU was too ambitious and the government. The donor community should complex for Mozambique's limited institutional and give greater priority to urban development in gen- financial capacity in the sector. While it achieved many eral, and sustainable local economic growth, of its physical targets, and the roads component had a poverty reduction, and environmental improve- positive impact on Maputo and Beira, project imple- ment in particular. 18 Instruments of Bank Assistance for Infrastructure Development * The Bank should encourage and help the govern- countries in the region-although incipient signs are ment to develop and implement a national urban emerging even nIow in the acceleration of unmanaged development policy to identify priorities for the and uncontrolled natural resource use. The potential provision of basic urban services and assess cur- environmental effects of new public and private sector rent institutional arrangements and the effective- development initiatives must be properly assessed and ness of Bank and other donor support to the mitigated, and the institutional capacity needed to man- sector. The Bank can contribute directly to this age the environrnent must be put in place, from the pub- process through its proposed sector study. The lic sector to the local community level. study should also examine conditions in the urban A GEF Transfrontier Conservation Areas (TFCA) land and housing markets. Lending should be lim- Project was approved in December 1996, and several ited and contingent on adequate borrower com- IDA projects, ongoing and under preparation, have mitment to implement an agreed sector strategy. environmental components, but there are no free- * Rapid environmental assessments and local envi- standing Bank environmental projects. The TFCA pro- ronmental action plans should be prepared and ject, which is still in its early stages, seeks to help the implemented for Mozambique's principal urban government create enabling policies, activities, and centers. The Bank should work closely with other frameworks for rehabilitating, conserving, and manag- donors to strengthen this national institutional ing biodiversity and natural resource endowments in capacity and, in close consultation with all key three transfrontier conservation areas (bordering on stockholders, for subnational governance and South Africa and Zimbabwe). The Bank provided urban management more generally. strong technica l support to the preparation of this pro- * Future Bank urban projects should be based on a ject, which required nearly five years, and is closely systematic assessment of priorities at the individual monitoring its implementation. Projects under prepa- city level, and be more decentralized, demand-dri- ration with significant environmental dimensions ven, and action-oriented than current Bank-sup- include the Agricultural Sector Investment Program ported activities through PROL. Building on (PROAGRI), which has land management and forest successful aspects of PRU and local NGO experi- and wildlife management components and will support ence, future urban projects should focus more on environment-friendly agricultural research, a Coastal concrete, cost-effective interventions in low-income and Marine Biodiversity Management Project for pos- urban and peri-urban areas, including the use of sible GEF funding, and the National Water Sector I appropriate technologies and broad local commu- Project, which includes a watler resource management nity participation, and less on traditional technical component that focuses on some of the international assistance, which has generated few tangible results. rivers upon which Mozambique is highly dependent * The Bank may consider placing an urban develop- for its water supply. The Bank, together with SIDA, has mentl"brown" environmental specialist in the resi- also supported integrated coastal zone management in dent mission to facilitate its dialogue with, and Mozambique through the organization of a national assistance to, the client on sectoral policy and opera- workshop. Over the past five years, the Bank has sup- tional issues. Adaptable lending instruments should ported the national environmental action planning be considered to ensure that resources provided are process in Mozambique and has had a strong field in line with domestic implementation capacity. presence in natural resource management in the form of a local environmental specialist. Environment: Turning Policy into Action As part of its support of government efforts to Natural resources and environmental quality are essen- develop an agricultural development strategy and pro- tial both for Mozambique's short-term economic growth mote urban rehabilitation in the late 1980s and early and its longer-term sustainable development. The 1990s, the Bank produced a technical paper on the inte- national economy will continue to be highly dependent gration of environmental concerns in a strategy for sus- on the country's rich, mostly untapped, natural resource tainable agricultural development. This paper identified base, and the long-term implications of natural resource the prolonged civil war and displacement of large num- depletion need to be clearly recognized. Mozambique bers of people from rural areas as the key environmen- can avoid the costly degradation that has plagued other tal problem by increasing pressures on fuelwood, 19 Rebuilding the Mozambique Economy: Assessment of a Development Partnership mangrove, and fisheries resources. A sector study of * In light of prospects for continued rapid economic urban local government and the environment identified growth in a context of incipient or weak public water quality, waste disposal, erosion, deforestation, soil sector institutions, special emphasis should also be fertility loss, and degradation of coastal and water given to properly assessing, minimizing, mitigat- resources as the main problems needing to be addressed. ing, or compensating for adverse environmental Around the time of the peace accord in late 1992, (and regional and social) impacts of macro- the Bank began to support government preparation of a economic and sectoral policies and new invest- National Environmental Management Program ment projects. In short, environmental (and social) (NEMP). A country environmental strategy paper concerns need to be more fully "mainstreamed," (CESP) issued in December 1993 affirmed that environ- both in country development decisionmaking and mental problems appeared to be severe only in urban in Bank assistance to Mozambique. centers, and transport corridors. Three general priorities * The Bank needs to work closely with other donors were identified: integrating environmental guidelines to help the government convert the NEMP (which into sector development policy; improving the enforce- provides a broad strategic framework) into an ment of natural resource use rights at the local level; and effective national environmental action plan with establishing a coordination mechanism at the national clearly defined priorities, policy, institutional and level while maintaining a structure of decentralized envi- investment measures, institutional responsibilities, ronmental management. The Bank hoped to follow up and timetables for implementation. This should the NEMP with an IDA operation, but the government also provide the guiding and coordinating mecha- has decided to rely instead on the ample grant funding nism for Bank and other donor support for the available to it. Bank procedures were seen as too time- environment. consuming and bureaucratic. As a result, the Bank's * The Bank and other donors should help MICOA strategy has been to work with other donors and local clearly define its responsibilities in relation to stakeholders to mainstream environmental concerns in other government agencies active in environmen- sectoral operations, particularly for agriculture, water, tal-especially natural resource-management. and urban development. Here again, use of adaptable Similarly, the donor community should help lending instruments should be considered to adapt MICOA further develop the legal and regulatory resource transfers to implementation capacities. framework for environmental management and The presence of an environmental specialist in the strengthen its technical and institutional capacity resident mission over the past four years has facilitated to undertake effective environmental planning, interaction with the government, other donors, the pri- monitoring, and enforcement. vate sector, and NGOs. Bank technical support on envi- * The Bank and other donors should give priority to ronmental and natural resource matters has been enhancing MICOA's capacity to orient and evalu- welcomed by the government and local stakeholders, ate-and local private sector/NGO capacity to but its project processing time is perceived as too lengthy undertake-environmental assessments of new and requirements seen as too demanding when com- investments, especially for "megaprojects" such as pared with those of other donors. the Pande Gas and Maputo and other major cor- ridor developments, whose induced development Recommendations and cumulative impacts also need to be carefully Environmentally (and socially) sustainable devel- examined. The potential environmental impacts of opment-and not just "sustainable, private sector- adjustment operations should also be assessed. led, poverty-reducing growth"-should be the MICOA's capacity to monitor and control imple- overriding long-term objective of Bank assistance mentation of environmental management plans to Mozambique. Considering the critical impor- derived from environmental assessments needs to tance of renewable natural resources for the be strengthened, and the Bank should intensify its national economy, particular attention needs to be supervision and follow-up of environmental miti- given to sustainable, decentralized, community- gation measures associated with its ongoing and based natural resource management and the long- future lending operations, particularly in the infra- term implications of natural capital depletion. structure, energy, and agricultural sectors. 20 Instruments of Bank Assistance for Infrastructure DeveIopment * The development community should give greater * Over the medium term, the Bank and its development attention to transboundary environmental issues, assistance partners should expand their activities to particularly water resource, dryland, forest and include promotion of (i) improved on-farm land and wildlife management, and biodiversity conserva- water management and soil conservation through tion. This includes being increasingly active in rural extension and local community involvement; (ii) donor coordination in the Southern Africa Devel- social forestry; (iii) improved fisheries management; opment Community (SADC) countries. and (iv) environmentally sound tourism. 21 Social Amelioratiori: Reducing Poverty TFhrough Agricultural Growth ,he Bank's poverty reduction strategy for Mozambique-, as articulated in its Country Assistance Strategy and the Poverty Reduction Strategy for Mozambique, is based on promoting a poverty-reducing pattern of growth, developing human resources, increasing support for rural smallholders, and improving safety nets. This broad poverty alleviation strategy has been complemented by targeted actions in nine projects, including the following: * Second Rehabilitation Credit of 1987, which from the pattern of cashew production in Mozam- included support to agricultural marketing, im- bique: the project did not otherwise target the poor. proved producer prices, and a safety net for staples *Economic Recovery Credit (IDA, US$180 million, and other essential goods for the most vulnerable. Switzerland, US$6 million) of 1992, which specif- *Agricultural Rehabilitation and Development ically addressed poverty alleviation, in efforts to (ARD) of 1990, which included interventions increase the productiv[lty of the poor, improve expected to benefit 50,000 small-scale farmers and basic social services, anLd establish a social safety 600 skilled and 2,000 unskilled laborers, and the net. The government would establish a coordinat- Agricultural Services Rehabilitation and Develop- ing body for poverty policy formulation, replace ment (ASRD) of 1992, which addressed poverty food subsidies with targeted income transfers, and broadly by upgrading agricultural services, provid- prepare a report on land distribution. ing working capital for smallholder production, * Rural Rehabilitation Credit of 1993, which was and improving rural water supply. Both proj'ects designed to benefit 200,000 rural smallholder introduced a concern for rural poverty in project households displaced during the war and to preparation and appraisal. However, the first proj- improve rural water supply in the provinces of ect was closed, and the second was restructured Sofala and Zambesia. The Seeds For Work pro- and had limited outreach. This focus followed gram was the only component initially targeted 23 Rebuilding the Mozambique Economy: Assessment of a Development Partnership directly to the poor. Subsequent restructuring of poverty. Throughout the adjustment programs, the Bank the project substantially expanded its poverty- endeavored to protect social expenditures, poverty- alleviation components to include community reduction gained greater definition in the Bank's man- projects in rural areas for the rehabilitation of date, and policies and programs were increasingly schools, construction of water supply and sanita- assessed for their probable effect on poverty. Assistance tion facilities, and other community-determined in all sectors, such as liberalization of tariffs, roads, and infrastructure needs. expansion and rehabilitation of the health and educa- . Second Economic Recovery Credit (SERC) of tion system, was expected to benefit the rural popula- 1994, which continued to protect government tion. The Bank's strategy has continued to emphasize the spending in the social sectors, while focusing on importance of building internal capacity for monitoring sound macroeconomic management, reconfirmed and analyzing poverty in Mozambique, since the current agricultural growth as the driving force behind absence of monitoring makes it impossible to determine poverty reduction, and proposed continued whether assistance has benefited the poor preferentially emphasis on removing constraints to marketing, or in proportion to their numbers in the population.1 rehabilitating transport, and improving health and For urban areas, the tension between poverty allevi- education in rural areas. ation through growth and through income protection The Bank was prominent in the US$10.5 million for the poor has been more acute than in rural areas. Social Dimensions of Adjustment (SDA) Project, which The Bank has consistently protected social sector expen- was financed by grants from Germany, the Netherlands, diture in adjustment programs and has directed its assis- Switzerland, and the United Kingdom. The SDA for tance to local capacity building in poverty analysis and Mozambique was prepared by a Bank mission in policy. While this now appears to be advancing satisfac- 1989, with representatives from torily, progress has undoubtedly been slow. donor governments, but no NGO The Bank has participation. The project was Recommendations consistently subsequently administered and * The Bank is now in a good position to sharpen the supervised by the Bank. The SDA poverty-reduction focus of the existing lending pro- protected social initiative, which was plagued by gram, particularly for rural smallholders. The reha- sector expenditure slow startup and lack of system- bilitation of the road network and improved in adjustment atic planning, was to a large security make possible a closer focus on poverty, programs. extent superseded by the 1993 with special attention to the most vulnerable house- Food Security Capacity Building holds. Project, which supports a Poverty * Government commitment and capacity to assess Alleviation Unit in the Ministry of Finance. Although and monitor poverty remain crucial. The Bank the US$6.3 million project is not formally classified as a needs to continue to nurture this capacity to ensure poverty oriented project, it provided significant support more and better analysis of data on the distribution to poverty alleviation by strengthening national capacity of growth and on the effects of reform programs for monitoring poverty and for designing policies and on the poor. The very limited data now available programs for national food security. Under this project, seriously limit assessing the effect of the strategies the Poverty Alleviation Unit has compiled district pro- and fine-tuning their poverty impact. files on food security and nutrition, a review of formal safety nets, a participatory poverty assessment, and a Attention to Gender Issues Has Been Sporadic rural poverty profile. The Unit is analyzing the National The active participation of women in the liberation Household Survey that will shed further light on poverty struggle, and the emancipation of women as an explicit and is preparing a poverty database assessment. task of the government after Independence, have placed gender issues clearly on the development agenda of How Appropriate Was the Bank's Poverty Strategy? Mozambique for more than 25 years. The Mozambican The Bank consistently emphasized increased agricultural Women's Organization (OMM), linked to the ruling productivity, especially for smallholder agriculture, as FRELIMO party, was given the specific mandate to inte- the engine of growth and the means of addressing rural grate women into national development. Greater efforts 24 Social Amelioration: Reducing Poverty Through Agricultural Growth to educate girls, adult literacy campaigns, free health special efforts to include attention to gender issues in proj- care and increasing the participation of women in polit- ect preparation, but this attention was neither systematic ical life were key programs of the socialist government. nor consistent in the absence of a clearly articulated strat- The government's 1995 Agricultural Policy and egy on gender issues. Although project and country strat- Strategy for Implementation, recognizes women's cen- egy documents repeatedly note a lack of information on tral importance to agriculture and integrated rural gender issues in Mozambique, there was a good deal of development, and places a high priority on their partici- information available to those who looked for it (much of pation in programs of professional training, rural exten- it prepared for the Beijing Conference). sion, and production and marketing activities. This sporadic attention to gender in project design Despite substantial progress in addressing gender was not compensated for in implementation and super- imbalances in development, however, the situation of vision. Mainstreaming was weak, and gender compo- women in Mozambique remains precarious. Illiteracy is nents did not feature prominently in supervision. 77 percent among women and 42 percent for men, while The lack cf an explicit gender strategy resulted in enrollment in primary school is 54 percent for girls and intermittent attention to gender in both the design and 75 percent for boys. Malnutrition is higher among girls implementation of the lending program. The lack of ana- than boys, and maternal mortality rates are high, at 123 lyzing and prioritizing the main areas for action on gen- per 1,000. Although women constitute 52 percent of the der may also account for the tendency to see women more workforce, they are heavily segregated by sector: 90 per- as a vulnerable group in need of social services than as key cent work in agriculture. War and migration have economic agenrs and equal participants in development. resulted in a large proportion of households headed by Greater attention to gender analysis would have given the women (22 to 29 percent). Their double responsibility Bank a better understanding of some of the issues it for household maintenance and income generation addressed. Analysis of gender issues in specific sectors makes them especially vulnerable to poverty. The gov- could have strengthened the portfolio. Given women's ernment recently completed a gender action plan;2 this pivotal importance as agricultural producers, their access covers poverty and employment, education and training, to land is a significant issue in land tenure reform; the health, violence and women's rights, women in environ- legal position of women, in personal as well as business mental conservation and agriculture, and institutional law, has important implications for business development mechanisms for the advancement of women. as well as for civil rights: so fair, the Bank's assistance has The Bank's draft Agricultural Sector Memorandum been limited to a small grant to an NGO.3 of 1993 addressed gender issues at length and recog- There was limited identification of key gender nized that women were responsible for all crop hus- issues, no policy mandate to address these, and little bandry, harvesting, and home processing of food crops. demonstrated ability to design concrete interventions. Particular attention was drawn to the difficulties experi- enced by female-headed households. Despite this analy- Recommendations sis, no policies or program interventions addressed The Bank could deal with gender issues in the portfolio women farmers or women's time constraints to increase in a number of ways: agricultural production. The Bank's 1995 Country . Gender needs to be fully integrated into the Country Assistance Strategy also explicitly addressed gender Assistance Strategy and the subsequent lending pro- issues, citing the large share of female-headed house- gram. This will require a coherent gender strategy, holds. The Assistance Strategy aimed to address gender covering all major sectors where the Bank is active in differences through service delivery to women in health Mozambique. Beginning with PROAGRI and edu- care, education, water, and agriculture. It did not discuss cation, vwhere work has been initiated, gender sec- women's constraints in contributing to economic toral strategies would also need to be developed. growth, their work in rebuilding the country, their * The Bank should consult with the government, the strong participation in agriculture, their contribution to donor community, and civil society on project private sector development, or their special needs in the design and implementation to gain a better under- development of property laws. standing of gender and development issues in In view of the key place of women in the Mozambican Mozambique. This would strengthen its credibility economy, Bank preparation and appraisal missions made as a participant in the development dialogue. 25 Rebuilding the Mozambique Economy: Assessment of a Development Partnership BOX 5.1: GENDER DIMENSIONS OF THE BANK'S LENDING PROGRAM f 30 credits to extension or training. project stated that pre-university scholar- Mozambique . The Rural Rehabilita- women and children ships, primarily for girls, during tion Project of 1993, would be the primary and the construction of 1988-97, half mentioned specified that half the beneficiaries. Despite dormitories that would gender issues, and half of rural development active NGO-sponsored allocate space to women these proposed interven- agents selected be discussion of violence students in proportion tions over a broad range women. The project against women, the to their numbers. of activities: would also address rural health sector projects * The Education and * Agricultural Services water and fuel supply as did not draw attention Manpower Develop- Rehabilitation and well as tenure rights, and to this issue. ment Project (1988) and Development of 1990 had a seed distribution . The Legal and Public the Second Education and Agricultural Reha- component for women. Sector Capacity Build- Project (1990) did not A bilitation and Develop- In the 1997 restructuring ing Project (1992) address gender issues ment Projects of 1992 of the project, the seed included a small com- explicitly, although were both designed to distribution component ponent of technical Education II was give women equal was canceled, but the assistance to the amended to provide access to extension ser- community development Women's Association funds for pilot initia- vices and to include component was for Law and Develop- tives on girls' education, them in credit pro- increased, and the train- ment (MULEIDE) for and an Adviser for grams. The Agricultural ing of community spe- work on women's legal Girls' Education was Services project noted cialists made explicit rights and to raise appointed to coordinate I that the rural water provision for including awareness of women's activities. supply components separate meetings with rights issues. However, * The Economic Recovery would benefit women women in the commu- the Bank showed little Credit II (1992) devoted but did not consider the nity to take their views further interest in the some space to the relevance of gender into account in planning component, and there analysis of gender issues issues to its land tenure and decisionmaking. was no supervision. but did not propose any component. Implemen- . Health and Nutrition * The Human Resources activities related to gen- tation did not proceed Project (1989) and Development Project der. The Economic as outlined, however. Health Sector Recovery (1992) analyzed the gen- Recovery Credit III Project management Project (1995) did not der distribution of the mentioned gender only was unaware of any analyze gender issues student body at pre-uni- in noting that half of all special attention to be specifically, but the versity and university small farmers were paid to women in Health Sector Recovery levels and provided for women. * Resident mission staff should be trained and The Bank in the Health Sector assigned to cover gender issues. . The existing portfolio will need explicit attention Background to potential gender issues in supervision. Thematic Mozambique's health is at a pretransitional epidemio- supervision covering several projects or sectors logical stage, with high infant, child, and maternal mor- may be helpful in containing the cost of this. tality, and high fertility; all these indicators are well . Some retrofitting of the existing portfolio to include above the average for Sub-Saharan Africa, and the evi- gender analysis and action may be appropriate, par- dence shows little change since 1986. The main health ticularly in the course of project restructuring. problems are infectious and parasitic diseases (particu- 26 Social Amelioration: Reducing PDverty Through Agricultural Growth larly diarrhea), acute respiratory infections, measles, for a dialogue on health and nutrition. This study iden- tetanus, tuberculosis, malaria, pneumonia, and child tified, as priorities for the sector, slowing population malnutrition. After Independence in 1975, the health growth, improving quality, coverage and cost-effective- services were nationalized and there was a threefold ness of health services, and addressing malnutrition. In increase in the physical infrastructure, as the govern- view of the then-prevailing insecurity in the country, the ment attempted to correct the imbalance of service avail- study recommended a phased approach that would ability from a mostly curative urban service to offering begin with rehacbilitation of health facilities and training primary health care and favoring rural areas. But during in the urban areas, extending to rural areas as the situa- the emergency in the 1980s, the health sector was seri- tion improved. Alleviating nutritional deficiencies and ously affected by the country's political and economic improving food security would require action in three upheavals. Financial resources for health declined, inse- main areas: food distribution and rationing, nutrition curity in rural areas increased, and health facilities were interventions in the health sector (oral rehydration, vac- targeted by guerrillas. By 1985 almost one-third of the cinations, nutrition monitoring, and education), and health centers and posts had been damaged or nutrition-related actions in other sectors, including destroyed. A serious issue underlying the problems of water and sanitation and family food production. health services performance is the erosion of the salaries How valid were these recommendations? The poor of the health staff by inflation and the proliferation of conditions of health and nutrition in Mozambique ad-hoc compensatory practices. (exacerbated by the armed conflict in large parts of the Following relief and emergency assistance by donors country) justified attention to food security and restora- and NGOs, the health sector fell into heavy dependence tion of basic health services. Recommending slowing on external aid, a situation that persists to this day. population grow,vth was misplaced as a short-term prior- Almost all investments in the sector (about 90 percent) ity, given the existing conditions of war and instability. are covered by grants and credits. Despite this aid, the However, since there was at the time a strong need for health services reach only 40 percent of the population, access to better-quality reproductive and child health and there are persistent problems of poor quality, in part services (including child spacing) to address high mater- as a result of the extremely low salaries of health staff nal mortality, ensure safe deliveries, and decrease infant and shortages of medicines in the health facilities, aggra- and child mortality and morbidity, the focus on these vated by irregular imports and distribution by multiple aspects of primary health care was well advised. donors. The share of recurrent costs for health from the The 1989 Study on Food Security addressed daunt- national budget amounts to less than US$1 per capita ing problems of inadequate food supply, debilitating and cost recovery is very low (in total, less than 4 percent infectious disease and resulting serious malnutrition in a of the public health expenditures); as a consequence, country at war, with weak techni- donor funds (including IDA credit funds) are often cal and administrative capacity Following relief needed to cover emergency shortages. In 1991-92 the and extremely limited budget and emergency Ministry of Health undertook a comprehensive policy resources. The study recommernded a Y review toward the development of a more cohesive reconstructing the health system assistance by approach to rehabilitate, maintain, and operate the and giving priority to programs donors and NGOs, health sector. The Health Sector Recovery Program was that could lower nutrition vulner- the health sector the organizing principle for all foreign assistance in ability and rehabilitate water and fell into heavy health, including the second IDA-financed health project. sanitation facilities. It correctly dependence on Its objectives are the improvement of the health status of recommended a long-term strat- the population in general and, in particular, a decrease in egy to rehabilitate agricultural external aid, a infant, child, and maternal mortality. These objectives production, particularly family situation that were to be achieved through an increase in health cover- food production, create employ- persists to age (from 40 to 60 percent) by 2000, with better quality. ment, and establish a social safety this day. net. Given the gravity of the nutri- Bank/IDA Studies and Assistance (1986-97) tion problems, IDA's response was pertinent. It included The Bank undertook a Health Sector Review in a food security project (Credit 2487) for US$6.3 million 1986-87 and a Food Security Study in 1989 as a basis that became effective in February 1994 (to date, this has 27 Rebuilding the Mozambique Economy: Assessment of a Development Partnership disbursed 40 percent). Food security measures were resource development remained mostly unfulfilled. With introduced in several other projects. these changes, disbursements accelerated, but it took As a follow-up of these studies, IDA approved a eight years to fully use the credit funds. Health and Nutrition Project in 1989, with an IDA Taking into account the difficult experience of the credit (Credit 1989) for US$27 million, after a short first project, IDA based the preparation of the second preparatory period. The Staff Appraisal Report (SAR) health project (Credit 2788)-the Health Sector Recov- estimated that 50 percent of the population would have ery Program-on a much higher recognition of the activ- improved access to health services and about 9 percent ities of other donors and on the need to support the would have increased access to food through the project. Ministry of Health in integrating the proliferation and The objectives were to strengthen capacity in health and provincial fragmentation of donor-assisted projects nutrition policy formulation and management and to through a master plan-the HSRP. The adoption by the improve efficiency and service quality within existing Ministry of Health of the HSRP and the widespread budget constraints to mitigate some of the social costs of acceptance of the program by the other foreign donors adjustment. Stronger service capacity was to be may be deemed as a solid accomplishment toward a achieved, in addition to financing the reconstruction of more structured process for the reconstruction and reha- the physical health infrastructure through subcompo- bilitation of the health system in Mozambique. The pro- nents that would have required considerable inputs of gram had three main components: (a) health service technical expertise and detailed operational plans and delivery, including infrastructure for health facilities and actions on health financing, service management, effec- laboratories, pharmaceutical and medical supplies, main- tive primary health care service models, hospital effi- tenance, food, and provincial operational costs; (b) insti- ciency, facility maintenance, pharmaceutical supply tutional support consisting of improvement of the supply system, food distribution and education, and staff train- system, provincial health management, information sys- ing. At both appraisal and during supervision, the com- tem, and program management; and (c) human resource plexity of the tasks involved to carry out this ambitious development (both in-service and academic training). agenda may have been underestimated. This five-year program amounted to US$355.7 million, As a result, during the first three years there was very out of which IDA would finance US$98.7 million. little activity regarding the substantive components of the Donors agreed to contribute US$140.5 million, partici- project, and only 10 to 15 percent (excluding the initial pating in almost all components, and the government Special Account deposit) of the credit funds were actually committed to finance the remaining US$116.5 million. disbursed for contracted work (compared to an estimate Preparation was not completely immune to coordi- of 50 percent at appraisal). It is unclear if the presence nation problems. Donors thought that they had been and programs of the many other donors could have been insufficiently consulted by IDA during the intensive tapped to assist in implementation. The project was rounds of preparations, and that they had been invited restructured in 1995 by making additional disbursements to join an already completed program. The provincial contingent on improvements in performance and by and district health authorities and technical staff changing the categories of the financiable items, from (responsible for implementation of the public health ser- policy and institution-building activities to financing of vices and programs on a partially decentralized basis) recurrent costs, particularly pharmaceuticals. This redi- had little involvement. These problems are currently rection of IDA financing toward recurrent expenditures being addressed by IDA through changes in the type of covered a major gap for operation of the health system. lending operation and in implementation arrangements. Additionally, financing was redirected to two worthwhile Regarding the form of investment lending, although this purposes: (a) prepare designs of health centers for the began as a specific project with pre-identified financing second project, and (b) support the development of a categories and items, it has now evolved into an agreed National Health Sector Strategy, which subsequently health Sector Investment Plan (SIP) with annual assess- became the basis for the Health Sector Recovery Program ments that will enable IDA and other donors to regulate (HSRP). Nevertheless, long-term objectives regarding funding according to performance. The government and management and maintenance system improvements, donors will support a share of the health budget with primary health care, increased hospital efficiency, studies agreed instruments for accountability and transparency. toward long-term financial sustainability, and human It is too early to know whether these changes will help 28 Social Amelioration: Reducing Poverty Through Agricultural Growth accelerate the sluggish flow of credit funds (since credit The following remain outstanding issues for IDA effectiveness in April 1996, the credit has disbursed only and other donors in the health sector in Mozambique: 5 percent). (a) working closely to encourage cohesive action among The actions taken by IDA in the last year regarding donors, and genuine ownership of the HSRP by all con- changes in the project to increase complementarity with cerned parties; (b) revisiting and strengthening the pri- donors point in the right direction. Several implementa- mary health care model and making improvement of tion arrangements are being worked-out between IDA these services an absolute priority; (c) applying substan- and the donors and there has been progress in adopting tial efforts to increase capacity building among provin- special provisions for providing technical assistance cial and municipal health offices and, at the same time, under a trust fund managed by UNDP and for budgetary ensuring an active participation of those levels in all support to the provinces. Other areas being studied for phases of annual program development and in evalua- common donor action are pharmaceuticals, training, tion of implermentation; (d) increasing internal effi- and infrastructure. It is of paramount importance to ciency, particularly regarding hospitals, that consume a pursue these arrangements so that donors, as well as large proportion of health resources (such improvements provincial and district health offices, identify fully as would liberate more resources to enhance quality and partners in the Health Sector Recovery Program. During expand primary health care to rural areas) and (e) initi- the next year, it will be possible to assess the effective- ating a well-documented debate on health delivery and ness of these new mechanisms for channeling external financing alternatives (addressing particularly the prob- assistance to the health sector, and the extent to which lems of low coverage and inadequate staff compensa- IDA funds will be required to fill the gaps left by other tion) with the participation of national and provincial donors. health professionals, economists, members of the civil society, and the private sector to ensure the beginning of Assessment of Results a phased process toward successful health care reform. To sum up, although IDA strategy in the health sector This process, seen with a regional perspective, would in Mozambique during the last twelve years has been, have a time ho:rizon of 15 to 20 years (as stated in Bet- for the most part, technically correct, the capacity for ter Health in Africa, World Bank, 1994). implementing projects and disbursing funds for the purposes originally established at appraisal remains The Future of IDA Assistance uneven. The projects have had limited effect in advanc- In the near term (the next five years), through proper ing the strategy and in meeting the stated objectives of implementatiorn of Credit 2788, IDA could be the effec- institutional development. On the positive side, IDA tive lender and intellectual leader by filling needed gaps, presence in the sector strengthened the dialogue with while strengthening the partnership with the other the government regarding the desirability of devoting donors. To do this, the IDA would need to support more resources from public expenditures to health, and timely and well-designed economic and sector work in was successful in promoting an improvement in the bal- health, as well as joint studies and seminars with other ance between investments and recurrent expenditures. donors. With a long-term horizon, prospects for future And in the preparation of the Health Sector Recovery IDA lending to Mozambique for traditional projects Program, the comparative advantages and activities of that only seek the expansion of health services, in the all other donors were taken into account and consoli- absence of health policy reform, are weak, given the dated in an overall program. Yet much more is needed experience of difficulties in credit utilization and assum- to make IDA financial assistance and technical presence ing a continued commitment to assist on the part of the effectively complementary to an abundant flow of grant donor community. However, there could be opportuni- funds and technical assistance to the health sector, ties for IDA to lead a strong health policy dialogue and Donors maintain that they could provide the necessary provide financing for health sector reform, on the basis financial resources to meet the requirements of the of a SIP or an adaptable program credit, toward effi- Health Sector Recovery Program through grants, but at ciency and sustainability. IDA responsibilities would the same time, they see an important task for IDA in need to be periodically reviewed and revised as appro- providing intellectual leadership and policy guidance at priate, in the light of changing economic and health sce- the macro level. narios in Mozambique. 29 Rebuilding the Mozambique Economy: Assessment of a Development Partnership Education and Manpower Development Project BOX 5.2: CONFRONTING AIDS (Education I), designed as part of Mozambique's Economic Rehabilitation Program (ERP) of 1986. Tm- r | m he Bank has In its first year of Because of the violence in the countryside, the helped to define activity, the UNAIDS project was limited to the capital, Maputo. The I issues, build initiative has focused on R project was intended to respond selectively to consensus and mobilize getting commitment and immediate needs in the education sector, while 1, resources against AIDS support at high levels. building knowledge about the requirements of the in Mozambique, at lim- There is a division of education system and of a comprehensive sector I ited cost. responsibility among strategy. The project was approved in May 1988 The World Bank co- agencies: the World and amended in 1991 and 1995 to respond to sponsors and chairs the Bank has introduced an changed borrower circumstances and priorities. UNAIDS initiative in innovative AIDS educa- * Second Education Project (Education II), formu- Mozambique. A group tion component into its lated in 1990, ensured continuity of financing for of agencies-UNICEF, lending for the trans- several of the priority activities of the first project, UNFPA, UNESCO, port sector. Through a including reconstruction of the primary school I UNDP, WHO, and the slight modification in network, provision of learning materials, and World Bank-have the tender documents institutional development. Education II empha- joined to develop a for the ROCS project, sized educational quality by focusing on teacher country program against each contract with con- training and on the development and provision of AIDS. Although the struction companies for textbooks. It reintroduced an experimental bilin- prevalence of HIV infec- road construction and gual education program. tion is at less than 10 rehabilitation will * Capacity Building: Human Resources Develop- percent, Mozambique is include a small subcon- ment Project (HRDP) of 1992 provided support to surrounded by countries tract to an NGO for secondary and university education. with prevalence rates of AIDS education. The 25 percent and above. subcontracts are gener- Implementation Experience Infection has spread ally well below 1 per- The projects improved educational infrastructure- mainly along the major cent of the total numbers of schools, classrooms, quality of teachers, transport corridors into contract and range from education management-thereby allowing enrollment to Mozambique, and is US$10,000 to expand. Support contributed to improved primary and likely to grow as trans- US$60,000. NGOs will secondary education, by constructing and restoring portation is rehabili- provide AIDS education classrooms, providing learning material, and training tated. Although largely and condom distribu- teachers; improved the quality and efficiency of the uni- invisible at present, the tion for the construc- versity, by enhancing management and planning capac- spread of AIDS will be tion workers and for ity; and improved management of the education sector, E most easily prevented by the population in the particularly in planning, financial monitoring, and con- prompt actions now. areas of construction. trol. However, evidence about the institutional objec- tives is scarce. Owing to institutional weakness, satisfactory implementation of all aspects of the educa- Education tion projects was not achieved. During the period cov- During the 12-year involvement of the Bank in the edu- ered by the Bank assistance, the government system cation sector in Mozambique, one project was com- changed, as well as its objectives, methods, and priori- pleted, two are ongoing, and one is in preparation. ties. Despite the government efforts (Education I) to Although there has been some recovery in enrollment improve MINED management capacity, it is still weak, rates following the end of conflict (from 56 percent in centralized, and bureaucratic. This results in slow and 1993 to 62 percent in 1996), the sector is still plagued inefficient project implementation. by access, quality, and equity issues. To date, the Bank's The World Bank, donors, and government are now assistance in the education sector has included: discussing a Strategic Plan 1997-2201 for the sector, 30 Social Amelioration: Reducing Poverty Through Agricultural Growth drafted by the Ministry of Education. The World Bank * Until now, World Bank projects have focused on is presumed to participate as last donor, to ensure conti- the formal education system; this does not reach nuity of objectives. the people displaced by the war, which left many orphans, widows, and street children. The only Recommendations way to help young people in Mozambique outside The recommendations that emerge from the World Bank's the education system to join society is to reach 12 years of education assistance in Mozambique are: them through an informal education system. . Although the Ministry of Education has certainly . Portuguese is the language of instruction, but it is improved its capacity, it is still weak. As a result of not the mother tongue of most Mozambican stu- low salaries, the ministry has lost many trained dents, for whom primary school is their first contact staff, including teachers, to the private sector. The with the P'ortuguese language. It would be better to solutions to this critical issue lie within the frame- begin school in the mother tongue, switching gradu- work of civil service reform, and need to be ally to Portuguese during the primary school years. addressed in the macroeconomic dialogue. . Collaboration between the government of Mozambique and the Bank has been a learning process for both parties, as the country undergoes BOX 5.3: EXPERIENCE WITH BILINGUAL a political and socioeconomic transformation. The EDUCATION Bank has shown flexibility in the implementation of projects to accommodate the rapidly changing n the context of since class 1 (for ap- needs of the country. Educatio; II, INDE ]proximately double the - NGOs are closely involved in education in the I (The National Insti- time). However, the countryside, especially in areas where the govern- tute for the Develop- most advanced bilingual ment is still unable to help. Care must be taken not ment of Education) students have already to intensify inequities or regional or group differ- re-introduced experi- achieved levels compara- ences in the country, especially between the north mental bilingual educa- ble to those of their oral and the south. tion through the Portuguese skills, and . For the future, the ongoing Sector Investment Pro- PEBIMO project. they are indeed transfer- gram (SIP) may provide an opportunity for the Results were mixed, ring the skills they have Bank to materialize its long-term commitment to mainly because of diffi- gained in their first lan- education in Mozambique. The plan should be set culties experienced in guage to the second. up in phases, simple and small enough to allow applying an appropriate Even more encouraging, effective implementation by the Ministry of Edu- model of bilingual edu- parents report that their cation. In preparation and implementation of the cation. TeachLers, school children who attend SIP, the Bank should adjust to the government's directors, and parents bilingual classes are pace and to the programs of other key donors. Use are pleased because the more motivated, take of adaptable lending instruments should be first language has facili- initiatives at home, and explored. tated teaching and learn- help other children with . Building classrooms adapted to the needs of the ing in all subject areas, their homework. All this country, with the participation of communities, and because students suggests that use of the and increasing the number of teachers will have learned to read and mother tongue con- improve the enrollment rates. Better-trained teach- write in both languages. tributes to self-confi- ers, more teaching and learning materials, Judging by test results, dence and satisfaction in increased learning time and improvement of most bilingual students learning. An unexpected pupils' health will have a positive effect on the do not yet function at positive outcome has quality of education. Special attention should be the same level of Por- been an increase in the paid to education coverage in rural areas and to tuguese as their peers prestige of the mother girls' education, especially in the northern part of who have studied it tongues. the country. 31 I Assistance for Agriculture and Rural Development: Rebuilding theSector ozambique's new agricultural development strategy considers agriculture as the a engine of growth and the primary means for reducing poverty. It focuses on increas- _ ;&ing incentives to production in the smallholder sector through gradual liberalization of marketing and prices and improved access to productive assets and basic services. The objec- tives are to increase domestic food production and reduce dependence on food aid, improve food security and incomes in rural and urban areas, restore agricultiural exports to their early 1980 levels, increase the supply of raw materials to local pro- Bank support in agriculture includes: cessing industries, and stem the environmental degrada- * Agricultural Rehabilitation and Development tion caused by over concentrations of people displaced Project (ARDP) of 1990, whose objectives were to by conflict. support government's efforts to assist smallholder production and export of cashews through selec- Bank Strategy: The Right Direction tive rehabilitation of physical infrastructure and The Bank strategy has supported similar objectives. The services, the provision of technical assistance, and 1995 Country Assistance Strategy (CAS) focused on the implementation of policy reforms in pricing reducing poverty through expansion and improvement of and marketing. The project also supported the social services and infrastructure, especially in the rural restructuring of state and commercial agricultural areas, and improved management of natural resources enterprises. and the environment. The 1997 CAS establishes that * Agricultural Services Rehabilitation and Develop- agricultural development and sound natural resources ment Project (ASRDP} of 1992, whose objective management are fundamental to growth and poverty was to increase production and returns from reduction. It refers to the improvement of infrastructure smallholder foodcrop and cotton cultivation in rural areas and social investments, but it does not through the rehabilitation and development of clearly define the strategy to achieve these objectives. agricultural services and the strengthening of insti- 33 Rebuilding the Mozambique Economy: Assessment of a Development Partnership tutional capacity in the Provinces of Nampula and been restructured.) Agricultural projects were not prop- Cabo Delgado. erly integrated into the budgeting process, or into the * Rural Rehabilitation Project of 1993, whose (confusing and incomplete) information management objective was to undertake, on a pilot basis, activ- system. Disbursement lags have been a continuing prob- ities to support decentralized rural economic lem. The ARDP became effective in April 1990, but after recovery while creating the capacity necessary to six years of implementation only 37 percent of funds address broader post-war rehabilitation needs. had been disbursed. The ASRDP, which became effective * Other assistance, such as studies of the cashew in December 1992, had used only 30 percent of the nut, cotton, irrigation, and forestry subsectors and credit by October 1997. The RRP, effective in 1993, had support for the Smallholder Agriculture (Sector absorbed only 38 percent by October 1997. Investment Program) Rural Action Program and The Ministry of Agriculture is too large for the land policy, and agriculture pricing and marketing responsibilities it has and for its meager financial and studies. The Bank has also supported the govern- human resources. It needs to be restructured to make ment in restructuring the Ministry of Agriculture more economic use of its resources (financial, human, to strengthen its institutional capacity to imple- technical, and physical), provide better services and ment agricultural policies. facilities (extension, land, credit, inputs, to producers), and upgrade the administrative and technical skills of Consistency with the Strategy the staff. The strategy adopted by the Bank to assist the country Systems of support and control related to the field in the post-war rehabilitation was appropriately prag- offices need to be strengthened. matic, considering the planning difficulties during the In recent years the Bank has devoted insufficient civil war and post-war periods, and the fact that the resources to supervising its agriculture portfolio (10 and rural infrastructure of the country was almost totally 15 staffweeks per project in FY96 and FY97, compared destroyed. The difficulty of obtaining accurate informa- to an average of 20 staffweeks for the Africa Region in tion, and the uncertainties of the future, made the plan- those two years). ning task difficult. Macroeconomic policies had positive effects that reflected directly in the agricultural sector, Recommendations such as liberalizing marketing and price controls and, OED recommends that those responsible: indirectly, through economic stabilization. The projects * Apply much stronger supervision effort to com- financed by the Bank aimed at cashew rehabilitation and pensate for the limited institutional capacity in the rural and agricultural services rehabilitation. However, sector. project design was excessively complex, because of over- * Implement faithfully the measures agreed upon in estimating government institutional capacity. Security the Portfolio Implementation Plan related to (i) problems in the early years also constrained project better integration of the investment projects into design. Thus, the project for cashew rehabilitation was the planning and budgeting processes of the gov- aimed at two southern provinces (Inhambane and ernment; (ii) project programming; (iii) prepara- Gaza), although the concentration of the cashew crop is tion of contracts; (iv) budgetary execution; (v) in the north, because at the time the war was still on and expenditure reviews; and (vi) portfolio monitoring. there was no security to protect work in the north. * Assist in reforming the Ministry of Agriculture and Fisheries and in preparing the necessary legal Implementation and administrative instruments for implementing The effectiveness of the ambitious investment program the Poiftica Agraria. was hampered first by the war and then by the weak * Avoid overprogramming in agriculture by coordinat- institutional capacity of the public sector. The Ministry ing closely with other donors and by reducing the of Agriculture was unprepared to lead a market-driven scope of PROAGRI, modifying the time frame for its agricultural sector. (The three agricultural projects have execution, or using adaptable lending instruments. 34 Portfolio Management: Quality at Entry y the time Mozambique became a member country in the Bretton Woods institutions, t e a> I teBnk's experience had long established that the quaLlity of operations depended, in - good part, on an adequate knowledge of the macroeconomic and sector environment within which these operations would function. This experience was applied well to Mozambique in some areas, less so in others-generally with the consequences that might have been predicted. Economic and Sector Work other hand, the approach initially was incremental, even Substantial efforts went, right from the beginning, into piecemeal, largely in the context of the operational sup- the macroeconomic work which was to underlie the three port to the sector begun in 1985 under the First Reha- economic rehabilitation operations in the 1980s and bilitation Credlit and throoigh extensive (formal) their successors in the 1990s. The evidence suggests that transport sector work setting the stage for an "enclave- much of this work yielded significant benefits, although type" (Beira Corridor) project. Before starting out on a with some important weaknesses. major nationwide transport project, the Bank undertook Turning to the sector level, there have been good a transport sector study in 19,88-89 which, because of examples of how sector work usefully underpinned sub- the preceding operational involvement, gave the trans- sequent operations. In 1985-86, comprehensive and high- port sector strategy a higher reality check than was given quality sector work was undertaken in energy. This effort to the energy sector. established early on a strong basis for a dialogue with the In other sectors, the contribution of sector work government on a sector strategy and, consistent with that before project assistance has been more mixed. The first strategy, a number of operations. However, the sector operations in the urban, education, health, and financial work was unable to recognize fully all on-the-ground real- sectors did not [ave the benefit of formal sector reviews. ities which could be realized only over time through the Indeed, in the health and financial sectors, such work fol- Bank's operational involvement. In transport, on the lowed initial operations, while formal sector work has not 35 Rebuilding the Mozambique Economy: Assessment of a Development Partnership yet been carried out in urban development and education. has been involved in operations and where many studies The first financial sector study of 1992 failed to diagnose have been carried out by consultants under Bank and weak corporate governance in state-owned financial insti- other financing. This expanded knowledge should pro- tutions. Only from 1994 onward did extensive sector vide excellent opportunities for reassessing and updating work provide the support for reform and a sense of direc- (infrequently and as a function of major changes) strate- tion in the financial and related enterprise sectors. For the gies through appropriate sector work. initial operations in the four sectors named in this para- graph, success has been elusive. In agriculture, on the State of Preparation/Readiness of Project by Time other hand, a substantial sector work effort in 1987-88 of Approval prepared the ground for the initial three Bank-assisted During the initial period when the government and, at agriculture operations. But a post-conflict agriculture sec- times, donors pressed for Bank operational assistance, tor report, initiated in 1992, only became available as an most lending took the form of assistance for quick reha- internal draft in mid-1997, after several redraftings. The bilitation and emergency reconstruction. Indeed, virtu- results, on the whole, have been disappointing-a ally all the initial nonprogram operations (1987-89): the reminder that even extensive sector work done before Energy TA and Rehabilitation, the Education and Man- project development, while necessary, is not in itself a suf- power Development, Urban Rehabilitation, the Health ficient condition for ensuring project success. and Nutrition, the Urban Household Energy, and the Other formal sector work was undertaken to under- Beira Corridor Projects-responded to emergency situa- pin TA operations (Capacity Building Study-1993) or tions. Thus project preparation was generally con- advise the government on sector policies and strategy, densed-although not in all cases (for example, the without being followed by an operation (Telecommuni- Beira Corridor Project)-and, as we have already seen, cations Sector Memorandum-1991). Another sector more often than not, without the benefits of preceding report entitled: Public Sector Pay and Employment formal sector work. Review (1991) appears to have had little effect on a During the initial period (as evidenced, in particular, cross-cutting problem affecting virtually all Bank- for the few projects for which there is now an ICR), assisted activities in Mozambique-even now, six years Mozambique had no experience in working with the later. Numerous other brief reports were prepared to Bank, and had been used to the opaque systems and address specific operational needs or to assist the gov- highly centralized procedures of a socialist regime. The ernment, but these were not formal reports that could be country had come out of Independence with extremely made readily available to wider audiences. limited institutional and human resource capacities. The linkages among macro- Even with the best project preparation-and the fre- economic analysis, public fi- quent, full use of the PPF-many expectations regarding The linkages nances, and sector investment project implementation schedules were to be dashed. programs need to be strength- Because of these start-out conditions in a new member among ened. Investment projects have country, this chapter attaches greater importance to the macroeconomic been initiated without the assur- design features of Bank-assisted projects and the efforts analysis, public ance that the government's finan- made during supervision to overcome implementation finances and cial programming could provide problems than to the state of preparation, in a narrow counterpart funds and recurrent project sense, at the time of Bank Board approvals. sector Investment budgets needed for both their Even so, some cases can be pinpointed where a proj- programs need to construction and operation. This ect was premature, measured by government readiness be strengthened. has resulted in wasteful delays in (the Maputo Corridor Revitalization TA Project was at project completions, in the least a year early against the political agenda of the gov- neglect of maintenance of com- ernmentlCFM) or by the Bank's even shorter experience pleted structures, and in lack of operating funds, partic- (the Urban Household Energy Project went ahead, ularly in some social sectors. despite a two-year delay in the Energy TA and Rehabil- Although resources devoted to ESW have declined itation Project which had been designed precisely to significantly since the early 1990s,1 the Bank's knowl- ensure initial minimum improvements in preparation of edge has increased substantially in most sectors where it future projects in the sector). 36 Portlolio Management: Quality at Entry Complexity of Projects lithic and highly traditional railways enterprise. In two The Bank has sought to ensure that an appropriate energy projects, existing agencies (mainly EDM and framework existed, or was being set up, for implement- PETROMOC) have carried implementation responsibil- ing Bank-assisted projects and their eventual operations. ities; a project unit in the Energy Ministry (Energy In doing so, it focused on the pertinent legal and policy moved across ministries during implementation) acted framework, the organizational setup, and manage- as a helpful cocrdinator (PCU), although not in a line ment/human resources. Given the generally weak exist- function. However, to illustrate that problems can also ing institutional and policy framework within which arise with a PC1J, and not just with a PIU, please note these projects were to be implemented, there was a per- that a component in the Urban Household Energy Proj- vasive danger of "overload" through overly complex ect, the wiring of 40,000 houses (the PROLEC pro- project design. To illustrate just one area of systemic gram), did not succeed under a coordinating entity weaknesses, virtually all the entities into which Bank without experience and "without teeth." funds were to be disbursed had inadequate accounts and A different model for successful project implemen- no audits; other management information systems were tation has been the transforrrmation of public agencies deficient or nonexistent. At the same time, the concept into private agencies. This was a requirement in the case of financial viability, even of the largest public enter- of financial intermediaries which turned a failed initia- prises, was new. tive into a successful Bank-assisted project and-most Expectations of quick solutions for important insti- important-which has much improved the chance for tutional and policy problems were not realistic. The eventual project sustainability. approach used in the energy and transport sectors for a The use of TA as a major element to obtain timely sequence of projects with initial focus on improving project implementation has confirmed the Bank's long glaring weaknesses at the institutional and human experience that this is a double-edged instrument with resources levels was well-conceived and (eventually) major risks for project sustainability. This has been espe- paid off. This is true even though success was partial. In cially true in cases where foreign experts were used for other areas where there had been less of an effort toward line responsibilities and where local counterparts were a sector strategy or where essential preconditions did either overstretched or insufficiently qualified to take not prevail (as in financial intermediation), the quality over fully the tasks carried out by these experts (illus- of project design was insufficient to deliver even mini- trated in the ICR for the Energy TA and Rehabilitation mal success. Project and in supervision reports on the Beira Corridor ICRs have found the institutional design of a num- Project). With the volume of TA provided under bilateral ber of Bank-assisted projects to be deficient, in that assistance, often directly linked to Bank-financed opera- Bank assistance led to the creation of new line entities tions, there is the additional complication that the Bank ("PIUs," generally within a ministry), thereby weaken- may not be able to influence the quality of such TA. ing existing units which were performing essential func- Equally important have been project design issues tions. Controversy on this matter has been greatly related to policy conditions introduced in some projects accentuated as a result of the shortages of highly quali- which the Bank considered essential at the time of pro- fied national manpower-which could not be corrected ject appraisal and Credit Agreement, but which later much in the short run-and by the transfer of the best were neglected in the sense that the Bank did not use the talents from the "normal" government departments into remedies available under its CAs. "special units." This was largely attributable to the inadequate salary levels across the "normal" public sec- Relations with Development Assistance Partners tor services, while exceptions became standard for PIUs With aid from a large number of donors adding up to an (whether funded under Bank-financed or other projects). extraordinarily high level of resources spread over virtu- The experience with new PIUs has been poor in ally every major economic and social activity in Mozam- some sectors (urban, and especially agriculture). Con- bique, each Bank-financed operation was probably versely, using existing line units for executing projects influenced by, and in turn affected by, some such assis- has been successful in roads (DNEP), in coastal shipping tance. Given the expectations from donors for the Bank (GAPROMAR), and in gas (ENH). In the railways/ports to coordinate at the macroeconomic and sector levels, projects there was no choice but to use CFM, a mono- "quality at entry" for Bank-financed operations has 37 Rebuilding the Mozambique Economy: Assessment of a Development Partnership required careful recognition of activities supported by and effectiveness vis-a-vis the borrower/executing such donors. Greater efforts to resolve conflicts in views agency. Project supervision has been the most dynamic about sector strategy (and shared responsibility for out- element among all the categories of use in Bank comes through businesslike partnerships) would resources, growing from one staffyear (SY) to over 10 improve the quality of external assistance. SY between FY88 and FY95 and declining since then to Top quality at entry for a Bank-financed project 9 SY (FY97) as the number of projects under supervision requires such a project to fit into a well-designed sector increased from 3 in FY88 to a peak of 25 in FY94 and investment program and to be fully coordinated with then declined to 23 in FY97. The average supervision other donor assistance (whether this coordination is effort per project (whether measured in SW or constant undertaken by the Bank or some other entity). Probably dollars) was virtually the same in FY97 as in FY90-at the ROCS program has been closest to the optimum. 20 SW. Annual variations in these averages between Not only did it require an extraordinary effort on the these two end-years, however, have been significant part of the Bank in preparing the ground in a sector (between 15 and 22 staffweeks). On a sectoral basis, where the Bank's expertise was not questioned-partic- variations have been even wider, with public sector ularly with the highly professional task manager leader- reform (early 1990s), energy (mid 1990s) and now ship provided-it called for a concomitant level of (FY97) human resources projects getting the largest supervision. In energy, the initial sector leadership left supervision effort. Overall it is worth noting that aver- no doubt about the ability of the Bank to work out with age project supervision effort for Mozambique has been the government a well-designed sector investment pro- lower than for the Africa Region as a whole (except in gram. However, this advantage was eroded by a combi- FY95), but consistently lower in recent years than for nation of various donors doing things their own way neighboring Malawi, Zambia, and Zimbabwe, in spite (mainly through large, long-term bilaterally grant- of their much longer familiarity with Bank operations financed consultant inputs and through grant financing and, at least for the two latter countries, more advanced for some uneconomic investments), a lack of Bank lead- development indicators. ership, especially on the agreed sector policy issues, and Quality of inputs and frequency of changes in TM a less than enthusiastic reliance on the Bank by the gov- have largely determined how effective the Bank has been ernment and some of its agencies, mainly EDM. in the supervision of its project portfolio. Changes in Some donors with large programs felt threatened by TMs are costly, although from time-to-time inevitable- the Bank taking an interest in "their" sectors, especially as are changes on the borrower's side. However, fre- when the Bank moved ahead with substantial lending. quent TM changes in a short period will tend to reduce The Bank's move toward sector investment lending the Bank's effectiveness. ICRs show this to have been the opens up important opportunities for strengthening sup- case in the Urban Household Energy Project and in the port vis-a-vis development partners and placing greater Urban Development Project. A TM change may be responsibility on Mozambican agencies to deliver desirable, as when supervision cries out for new results. Sectors with large investment requirements and approaches-or to capture the benefit of new ideas/ where the Bank's own professional staff base is strongest approaches associated with such a change (this was pos- are most appropriate for Bank leadership. Elsewhere, sibly the case for the CFM projects with a new railway management coalitions should be designed with appro- engineer taking TM responsibilities in 1993 and being priate leadership responsibilities for other donors and forceful on privatization/concessioning). A more fre- with specific responsibilities allocated to voluntary agen- quent cause has been absence of the full range of pro- cies and local communities. This implies greater decen- fessional capacities required for adequate supervision. tralization of country assistance responsibilities to the The absence of a power engineer in the supervision of field. the first two energy projects with major investments/TA for EDM during the last ten years was probably Quality of Bank Supervision reflected in the Bank's limited effectiveness vis-a-vis this agency. The absence of a railways financial analyst dur- Adequacy of Bank Supervision ing much of the supervision of the CFM projects may This section addresses quantity of supervision, quality in explain the slowness in getting the basic accounts with technical capabilities, continuity in task management, that important borrower to an acceptable level. 38 Portfolio Managernent: Quality at Entry TABLE 7.1: STAFFYEARS BY MAIN SERVICE E wPY86 - -FYS8 FY89 . FY91 FY92 FY9 FY95 F9r Total staffyears 55 ,-"IL5 15.6 . -16.5 208 9A 0080@ :t.6 Project supervision 1 t130 6i2.4 ° 4.6 10.37 71.9 10.4 91.0 Aid coordination/ i ;23 -47 37 16 10-0. Support to client t : K-05 13 1t ( . . 0 . . service 0 03t@.<.3 0.6 X 1-0 0.5 - 1.4 1.1 ,.-.1.8 Source: Planning and Budgeting Department, World Bank. TABLE 7.2: SUPERVISION EFFORT (STAFFWEEKS PER PROJECT) Source: Planning and Budgeting Department, World Bank. TABLE 7.3: SUPERVISION INTENSITY BY SECTOR (STAFFWEEKS PER PRO)JECT) 96F88 FY9 2 FY91 F92-Y94 FY95 `:Y7-.AE Afric region 14 is 14 16 2 21 23t urmbian develp t 22 14 23 21 Multisector 2 9~~~~~~~~~~~14 isis2 iHumanbwe l nt 19i 21 23 1 PuBlicvsectorireforma 17 19 18 1619 Energysi &6iig1 18 1 184 urbanl developmentis0 16 13 15 15 Tuntisector 79 314 161 Source: Planning and Budgeting Department, World Bank. TABLE 7.3: SUPERVISION INTENSITY BY SECTOR (STAFFWEEKS PER PROJECT Rebuilding the Mozambique Economy: Assessment of a Development Partnership Attention to Policy, Institutional and Physical Aspects of The limited effectiveness of including a policy dia- Project Implementation logue on sector-specific policy issues under nonproject Physical objectives have generally been achieved with lending has been evident in energy and in the transport more success than agreed policy objectives; problems on sector, where the critical progress on major issues (such the whole have been even more stubborn regarding the as freeing of freight rates in trucking and coastal ship- achievement of agreed institutional objectives. Typically, ping) was being achieved eventually under the ROCS Bank operations started with a dialogue on macro and program in conjunction with supporting changes on the some sector policy matters through a series of balance of institutional side. This was achieved through efforts payments support (Rehabilitation) operations which, in both during the project preparation and the supervision a broad sense, achieved their objectives. Policy objec- phases of the ROCS program. Possibly the references to tives under project lending were related mainly to either freight rates and privatization under the initial Rehabil- the financial performance or privatization of entities itation Credits helped to prepare the ground for subse- providing economic services, in energy, transport, water, quent actions under the ROCS program. and (very important) through financial intermediation. On the institutional side, effectiveness of project The financial performance of state enterprises in these supervision has been a function of project design referred areas has been generally well below the agreed objec- to earlier, but also of supervision staff experience and tives. In financial intermediaries, eventual privatization enthusiasm, including continuous alertness to new ensured that financial performance was no longer sub- opportunities for improvements whether outlined in the ject to the destructive political interference that charac- original project or not. In virtually every project, there terized the nonperformance of the intermediaries while have been examples of such initiatives by TMs and their held in public hands. The Bank's successful effort to help mission team members, most often through their dia- privatization of the banking system, achieved under logue with borrowers during supervision missions or the agreed policy conditionality for nonproject lending and use of consultants to address specific issues. It is also here well-focused TA, has paid off handsomely-which illus- that appreciation of Bank expertise has been expressed trates that the initial approach (to work through public (as under the Gas Engineering Project) in helping ENH to sector banks and put them on a financially sound basis) open doors to international expertise, and even in identi- was futile. fying potential partners. But in some areas, Bank super- As evidenced in the few ICRs available (Energy TA vision did not succeed in fostering achievement of agreed and Rehabilitation and Urban Projects), the Bank's per- institutional improvements. formance during supervision in seeking compliance with agreed financial performance objectives has been inade- Adapting Projects to Changing Circumstances and quate. In energy, some confusion might have been created Using Review Processes for Improving the Portfolio by including the covenants in the policy letters under the The Bank's most successful supervision has always been second and third Economic Rehabilitation Credits identi- based on maintaining a close dialogue with the borrower fying which TMs and Bank units should carry the neces- while adapting a project to changing circumstances. The sary dialogue. The existing covenants were neither successful supervision of individual projects also means amended nor enforced. Clearly there was no tradition in that pending problems (including the adjustment of a pro- Mozambique for an adequate cost recovery for these util- ject to new circumstances) should not wait for portfolio ity services. The fact that electricity and, to a lesser extent, review processes. The value of the latter lies in their water served mainly a generally better-off population addressing and solving across-the-board rather than (today less than 10 percent of Mozambique's population project-specific issues or, if the latter need to be addressed, has access to electricity) was not used-at least there was the focus ought to be on those that have a countrywide no reference in the two ICRs-in the discussions on the generic dimension. Strongly related to a sound supervi- social impact of Bank operations illustrates the inade- sion effort by the Bank is the use of realistic ratings for quacy of the dialogue with the government on this sub- quickly flagging major issues: there should be encourage- ject. Financial performance objectives seem to have been ment for changing a rating to "U" (unsatisfactory) when better addressed during supervision under the railways/ a major problem affects a project-and back to "S" (sat- ports projects with CFM, where charges were levied isfactory) when a major problem has been resolved. An mainly for transit services to neighboring countries. example: a certain timidity could be observed in this 40 Portfolio Management: Quality at Entry respect when ROCS-2 faced a major implementation * two other projects remained without further problem with MPF's reluctance to make available the action: Rehabilitation of Health Sector and resources needed for continuing the program. Capacity Building: Financial Sector. During the initial years, supervision was over- At a general level, the portfolio review emphasized the whelmed by a lack of familiarity with the Bank and its need for close cooperation throughout the project cycle by operational procedures. This was in addition to the all parties and for strengthened information flows. underlying weaknesses in public administration. While on the former much progress has been made, the latter has Procurement and Disbursemelit remained-and will remain-a factor, although with The CAR mission received comments on the complexity great variations and, in some areas, with encouraging of procedures that make the use of Bank funding both progress. A recognition toward the mid-1990s that port- staff and time consuming for borrowers. The main com- folio implementation needed much greater attention has plaints came from entities having to deal with many clearly been helpful. While new lending was limited, small expenditures and with the least experience in Bank much effort has since gone into "straightening out" the procurement. Some disburse- portfolio as a whole. It has been especially helpful that ments under credit lines to the this effort was translated into a joint government-Bank private sector also came under A recognition portfolio review process in 1996-97. This has given both criticism as being slow and cum- the Bank and the government the opportunity to take a bersome. At the other extremne, toward the systemic approach to portfolio management. A few years entities with large contracts who mid-1 990s ago such a joint approach was unlikely to have been fea- can compare procurement and that portfolio sible. Extensive assistance by the Bank-and others-to disbursement procedures of vari- implementation MFP during the previous years helped to build capacity ous financiers/donors gave favor- within the ministry to undertake such an effort. able marks to the Bank. DNEP needed much The MFP, in its 1997 Revisao da Carteira de Pro- (responsible for the roads compo- greater attention jectos do Banco Mundial, reviewed extensively the nent of ROCS-1 and 2) even sug- has clearly been Bank-assisted projects under implementation and con- gested that the Bank seek to helpful. cluded (pp. 32 and 33 of "Relatorio Final") that: induce cofinanciers to provide * five projects were being closed: Education I, Health "genuine" cofin ancing with uni- and Nutrition, Urban Rehabilitation, Beira Corri- fied procurement according to Bank guidelines, con- dor, Agriculture Rehabilitation and Development; cluding that this would speed the program and lower • three projects were so close to completion that no the cost. change in the project could be justified: Urban The use of the resident mission for vetting procure- Household Energy, Food Security, and Capacity ment documents and, more important, for reviewing Building: Economic and Financial Management; disbursement requests appears to have been helpful in o three projects were close to completion with con- making these steps more efficient. siderable unused credit balances and specific The regional office carried out a country procure- implementation issues, for which partial cancella- ment assessment for Mozambique in 1993, mainly to tion should take place: ROCS-1 (unused line of determine whether existing Mozambican laws and regu- credit for private sector; US$6.2 million), Indus- lations were consistent with the credit agreements. The trial Enterprise Rehabilitation (reduction in credit assessment found very few such inconsistencies, and line: US$12 million) and Rehabilitation and Devel- these related mainly to ambiguities in the local proce- opment of Agriculture Services (US$7.9 million); dures. The assessment report was meant to help the TMs * five projects were to be rescheduled without ensure that in their processing for bid documents they reduction of credit: Rural Rehabilitation, Educa- paid due attention to the pertinent local rules-this was tion II, ROCS , and Capacity Building (Adminis- particularly important since no formal regulation sub- tration and Legal Components); jected procurement under Bank< financing to those agree- * for two projects, the closing date should be ments and not to local rules. extended: Capacity Building (Human Resources Perhaps the most interesting point of the 1993 and Local Government Reform); and Assessment Report was that the Bank faced serious prob- 41 Rebuilding the Mozambique Economy: Assessment of a Development Partnership lems in its fiduciary role because inadequate accounts should increasingly be connected to the resource and nonexistent expenditure controls throughout public management processes of the government. sector finances left much room for abuse. Accounting * A soundly built-up sequence within a long-term and auditing require sustained improvements. Audits are operational relationship is especially important still delayed against agreed schedules and carry more for the eventual successful outcome of Bank- than the usual share of qualified reports. assisted operations in the Mozambican context with its critical need for long-term institutional Role of the Resident Mission capacity building. Such a sequence best ensures The mission work has been most useful, both at the level that individual operations are not overloaded with of individual projects in the small number of sectors conditions. where the resident mission had particular capacity and * Bank leadership, once achieved in a sector, at the general level of facilitator, including procurement requires a continued strong commitment to main- and disbursement. The advantages of putting-in a cost tain sector knowledge, to achieve the agreed pol- effective manner-a professional capacity into the resi- icy and institutional objectives, and to interact dent mission staff will vary a good deal, depending on with government and donors to improve the high the Bank's sector/project involvement, the strength of quality of a sector investment program. the borrowing entity(ies), the scope and nature of Bank- * The inappropriateness of PlUs rather than using financed projects (including the role of TA, size of con- (and improving) existing institutional setups for tracts), and the need for local aid coordination. Cost project execution has been confirmed in Mozam- effectiveness is more than just a question of a dollar bique. This approach is likely to lead to nonsus- amount and of a particular level and quality of staff tainability of projects. Unfortunately this required in a particular sector/area. Using a top-level approach has been (and still is) encouraged by professional (such as a railway engineer) full-time for civil service weaknesses and inadequate public sec- such work deprives the Bank and other (African) coun- tor salaries. tries of his or her services, and may well be a poor * Quality of supervision, including continuity of investment (although a subregional placement may be TMs, requires as much, if not more, attention found to be justified for some high-level professionals). than quantity of supervision for the Bank's effec- In sum, the total opportunity cost of the Bank's tiveness during project implementation. The core involvement in any one sector will need to underlie a professional/technical leadership requires better decision for transferring a TM into the field. The larger recognition of expertise than has at times been the the volume of work, the less sector specialized, the more case. Indeed, where there have been clear TM related to other donors, the more there will be a case for arrangements with a Senior/Principal Technical favoring a transfer to the resident mission. On balance, Officer, supervision has tended to be best. the case for shifting more responsibility to the field * More decisiveness in using the Bank's rating sys- appears compelling-given the increased demands for tem for flagging major changes in project imple- aid coordination and the rising need to put Mozambique mentation should be encouraged. authorities in the "driver's seat" while monitoring a * The good progress made in the use of portfolio strong supportive presence. This task for the head of reviews with, and by, the government (MFP) mer- mission within the new Bank policy on the location of its special mention. work, will be most important in this context. * The resident mission has been an under-used asset. While large numbers of highly specialized staff Recommendations cannot be located in the field, increased focus on The key recommendations are: capacity building and aid coordination calls for a * High-quality sector work is a necessary condi- review of the responsibilities of the resident mis- tion for sound project design and outcome and it sion in relation to headquarters. 42 Policy Issues: Reform Initiatives 7he overall performance of the government in initiating, (while conflict was still under way) and carrying out Mozambique's stabilization program and transition to a mar- ke-based economy, and since the settlement, adhering (along with the now parliamen- tary opposition) to the peace process, has been excellent. While GDP recovery has been partly atrbutable to production from the resettled population (a revi'val commont in post-conflict periods) and from the large aid inflow, it has also resulted from- private commerce and investment encouraged by the direction of the govern- been pursued more vigorously. Earlier bank reform (ini- ment's reform policies, tially recommended by the Bank) would also have The Bank has assisted this outcome through ESW improved the efficiency of resoiurce allocation, including work that has helped the government develop the particularly the IDA resources channeled to SOEs reform agenda, as a lead agency among the donors, and through the state banking system. Unification of official as a source of balance of payments support and sectoral and parallel market exchange rates could have been investment financing. The Bank's presence has changed achieved earlier if the tranisition to market-based over this period, becoming less salient as the govern- exchange allocattion had been less gradual. Severe prob- ment's policy dependency has declined, and as other lems of capacity in public administration, still unre- donors have assumed lead coordinating responsibilities solved, could have been tackled earlier and more in some sectors. effectively if the solutions (which now appear to be in While what-if scenarios are always conjectural, it is hand for possible implementation) to the salary reform likely that the economic recovery would have been problem had been developed earlier and pursued more stronger if the pace of reform had been less gradual in vigorously. These are all issues in which the Bank has certain key respects. Inflation could have been brought been a major dialogue partner with the government. under control earlier if financial sector reform (and crit- However, it is important to recognize that the pace was ically, privatization of state commercial banking) had set by the government, reflecting the government's judg- 43 Rebuilding the Mozambique Economy: Assessment of a Development Partnership ment respecting political feasibility, and its caution as it Some government interlocutors see a need for greater moved from dirigisme to the novel and uncertain eco- Bank sensitivity to the political feasibility and sustain- nomic management of a market economy. That gradual- ability of specific policy reforms and their timing. The ism contributed to a strong sense of Mozambican major example has been differences between the Bank "ownership" of the reform process, despite the govern- and the government over the timing and extent of liber- ment's need to rely on external advice and TA. That alization of cashew pricing and export policy. The Bank's clear ownership has enabled the government to be gen- position on the efficiency and distributive benefits justi- erally persistent in the transition for over a decade. fying complete liberalization (reduction of the nut export Several structural problems have emerged in the tax to zero) has been correct. The sequencing of privati- recovery process and in the reform program. These are zation of the processing enterprises before reduction of seen by Mozambican and foreign observers to have the protective tax (or perhaps inadequate initial commu- potentially destabilizing consequences and should be nication and consultation with the enterprise buyers) has taken into account in policies and programs over the resulted in intense processor and media resistance to next few years. First is the prospect of a geographic completion of the liberalization schedule and unfavor- dualism, with industrial development, central govern- able local publicity for the Bank. The current second-best ment power and institutions, tertiary education, and outcome (the export tax being reduced from 40 percent tourism concentrated in the south and capital area. Poor to 14 percent) represents a significant policy improve- transportation remains a severe impediment to the coun- ment. Nevertheless, the implications of protective poli- try's economic integration and to the development of the cies for poverty reduction should not be set aside as a populous rural areas of the center and north. Urban- policy issue; the Bank's program of TA for raising the rural and ethnicity-based divisions are also potential competitiveness of the processing plants is appropriate sources of instability. The civil service career ladder is and should smooth relationships all around. said to be linked more to job performance at the center The President of Mozambique has recently made a (Maputo) than in the provinces, creating a disincentive strong statement on the problem of corruption, which for the best staff to work at local levels. now appears to be widespread and growing. The Presi- A second distribution problem that has received dent's expressed determination to cope with this prob- media attention concerns Mozambican entrepreneurship lem provides an opportunity for the Bank to assist at the and ownership in the emerging private sector. Individual level of strategic analysis and response, as envisaged in Mozambican portfolio investors in privatized SOEs have the recently issued policy paper. been few in number, and apparently politically well- Capacity building in government will remain a pri- placed. No plan has yet been tabled stating how the gov- ority requirement for some time to come in Mozam- ernment will distribute the equity in these enterprises bique. In some areas, capacity is still weakening as the being held for distribution to their employees. The con- best staff are drawn out of the civil service by higher cern in some Mozambican circles that foreign invest- wage offers from private firms and donors. More ment inflow has thus far been primarily Portuguese and progress could have been made if civil service reform South African will probably abate over time as investors had moved faster. Some donor (including Bank) prac- from other countries diversify the source pattern. The tices respecting local hire and project execution number of privatized SOEs acquired by Mozambicans "enclave" units have been counterproductive, weaken- (that is, active entrepreneurship, not portfolio) is actu- ing the same ministries responsible for the investments ally larger than one might expect, although there and services the aid activities are designed to strengthen. remains a question of the extent to which these entre- Although the Bank was responsible for the most com- preneurs are ethnically indigenous. prehensive examination of the capacity problem in Bank staff are well informed on these problems and Mozambique, the Bank's project activities in this respect should be able to contribute to dialogue on the distribu- have been piecemeal, ineffective, and unsustained. The tive consequences of transition and development policies, Bank's capacity-building projects in public administra- and to factor in all the relevant dimensions. The Bank's tion and education, and legal strengthening, have had portfolio and the location of Bank-supported activities mixed results to date. can have important distributional effects and need to be Solving the problem of weak domestic revenue designed with greater attention to this perspective. mobilization is critical for enabling the government to 44 Policy Issues: Reform Initiatives address the proper maintenance of (primarily aid- building and for stemming corruption). Revenue mobi- financed) public sector investments already in place, lization and salary reform appear as key issues that keeping new projects on stream, and supporting civil should be addressed as conditions under forthcoming service reform and salary reform (critical for capacity adjustment credits. 45 C.,onclusions 77 he Bank's assistance program to Mozambique is at a crossroads. The very success of the external assistance program in helping Mozambiquae authorities restore peace and stability, initiate policy reforms, and embark on the difficult transition toward a market-based economy, calls for reconsideration of the objectives, modalities and instruments of the Bank's CAS. The time has come to enhance development effectiveness by concentrating efforts on high-priority policy and institutional development objectives. The new CAS should discourage the proliferation of nation of donor programs, and moving the Bank toward investment projects in favor of policy-driven, results- a more selective focus. This should combine leadership in based priority sectoral programs. The Bank should assist the economic policy dialogue with greater reliance on government authorities to deepen the reform process and collaborative arr-angements involving other agents in the help put capacity building at the center of external assis- development community, in line with the comparative tance. To this end, greater responsibili'ty for country assis- advantage of inc[ividual donors, and providing more sup- tance management should be moved to the resident port to Mozambique authorities as they take on more mission and a deliberate effort made to implement the responsibility (and commensurate accountability) for the country assistance program through more participatory integrity of financial controls, the quality of public means. Management coalitions involving government expenditures, arid the coordination of aid. agencies, local communities, the civil society, and lead As a leading donor, the Bank developed a wide array donors should be constructed to take charge of priority of sectoral operations over mor-e than a decade. Over the sector investment programs focused on jointly agreed same time, gov.-rnment knowledge and experience has objectives. deepened to the point where it is the leader in some sec- This will mean reorienting priorities toward the tors. The Bank- has demonstrated some comparative achievement of poverty reduction, sizing programs with advantages (ancd disadvantages) to the major donors. In due regard to domestic capacities, improving the coordi- some social sectors the bilaterals are providing, on a 47 Rebuilding the Mozambique Economy: Assessment of a Development Partnership grant basis, all the external funding that the concerned has come to construct management coalitions to ministries can absorb effectively, and in some areas the improve coherence and the impact of external government prefers not to incur debt, even on IDA terms. assistance by having the Bank, other multi- Mozambique presents a formidable development lateral/bilateral donors, and the civil society join challenge. It is a "low outlier" in human development, forces and seek results at the national level for gender status, the financial sector, access to financial high-priority sector programs, managed for results. capital, and aid dependency. After a decade of large con- * Put Mozambican authorities in the "driver's seat" cessional aid flows, it can claim substantial progress in in capacity-building activities and external assis- stabilization and in the transition toward a market tance coordination, while giving suitable support economy. But reform has been gradual and the develop- through advisory and fiduciary services. Large ment effectiveness of Bank lending has been mixed. Pol- numbers of expatriate consultants, project imple- icy performance and portfolio ratings are not much mentation units, and salary supplements are above the average for the Africa Region or for low- undercutting civil service reform and institutional income countries generally. development. Public expenditures management Effective absorption of the lessons of experience needs to be upgraded and the aggregate transac- would go a long way to enhancing the effectiveness of tion cost of external assistance reduced through Bank assistance. Looking to the future, the Bank should more effective coordination of assistance by take the opportunity of the new country assistance strat- Mozambican authorities. The Bank should give egy process to reposition its programs so as to achieve priority to enhancing the effectiveness of the over- greater strategic selectivity and more effective manage- all aid system by assisting the government to ment of its lending and nonlending services. improve the coherence of aid programs in the pur- suit of priority development objectives. Recommendations * Defer to other donors where they have a compara- To this end, the following recommendations are offered: tive advantage in taking the lead. The Bank is cur- - Use of country dialogue and available aid coordi- rently stretched too thin. It needs to concentrate nation mechanisms to nurture policy reform and efforts on fewer activities and play a supporting role capacity building. Toward the achievement of where other development agencies have a compara- poverty reduction, major challenges lie ahead in tive advantage in taking the lead. With respect to the restoring health to the balance of payments, environment, the rural sector, and the social sectors, strengthening the financial sector, improving the the Bank has an important intellectual contribution enabling environment for private enterprise, and to make, but other donors have a major presence, enhancing public sector efficacy. The Bank should and the Bank's lending role may be reduced. continue to exercise strong leadership in these sys- * Adapt the structure and the modalities of Bank temic reform areas, and do so with a clear-cut assistance to the revised objectives of the country result orientation. assistance strategy. To help Mozambique deal * Raise the focus of Bank assistance to a higher with unusally complex development challenges plane than the traditional investment project by (crushing poverty; burdensome debt; weak institu- encouraging businesslike partnerships among tions; lack of human resources; social dysfunc- donors. This process is already under way but it tions) the Bank should be responsive and nimble. must be accelerated. Given limited domestic capac- Greater decentralization of authority to the field ities, the World Bank and its development assis- and imaginative use of adaptable lending instru- tance partners are financing too many projects, ments would facilitate aid coordination and make each governed by different modalities. The time Bank assistance more effective. 48 ENDNOTES Chapter 1 2. The Region stated that the financial sector work done in 1. In the views of the Region, "adjustment lending was criti- the early 1990s did point out the grave governance problems in cal in setting the framework for recovery, growth, and poverty the state-owned banks. reduction. Structural adjustment involved price, trade, and agri- cultural marketing liberalization, as well as privatization-all of Chapter 5 which opened the way for rapid recovery once peace was estab- lished. It also made a strong contribution to protecting the poor 1. In commenting on an earlier draft of this CAR, the Region through public expenditure management, specifically in ensuring stated: "The Bank's strategy for poverty reduction since the early higher allocations for the social sectors and rural infrastructure 90s has been to promote broadbased growth with particular rehabilitation." emphasis on agricultural development and rural infrastructure. Given the dislocation of one-third of the population by war, the 2. The Region has pointed out that "It's Import ant to explic-.. itly recognize . . . the 1985-92 period, as one where reforms were availability of land to absorb returnees, and the pervasiveness and adopted despite difficult conditions. The government reform pro- ept o rura poverty, thIS strategy . . . impled faciltation of gram . . . toward a market-oriented system, was launched at the return to the countryside, liberalization of marketing and other height of the war years. External donor support was substantial support services which the government could not possibly provide, from the onset, and emergency assistance was an important focus concentrating government attention on the key responsibilities of (for many donors) until peace was signed in 1992. The war had opening up roads and providing a favorable macro framework, limiting effects both on the scope of reforms (i.e., privatization) and and phasing out food aid quickly. The strategy has been amply jus- on the operation of sector projects (i.e., in urban areas), tified by results in terms of output growth, food security, and but ... the reason for the observed success in the post-conflict years soaal reitegration and stability ... But the strategy was not obvi- is because so much of the ground work was laid down beforehand ous to everyone ac the hme, and seems not to have been fully (i.e., legal and institutional framework for privatization)." accepted in [the CAR]. Criticism of the Bank's program for failing 3. In its 1993 study on Adjustment in Sub-Saharan Africa, to target the poorest, or judging success on the basis of particular OED endorsed the Bank judgment that the government was cor- was profoundly geared to poverty reduction, and the Bank's over rect to follow a phased approach to the reform psrocess.wspoonlgerdtpvryrduin,adheBk'oe- rctofloaphsdapofrm p . all program (including the large component of structural adjust- 4. In describing Bank assistance in this period, the Region ment lending) was similarly focused on poverty reduction. For the stated that "The 1992-94 period was no doubt disruptive as the most part, there was no tension between an emphasis on rural government was understandably more focused on implementing growth and poverty alleviation." the peace process, including the first democratic elections even 2. Ministerio para a Coordenai;ao de Accao Social, Plano de This is partly why many areas such as civil service reform, fiscal Accao de Governo p6s-Beijing, 1997-2000 August, 1997. management issues were not advanced much. It actually took a managefortheewgvment issueswerenoto advced m . Ithr varouay tos and 3. In its response, the Region has pointed out that the Bank's while for the new government to settle in their various posts and resident mission carries out extensive consultations with local set out their agenda. On the Bank side, our main focus at the resi ant gender out atere d se consul- macro level was to move forward with financial sector reform and NGOs, and that gonder concerns are represented in these consul- , . . . ~~~~~~~~tations. The CAS consultation was based on the existing NGO the privatization of large enterprises, both sources of quasi-fiscal pressures. At the sector level, preparation began for the develop- Bank Core Group, which iS composed of 15 NGOs of the three menr of sector programs in health and roads, both of wvhich were major NGO netwvorks in Mozambique: Fundacao para Desen- ment of scrrrsneta rvolvimento da Comunidade (FDC), LINK-NGO Forum and conceived as suitable for the post-war years of national recon- Kulima. MBEU, the gender NGO represented in this group, is struction. (By definition this was not really possible in a country responsible for addressing gender issues, not only for CAS but in torn by wan.)" overall Bank operations. Chapter 2 1. The Region pointed out that these projects were based on Chapter 7 a comprehensive industrial sector survey, albeit without good data 1. Staffyears devoted to ESW for Mozambique: sources. FY90-91: 3.6 FY92--94: 3.3 FY9S-97: 2.3 49 STATEMENT OF BANK'S LOAN PORTFOLIO TO MOZAMBIQUE AS OF 11/97 (IN MILLIONS OF US$) SHREREYT PROJ .X--FE- s I CAN- PROJECT NO. ID L/C NO. PROJECT NAME . TIVENESS CLOSING /E BURSED CEE.ED STATES ICR? 1 1760 C 16100 Rehabilitation program 8185 10/18/85 3131/89 450 55.57 0.34 0 Completed 2 1764 C18060 Energy TA and rehabilitation 87 11130/87 12/31/94 ZO ; 20.07 1.57 ",O'' Completed Yes C' 3 1761 C18410 Rehabilitation ll O1022/87 6130191 3-70f, 72.74 0.11 ', Completed 4 1763 C19070 Education I 8 tB 10112/88 12/31/9S5 9 16.33 0.07 g ,"-o: ICplt Yes 5 1789 C19490 Urban rehabilitation .8 2/14/89 10/31/96 0 53.70 7.30 Completed Yes 6 1787 C19890 Health and nutrition 4 9 10/30/89 6/30/97 .270 29.80 0 44 Inactive 7 1773 C20210 Rehabilitation III 3 8/4/89 4/30/94 90 91.22 1.02 0 Completed 8 1793 C20330 Urban household energy credit -: 4/27/90 12/31/97 JZ0: 15.90 0 V 0 Active 9 1770 C20650 Beira corridor 4189 7/10/90 6/30/97 .0.- 30.18 0 45 Completed 10 1762 C20660 Economic and financial management 17/89 6/29/90 12/31/97 IVO 21.65 0 In4M Active 11 1784 C20810 Industrial enterprise 89 8/6/90 12/31/98 KI,, 29.81 0 5 Active 12 1794 C20820 Small and medium enterprise 1/89 67/90 12/31/97 ZO 32.60 0 .11 0 Asre 13 1765 C21750 Agriculture rehab. and dev. 4/30/91 6/30/99 <15.4 6.28 9.67 0 Completed 14 1776 C22000 Education II /9- 7/26/91 4/30/98 '55.7 45.66 0 iS6 Active 15 1781 C23370 Agriculture service rehabilitation 192 12/15/92 12/31/00 - 5. 11.40 12.30 ' Active 16 1790 C23740 First road and coastal sh. 9/17/92 6/30/98 ' 4 50.50 c0 tive 17 1775 C23840 Economic recovery credit 1 J, -8/3/92 6/30/96 $.O 188.30 0.03 itO Completed Yes 18 1797 C24360 Capacity building (HRDP) / 12/1/93 6/30/99 764 - 16.20 0 >40s Active 19 1810 C24370 Legal and public sector capacity 2 .28/94 6/30/99 3.5 7.40 2.93 r 0 Active 20 1802 C24540 Maputo corridor 3 9/27/93 12/3l/98 -~3 5.30 0 '0Active 21 1796 C24790 Rural rehabilitation 3 12/8/93 12/31/98 . 8.30 0 Active 22 1801 C24870 Food security I93 2/25/94 2/28/98 t .3 2.60 0 A90' Active 23 1791 C25300 Local government >3 7/;20/94 3/31/98 22 7.40 0 : Active 24 1804 C25990 Second road and coastal 7/11/94 6/30/01 ' 0 76.70 0 9 Active 25 1811 C26070 Finance sector capacity - 8/17/94 6/30/00 ' .0 '3.40 0 Active 26 1777 C26280 Second economic recovery credit ,;4 7/19/94 8/30/97 .0 208.30 0 0 Completed 27 1780 C26990 Gas engineering P94 - 12/30/94 6/30/00 ' 0 17.10 0 (1 ActIve 28 1792 C27880 Health sector recovery 5. 4/30/96 6/30/01 'i .90 0 'v. tsve 29 35922 CN0100 Economic recovery credit III 9 5/21/97 12/31/98 ' - 47.80 0 Active Explanation of rating abbreviations for Project Summary Sheets HS or 1 = Highly Satisfactory S or 2 = Satisfactory U or 3 = Ulsatisfactory HU or 4 = Highly Unsatisfactory NR = Not Rated N/A = Not Available 01 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 1 AND PRELIMINARY EVALUATION REHABILITATION PROGRAM (PROJECT ID 1760, CREDIT C1610), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 60 Approval ...... 6/18/85 _ 50~ actual Fv Effectiveness ...... 10/18/85 Undisbursed (0%) actual Closing ..3/31/89.... .. 3 3 E 40 dApproved.........45 _estimate $5 Canceled (1%) ~~~ 30 * ~~~~~~~~~~~Disbursed.........$55.6m 20 Canceled .... .....$.3m - 10 Undisbursed ...... 0 Disbursed (99%) 0 -, Project status ...... COMPLETED e ab ko\ 3\ Ce 4t e Date Objectives Evaluation The program helped meet the country's priority of economic As the Bank's first operation in Mozambique, the First Reha- rehabilitation needs within the context of the government's bilitation Credit had limited objectives. It supported the small Economic Action Program (PAE) for 1984-86. The PAE was initial steps in transition to a market economy and provided designed to initiate the process of correcting structural import financing to enable the industry, transport, and agri- imbalances and rehabilitating the economy. It focused on culture sectors to begin a recovery in production and economic increasing agricultural production and trade, and called for activity. The credit had no formal conditionality, but the suc- actions to improve the supply of inputs and basic consumer cess of the initial liberalization agenda (for example, the vig- goods to smallholder farmers, to provide price incentives, orous supply response when fruit and vegetable prices were and to improve the financial situation of enterprises. The decontrolled in May 1985), which was experimental in the PAE also provided for the introduction of a tighter credit pol- eyes of the government, encouraged the GOM to proceed. The icy, changes in interest rates, and a review of exchange rate credit also served as the operational basis for establishing the policy. relationship between the Bank and the GOM. As the first of a series of recovery-cum-adjustment loans, this credit succeeded Description in launching this relationship, the Bank advisory role, and the The credit helped finance part of the government's 1985-86 role of policy-based credits that has supported the Mozambi- program of imports of equipment, spare parts, and raw mate- can recovery and transition process in the succeeding 12 years. rials, as well as related technical assistance, in the key industry, The credit also provided technical assistance in procurement transport, and agriculture sectors. and in the GOM's first learning experience in implementing Bank regulations. The credit also supported studies of the financial and transport sectors that were essential for subse- quent sectoral investment programs. Supervision-Form 590 Ratings N/A N/A N/A 8/8/89 Development objectives 1 1 1 1 Implementation progress 1 1 1 1 52 Annexes PROJECT SUMMARY SHEET 2 AND PRELIMINARY EVALUATION ENERGY TA AND REHABILITATION PROJECT (PROJECT ID 1764, CREDIT C1806), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 20 Approval .5/26/87 7z 18 actual Effectiveness .......11/3C/87 S16 ' 14 0 actualf Closing . 12/31/94 12 Approved .........$20mn Canceled (7%) 10 Disbursed ......... $ .. ... ..2 6E estimated Canceled.$...m...Disbursed (13%m 1. 6 Disburdisdursed. 62 Project status ....... COMPLE1ED o-0... I I IIII............ Date Objectives original expectation that this support would enable the staff of With this Energy Technical Assistance and Rehabilitation Proj- the beneficiary agencies to acquire training in utility operations ect, Mozambique hoped to bring about a sustained improve- was not fully met, since counterpart staff assigned to work ment in the supply and distribution of electricity and with the specialists were either inadequately trained or fully petroleum products in the main urban areas, as well as to sup- qualified but overstretched. The components for institutional port economic recovery beyond the short term. development and planning and policy formulation were par- tially implemented. Thus, overall, the nonphysical project out- Description come was moderate compared to the agreed objectives. No The project consisted of (i) rehabilitation of the Electricity ERR was recalculated although the ICR observed that it prob- Company of Mozambique's (EDM) and National Petroleum ably was lower than the ex ante estimate of 27 percent. Supply Company's (PETROMOC) facilities to meet current Sustainability of the project has varied among the different demands reliably; (ii) provision of operational support for three components. Achievements in the petroleum subsector are sus- years; and (iii) technical assistance to EMDM, PETROMOC, tainable, mainly because of the charige in price policy. Supported the Ministry of Industry and Energy (MIE) and the National by a follow-up Gas Engineering Credit, progress in the hydro- Hydrocarbons Company (ENH). The economic benefits from carbon subsector was good. In the power subsector, financial the project were increased agroindustrial and industrial pro- viability remained problematic at the time the credit was closed. duction through quick-acting relief on constraints on improv- This has still not been achieved, although under the follow-up ing the reliability of electricity and petroleum product supply to Urban Household Energy Project, groundwork was laid for a processing and manufacturing plants. new electricity law offering prospects for eventual improvements once GOM is prepared to fully address the outstanding financial Evaluation issues on tariffs arid the payments by government agencies. This first project in the energy sector was conceived as an The Bank's performance in the preparation phase was sat- emergency-type operation, but included preparation of devel- isfactory, but mixed during supervision. Not enough differen- opment plans for the principal energy subsectors. Covering the tiation was made between procedural and substantive financial main agencies of the sector and also providing assistance to the conditionalities 'timely submission of audit reports and GOM, the operation was highly complex, as the large techni- achievement of the agreed financial performance). Given the cal assistance provided under the project required a good deal complexity of the operation, and especially given the influence of coordination. The physical aspects of the project were of the power cormponent in the project and the institutional implemented in full, although with an initial two-year delay. and technical issues in that subsector, greater attention should Operational support through the TA component of the project have been given to the supervision mission staffing by includ- was effective in getting the project implemented. However, the ing the appropriate subsector specialty. Supervision-Form 590 Ratings N/A 8/9/89 8/8/90 8/12/91 7/21/92 6/30/93 6/30/94 6/28/95 Development objectives 1 1 3 3 3 2 S S Implementation progress 1 2 2 2 2 2 S S 53 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 3 AND PRELIMINARY EVALUATION REHABILITATION II (PROJECT ID 1761, CREDIT C1841), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS .80 30 Approval ........... . 8/4/87 Undisbursed (0%) ~70 estimated Effectiveness .......10122187 '60 Closing.6130191 celed (0%) s50 Approved .$70m 40 - - Disbursed. $72.7mn EW 320 - - | actual Canceled .. $0.1m Disbursed (100%) r210 1 f j Undisbursed ...0.......... o :I0 1 &6' ......Project status . COMPLETED 0 Date Objectives ment of a program for SOE reform. Keeping to the strategy of The major objectives of the Second Rehabilitation Credit were continuing but gradual movement toward a market economy to (a) support specific policy and institutional reforms in 1987 and the associated institutional reforms, the conditionality and preparation of subsequent adjustment measures for 1988; under this credit (and the associated Fund) agreement carried (b) provide foreign exchange to finance essential imports needed the reform forward but left a long road ahead to be traveled for the rehabilitation of the economy; and (c) assist the govern- over some considerable period. Nevertheless, the steady pace ment to develop an agenda for longer-term policy changes. strengthened GOM confidence in the transition process, rein- forcing Mozambican policy "ownership" and ensuring that Description the reform policy would be sustained. The Second Rehabilitation Credit supported the government's Moving away from the limited import-positive list of the Economic Rehabilitation Program (ERP), which was designed first credit, the second financed a broad range limited by a neg- to reverse the declining trend of the Mozambican economy. ative list, with procurement gradually shifted to the private The program involved the implementation of specific policy sector. The closing date of the credit had to be extended three and institutional reforms in 1987 and studies to prepare the times because of the inadequacies of the banking system pro- needed measures for 1988. The policy areas addressed vision of credit to private importers. The credit also assumed included (a) the external sector, including the trade regime and that the GOM would adhere to the reform agenda under the foreign exchange allocation; (b) pricing and distribution poli- Bank/IMF PFP. While the GOM did so, price stabilization was cies; (c) fiscal policy, including public expenditures; (d) agri- not achieved as expected because the credit expansion of the cultural marketing and producer prices; (e) industrial pricing state banking sector was not covered effectively by the frame- and efficiency; and (f) transport sector efficiency. work of the SAF agreement with the Fund. Apart from infla- tion, the overall objectives of the PFP (budget deficit reduction, Evaluation price liberalization, reduction in the gap between the official The GOM met all the conditions specified under this policy- and parallel exchange rates) were met. The economic decline based credit, enabling the second tranche (of two) to be of 1984-86 was reversed as GDP rose 4.0 percent in 1987 and released as scheduled. The conditions included specific liberal- 5.5 percent in 1988. Supervision was carried out through fre- ization measures such as the freeing of price controls on some quent staff visits until a resident mission was opened in 1989. additional product groups, reduction in product groups Procurement and auditing problems persisted, reflecting both reserved for importation by state monopolies, and develop- private and public sector capacity weaknesses. Supervision-Form 590 Ratings N/A 6/28/89 8/29/90 8/22/91 Development objectives 2 2 2 2 Implementation progress 2 2 2 2 54 Annexes PROJECT SUMMARY SHEET 4 AND PRELIMINARY EVALUATION EDUCATION 1 (PROJECT ID 1763, CREDIT C1907), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 20 Approval .... ... 5/17(88 Undisbursed (0%) Effectiveness ........... 10/12(88 I '~15 - Closing.........12/31/95 Cnceled (0.43%) estimated ~~~~~~Approved.........$15.9m lo-- esimatedDisbursed.........$16.3m c5/ actual Canceled .$0.1m .......... | | g ......... Disbursed (99.57%) A -actual Undisbursed .0 Project status . COMPLETED Date Objectives Evaluation The project was intended as a first IDA operation that selec- Approved in May 1988, the project become effective in Octo- tively responded to immediate needs while assisting in devel- ber of the same year, and it closed in December 1995 as oping a better knowledge of system requirements and a planned. The total credit was disbursed, with the last dis- comprehensive sector strategy. The project's objectives were bursement in January 1996. The construction and rehabilita- threefold. First, it raised the quality and efficiency of primary tion of primary schools was successfully completed. The education to increase literacy and numeracy among primary training of school managers and principals was successfully school-age children. Second, it strengthened the training sys- implemented, although the practical outcome of the training is tem to fill critical manpower gaps. Third, it strengthened the questionable. Fundls were allocated to expand the provision of capacity for education sector policy analysis with a focus on learning materiaPis to schools in Maputo and in other financial management and planning. provinces. (In thai: respect, controversy about the quality of a portion of the book provided by an Indian company is not yet Description resolved.) Suppor- for the Faculties of Economics and Engi- First, the project raised the quality and efficiency of primary neering in the form of equipment, fellowships, and technical education in the City of Maputo by renovating and enlarging assistance was carried out. The Faculty of Engineering was facilities, training school managers and principals, and provid- successful in sellir.g its services to the private sector. ing children with essential school supplies. Second, it strength- The Ministry of Education's capacity improved and a ened the quality and relevance of training for accountants, project implementation team was successfully established in office managers, bookkeepers, customs officials, engineers, the ministry. Curriculum development for accounting suffered and economists through provision of educational materials delays, and is now being implemented in the Education II proj- and equipment, curricula development, and support of fellow- ect. All the studies planned were undertaken, and became use- ships. Third, the project improved education sector planning ful sources of information for the Education II project. and financial management through training budget officers, Overall, the Education I project achieved good results against carrying out studies on financing and management of educa- original objective:; and sector goals. tion, and developing a strategy for strengthening the education system in line with the objectives of the ERP. Supervision-Form 590 Ratings 8/19/89 8/24/90 8/23/91 8/11/92 10f1/93 6/30/94 6/28/95 6/28/96 Development objectives 2 2 2 2 1 HS HS S Implementation progress 2 2 2 2 1 HS HS HS 55 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 5 AND PRELIMINARY EVALUATION URBAN REHABILITATION (PROJECT ID 1789, CREDIT C1949), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 60 Approval .... .... 8/2/88 Undisbursed (0%) estimated ~~~~~~Effectiveness........2/14/89 E40 so estimated / -Closing.10/3196 Canceled (12%) _ ~ ~ ~ ~ ~ Žtuai ~~~~~~Approved .........$60m 30 Disbursed ..... $53.7m 20 Canceled . . $7.3m Disbursed (88%) Undisbursed.......... 0 10 ^ 10- - X ~~~~~~~Project status ....COMPLETED 0 Date Objectives for municipal services (6 percent of project costs); (iv) provi- The project's objectives were to stem the deterioration in basic sion of credit for small and micro-enterprises and for materials urban infrastructure and services in Maputo and Beira, and to loans for home construction (7 percent of project costs); and mitigate the social effects of structural adjustment through the (v) technical assistance and training for the implementing implementation of a program of urban rehabilitation and agencies, the municipal authorities (through the Center for employment generation. This program aimed to: (i) rehabili- Urban Management), and the institutions responsible for pro- tate key elements of urban infrastructure and housing; (ii) pro- motion of small-scale enterprises together with project man- vide employment through labor-intensive construction agement (9 percent of project costs). methods and stimulation of small and microenterprises, par- ticularly in the building materials industry; and (iii) strengthen Evaluation the local institutions responsible for provision and mainte- Because of its negligible impact on sector policies, financial nance of urban infrastructure and services and assist their objectives, and institutional development, and its uncertain efforts to become more financially independent through sustainability due to poor cost recovery, the ICR rated the resource mobilization at the local level. The project also aimed project as unsatisfactory overall. to demonstrate the replicability of new approaches to infra- However, it is important to consider the context in which structure rehabilitation and housing rehabilitation. it was prepared and implemented. PRU was the Bank's first urban operation in Mozambique and prepared very rapidly. Description The project was identified in October 1987, appraised in April The project consisted of the following interrelated components 1988, and presented to the Board in August 1988-on a near- in Maputo and Beira: (i) rehabilitation and limited extension emergency basis without any prior sector work-but it of the road, storm drainage, water distribution and sewerage occurred during a tumultuous period in the country's recent networks, and of coastal protection works (45 percent of pro- history. As the ICR correctly pointed out, "these factors-pos- ject costs); (ii) rehabilitation of low-income housing together sibly the poorest country in the world, civil war, impoverished with completion of unfinished (since Independence) buildings human resources, and poor information base-combined to and upgrading and extension of sites and services (33 percent make PRU a very risky project, which the complexity of the of project costs); (iii) provision of equipment and spare parts design heightened." Supervision-Form 590 Ratings 6/15/89 8/27/90 8/15/91 8/17/92 6/30/93 6/30/94 6/28/95 6/24/96 6/16/97 Development objectives 1 3 2 1 1 S S U S Implementation progress 1 2 2 2 2 S S S S 56 Annexes PROJECT SUMMARY SHEET 6 AND PRELIMINARY EVALUATION HEALTH & NUTRITION (PROJECT ID 1787, CREDIT C1989), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 30 Approval.... .... 3/14/89 .9 25 - ^ ..Effectiveness.10/30/89 Canceled (0%) 20 estimated Closing .... .... 6/30/97 't....t. 20 ~~~~~~~Approved .........$27mn tnisbursed (1%) 18 tot z ... . ....Disbursed .$29.llm Canceled......... 0 O 10 Dis~~~~~~~~~~~~~~~~~~~~~~~~~~~~bursed (99%) actual Undisbursed ........$.44m Pro ject status .INACTIVE \0Ds _SOesOsott Date Objectives Beira with a view tc strengthening inventory control and reduc- To help improve health and nutrition status, the project had ing spoilage and upgrading overall management; (v) improved four main objectives: (a) strengthening capacity in policy for- health manpower training, through enhancement of teaching mulation and management on health and food security issues, quality, curriculum development, and capacity for in-service with special attention to resource mobilization, institutional training and through upgrading of training centers, teaching development, information systems, planning, and analysis; (b) materials and technical assistance; and (vi) increased the effi- improving efficiency, to enhance the impact of services within ciency of the urban food distribution system through stream- the tightly constrained budget; (c) improving service quality, to lining food supply management and information in the ration enhance the provision of basic needs for the population; and system, easing the transport shortage for moving food supplies (d) helping to mitigate some of the social costs of adjustment, from central depots to consumers in Maputo and Beira, sup- to help sustain the ERP. porting supplemental feeding programs targeted to primary school children in Maputo and Beira, and improving the nutri- Description tional status of factory workers. The project (i) facilitated development of improved policies in the health sector in cost-recovery, manpower planning, and Evaluation facility management through studies and assistance in imple- This loan was 99 percent disbursed and the closing date was mentation of these studies' recommendations; (ii) strengthened extended until December 31, 1997. This was a complex project the MOH through reorganizing the central ministry, developing seeking expansion of health services and institutional develop- a better financial management information system, and estab- ment, which would have required considerable inputs of lishing a central unit (under the Department of Planning) to detailed programrming, technical expertise and activities for manage and supervise the implementation of investment pro- consensus building among donors and with implementors (the grams; and (iii) contributed to improving food security policies provinces), but these needs were apparently underestimated or and information by aiding in policy analyses regarding food difficult to carry out. As a result, during the first three years, pricing and distribution and improvements to the food security there was little action and only 10 to 15 percent of the loan was information system. It also (i) supported the selected health disbursed, compared to the 50 percent estimated at appraisal. facilities; (ii) improved hospital efficiency through establishing Construction started only in 1994. There were several exten- better management procedures; (iii) strengthened health facility sions of the closing date and redirection of items to finance. The maintenance capability at the provincial and central levels DCA was amended in May 1993 to cover much-needed recur- through technical assistance for MOH maintenance centers and rent costs, particularly medicines and medical materials. This the provision of initial stocks of basic materials and vehicles; project also financed preparation of the Health Sector Recovery (iv) improved the pharmaceutical supply system through con- Program. Achievements fell short of the original objectives, but struction/renovation of drugs storage facilities in Maputo and redirection of financing served useful purposes. Supervision-Form 590 Ratings 8/21/89 8/24/90 2/25/91 8/13/92 6/30/93 6/30/94 6/28/95 6/28/96 7/8/97 Development objectives NR 2 2 2 2 HS HS S S Implementation progress NR 2 1 2 2 S S S S 57 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 7 AND PRELIMINARY EVALUATION REHABILITATION III (PROJECT ID 1773, CREDIT C2021), AS OF 11197 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS Approval ........ 5/18/89 Undisbursed (0%) Effectiveness ........814189 Closing . 4130/94 Canceled (1%) Data not available. Approved .....E.9.l. m.. 9 Disbursed ........$91.2m Canceled .... . $1rn Disbursed (99%) Undisbursed ...... 0 Project status ...... COMPLETED Objectives phased reduction in the administrative allocation of foreign The objectives of the ERP were (a) to reverse the decline in exchange, through the establishment of a mechanism for non- production and restore a minimum level of consumption and administrative allocation for foreign exchange, and reform of income for all the population, particularly in the rural areas; the trade tariff structure; (ii) improvements in the use of pub- (b) to substantially reduce the domestic financial imbalances lic expenditure; and (iii) completion of the first phase of pric- and strengthen the external accounts and reserves; (c) to ing and distribution reform. enhance efficiency and establish the conditions for a return to higher levels of economic growth once the security situation Evaluation and other exogenous constraints have eased; (d) to reintegrate Steady GOM prosecution of the stabilization and reform agen- official and parallel markets; and (e) to restore orderly finan- das continued under the third adjustment credit. Reforms initi- cial relationships with trading partners and creditors. ated in the second credit were carried forward in further partial steps, e.g., further reductions in products subject to price con- Description trol. Specific conditions were met, largely on time, with second The credit supported the Economic Rehabilitation Program tranche release delayed six months over one debatable failure to (ERP), initiated in 1987. The ERP was a broad-based program meet compliance. A system of partial nonadministrative alloca- of economic policy reform designed to restore Mozambique to tion of foreign exchange was introduced on an experimental sustainable growth. The Third Rehabilitation Credit (TRC) basis. Public expenditure management was improved. Privati- supported the deepening of the ERP by focusing on the key ele- zation of SOEs accelerated (supported by other Bank credits). ments of policy adjustment needed to deepen and sustain the The efficiency of public sector resource allocation improved economic recovery. In addition to the continued support for under the third ERC, providing the basis for subsequent large- appropriate fiscal and exchange rate adjustments, the TRC focus policy studies. Procurement continued to be a problem, supported policy action in three key areas. These policy ele- with GOM implementation burdened by having to operate ments included (i) initiation of trade policy reform through under a multiplicity of donor procurement regimes. Supervision-Form 590 Ratings 8/24/89 8/27/90 8/22/91 9/25/92 6/30/93 6/30/94 Development objectives 1 3 2 2 1 HS Implementation progress 1 3 2 2 2 S 58 Annexes PROJECT SUMMARY SHEET 8 AND PRELIMINARY EVALUATION URBAN HOUSEHOLD ENERGY CREDIT (PROJECT ID 1793, CREDIT C2033), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 25 Approval ... ... 6/8/89 Canceled (0%) Effectiveness .... .. 4/27/90 ._ 20-- ° 20- estimated Closing .12/31/17 Undisbursed (33%) Approved .$22m Disbursed.........$15.9m 10 Canceled . 0 Disbursed (67%) Undisbursed ........$7.c m Project status . . ACTIIIE 0- 0 Sts°9\~ 0 4" Pi XSN \cl 0b, S Date Objectives cans; and (ii) technical assistance and consultancy support to The project was designed to bring about quickly an enhance- reinforce the operations of EDM, PETROMOC, and Mocacor, ment of supply and a significant reduction in energy costs to to support the project coordination and implementation, and about one-quarter of the households in the main urban centers, for the wood fuels and coal prograrns. particularly Maputo, Beira, Nampula, Nacala, and Quelimane. A further objective was to continue the institutional and finan- Evaluation cial strengthening of the principal energy supply companies ini- This complex project, following closely on, and during supervi- tiated under the Energy TA and Rehabilitation Credit. The sion fully coordinated with, the predecessor operation (Energy project also aimed to slow down significantly deforestation TA) during most of its implementation, achieved its physical around the urban centers and to improve air quality. objectives except for most of the household wiring program and the acquisition of coal stoves. Special mention should be Description made of the successful woodfuel component. On the institu- The project made available to urban households a variety of tional side there has been important progress. First, at the level commercial fuels to substitute high-cost and scarce wood fuels of the restructured PETROMOC, and most recently through and charcoal. It facilitated a rapid increase in electrification of new legislation for the electricity sector, which should open the urban areas eventually to about 351 households. The project way for an eventual private sector involvement. (Some small also included provision of coal stoves to 101 households and pilot systems are being tested for this.) improved efficiency in the use of traditional fuels. A biomass Sustainability for the electricity sector, and for EDM in energy unit was established to focus efforts in traditional particular, has been. elusive in the absence of adequate support energy. Over the next few years, some households were elec- from the GOM for the needed tariff adjustments, improve- trified and coal stoves were introduced. The household energy ments in the tariff structure, and a system of settling debts of shortfall was met with other commercial sources, especially government and its agencies. There have been some uneco- kerosene and LPG. Long-term credit was available from a nomic investments in the sector because of insufficient coordi- local bank (BPD). Apart from support implicit in local interest nation among donors. rates for householders, no subsidies were envisaged in imple- As for the Bank's supervision performance, the comments menting the strategy. The project consisted of: (i) power system made under the Energy TA and Rehabilitation Project apply. In reinforcement in Mozambique's cities together with connec- addition, however, the more recent progress in the sector on the tion of 40,000 houses, provision of coal stoves to about institutional side has benefited from the patient support of the 50,000 households, reinforcement of kerosene and LPG distri- Bank. The project is about to be cormpleted. The closing date has bution facilities, improvements in wood fuel supply and oper- been extended by Dne year and is now set for December 31, ations, provision of stoves, lamps, pots and pans, drums, and 1997; an ICR will be prepared during the first semester of 1998. Supervision-Form 590 Ratings 8/9/89 8/8/90 8/22/91 7/21/92 6/30/93 6/30/94 6/28/95 6/24/96 Development objectives 1 2 2 2 2 S S S Implementation progress 1 2 3 3 2, S S S 59 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 9 AND PRELIMINARY EVALUATION BEIRA CORRIDOR (PROJECT ID 1770, CREDIT C2065), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 45 estimated Approval ...... 9/14/89 Canceled (0%) 40 Effectiveness .7/10/90 35 10- _ / t' Closing.6 $130/97 Undisbursed (31%) E 30 Approved .........$40m ~~~~ 25 ~~~~~~~~~Disbursed.........$30.2m ~~~~ 20 ~~~~~~~~~Canceled ...........0 Disbursed (69%) 10 ~~~~~~~~~~~~Undisbursed........$13.7m : 5 - 4R Project status. COMPLETED °-9 01 1 " 1 C~ 1 , 1 1 1 Date Objectives financed mainly from other sources, were achieved, to a large The primary objective of the project was to contribute to the extent. The capacity of CFM(C) to handle the transit traffic upgrading of the Beira Transport Corridor and institutional devel- through this corridor was reported to have been brought back opment of CFM(C) to restore its financial viability and its cost-effi- to at least the pre-Independence level, although present traffic cient transit functions, which are vital to Zimbabwe and Malawi is below SAR forecast. However, dredging the entrance chan- for least-cost access to the sea and constitute an important source nel to the port of Beira, which was to be financed by European of foreign exchange and employment for Mozambique. donors, was much delayed, thus reducing the efficiency of this port into which large non-Bank-financed investments have Description been sunk, as part of the Beira Corridor Program. The overall Beira Transport Corridor Program comprised the Bank-assisted institutional improvements have been rehabilitation of all the elements that make up the transport related to the restructuring of CFM(C), not least because of the corridor linking Zimbabwe with the Indian Ocean at the port Bank's insistence on creating "result centers." Thus, for the of Beira, including deepening of the access channel, and reha- first time, CFM(C) management got a sense of where it cov- bilitation of the port and of the railway and road to the bor- ered cost and where it did not. Progress on the accounting sys- der town of Machipanda, with capacity building technical tem has been substantial although much delayed; information assistance and training for the institutions responsible for cor- on assets and depreciation has become available recently. ridor operations. The proposed IDA-assisted project included Overall, CFM(C)'s overall financial performance was reported (i) technical assistance to run port and railway operations in satisfactory, as measured by the originally agreed objective the Beira Corridor during the 1989-95 period; (ii) manpower (although with considerable cross-subsidies from the port to development and training for all levels of staff in the port and the railways operations). railways; (iii) rehabilitation and acquisition of motive power Since 1994, missions have reported a large surplus of the for main line and shunting operations; and (iv) technical assis- labor force but found that this issue may be addressed only in tance for the implementation of a railway/port cost accounting the context of CFM as a whole. Indeed, the follow-up railway system and a management information system. project for the Maputo Corridor Revitalization made a start in dealing with this politically sensitive subject for the consider- Evaluation ably larger southern system of CFM. The closing date for this The physical objectives of the Beira Corridor Program, project was June 30, 1997; an ICR is under preparation. Supervision-Form 590 Ratings 8/20/90 7/24/91 8/3/92 6/30/93 6/30/94 6/28/95 6/24/96 6/18/97 Development objectives 1 2 1 2 S S S 2 Implementation progress 1 2 2 2 S S S S 60 Annexes PROJECT SUMMARY SHEET 10 AND PRELIMINARY EVALUATION ECONOMIC AND FINANCIAL MANAGEMENT (PROJECT ID 1762, CREDIT C2066), AS OF 11197 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 25 Approval ......... 10/17/T9 Canceled (0%) I estimated ~ >Effectiveness ........9.. $2/90 10- - Canceledo0iDi ..bur(.... 9 D 5- / actuaL Undisbursei $1.9m AProject status.ACTI.E...... 2 10 Date Objectives Research Department to improve data collection, economic This first effort to provide institutional support by IDA set analysis, and policy formulation, including the establishment of modest goals, limiting this initiative to those activities that a Documentation Center; (ii) improve banking operations by were vital to two priority institutions: the Ministry of Finance computerizing banking systems and introducing modern equip- (MOF) and the Bank of Mozambique (BOM). Project objec- ment; and (iii) strengthen the legal advisory services provided tives were to provide support to these two priority institutions, within BOM, especially regarding external financing and nego- to (i) carry out technical analyses in economic policy formula- tiations with creditors. Financing would be provided for advi- tion, capital budgeting (to include selection, analysis, pro- sors, consultants, training, computers, and other equipment. gramming, and monitoring of projects), and banking operations; (ii) define specific needs and prepare programs of Evaluation institutional support as the basis for immediate action as well The project laid the groundwork for the subsequent reforms in as subsequent follow-up; (iii) increase the stock of qualified the financial sector. It succeeded in separating the commercial professionals needed in two essential areas (accounting and lending functions of the BOM from its central banking func- economic analysis); and (iv) increase the productivity and tions, which marked the beginning of a profound transforma- effectiveness of the two priority institutions by furnishing them tion in the structute of Mozambique's financial sector. Some with the basic systems and equipment needed for their day-to- project components were counterproductive to financial sector day operations, particularly in financial systems and produc- reform. The project failed to improve the interim governance of tion of basic economic information. state banks and to impose clearly rnonitorable restrictions on the banks' lending activities. From 1992 to July 1995, the pro- Description ject devoted substantial financial resources to the restructuring The project consisted of two main components. The first was and technical strengthening of state-owned BCM-the largest for MOF to provide assistance to (i) the Economic Analysis and commercial bank of Mozambique. Such assistance was hardly Price Department in the National Treasury Directorate to justifiable given BCM's virtually absent corporate governance improve the collection and analysis of economic information and widespread practices of politically motivated lending. As a for economic policy formulation; (ii) the National Budget result, shortly after its recapitalization, and despite the Bank's Directorate to improve capital budgeting, and (iii) the carrying technical assistance and policy advice, BCM engaged in uncon- out of an accounting training program. The second was for trolled expansion of credit and had to be recapitalized again BOM to provide assistance to (i) strengthen the Economic before its privatization in July 1996. Supervision-Form 590 Ratings 8/27/90 8/22/91 9/25/92 6/30/93 6/30/94 6/29/95 6/24/96 S/29/97 Development objectives 2 2 3 2 S S S S Implementation progress 2 3 2 2 S S S S 61 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 11 AND PRELIMINARY EVALUATION INDUSTRIAL ENTERPRISE RESTRUCTURING PROJECT (PROJECT ID 1784, CREDIT C2081), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 50 estimated Approval ........ 12/21/89 Canceled (0%) Effectiveness ........8/6/9 40 Closing . 12/31/98 ~~~~~~~~~~~~~~~~~~~~Undisbursed (47%) 30s Approved ...-50. m g .1dn Disbursed .........29.8m 120 Canceled ...........0 Disbursed (53%) a 2 0- / D' "' \,Undisbursed ... $26.4m factual Project status .ACTIVE 0- I Date Objectives tion plans and operational technical assistance to potential The project's overall objective was to restore production and BEs; and (c) conducting subsector and policy studies. efficiency in a selected group of major industrial and agro-indus- trial enterprises. The project aimed to (a) introduce a framework Evaluation and criteria for selecting enterprises for rehabilitation based on Initially the project attempted to support the rehabilitation of each enterprise's potential economic, financial and technical via- state-owned companies. However, its original design was bility and on its management capacity to operate efficiently and restructured into an enterprise privatization project. The proj- profitably; (b) finance the rehabilitation, financial restructuring, ect investment component financed loans to large, privatized and operational support of selected enterprises. The restructur- companies. Lending to firms was accomplished through local ing process would, where appropriate, include rationalization of commercial banks, with BCM, the largest formerly state- capacity, privatization, and technical partnership arrangements, owned commercial bank, accounting for the biggest share of or if necessary, closure of nonviable operations; (c) protect the lending. Although the continuing grace period-up to 5-7 environment and worker safety by requiring that each BE intro- years-makes it difficult to gauge the credit quality of the duce measures to minimize the discharge of pollutants and pro- banks subloans, the improved macroeconomic environment vide a safe working environment for their workers; (d) and larger subborrowers substantially reduce the probability strengthen government's capacity to implement the rehabilita- of defaults. The recent privatization of BCM should also spur tion program; and (e) support policy reforms and subsector its incentives to service and collect on the loans made by its reviews designed to strengthen enterprise operations in a mar- state-owned predecessor. The disbursement under the project ket-oriented environment. was slow, which could largely be attributed to a complicated procurement and disbursement process. In October 1997, the Description Region finally simplified disbursements through the project by The project had two components. The Enterprise Rehabilita- moving the current special account from Citibank to local tion Component (ERC) was channeled through the Bank of commercial banks and introducing two more special accounts Mozambique for the rehabilitation, financial restructuring, for each major component of the credit, and the executing and operational support of about 15 existing priority enter- agency that administers it. Despite its relatively unsuccessful prises that are potentially viable. The Technical Assistance lending component, the project has become an important Component was comprised of (a) financing experts and con- source of financial support for enterprise reform and privati- sultancy services to strengthen government's capacity to imple- zation, including legal assistance to the private sector and con- ment the overall rehabilitation program; (b) financing the ferences on private sector development, financial sector consultancy costs of feasibility studies, developing rehabilita- restructuring, and national capacity building. Supervision-Form 590 Ratings 8/21/90 8/12/91 6/30/92 7/30/93 6/30/94 6/29/95 6/24/96 6/10/97 Development objectives 2 2 2 3 U S S S Implementation progress 2 2 2 3 U S S S 62 Annexes PROJECT SUMMARY SHEET 12 AND PRELIMINARY EVALUATION SMALL AND MEDIUM ENTERPRISE DEVELOPMENT PROJECT (PROJECT ID 1794, CREDIT C2082), AS OF 11197 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 35 Approval ........ 12/21/89 Canceled (0%) : 30 Effectiveness ........ 6/7/90 . _ 25 - - estimated Closing.12/31/97 Undisbursed(9%) Approved .... .... $32m 20 Disbursed ........ $32 6m 815-- Canceled........... 0 Dsusd(1 10- 5 actul /Undisbursed .. $3.1mn 5- - actual Project status .ACTIVE 0 01 I I I \ 1 I 9 Date Objectives the project. This trained about 50 banking and promotional The objectives of the project were (a) to promote the rehabili- staff in loan appraisal and loan processing, with IDA funding tation and development of the SME sector by financing small for follow-up training. Technical assistance was also to be pro- and medium enterprises capable of efficient operation within vided through BEM for the start-up and operation of the apex the reformed business environment; (b) to promote institution unit and the credit mechanism, for strengthening of accounting rebuilding by restoring the capacity of the public and private capabilities in the participating banks, and for studies to assist sector banks to deliver and manage term credit to SMEs; and the restructuring of the banking and industrial sectors. (c) to assist in the formulation of government policy for SME development. Evaluation Overall, the outcome of the project has been highly disap- Description pointing because of the extremely high rates of default for The project had an SME financing and an institutional loans originated by the two formerly state-owned banks. The strengthening component. Under the financing component, a precarious financial situation, weak corporate governance, line of credit was made available through a subsidiary admin- and nonexistent credit underwriting skills of the state-owned istration agreement between the government and BM (Cen- banks did not de;er the Bank frorn going ahead with the proj- tral), for onlending to BM (Commercial), the state-controlled ect under which BCM and BPD ultimately became the two Banco Popular de Desenvolvimento, and the private Banco largest lenders. The Bank is alleged to have put substantial Standard Totta. The foreign exchange risk was to be borne by pressure on the rnanagement of the banks to ensure the expe- BM (Central) on behalf of the government, with credit risk dient disbursements of project funds; this undermined even absorbed through appropriate spreads by the commercial further the credit quality of subloans. As a result, in 1996, the banks. The line of credit was to be supervised by an apex unit rate of default on the loans made by BCM and BPD was in in BM (Central), overseen by a government interdepartmental excess of 50 percent for loans with the ended grace period. committee. Subject to meeting eligibility and efficiency (includ- The final rate of default on loans originated by these two ing environmental) criteria, subproject loans were available for banks is expected to approach 90 percent upon the expiration fixed investment and incremental permanent working capital. of the grace period for the remaining loans. The loan design To ensure satisfactory project implementation, an annual suffered from insufficient previous economic work in the review of project issues, including onlending interest rate and financial and enterprise sectors. The implementation of the terms, was to take place. Under the institutional-strengthening project was adversely affected by a high staff turnover of task component, a training program funded by UNDP was already managers; this also had a negative impact on the quality of the under way and was to be completed before implementation of project. Supervision-Form 590 Ratings 8/8/90 8/22/91 6/30/92 6/30/93 6t30/94 6/29,/95 6/24/96 6/10/97 Development objectives 2 2 2 2 S S U U Implementation progress 2 2 2 2 S S S S 63 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 13 AND PRELIMINARY EVALUATION AGRICULTURAL REHABILITATION & DEVELOPMENT (PROJECT ID 1765, CREDIT C2175), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 20 - Approval .. ........ 916/90 Undisbursed (0%/) Effectiveness....... 4130191 15 eimtdClosing .........6/30/99 Canceled (61%) Approved........154 10 Disbursed ........ $1.... v3m E / Canceled ....... $9.7m Disbursed (39%) 4r 5_ _ / , ; .....Undisbursed .0 a / ^2 actual Project status ....... COMPLETED 90 Sib°Spo<1 6 )ib\3\% ^ \rN\t5 Date Objectives surveys such as a National Irrigation Development Master The project supported GOM's efforts to (a) reverse the decline Plan, a National Cashew Tree Population Survey, and a in production and marketing of cashew nuts and in the National Cashew Development Master Plan (including new medium-term, restore exports to their levels of the 1970s; (b) areas) were financed. make small- and medium-scale state and commercial agricul- tural enterprises more efficient and profitable; and (c) Evaluation strengthen local capacity to formulate and implement long- The project was designed before the end of the civil war. The term growth strategies for the irrigation and cashew subsectors implementation of the ARDP met with the following main dif- once the security situation and other constraints had eased. ficulties: (i) numerous and rapid changes in the government of the country, including the Minister of Agriculture, once peace Description was achieved in 1992; (ii) changes in the government's priori- The project components included (a) rehabilitation and devel- ties relative to some of the components of the project; (iii) lack opment of the cashew subsector; (b) assistance to state and of a coherent government policy to guide the extension activi- commercial agricultural enterprises; and (c) specific subsec- ties, a fundamental component of the operation; (iv) extremely toral studies and surveys. Under the first component, financing low administrative capacity, both at the central and provincial was provided for (a) equipment, incremental costs, and techni- offices of the MAF; (v) scarcity and unpredictability of coun- cal assistance to agricultural extension, research, and cashew terpart funds; (vi) irregularities in the project's accounts. How- nut nurseries; (b) investment credit (equipment and materials) ever, the following positive results were obtained: (i) creation to commercial farmers and traders and for the rehabilitation of in two provinces (Gaza and Inhambane) of a functioning core three cashew processing factories; and (c) technical assistance, of field extension workers and supervisors; (ii) improvement of equipment, and incremental costs to the State Secretariat for the links between extension and research; (iii) development of Cashew and the State Cashew Nut Enterprise. Because women demonstration plots, with the collaboration of the farmers; (iv) play a dominant role in agriculture in general and cashew mar- consolidation and continuation of preexisting research and keting in particular, an evaluative survey would be carried out extension activities. to assess factors determining the agricultural productivity of In 1996 the Bank's three agricultural operations in women and measures to be taken to enhance benefits accruing Mozambique were restructured. As for this project, the fol- to them. Under the second component, financing for technical lowing agreements were reached: (i) the components relative to assistance, incremental costs, and equipment was provided to research and extension were taken over under C2337 (Agri- develop a capacity within MOA to address the rehabilitation culture Services Rehab); (ii) the components pertaining to rural needs of state and private agricultural enterprises and to pro- water supply were absorbed by C2479; (iii) the remaining vide them with managerial and planning assistance and train- components were discontinued and the balance of funds can- ing. Under the third component, complementary studies and celed (US$10.5 million). Supervision-Form 590 Ratings 8/23/91 8/15/92 6/30/93 6/30/94 6/28/95 6/28/96 6/25/97 Development objectives 2 2 2 S S S U Implementation progress 2 3 2 S S U U 64 Annexes PROJECT SUMMARY SHEET 14 AND PRELIMINARY EVALUATION EDUCATION II (PROJECT ID 1776, CREDIT C2200), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 6 Approval ..*....... 12/20/90 Canceled (0%) Effectiveness ............. 7/26/91 90 estimated Closing.4/30/98..e.di..ursed3017% 6 4 ~~~ estimated X_/ g d $5 7m $l m ~~~~~~~~~~~Undisbursed (17%) 4 ~~~~Approved.........$53.7m (0 3 - - / - Disbursed ...... $45'.7m Canceled .......0 ............ Disbursed (830/0) Undisbursed ........... $9.7m 0 I / . w actual Project status .ACTIVE Date Objectives improvements in planning and financial management, training The main objective was to facilitate implementation of the ten- of ministry personnel, and establishment of maintenance year sector development plan, focusing especially on: (i) systems. improving quality and efficiency in primary education through strengthening critical and strategic inputs to effective learning; Evaluation (ii) upgrading the effectiveness of the university for national After a timid beginning, the Bank's intervention in education capacity building in essential skill specialties, by improving in Mozambique became more consistent with the Education II teaching of the basic sciences, engineering, and economics and project. The project integrated in its objectives those activities by promoting better long-range strategic planning at the uni- of Education I which were not implemented during the lifetime versity; and (iii) strengthening the management of the educa- of that project. Implementation progress was balanced tion sector. between quality-enhancing activities and infrastructure devel- opment; however, the latter accounted for the bulk of dis- Description bursements. To correct this relative imbalance, UNDP, the The project supported improvements in (i) primary education donor partner in the project, became more involved in quality- through financing pre-service and in-service teacher training; enhancing activities beyond its supervision of the teacher train- pedagogical support, and distance education; rehabilitation ing component. and limited expansion of schools in Maputo Province and City, In the context of quality-enhancing activities, experimen- Dondo, Beira and Nacala; and pilot-testing of five quality tal bilingual education was introduced to see whether this improvement initiatives (local language instruction, flooding could improve learning results in primary education. Although classrooms with reading materials, student achievement test- teachers and patents were pleased with this experience, results ing, extramural programs, and student health interventions); were mixed, following difficulties in finding an appropriate (ii) university education through strengthening the faculties of bilingual education model. The overall project performance economics, engineering, and the basic sciences and through has been satisfactory. Issues and delays were the result of insuf- further refining the university's ten-year development pro- ficient communication, misunderstanding, and inefficient gram; and (iii) management in the education sector through bureaucratic practices in the government apparatus. Supervision-Form 590 Ratings 8/23/91 8/12/92 10/1/93 6/30/94 6/28/95 6/28/96 6/17/97 Development objectives 2 2 3 U S S S Implementation progress 2 2 3 U S S S 65 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 15 AND PRELIMINARY EVALUATION AGRICULTURAL SERVICES REHABILITATION (PROJECT ID 1781, CREDIT C2337), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 40- Approval.........2111192 Cnee 3% * 35- - Effectiveness .12/1592 30- estimatd Closing.........12131100 25- - Approved ......... $35m .Disbursed (32%) 20- Disbursed.........$11.4m 15- - Canceled ......... $12.3m Undisbursed (34%) 10 -/ Undisbursed ......... $12.3m 0- actual Project status ......... ACTIVE 0o cS 0 0x, \°I W \9" 9 \00\ 0 Date Objectives Evaluation The project supported GOM's efforts to (a) rehabilitate and Originally, the project was envisioned to cover 12 districts; develop agricultural services; (b) reverse the decline in produc- however, the planned coverage has been expanded to 17 dis- tion of foodcrops and cotton, thus reducing poverty and tricts. The overall status of project implementation is rated sat- improving food security; and (c) strengthen institutional isfactory. By the end of 1996, the only extension services in the capacity to formulate and implement agricultural development named provinces were those provided by the project. Specific activities. evaluation exercises have revealed that (i) the "extension mes- sages" have been adopted by a considerable number of farm- Description ers; (ii) there have been positive changes in the methods of The project directly assisted some 130,000 small-scale family cultivation (foodcrops and cotton); (iii) the farmers have farmers producing foodcrops and cotton in the Nampula and increased the cultivated areas, and in so doing have been Cabo Delgado Provinces. Project interventions included the applying practices transmitted by the extensionists. New link- provision of upgraded (a) agricultural services such as exten- ages have been established between agricultural research and sion and applied research, including the involvement of one extensionists and between the latter and the farmers. The other JVC in 1-2 districts in the provision of integrated agricultural components have proceeded reasonably well. services (39 percent of total project cost); (b) working capital The implementation of the project has been hindered by: for smallholder agricultural production, mostly through credit (a) the administrative weaknesses both at the central and groups, and for marketing (27 percent); (c) rural water supply provincial levels; (b) the delayed participation of pertinent facilities which also included the carrying out of an inventory central directorates and institutes (INIA, DNER, and survey, and O&M study and a 5-year development plan (10 DINAGECA) in the execution of the activities; (c) the diffi- percent); (d) land use and management services, including col- culties in the hiring of local personnel; (d) the insufficient lection of basic data of land tenure and use and conservation provision of counterpart funds; and (e) the delays in the set- needs (6 percent); and (e) institutional development, including tlement of accounts. The project has been restructured to training of MOA personnel (18 percent). The project was to be become nationwide in coverage and to be integrated into the coordinated by a project coordinator, and activities under each agriculture integrated sector program (PROAGRI or ASIP) intervention would be coordinated by a component coordina- currently under consideration. In 1996-97 there has been a tor. The project financed the provision of technical assistance, reasonable improvement in disbursements. training, incremental salaries, incremental recurrent opera- tional costs including credit and the purchase of vehicles, equipment, and materials. Supervision-Form 590 Ratings 8/15/92 6/30/93 6/30/94 6/28/95 6/28/96 6/25/97 Development objectives 2 2 S S S S Implementation progress 2 2 S S S S 66 Annexes PROJECT SUMMARY SHEET 16 AND PRELIMINARY EVALUATION FIRST ROAD AND COASTAL SHIPPING (PROJECT ID 1790, CREDIT C2374), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMIENTS AND CANCELLATIONS 80 Approval ........ 6/2/92 Canceled (0%) Effectiveness ....... 9/17/92 60- Closing ........ 6130198 Undisbursed (34%) Approved ....... $74.3m 40- - Disbursed ....... $50.5m estimated Canceled .... 0... , Ia9 Disbursed (66%) 20- Undisburse .. Undisbursed $26.1m actual Project status .ACTIVE Date Objectives Evaluation The primary project objectives were (i) to support the agri- This was presented to the Board as the first in a series of proj- cultural development contemplated in GOM's PDP and in ects designed to rehabilitate and systematically strengthen IDA's Rural Rehabilitation Project (FY93), by making coastal Mozambique's transport system. Previously GOM had given shipping cost-efficient and moving toward privatization and primary attention to the country's three east-west railway cor- by initiating the phased rehabilitation of Mozambique's ridors. With this project, the first step was taken to tackle the coastal ports; and (ii) to build the institutional capacity nec- north-south connections (both for roads and coastal shipping) essary for effective planning and monitoring of the coastal in the context of a sector program designed to initially shipping subsector. strengthen institutional and human resource capacities, in coor- dination with improvements in sector policies, while starting Description out modestly on investments. The credit was extended before The project included (i) technical assistance (TA) and training the end-1992 peace agreements, and therefore focused on sec- by general consultants (GC) to MTC for overall project man- tor policies, institutional development, and human capacity agement, including policy and regulatory reform, facilitation building with investment limited to secure (coastal) areas. A fol- of greater private sector involvement (awarding port manage- low-up credit ccvering major investments was extended in ment contracts, preparing state enterprises for divestiture), 1994. Since then the two projects have been supervised as an improvements in procurement and materials management, and integrated program enabling the Bank to more effectively help development and preparation of subsequent phases of a long- Mozambique to benefit from large donor support. term transport sector improvement program, including (a) effi- Major progress has been made in liberalizing-including ciency improvement in the road transport (trucking) subsector, privatizing-of both the trucking and, more slowly, the coastal and (b) TA and studies for rehabilitation final engineering and shipping industry. This has already led to considerable effi- for institutional strengthening and capacity building in road ciency gains for the sector and the economy as a whole, not infrastructure; (ii) TA to DNM and to GAPROMAR (the des- least by favoring the integration of formerly isolated rural ignated GOM unit to be responsible for project coordination areas. Progress has also been significant in institutional and implementation, local small ports management and oper- strengthening and much increased human resource capacities ations entities, and local training institutions, including the through education and training in the highway subsector and Training Division of CFM); (iii) a feasibility, preliminary engi- other transportation agencies. Overall, there has been success- neering, and environmental study for the rehabilitation of ful progress with this project, which has greatly benefited from small ports (already completed); (iv) phased small ports infra- the large investment program being carried out in the sector. structure rehabilitation, including repair or replacement of cargo handling, navigational aids, and communications equip- ment; and (vi) supervision of works. Supervision-Form 590 Ratings 6/S/92 6/30/93 6/30/94 6/28/95 6/24/96 6/16/97 Development objectives 1 1 S S S S Implementation progress 1 2 S S S S 67 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 17 AND PRELIMINARY EVALUATION ECONOMIC RECOVERY CREDIT (PROJECT ID 1775, CREDIT C2384), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 200 etmae Approval.........6111192 Undisbursed (0.00%) Effectiveness ........ ... 8/3/92 ~~ 150 Closing .6/30/96 ~~~~~~~~~~~~~~~~~~~Canceled (0.02%) Approved.........$180m 100- Disbursed ........ $188.3m Canceled . . U ndisburse $0.03m Disbursed (99.9%) 50 7Undisbursed.......... 0 Project status . COMPLETED 0 om~~~,$ , N I I G o\~' o\ 1 ,\3 , ,\ o\ Date Objectives The proceeds of the credit were used by Mozambique to sup- The objectives of the Bank's assistance strategy for Mozam- port the enlargement of the secondary market and finance bique were to establish an economic environment conducive to technical assistance to strengthen the government's capacity to economic growth while reducing poverty, and to support the extend the privatization process to large enterprises and to rehabilitation of key economic and social infrastructure. The reform the banking sector. It was expected that up to US$10 overall approach was to strengthen key institutions, policies, million would be used for restoring the productive potential of and functions in a way that was conducive to increased pro- agriculture destroyed by the drought. ductivity of public resources, enhanced private sector growth, and reduced poverty. Evaluation Substantial progress was made toward achieving the major Description objectives of the credit. The administratively managed system In earlier adjustment operations, IDA had been supporting of foreign exchange allocation was replaced with market- Mozambique's Economic and Social Rehabilitation Program based allocation, including a substantial real devaluation. The (ESRP). The credit provided support for the ESRP. The objec- Central Bank of Mozambique and the Commercial Bank of tives of the credit were to enhance private sector-based growth, Mozambique were established as separate entities and a diver- redeploy budgetary expenditures toward key social sectors and sified set of private financial institutions was created. Thirty- smallholder agriculture, and provide support for drought- two major public enterprises were privatized, comprising relief. The credit had four main components: first, it improved two-thirds of the production capacity of the public sector. foreign exchange allocation and export incentives by develop- Redeployment of budgetary expenditures resulted in signifi- ing a consolidated market for foreign exchange, liberalizing cant increases in the volume of health and primary educational prices of manufactured products and reforming agricultural resources. A safety net assisting 80,000 urban poor was estab- marketing; second, it strengthened the role of the Central lished, while the number of families nationwide in need of Bank, improved access to credit by the private sector, and food assistance declined from over one million in 1994 to developed commercial banking services; third, the credit accel- 90,000 in 1996. However, progress toward stabilization was erated the restructuring and privatization of the state enter- modest. While economic growth accelerated during the imple- prise sector and established a transparent system for mentation period to 6 percent annually, progress toward privatization; fourth, the credit reoriented budgetary expendi- restoring fiscal equilibrium has been elusive, hampered by tures to protect a set of high-priority activities in primary declining revenues, difficulties in coordinating external aid, a health, primary and secondary education and smallholders in large and unsustainable burden of external debt, and limited agriculture, and provided support for the implementation of institutional capacity. limited targeted direct income transfers to poor households. Supervision-Form 590 Ratings 9/25/92 6/30/93 6/30/94 6/29/95 6/24/96 Development objectives 1 1 S S S Implementation progress 2 2 S S S 68 Annexes PROJECT SUMMARY SHEET 18 AND PRELIMINARY EVALUATION CAPACITY BUILDING: HUMAN RESOURCE DEVELOPMENT (PROJECT ID 1797, CREDIT C2436), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 50- Approval ... ... 11/1'9/92 . Canceled (0%) 45- estimated Effectiveness ...... 12/1/93 e 35_ - / Closing.6/30/99 - Disbursed (34%) z 30- - Approved ...... $48.6m 25- - Disbursed .. . ... D1D 2 20-/ Canceled Undisbursed (66%) 0o- Undisbursed .$31.4m 5 _ / actual Project status .ACITVE °- .. i ' I ' II I I I I I I Date Objectives tation of pre-university schools and special measures to increase The project's main objective was to build and maintain capac- female enrollment (37 percent of project costs). ity in key public institutions and skill areas by expanding the supply of well-trained senior planners, policy analysts, man- Evaluation agers, and technicians and by enhancing pay and other incen- The project is characterized by a slow disbursement-at mid- tives and conditions of employment for senior civil servants. review last Septernber, the disbursement was at 32%. The lag Specific objectives included (a) increasing the quantity and is largely due to civil work in the university component of the improving the quality of university graduates and strengthen- project. This, in turn, is due to the level of counterpart funds ing UEM's role as a participant in development policy dia- provided by the Government of Mozambique (GOM). To logue; and (b) improving learning achievement in upper resolve the issue, action is being taken to reduce counterpart secondary education so as to eliminate the need for remedial funding from 20 percent to 15 percent without violating the training at the university or in the workplace. Bank's rules (using IDA funds to pay local taxes). University component of the project: Civil work is not Description moving fast: only staff apartment construction or rehabilita- The project contributed to building capacity in Mozambique tion has been completed. The quality improvement has made through the following two components: (a) University Stabi- significant progress. In that regard, training has been the most lization-systems development and training in university successful activity in disbursement (52 percent). Cumulatively administration, financial management, and maintenance; pro- up to June 1997, seventy-two teaching staff have received fel- vision of textbooks, computers, and library materials; con- lowships toward studies abroad, while 1,230 participated in struction and upgrading of staff housing, libraries, student short courses. Stll within the quality improvement subcompo- dormitories, and other campus facilities; and staff development nent, provision of books and information technology as well scholarships (63 percent of project costs); (b) Quality Improve- as twinning arrangements with foreign universities are both ments in Upper Secondary Education-development of a new progressing, but delays and some issues (establishment of a teacher training program; support to curriculum and examina- book fund) have to be addressed. Secondary education (EPU) tion reform; provision of textbooks and learning materials; component: Imrlementation is progressing satisfactorily, with training for school managers and administrative staff; rehabili- the exception of a limited number of specific constructions. Supervision-Form 590 Ratings 7/1/93 6/30/94 6/28/95 6/28/96 6126/97 Development objectives 2 S S U U Implementation progress 2 S U U U 69 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 19 AND PRELIMINARY EVALUATION LEGAL & PUBLIC SECTOR CAPACITY (PROJECT ID 1810, CREDIT C2437), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 14 Approval ........ 11/19/9 2 0 12 - estimated Effectiveness ...... . 2/28/94 a160/ Closing ..... 6/30/99 E 10-- ~~~~~Approved.........$15.5m Disbursed (48%) Disbursed .........$7.4m 6 Canceled . $2.93m ~~~~~~~~~~~~~~~~~~~~~Undisbursed (33%) 4 Undisbursed .... $5m sr 2- / = wewf actual Project status .ACTIVE 0- "Z, f,b\ o'\9 \,\\q Date Objectives ing and coordination of an incentives scheme for senior civil The project's main objective was to build and maintain capac- servants, to be financed by donors; and creation of a fund for ity in key public institutions and skill areas by expanding the in-service training in public administration and management. supply of well-trained senior planners, policy analysts, man- agers, and technicians and by enhancing pay and other incen- Evaluation tives and conditions of employment for senior civil servants. Both project components have experienced serious implemen- Specific objectives included (a) strengthening legal institutions tation problems and slow disbursement. However, since the and professional capabilities and (b) developing public admin- Midterm Review in November 1996, implementation appears istration and management skills and enhancing civil service to be improving, particularly under the legal component. Prob- personnel systems. Capacity building in Mozambique would lems have included (i) lack of continuity-the project has had expand significantly the supply of higher-level human 4 task managers, with the MAE complaining that each has resources, which is a necessary condition for the achievement wanted to revise the project; (ii) initial project design required of all IDA program objectives. The project also contained spe- micromanagement by the Bank, now revised; (iii) the project cial measures to further the process of public sector reform and called for the GOM to prepare a strategic legal reform road to increase women's educational opportunities and participa- map (still not done), many donors providing legal/judicial TA, tion in the legal profession. but inadequate coordination has meant that Mozambique still lacks a comprehensive legal reform program. The Mozambi- Description can task force that authored a recent study under the Bank- The project contributed to building capacity in Mozambique supported "Partnership for Capacity Building in Africa" through the following two components: (a) Strengthening concluded that the country's judicial system was seriously defi- Legal Institutions-implementation of a long-term strategy to cient and lacked credibility in the eyes of society. The sum of strengthen legal institutions and expand legal education; pre- Bank and other aid in legal system capacity-building appears service and in-service training for lawyers, magistrates, and not to be commensurate with the magnitude and character of other legal workers; and creation of computerized legal data the system's difficulties. bases and library collections (53 percent of project costs); and The effort to create an effective policy unit in MAE to (b) Improving Public Administration and Development Man- address civil service reform has been unsuccessful thus far. The agement-establishment of a Ministry of State Administration slow progress in development of a reform plan covering civil (MAE) planning unit to formulate civil service reform policies service salary structure and levels has been a major factor delay- and oversee their implementation; technical assistance and ing a critical requirement for GOM capacity building across the training to support ongoing improvements in public sector per- board. While project implementation has showed improvement sonnel management (job grading, recruitment and promotion, (in procurement, and appointment of MAE staff), achievement career structures, training for professional growth); monitor- of project objectives remains uncertain. Supervision-Form 590 Ratings 7/1/93 6/30/94 6/28/95 6/28/96 6/5/97 Development objectives 2 S U U S Implementation progress 2 S U U S 70 Annexes PROJECT SUMMARY SHEET 20 AND PRELIMINARY EVALUATION MAPUTO CORRIDOR (PROJECT ID 1802, CREDIT C2454), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEIMIENTS AND CANCELLATIONS estimated Approval ............... 111S/93 Canceled (0%) 10_ Effectiveness ............. 9/27/93 A.. e _ Closing ............... 12/31/98 Undisbursed (44%) E 7 - / Approved ................ $9.3m ;, 6 - ~ actual / Disbursed ................ $.3m G 4 / Canceledi. Disbursed (56%) 3-- Undisbursed.........ndbe $4.1m Project status.......ACT'IVE o~~~~~~~~' ) Date Objectives Evaluation The overall project objective was to assist the government to This project was difficult to negotiate and its implementation restructure CFM(S) to improve its long-term efficiency. To progress was slow in the initial years. The project responded to achieve this objective, the project aimed to (i) facilitate govern- the Bank's concern that a major improvement in the large ment's divestiture of direct involvement in the management and CFM(S) investment required progress toward privatization/ operation of those transport facilities in the corridor where concessioning. Thie GOM, and even more CFM, were not ini- there was no demonstrable competitive or regulatory advantage tially convinced about this important step. Over time, and to such participation, and to assist it to do so on the most com- with much patience and effort on the part of the Bank, the mercially advantageous terms; and (ii) assist government in main item financed under the credit (a large consultant con- ensuring that the substantial proportion of the work force that tract for financial advisory services) was concluded in 1995, was likely to be redundant as a consequence of this restructur- but even then cooperation with the chosen consultant proved ing is adequately cushioned against the effects of loss of to be less than satisfactory. Moreover, CFM went ahead with employment. A subsidiary and related objective of the project some limited corcessioning without public bidding. However, was to enhance confidence in the capacity of the system by by fall 1997, GOMICFM agreed with the Bank on an ICB ten- financing equipment to relieve bottlenecks in container termi- der with a view to obtaining a concession agreement on the nal operations and to strengthen communications with neigh- principal rail and port facilities of CFM(S). Bids are to be sub- boring systems. mitted by December 17, 1997. A special effort has been made by the Bank's staff to help Description develop appropriate solutions to the large labor redundancy The project included the following components, which identified for CFM(S). Although the study on the subject was formed the basis for deciding on the scope of private sec- to be by USAID, Bank staff have taken a good deal of initia- tor participation in the provision of services on the tive in this important matter, especially with the improved CFM(S) system: (i) Investment and Financial Advisory prospects for concessioning. The Bank recognized that a solu- Services; (ii) Legal Advisory Services; (iii) Environmental tion on the labor issue needed to be in hand before a conces- Analytical Services; (iv) Labor Redeployment Strategy; sionaire could be expected to make major financial and (v) Equipment. commitments in the new railway and port venture(s). Supervision-Form 590 Ratings 6/30/93 6/30/94 6/29/9S 6124/96 6/12/97 Development objectives 1 S S S S Implementation progress 2 S S S S 71 Rebuilding the Mozambique Economy: Assessment of a Development Partnership PROJECT SUMMARY SHEET 21 AND PRELIMINARY EVALUATION RURAL REHABILITATION (PROJECT ID 1796, CREDIT C2479), AS OF 11/97 DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA DISBURSEMENTS AND CANCELLATIONS 25- Approval.........3/30/93 Canceted (0%) 25- estimated Effectiveness .12/8/93 - 20- \Closing ......... 12131/98 Undisbursed (59%) is A~~~~~~~~~~~~-pproved .........$20mUnibre 5% Disbursed ... $8.3m c0 jO / ment assistance partners are financing too many projects, g for greater coordination at the sectoral level. Sector pro- - each governed by different modalities. The time has come grams are ongoing in roads and health, and under prepa- fii to construct management coalitions to improve the ration in education and agriculture. Mechanisms to I - coherence and the impact of external assistance by having strengthen common donor implementation procedures r the Bank, other multilateral/bilateral donors and the civil and to enhance private sector and NGO participation in T society join forces and seek results at the national level the SIPs are under discussion. Concrete benchmarks to for high priority sector programs, managed for results. measure results are included in all operations. The Resident Mission's "NGO Outreach" Program ¶ will continue, with efforts to draw the Government more v actively into this activity. The pace of developing "management coalitions," particularly those involving civil society, will depend, in large part, on the Government's capacity and the priority - it attaches to nurturing these coalitions. (iii) Put Mozamnbique authorities in the "driver's seat" in j (iii) Agreed and consistent with the CAS. This is a major g capacity building activities and external assistance coordi- focus of ongoing Bank work. The joint Fiscal Manage- g nation while giving it suitable support through advisory a ment Review, and the development of a medium-term fis- and fiduciary services. Large numbers of expatriate con- cal framework that it is supporting, specifically aim to sultants, project implementation units and salary supple- help the Government develop the capacity and processes ments are undercutting civil service reform and to better determine priorities and ensure consistency institutional development. Public expenditures manage- between those priorities and the way the budget is formu- ment needs to be upgraded and the aggregate transaction lated and implemented, including the donor-financed por- costs of external assistance reduced through more effec- tion of the budget. This is also the driving force behind # tive coordination of assistance by Mozambique authori- & the Bank's support for SiPs in key sectors, the Bank's ties. The Bank should give priority to enhancing the avoidance of long-term expatriate technical assistance effectiveness of the overall aid system by assisting the where possible, and the Bank's view that PIUs should not g Government in improving the coherence of aid programs g be supported under new operations and should be phased g in the pursuit of priority development objectives. out where they still exist. 4 Also, following a Government request, the Bank is pro- viding its assistance and advice on public sector and civil 4 , service reform. We are working closely with other part- nets on this. 86 Annexes .,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. ... ....... . (iv) Defer to other donors where they have a comparative (iv) Further focusing Bank activities is an explicit objec- advantage in taking the lead. The Bank is currently tive in the CAS. The CAS's strategic priority of strength- stretched too thin. It needs to concentrate efforts on - ening development partnerships is an explicit recognition fewer activities and play a supporting role where other of the need for more effective coordination of donors' development agencies have a comparative advantage in - country assistance strategies, with a focus on their respec- taking the lead. With respect to the environment, the tive comparative advantages. A donor strategy retreat, to rural sector and the social sectors, the Bank has an - discuss country assistance strategies and donors' compar- important intellectual contribution to make but other ative advantage took place in Maputo in August 1998. donors have a major presence and the Bank's lending role The CAR's recommendation that the Bank's lending may be reduced. role in the rural sector and social sectors can be reduced should be approached with some caution. The CAS's principal objectivz is poverty reduction. This calls for a special emphasis on rural areas, where the majority of the poor reside and the opportunities of poverty-reducing dynamic growth are greatest. Capacity building and human resource (levelopment is also a CAS priority. The design of the SIPs in roads, agriculture, health, and educa- tion attempt to niaximize other donors' financial and intellectual participation. Their success hinges on strong Bank financial support to enhance the impact of its intel- lectual contribution (mentioned in the CAR), and to rein- force the CAS's central objective and strategic priorities, ; and ensure their adequate support by all partners. (v) Adapt the structure and modalities of Bank assistance (v) Management concurs with the recommendations and to the revised objectives of the country assistance strat- they are consistent with the CAS. Enhancing the role of egy. To help Mozambique deal with unusually complex the Resident Mission, using the new lending instruments, development challenges (crushing poverty; burdensome and emphasizing "just in time" advice and assistance are debt; weak institutions; lack of human resources; social underway and featured in the CAS. Staffing in the Resi- dysfunctions; etc.) the Bank should be responsive and dent Mission has been significantly strengthened, and fur- nimble. Greater decentralization of authority to the field ther strengthening-mostly through local hiring-is and imaginative use of adaptable lending instruments envisioned over the next year and beyond. Portfolio man- would facilitate aid coordination and make Bank assis- agement has become the responsibility of the Resident tance more effective. Representative, and the Resident: Mission's activities have been increased in the areas of local aid coordination, civil society" outreach, and policy dialogue with the Government. Excellent instant communications, including teleconferencing facilities, between Maputo and Head- quarters now facilitate integration between Headquarters and the Resident Mission, and reduce the Bank's response time in general. Adaptable lending instruments are actively being explored in agriculture, roads, and rural development. 87 Rebuilding the Mozambique Economy: Assessment of a Development Partnership REPORT FROM CODE/COMMITTEE ON DEVELOPMENT EFFECTIVENESS On December 17, 1997, the Committee on Development importance of strengthening the resident mission in Mozam- Effectiveness (CODE) considered a report prepared by the bique to provide a strong supportive presence. The Committee Operations Evaluation Department (OED), entitled Mozam- welcomed management's response that a strategic priority of bique: Country Assistance Review (CAR) (IDA/SecM97-537), the CAS will be to help the country strengthen its development together with a management response prepared by the Africa partnerships. Region. CODE welcomed the main conclusion that the Bank's assistance to Mozambique in support of its economic transfor- Capacity-building mation has been responsive to a unique set of circumstances. Capacity-building was identified by OED as one of the five pri- Highlights of the discussion which are pertinent to the Board's ority areas for Government and Bank attention. The Commit- review of the Country Assistance Strategy (CAS) for Mozam- tee welcomed management's response to the CAR that bique follow. promoting capacity-building and human resources develop- ment is one of the Bank's three strategic priorities in the CAS. Timing of the CAR and the CAS The Committee stressed that as with aid coordination, the The Committee acknowledged with appreciation that OED Government should be in the "driver's seat" in capacity build- had accelerated the completion of the CAR so that it could be ing activities. The view was expressed that the CAR could have reviewed before the Board consideration of the CAS. Concern been more explicit in its recommendations about measures to was expressed that because of the timing, the CAR had not be taken to address weaknesses in institutional capacity. been discussed with the Government or donors, and the Region had not been able to take full account of OED's rec- Generic Issues Related to CARs ommendations during the preparation of the CAS. Manage- Some speakers indicated that the CAR did not provide suffi- ment's response that there had been considerable interaction cient historical background information on the fundamental with OED was noted. It was suggested that the Board discus- development challenges which Mozambique faces. It was sug- sion of the CAS should have been postponed. In view of the gested that since the CAR is a relatively new product, there Government's desire not to postpone the Board review of the needs to be further discussion on the extent to which critical CAS, the Committee agreed to proceed on the current CAS development issues and the context from which they emerge schedule and suggested that an implementation workshop should be included. The nature of the consultation between should be organized after the CAS was reviewed by the Board. OED and management during the preparation of CARs also The workshop would be an opportunity for the recommenda- warrants further consideration in the view of some speakers. tions of the CAR to be fully discussed and incorporated into the CAS. Donor Coordination and the Resident Mission The Committee noted OED's finding that the proliferation of donors in Mozambique carries costs in terms of excessive administrative burdens on the Government, wasteful duplica- tion of efforts, initiation of projects in excess of the country's absorptive capacity or with questionable economic priority. CODE stressed that the Bank should take its comparative advantages into account in its assistance strategy for Mozam- bique and defer to other donors where they have a compara- tive advantage. Failure to do so could lead to an over-ambitious lending program resulting in poor portfolio performance. The Committee believes, and management agrees, that the Mozambique authorities should be encouraged to take the lead in coordinating external assistance. The Bank should give priority to enhancing the effectiveness of the over- all aid system by assisting the Government in improving the coherence of aid programs in the pursuit of priority develop- ment programs. In this regard, the Committee emphasized the 88 OPERATIONS EVALUATION DEPARTMENT PUBLICiATIONS The Operations Evaluation Department (OED), an inde- The World Bank InfoShop serves walk-in customers pendent evaluation unit reporting to the World Bank's only. The InfoShop is located at: executive directors, rates the development impact and performance of all the Bank's completed lending opera- 701 18th Street, NW tions. Results and recommendations are reported to the Washington, DC 20433, USA executive directors and fed back into the design and implementation of new policies and projects. 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E-mail: pic@worldbank.org Fax number: (202) 522-1500 Telephone number: (202) 458-5454 89 OED STUDY SERIES Evaluation and Development: The Institutional Dimension (1998) 1997 Annual Review of Development Effectiveness (1998) India: The Dairy Revolution (1998) The World Bank's Experience with Post-Conflict Reconstruction (1998) Financial Sector Reform: A Review of World Bank Assistance (1998) Rebuilding the Mozambique Economy: Assessment of a Development Partnership (1998) Agricultural Extension and Research: Achievements and Problems in National Systems (1997) Fiscal Management in Adjustment Lending (1997) Reforming Agriculture: The World Bank Goes to Market (1997) Paddy Irrigation and Water Management in Southeast Asia (1997) 1995 Evaluation Results (1997) Zambia Country Assistance Review: Turning an Economy Around (1997) The Aga Khan Rural Support Program: A Third Evaluation (1996) Lending for Electric Power in Sub-Saharan Africa (1996) Industrial Restructuring: World Bank Experience, Future Challenges (1996) Social Dimensions of Adjustment: World Bank Experience, 1980-93 (1996) 1994 Evaluation Results (1996) Ghana Country Assistance Review: A Study in Development Effectiveness (1995) Evaluation and Development: Proceedings of the 1994 World Bank Conference (1995) Developing Industrial Technology: Lessons for Policy and Practice (1995) The World Bank and Irrigation (1995) 1993 Evaluation Results (1995) Structural and Sectoral Adjustment: World Bank Experience, 1980-92 (1995) Gender Issues in World Bank Lending (1995) The World Bank's Role in Human Resource Development in Sub-Saharan Africa: Education, Training, and Technical Assistance (1994) 1992 Evaluation Results (1994) New Lessons from Old Projects: The Workings of Rural Development in Northeast Brazil (1993; contains summaries in French, Portuguese and Spanish) World Bank Approaches to the Environment in Brazil (1993; contains summaries in Fre:nch, Portuguese, and Spanish) Trade Policy Reforms under Adjustment Programs (1992) World Bank Support for Industrialization in Korea, India, and Indonesia (1992) Population and the World Bank: Implications from Eight Case Studies (1992) The Aga Khan Rural Support Program in Pakistan: Second Interim Evaluation (1990) hmm2 THE WORLD BANK I81S 1] Str-cet, N,V\ Y'\ shim,ton, 1).C. 20433, U.S.A. ickpl.hmc 1()2-4??-1234 Fac511ilc: 201-477-6391 elexC: .\ICI 64145 WORLDBANK MCI 248423 WORLDBANK WVorld Wide Web: http://wwvw.worldbank.org l-nm.il: hooksalworldhank.org I~~~~~~~~~~~~~~~~~~~~~~I 9 780821 342923 ISBN-0-8213-4292-4