abbreviations and acronyms222 rosewood drive, danvers, massachusetts 01923, u.s.a. design: the...

ARD Agricultural Rehabilitation andDevelopment

ASRD Agricultural Services Rehabilitationand Development

BCM Banco Comercial de MoçambiqueBFE Banco de Fomento e ExteriorBPD Banco Popular de DesenvolvimentoBST Banco Standard Totta de MoçambiqueCAS Country Assistance StrategyCESP Country Environmental Strategy PaperCFM Caminhos de Ferro de MoçambiqueCG Consultative GroupDDA Direcção Distrital de AgriculturaDNEP National Directorate of Roads and

BridgesDPA Direcção Provincial de AgriculturaEDM Electricidade de MoçambiqueENH Empresa Nacional de HidrocarbonerasERP Economic Rehabilitation ProgramESW Economic and Sector WorkEFMTAC Economic and Financial Management

Technical Assistance CreditFRELIMO Frente de Libertação de MoçambiqueFSCBP Financial Sector Capacity Building

ProjectGAPROMAR Bureau of Maritime ProjectsGDP Gross Domestic ProductGEF Global Environment FacilityHQ HeadquartersHRDP Human Resources Development

ProjectICR Implementation Completion ReportIDA International Development AssociationIERP Industrial Enterprise Restructuring

ProjectIMF International Monetary FundLIBOR London Interbank Offered Rate

MAE Ministry of State AdministrationMAF Ministry of Agriculture and FisheriesMFP Ministry of Finance and PlanningMICOA Ministry of Environmental

CoordinationMINED Ministry of EducationNEMP National Environmental Management

ProgramNGO Nongovernmental OrganizationOED Operations Evaluation DepartmentPAU Poverty Alleviation UnitPCU Project Coordination UnitPETROMOC Petroleos de MoçambiquePFIs Participating Financial InstitutionsPIU Project Implementation UnitPROAGRI Agricultural Sector Investment ProgramPROL Local Government Reform and

Engineering ProjectPROLEC Household Energy ProjectPRU Urban Rehabilitation ProjectRENAMO Resistencia Nacional MoçambicanaROCS Roads and Coastal ShippingRRP Rural Rehabilitation ProjectSADC Southern Africa Development

CommunitySDA Social Dimensions of AdjustmentSERC Second Economic Recovery CreditSIDA Swedish International Development

AuthoritySIP Sector Investment ProgramSMEDP Small and Medium Enterprise

Development ProjectTA Technical AssistanceTFCA Transfrontier Conservation AreasTM Task ManagerUN United Nations

ABBREVIATIONS AND ACRONYMS

W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T

1998

The World Bank

Washington, D.C.

Luis Landau

Rebuilding theMozambiqueEconomy

COUNTRY ASSISTANCE REVIEW

Assessment of a Development Partnership

Copyright © 1998

The International Bank for Reconstruction

and Development/THE WORLD BANK

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Washington, D.C. 20433, U.S.A.

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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 DataLandau, 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 0-8213-4292-41. World Bank—Mozambique. 2. Economic assistance—Mozambique.

3. Mozambique—Economic conditions—1975. 4. Mozambique—economic policy. I. Title. II. Series.HG3881.5.W57L358 1998338.9679—dc21

98-36253CIP

Printed on recycled paper.

iii

vii Acknowledgmentsix Foreword, Prefacio, Préfacexiii Executive Summary, Resumen, Résumé Analytique

1 1. Conflict and Its Aftermath

5 2. Evolution of the Bank’s Strategy and Portfolio5 Rehabilitation and Adjustment5 A Broader Focus6 A New Strategic Principle and a Broader Portfolio6 Normalization and Consolidation

9 3. Private Sector Development: Bank Strategy in the Enterprise and Financial Sector10 Instruments of the Bank’s Assistance for Private Sector Development10 Enterprise Lending: A Dismal Early Record, but Recent Improvements in the

Business Climate10 Assistance to the Financial Sector: Sequencing Missteps, but Eventual

Restructuring of the Sector11 Privatization: Substantial Progress11 Recommendations11 Financial and Enterprise Reform: Better Sequencing and New Tools12 Business Environment: Business Legislation Still Needs Reform12 Recommendations

15 4. Instruments of Bank Assistance for Infrastructure Development15 Railroads16 Roads and Ports16 Recommendations17 Energy: Need for a New Look at the Sector17 Strategy and Implementation17 Recommendations17 Urban Development: Too Complex and Too Little18 Recommendations19 Environment: Turning Policy into Action20 Recommendations

23 5. Social Amelioration: Reducing Poverty Through Agricultural Growth24 How Appropriate Was the Bank’s Poverty Strategy?24 Recommendations24 Attention to Gender Issues Has Been Sporadic25 Recommendations26 The Bank in the Health Sector26 Background27 Bank/IDA Studies and Assistance (1986–97)29 Assessment of Results29 The Future of IDA Assistance

C o n t e n t s

iv

30 Education30 Implementation Experience31 Recommendations

33 6. Assistance for Agriculture and Rural Development: Rebuilding the Sector33 Bank Strategy: The Right Direction34 Consistency with the Strategy34 Implementation34 Recommendations

35 7. Portfolio Management: Quality at Entry35 Economic and Sector Work36 State of Preparation/Readiness of Project by Time of Approval37 Complexity of Projects37 Relations with Development Assistance Partners38 Quality of Bank Supervision38 Adequacy of Bank Supervision40 Attention to Policy, Institutional, and Physical Aspects of Project Implementation40 Adapting Projects to Changing Circumstances and Using Review Processes for

Improving the Portfolio41 Procurement and Disbursement42 Role of the Resident Mission42 Recommendations

43 8. Policy Issues: Reform Initiatives

47 9. Conclusions48 Recommendations

49 Endnotes

51 Annexes51 Statement of Bank’s Loan Portfolio to Mozambique as of 11/9752 Project Summary Sheet 1 and Preliminary Evaluation Rehabilitation Program

(Project ID 1760, Credit C1610), as of 11/9753 Project Summary Sheet 2 and Preliminary Evaluation Energy TA and

Rehabilitation Project (Project ID 1764, Credit C1806), as of 11/9754 Project Summary Sheet 3 and Preliminary Evaluation

Rehabilitation II (Project ID 1761, Credit C1841), as of 11/9755 Project Summary Sheet 4 and Preliminary Evaluation

Education 1 (Project ID 1763, Credit C1907), as of 11/9756 Project Summary Sheet 5 and Preliminary Evaluation

Urban Rehabilitation (Project ID 1789, Credit C1949), as of 11/9757 Project Summary Sheet 6 and Preliminary Evaluation

Health & Nutrition (Project ID 1787, Credit C1989), as of 11/9758 Project Summary Sheet 7 and Preliminary Evaluation

Rehabilitation III (Project ID 1773, Credit C2021), as of 11/97

R e b u i l d i n g t h e M o z a m b i q u e E c o n o m y : A s s e s s m e n t o f a D e v e l o p m e n t P a r t n e r s h i p

v

59 Project Summary Sheet 8 and Preliminary EvaluationUrban Household Energy Credit (Project ID 1793, Credit C2033), as of 11/97

60 Project Summary Sheet 9 and Preliminary EvaluationBeira Corridor (Project ID 1770, Credit C2065), as of 11/97

61 Project Summary Sheet 10 and Preliminary EvaluationEconomic and Financial Management (Project ID 1762, Credit C2066), as of 11/97

62 Project Summary Sheet 11 and Preliminary EvaluationIndustrial Enterprise Restructuring Project (Project ID 1784, Credit C2081), as of 11/97

63 Project Summary Sheet 12 and Preliminary EvaluationSmall and Medium Enterprise Development Project (Project ID 1794, Credit C2082), as of 11/97

64 Project Summary Sheet 13 and Preliminary EvaluationAgricultural Rehabilitation & Development (Project ID 1765, Credit C2175), as of 11/97

65 Project Summary Sheet 14 and Preliminary EvaluationEducation II (Project ID 1776, Credit C2200), as of 11/97

66 Project Summary Sheet 15 and Preliminary EvaluationAgricultural Services Rehabilitation (Project ID 1781, Credit C2337), as of 11/97

67 Project Summary Sheet 16 and Preliminary EvaluationFirst Road and Coastal Shipping (Project ID 1790, Credit C2374), as of 11/97

68 Project Summary Sheet 17 and Preliminary EvaluationEconomic Recovery Credit (Project ID 1775, Credit C2384), as of 11/97

69 Project Summary Sheet 18 and Preliminary EvaluationCapacity Building: Human Resource Development (Project ID 1797, Credit C2436), as of 11/97

70 Project Summary Sheet 19 and Preliminary EvaluationLegal & Public Sector Capacity (Project ID 1810, Credit C2437), as of 11/97

71 Project Summary Sheet 20 and Preliminary EvaluationMaputo Corridor (Project ID 1802, Credit C2454), as of 11/97

72 Project Summary Sheet 21 and Preliminary EvaluationRural Rehabilitation (Project ID 1796, Credit C2479), as of 11/97

73 Project Summary Sheet 22 and Preliminary EvaluationFood Security (Project ID 1801, Credit C2487), as of 11/97

74 Project Summary Sheet 23 and Preliminary EvaluationLocal Government Reform: PROL (Project ID 1791, Credit C2530), as of 11/97

75 Project Summary Sheet 24 and Preliminary EvaluationSecond Road and Coastal Shipping (Project ID 1804, Credit C2599), as of 11/97

76 Project Summary Sheet 25 and Preliminary EvaluationFinancial Sector Capacity (Project ID 1811, Credit C2607), as of 11/97

77 Project Summary Sheet 26 and Preliminary EvaluationSecond Economic Recovery Credit: SERC (Project ID 1777, Credit C2628), as of 11/97

78 Project Summary Sheet 27 and Preliminary EvaluationGas Engineering (Project ID 1780, Credit C2629), as of 11/97

79 Project Summary Sheet 28 and Preliminary EvaluationHealth Sector Recovery (Project ID 1792, Credit C2788), as of 11/97

80 Project Summary Sheet 29 and Preliminary EvaluationEconomic Recovery Credit III (Project ID 35922, Credit CN010), as of 11/97

C o n t e n t s

vi

81 Comments on Management Portfolio/Banco de Moçambique83 Ministério do plano e finanças direcção nacional do tesouro85 Rebuilding the Mozambique Economy: Assessment of a Development

Partnership/Management Response88 Report from CODE/Committee on Development Effectiveness

Boxes2 1.1 A Unique Set of Historical Circumstances

12 3.1 Case Studies in Enterprise Restructuring14 3.2 IFC and FIAS: Strategy and Activities in Mozambique26 5.1 Gender Dimensions of the Bank’s Lending Program30 5.2 Confronting AIDS31 5.3 Experience with Bilingual Education

Tables39 7.1 Staffyears by Main Service39 7.2 Supervision Effort39 7.3 Supervision Intensity by Sector


vii

This report was prepared by Luis Landau (TaskManager). The Swiss Agency for Development and Coop-eration made valuable financial and intellectual contribu-tions. Major contributors to the study were: EugeneGurenko, Robert Muscat, Severino Ngoenha, Hans Wyss(Consultants); João Barbosa-De Lucena (LAC); MonicaFong (PRMGE); John Redwood (LCSES). Other contrib-utors included: Julianne Altieri (Projects Assistant);Ziauddin Choudhury (PBDCP); Koffi Edoh (EDI); JoergFrieden, of the Swiss Agency for Development and Coop-eration; Julius Gwyer (OEDCR); Nydia Maraviglia,Arnaldo Pessoa (Consultants); Olikoye Ransome-Kuti(member of the Bank’s “Better Health for Africa” Panel);Araceli de Leon, Takuro Kimura, Robb Smith (IFC).Norma Namisato provided administrative support.

This report was produced as part of the OEDPKpublication series by a team under the direction ofElizabeth Campbell-Pagé, consisting of Marie Daramy,Leo Demesmaker, Tsige Kagombe, Roshna Kapadia,Kathy Strauss, and Brigitte W. Wittel.

A Portuguese language version of this publicationwill be issued separately.

Acknowledgments

Director-General, Operations Evaluation Department: Robert Picciotto

Director, Operations Evaluation Department: Elizabeth McAllister

Manager, OEDCR: Ruben Lamdany

Task Manager: Luis Landau

ix

F o r e w o r d

FOREWORDThis Country AssistanceReview (CAR) incorporatesthe findings of an OED teamthat visited Mozambique inOctober 1997. The SwissAgency for Development

Cooperation provided valuablefinancial support and intellectualguidance throughout all stages ofCAR preparation. However,responsibility for the content andconclusions of this report is exclu-sively OED’s.

The OED team held extensivediscussions with government offi-cials, representatives of Mozam-bique’s civil society, other donorsand NGOs, as well as with BankStaff. With the support of theBank’s Resident Mission, the teamdistributed questionnaires to theministries that had participated inBank-financed operations. At theend of the mission, the team orga-nized a workshop in Maputo forother donors, civil society represen-tatives and NGOs, to exchangeviews on donor coordination. Thevaluable cooperation of all theindividuals consulted is gratefullyacknowledged.

In line with the practice estab-lished in recent CARs, the presentreport contains brief evaluations ofall the projects in the Bank’sMozambique portfolio, includingongoing operations. These can befound in an Annex to the report.

During the critical early stagesof the country’s emergence from adevastating military conflict, theBank contributed advice for mostaspects of the reform program, par-ticularly in launching social pro-grams and helping key ministries intheir capacity-building efforts. Inaddition, the Bank funded priorityinvestments to rebuild the physical

PREFACIOEn el presente Examen de laasistencia a Mozambique se hanincorporado las conclusiones deun equipo del DEO que visitó elpaís en octubre de 1997. ElDepartamento Suizo de

Desarrollo y de Cooperaciónproporcionó valioso respaldofinanciero e intelectual durante todaslas etapas de preparación del Examen.Sin embargo, el contenido y lasconclusiones del informe son deresponsabilidad exclusiva del DEO.

El equipo del DEO sostuvoextensas conversaciones confuncionarios gubernamentales,representantes de la sociedad civil deMozambique, otros donantes y ONG,así como con personal del Banco. Conel respaldo de la Misión Residente delBanco, el equipo distribuyócuestionarios a los ministerios quehabían participado en las operacionesfinanciadas por el Banco. Al finalizarla misión, el equipo organizó enMaputo un curso práctico para otrosdonantes y para representantes de lasociedad civil y ONG, con objeto deintercambiar opiniones acerca de lacoordinación de los donantes.Agradecemos sinceramente lacooperación de todas las personas aquienes se consultó.

De conformidad con la prácticaestablecida en recientes exámenes de laasistencia a los países, el presenteinforme contiene breves evaluacionesde todos los proyectos comprendidosen la cartera del Banco relativa aMozambique, incluidas las operacionesactualmente en curso. Las evaluacionesfiguran en el anexo del informe.

La conclusión principal delExamen es que la asistencia prestadapor el Banco en apoyo de lareconstrucción económica deMozambique se adaptósatisfactoriamente al conjunto de

PRÉFACELa présente Étude de l’aideapportée au pays intègre lesconclusions d’une mission qu’uneéquipe du Département del’évaluation des opérations(OED) a effectuée au

Mozambique en octobre 1997. LaDirection suisse du développement etde la coopération a fourni un concoursfinancier et intellectuel précieux toutau long de la préparation de cetteétude. La teneur et les conclusions dece rapport n’engagent cependant que laresponsabilité de l’OED.

L’équipe de l’OED a eu de longsentretiens avec des agents dugouvernement, des représentants de lasociété civile mozambicaine, d’autresbailleurs de fonds et des ONG, ainsiqu’avec les services de la Banque. Avecl’appui de la Mission résidente de laBanque, elle a distribué desquestionnaires aux ministères quiavaient participé aux opérationsfinancées par l’Institution. À la fin desa mission, l’équipe a organisé uneréunion à Maputo pour permettre auxreprésentants des autres bailleurs defonds, de la société civile et des ONGd’échanger leurs vues sur lacoordination de l’aide. Nous tenons icià remercier toutes les personnesconsultées de leur très utilecoopération.

Conformément à la pratiqueadoptée dans les études les plusrécentes, le présent rapport donne enannexe une brève évaluation de tousles projets inscrits au portefeuille de laBanque pour le Mozambique, lesactivités en cours y comprises.

La principale conclusion de l’étudeest que la Banque a su adapter sonaide à la situation particulière danslaquelle se trouvait la nouvelle nationindépendante.

Au début de la période critique oùle pays sortait d’un conflit dévastateur,

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infrastructure and spear-headed the effort to arrangecritically needed debt relieffrom the nation’s creditors.

The CAR’s main conclusion is that the Bank’sassistance in support of

Mozambique’s economic recon-struction responded well to theunique set of circumstances facingthe newly independent nation.

Mozambique has maderemarkable progress in financialstabilization, economic liberaliza-tion, privatization of the bankingsystem and much of the state-ownedenterprises, and recovery of eco-nomic growth. But severe problems,inherited from the past, remainunsolved: extreme poverty, weakinstitutions, dual economy with amajority of the population sub-merged in subsistence agriculture,limited access to elementary socialservices, and excessive concentra-tion of economic growth amongnarrow segments of the economy.

Many donors, official and non-governmental, are helping Mozam-bique overcome these problems.But the proliferation of donorsimposes excessive administrativeburdens on the thin layer of gov-ernment officials, wasteful duplica-tion of efforts, and initiation ofprojects in excess of the country’sabsorptive capacity or with ques-tionable economic priority.

The ongoing Country Assis-tance Strategy process provides anopportunity to enhance the efficacyof aid coordination. Looking to theimmediate future, it appears advis-able for the Bank and donors toinitiate intensive consultation withthe Government regarding aidcoordination arrangements in sup-port of agreed policy reforms andcapacity-building priorities.

circunstancias únicas a que seenfrenta esa nación recientementeindependizada.

Durante las primeras ycríticas etapas en que el país salíade un conflicto militardevastador, el Banco aportó

asesoramiento sobre la mayoría de losaspectos del programa de reforma,especialmente sobre la iniciación deprogramas sociales y la asistencia a losprincipales ministerios en su labor defortalecimiento de las capacidades.Además, el Banco financió inversionesprioritarias destinadas a lareconstrucción de la infraestructurafísica, y encabezó los esfuerzosencaminados a que los acreedores de lanación concedieran el tan necesarioalivio de la carga de la deuda.

Mozambique ha logradoprogresos extraordinarios en lo querespecta a la estabilización financiera,la liberalización económica, laprivatización del sistema bancario y degran parte de las empresas depropiedad estatal, y la recuperación delcrecimiento económico. Pero haytodavía graves problemas, heredadosdel pasado, que es preciso resolver: laextrema pobreza, la debilidad de lasinstituciones, una economía dual enque la mayoría de la población estádedicada a la agricultura desubsistencia, el acceso limitado a losservicios sociales elementales, y unaconcentración excesiva del crecimientoeconómico en unos pocos segmentosde la economía.

Muchos donantes, oficiales y nogubernamentales, están ayudando aMozambique a superar esosproblemas. Pero la proliferación dedonantes impone una cargaadministrativa excesiva a la escasadotación de funcionariosgubernamentales, y es causa de unaduplicación antieconómica deesfuerzos y de la iniciación de

elle a fourni des conseils sur laplupart des aspects duprogramme de réformes, enparticulier pour faciliter lelancement de programmessociaux et le renforcement descapacités des ministères clés. Elle

a par ailleurs prêté son concoursfinancier à la réalisation desinvestissements les plus urgents pourreconstruire les infrastructures et jouéun rôle moteur dans la mise en placede dispositifs qui ont permis d’obtenirdes créanciers les allégements de dettedont le pays avait cruellement besoin.

Le Mozambique aconsidérablement progressé sur la voiede la stabilisation financière, de lalibéralisation économique, de laprivatisation du système bancaire et dela plupart des entreprises publiques, etde la relance de la croissanceéconomique. Il reste cependant àrésoudre de très graves problèmeshérités du passé : pauvreté extrême,faiblesse des institutions, dualisme del’économie qui relègue la majorité de lapopulation dans l’agriculture desubsistance, accès limité aux servicessociaux de base et croissanceéconomique trop compartimentée.

Par leurs financements, nombred’organismes d’aide publique etd’organisations non gouvernementalesaident le Mozambique à surmonter cesobstacles. Mais la prolifération desbailleurs de fonds fait peser un lourdfardeau administratif sur une fonctionpublique aux effectifs restreints,entraîne une répétition inutile destâches et aboutit au lancement deprojets qui dépassent la capacitéd’absorption du pays ou dont lapriorité économique est contestable.

La définition en cours de laStratégie d’assistance au pays offre lapossibilité de mieux coordonner l’aide.S’agissant de l’avenir immédiat, ilsemble souhaitable que la Banque et


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F o r e w o r d

proyectos que superan lacapacidad de absorción del país ocuya prioridad económica escuestionable.

El proceso actual deaplicación de la estrategia deasistencia al país ofrece la

oportunidad de hacer más eficaz lacoordinación de la ayuda. Pensando enel futuro inmediato, parece aconsejableque el Banco y los donantes inicienconsultas intensivas con el Gobiernoacerca del establecimiento demecanismos de coordinación de laayuda en apoyo de las reformas depolítica convenidas y las prioridades enmateria de fortalecimiento de lascapacidades.

les bailleurs de fonds engagentdes consultations suivies avec lespouvoirs publics afin de définirles modalités de coordination del’aide à l’appui des réformesconvenues et des prioritésretenues pour le renforcement des

capacités.

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Robert PicciottoDirector-General, Operations Evaluation Department

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E x e c u t i v e S u m m a r y

EXECUTIVE SUMMARYMozambique joined the Bankin September 1984, while inthe midst of its third consecu-tive war. The extended con-flict had resulted in thedestruction of the country’s

economic and social infrastructure,in massive population displacementand in economic disruption. Thenewly independent country hadinherited from its colonial past ahighly dualistic economy, with fewMozambicans educated for govern-ment, the professions or commerce.Social conditions were among theworst in the world: life expectancywas estimated at 41 years, the liter-acy rate was a mere 7 percent, andthe population was ethnically andlinguistically heterogeneous. Facedwith such constraints, the govern-ment chose the path of centralplanning, and failed to promote anentrepreneurial class or the institu-tional framework needed for amarket economy.

That history left the countrywith little capacity for economicgovernance or for managing adevelopment process. Out of adecade of failed socialism and afteryears of internal conflict, Mozam-bique has enjoyed a commendableand sustained period of recovery,economic transition, and adherenceof all parties to the peace process.Starting from daunting conditionsof extreme poverty (among thevery poorest countries of theworld) and of heavily damagedeconomic and social infrastructure,the country received substantialsupport from the internationalcommunity.

Mozambique launched an eco-nomic transition process while theinternal conflict was still underway.Peace was achieved in 1992; elec-

RESUMENMozambique ingresó comomiembro del Banco enseptiembre de 1984, cuando seencontraba en medio de sutercera guerra consecutiva. Elprolongado conflicto había

provocado la destrucción de suinfraestructura económica y social,desplazamientos masivos de supoblación y la perturbación de sueconomía. El país, que había obtenidola independencia hacía poco tiempo,había heredado de su pasado colonialuna economía sumamente dual, en laque pocos mozambiqueños habían sidoeducados para la función pública, losestamentos profesionales o elcomercio. Las condiciones socialesfiguraban entre las peores del mundo:la esperanza de vida al nacer secalculaba en 41 años, la tasa dealfabetización era de tan sólo el 7% yla población era étnica ylingüísticamente heterogénea. Antetales limitaciones, el Gobierno optópor la planificación centralizada y nopromovió la formación de una claseempresarial o el marco institucionalnecesario para una economía demercado.

Con ese pasado, el país teníaescasa capacidad de gestión económicao de administración del proceso dedesarrollo. Sin embargo, a pesar deuna década de experiencia socialistafracasada y años de conflictos internos,Mozambique ha disfrutado un largo ymeritorio período de recuperación, detransición económica y de adhesión detodas las partes al proceso depacificación. Partiendo de condicionesabrumadoras de pobreza extrema (secontaba entre los países absolutamentepobres del mundo) y con unainfraestructura económica y social muydañada, el país ha recibido un apoyoconsiderable de la comunidadinternacional.

RÉSUMÉ ANALYTIQUELe Mozambique est devenumembre de la Banque enseptembre 1984, alors même qu’iltraversait sa troisième guerreconsécutive. Les conflitsprolongés qui déchiraient le pays

avaient détruit son infrastructureéconomique et sociale, provoqué desdéplacements massifs de population etbouleversé l’activité économique. Lepays avait hérité de son passé colonialencore récent une économie fortementdualiste et sa population était malpréparée à la fonction publique, auxprofessions libérales et au commerce.Au plan social, la situation était l’unedes pires du monde : l’espérance de vieétait estimée à 41 ans, le tauxd’alphabétisation n’atteignait que 7 %et la population se caractérisait par sonhétérogénéité ethnique et linguistique.Devant de telles difficultés, legouvernement a choisi la voie de laplanification centralisée, ce qui l’aempêché de promouvoir l’émergenced’une classe d’entrepreneurs et demettre en place le cadre institutionnelqu’exige une économie de marché.

Dans ces conditions, le pays nedisposait que de moyens limités pourgérer l’économie et le processus dedéveloppement. À l’issue d’unedécennie marquée par l’échec del’expérience socialiste et de longuesannées de conflits internes, un effortlouable et soutenu a permis auMozambique d’entrer dans une phasede redressement, de transitionéconomique et d’adhésion de toutes lesparties au processus de paix. Une aideimportante de la communautéinternationale est venue l’aider à faireface à une situation d’une extrêmegravité, caractérisée par la misère (leMozambique était l’un des pays lesplus pauvres du monde) et ledélabrement de l’infrastructureéconomique et sociale.

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tions in 1994. The Bank hasbeen instrumental to Mozam-bique’s recovery process, inseveral respects: assessing thecountry’s economic and insti-tutional requirements; helpingthe government design the

specifics of the evolving policyagenda; helping to mobilize donorsupport through the CG; and pro-viding substantial IDA resources,initially to jump-start the economy,and subsequently for sector invest-ment programs, capacity building,and balance of payments supportfor a stabilization and adjustmentprocess. The Bank has clearly madecritical financial, administrative,and intellectual contributions toMozambique’s transition and peaceprocesses.

Inevitably, some aspects of therecovery program have fallen shortof potential—through errors ofpace, sequence or resource alloca-tion, and through inadequateimplementation. Lessons can belearned, and are suggested in thisreview, respecting both policy andimplementation. The Bank has sup-ported the gradualist pace ofreform chosen by the government.This pace delayed progress inachieving price stability and inimproving resource allocation effi-ciency. But it has had the great benefit of ensuring governmentownership of the economic reform program.

In being a donor, the Bankdeveloped a wide array of sectoraloperations over more than adecade. By now, the government’scapacities in some areas havegained considerable depth ofknowledge and experience particu-larly in sectors such as structuraladjustment, banking reform, andtransport. The Bank has demon-

Mozambique inició elproceso de transición económicaestando todavía vivo su conflictobélico interno. La paz se logró en1992 y en 1994 hubo elecciones.El Banco ha tenido unaimportancia decisiva en el

proceso de recuperación deMozambique, en varios aspectos:evaluó las necesidades económicas einstitucionales del país; ayudó alGobierno a formular los rasgosespecíficos del programa de políticas,en evolución; contribuyó a movilizar laasistencia de los donantes a través delGrupo Consultivo, y facilitó unconsiderable volumen de recursos de laAsociación Internacional de Fomento(AIF), en un principio para dar unimpulso inicial a la economía ydespués para programas de inversionessectoriales, fortalecimiento de lacapacidad y ayuda para balanza depagos dentro del proceso deestabilización y ajuste. Es indudableque el Banco ha hecho aportaciones enlos campos financiero, administrativo eintelectual de importancia crítica paralos procesos de transición ypacificación de Mozambique.

Inevitablemente, en algunosaspectos del programa de recuperaciónno se ha alcanzado todo el potencialprevisto, debido a errores en el ritmo osecuencia de las medidas o en laasignación de los recursos, o a defectosen la ejecución de los programas oproyectos. Se puede aprender de laexperiencia, y en este examen seindican algunas de sus enseñanzas, enlo que respecta tanto a las políticascomo a la ejecución de las actividades.El Banco ha respaldado el ritmogradual de reforma elegido por elGobierno. Este ritmo ha demorado ellogro de la estabilidad de precios y haimpedido lograr un mayor avance encuanto a eficiencia en la asignación derecursos, pero ha tenido la enorme

Le Mozambique acommencé sa transitionéconomique alors qu’il étaitencore aux prises avec un conflitinterne. La paix a été conclue en1992 et des élections ont eu lieuen 1994. La Banque a contribué

au relèvement du Mozambique parplusieurs interventions : elle a évaluéles besoins économiques etinstitutionnels du pays, aidé lesautorités à organiser, dans les détails,l’évolution de leur programmed’action, contribué à mobiliser l’appuides bailleurs de fonds parl’intermédiaire du Groupe consultatif,et fourni des ressources importantes del’IDA, d’abord pour relancerl’économie, puis pour financer desprogrammes d’investissement sectoriel,de renforcement des capacités et desoutien à la balance des paiementsdans le cadre d’un processus destabilisation et d’ajustement. De touteévidence, la contribution financière,administrative et intellectuelle de laBanque a joué un rôle crucial dans latransition et le processus de paix duMozambique.

Inévitablement, sur un certainnombre de points, le programme derelèvement n’a pas produit tous lesrésultats escomptés du fait d’erreursdans le rythme d’intervention, laprogrammation des activités oul’affectation des ressources ainsi quedans l’exécution des opérations.L’expérience est toutefois porteused’enseignements, comme le signale leprésent rapport, tant au plan despolitiques qu’à celui de l’exécution. LaBanque a souscrit à l’échelonnementdes réformes voulu par les pouvoirspublics. Ce choix a retardé une relativestabilisation des prix, et les gains qu’onaurait pu escompter sur le plan del’affectation des ressources ne se sontpas matérialisés. Il a eu en revanche legrand avantage de faire totalement


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strated some comparativeadvantages (and disadvan-tages) that appear clear to themajor donors. In some socialsectors the bilaterals are pro-viding, on a grant basis, allthe external funding that the

concerned ministries can absorbeffectively: in some areas the gov-ernment prefers not to incur debt,even on IDA terms.

Looking to the future, there-fore, it appears advisable for theBank, in close consultation withthe government and the donors, totake stock of where Mozambiquehas arrived at present, and decidehow the Bank can most effectivelyplay its role in the next few years.The development of the new CASand the writing of this CAR canprovide a suitable opportunity forsuch a review. The CAR’s overallconclusions for such a consultationare as follows:

• The Bank should remain thelead agency in assisting thegovernment as it continues todevelop the policies andcapabilities for economicgovernance, including expen-diture management, invest-ment planning, revenueenhancement, civil serviceand pay reform, trade poli-cies, and financial sectorreform and development.The Bank has demonstratedcomparative advantage ineconomic governance assis-tance and in policy-basedadjustment lending. How-ever, the Bank’s developmenteffectiveness has been limitedby weaknesses in aid coordi-nation as well as excessivefocus on investment projectsand traditional technical

• assistance at the expense of

ventaja de garantizar que elGobierno asumiera como propioel programa de reformaeconómica.

En su función de donante, elBanco ha llevado a cabo unaamplia gama de operaciones

sectoriales a lo largo de más de diezaños. Ahora, hay ciertas áreas en lasque el Gobierno ha adquiridocapacidad, conocimientos yexperiencia considerables,especialmente en sectores como elajuste estructural, la reforma bancariay los transportes. El Banco hademostrado algunas ventajas (ydesventajas) comparativas que parecenevidentes a los principales donantes.En ciertos sectores sociales, losdonantes bilaterales proporcionan encalidad de donación todo elfinanciamiento externo que losministerios interesados puedenabsorber eficazmente, y en ciertoscampos el Gobierno prefiere noincurrir en endeudamiento, ni siquieraen las condiciones de la AIF.

Así pues, de cara al futuro pareceaconsejable que el Banco, en estrechaconsulta con el Gobierno y losdonantes, haga balance de a qué puntoha llegado Mozambique en estemomento y decida cuál sería la maneramás eficaz de desempeñar su función enlos próximos años. La formulación dela nueva estrategia de asistencia al país,así como la redacción del presentedocumento pueden ofrecer unaoportunidad apropiada para talexamen. Las conclusiones generales delexamen de la asistencia a Mozambique,en cuanto a dicha consulta se refiere,son las siguientes:

• El Banco debería seguir siendo elorganismo principal deasistencia al Gobierno a medidaque éste continúa desarrollandosus políticas y capacidad degestión económica, con inclusión

adhérer le gouvernement auprogramme de réformeséconomiques.

En plus de dix ansd’intervention au Mozambiqueen tant que bailleur de fonds, laBanque a pu lancer toute une

gamme d’opérations sectorielles. Lesconnaissances et l’expérience dugouvernement se sontconsidérablement améliorées danscertains domaines, notamment danscelui de l’ajustement structurel, de laréforme du secteur bancaire et destransports. Les avantages comparatifsque la Banque a (et n’a pas) surcertains plans sont aujourd’hui clairsaux yeux des principaux bailleurs defonds. Dans certains secteurs sociaux,les organismes d’aide bilatéralefournissent, sous forme de dons,l’ensemble des financements extérieursque les ministères concernés peuventabsorber de manière efficace. Il existeen effet des domaines dans lesquels legouvernement préfère ne pascontracter de dettes, même auxconditions de l’IDA.

S’agissant de l’avenir, il sembleraitjudicieux que la Banque dresse unbilan de la situation du pays, en étroiteconsultation avec les pouvoirs publicset les bailleurs de fonds, et détermineles modalités les plus efficaces de sonintervention au cours des prochainesannées. L’élaboration de la nouvelleStratégie d’aide pour le Mozambiqueet la rédaction de la présente Étude del’assistance offerte au pays pourraients’y prêter. Les conclusions générales del’Étude dans la perspective del’établissement de ce bilan concertésont les suivantes :

• La Banque doit rester le chef defile des organismes qui aident legouvernement à élaborer lespolitiques et se doter descapacités nécessaires à unebonne gestion de l’économie,

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capacity building and results-based sectorwide programs.

• Mozambique will continueto receive large aid flowsfrom numerous donors. It isincumbent upon the donorsto look for ways to increasethe effectiveness of theseflows. While the donorshave much to contribute interms of their experienceand comparative advan-tages in Mozambique, theystill look to the Bank forintellectual leadership in thedialogue with the govern-ment on sector strategies.They also rely on the Bankto lead dialogue on criticalpolicies they deem too sen-sitive for close bilateralintervention. A strong Bankperformance in upstreamESW, adequately fundedand effectively connected tothe government’s ownresource allocationprocesses as well as to theaid efforts of other multilat-eral and bilateral donors,would strengthen the Bankin raising the quality of sec-tor investments and publicsector management.

• Accordingly, the Bank shoulddeliver advisory and analyti-cal services for sectoral andthematic programs in thecontext of the government’sown public expendituresmanagement program and inclose collaboration with UNagencies and lead donors.This would be facilitated byshifting more responsibilityfrom the Bank’s countryassistance program to thefield.

de la administración del gastopúblico, la planificación de lasinversiones, el acrecentamientode los ingresos fiscales, lareforma de la función pública ysu remuneración, las políticascomerciales y la reforma ydesarrollo del sector financiero.El Banco ha demostrado tenerventaja comparativa en loscampos de la asistencia para lagestión económica y delfinanciamiento para fines deajuste en apoyo de reformas depolíticas. Ahora bien, la eficaciadel Banco en cuanto aldesarrollo se refiere se ha vistolimitada por fallos en lacoordinación de la ayuda, asícomo por una orientaciónexcesiva hacia los proyectos deinversión y la asistencia técnicatradicional, a expensas delfortalecimiento de la capacidady de los programas de ámbitosectorial basados en losresultados.

• Mozambique seguirá recibiendocuantiosos flujos de ayudaproveniente de numerososdonantes. Incumbe a éstosbuscar los medios de acrecentarla eficacia de esas corrientes deasistencia. Si bien los donantestienen mucho que aportar entérminos de su experiencia yventajas comparativas enMozambique, siguen buscandoen el Banco liderazgo intelectualen su diálogo con el Gobiernosobre estrategias sectoriales.También confían en el Bancopara que encabece el diálogosobre políticas de importanciacrítica que considerandemasiado delicadas para unaintervención bilateral de primeramano. Una actividad vigorosadel Banco en materia de estudios

notamment en matièred’administration des dépenses,de planification desinvestissements, d’accroissementdes recettes, de réforme de lafonction publique et du barèmedes traitements, de politiquescommerciales, et detransformation et dedéveloppement du secteurfinancier. En matière d’aide à lagestion économique et de prêts àl’appui de réformes, la Banquepossède un avantage comparatifavéré. En revanche, les faiblessesde la coordination de l’aide etune attention excessive accordéeaux projets d’investissement et àl’assistance techniquetraditionnelle, aux dépens durenforcement des capacités etdes programmes sectoriels aveccontrat d’objectif, ont limitél’efficacité de son impact sur ledéveloppement.

• Le Mozambique continuera àrecevoir une aide importante denombreux bailleurs de fonds. Ilincombe à ceux-ci de s’attacher àaccroître l’efficacité del’assistance prêtée au pays. Si leurconcours peut être très précieuxdu fait de leur expérience et deleurs avantages comparatifs, lesbailleurs de fonds continuent àavoir besoin de l’autoritéintellectuelle de la Banque dans ledialogue sur les stratégiessectorielles avec le gouvernement.Ils se tournent aussi vers ellepour engager le dialogue sur despolitiques essentielles, mais tropdélicates, à leur sens, pour êtreabordées dans le cadre étroit deconsultations bilatérales. Unesolide performance de la Banqueau niveau d’études économiqueset sectorielles préparatoires,adéquatement financées et


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The nature of Bankinvolvement in sectoral lead-ership should vary among sec-tors, depending on the Bank’sown comparative advantagesand proven performance; onthe government’s preferences,

which should be informed by theBank’s intellectual inputs; and ondonor comparative advantages,with care to avoid supplantinggrant flows. The Bank might pro-vide limited and more selectivelending in a particular sector inconjunction with a policy dialogueor coordination role (as in the earlyBeira Corridor project). Greaterconcentration of Bank efforts andimproved coherence of the overalldevelopment program would bestbe achieved through results-ori-ented management coalitionsinvolving government agencies,local communities, voluntary orga-nizations and external assistanceagencies for priority sectoral andthematic programs. In this context,imaginative use of the Bank’s non-lending services and adaptablelending instruments would facili-tate a participatory approach to theimplementation of the new countryassistance strategy.

económicos y sectorialesinnovadores, con financiaciónsuficiente y conectadaeficazmente con losprocedimientos de asignación derecursos del propio Gobierno,así como con las operaciones deasistencia de otros donantesmultilaterales y bilaterales,ayudaría al Banco a elevar lacalidad de las inversionessectoriales y la administracióndel sector público.

• Por consiguiente, el Banco deberíaprestar servicios de asesoramiento yanálisis para programas sectoriales ytemáticos en el contexto delprograma de gestión del gastopúblico del propio Gobierno y enestrecha colaboración con losorganismos de las Naciones Unidas ylos principales donantes.Contribuiría a facilitar esto que elBanco traspasara másresponsabilidades de su programa deasistencia al país a las actividades enel terreno.

La índole de la participación delBanco en el liderazgo sectorial deberíavariar de un sector a otro, dependiendode sus propias ventajas comparativas ydesempeño comprobado, de laspreferencias del Gobierno —a las cualesel Banco debería hacer una aportaciónintelectual— y de las ventajascomparativas de los donantes, concuidado de evitar la suplantación de losflujos de ayuda en calidad de donación.El Banco podría facilitar financiamientolimitado y más selectivo en undeterminado sector, en conjunción conun diálogo en materia de políticas oasumiendo una función de coordinación(como en el proyecto inicial delCorredor de Beira), o ambas cosas. Lamejor manera de conseguir una mayorconcentración de las actividades delBanco y el mejoramiento de lacoherencia del programa de desarrollo

efficacement liées auxmécanismes d’affectation desressources publiques ainsi qu’àl’aide multilatérale et bilatéraled’autres sources, renforceraitl’action de l’institution enaméliorant la qualité desinvestissements sectoriels et de lagestion du secteur public.

• Il conviendrait en conséquence quela Banque fournisse ses services deconseil et d’analyse au titre deprogrammes sectoriels etthématiques dans le cadre duprogramme de gestion des dépensespubliques du gouvernement et enétroite coopération avec lesorganismes des Nations Unies et lesprincipaux bailleurs de fonds. Danscette optique, il serait souhaitable deconfier aux services de la Banque surle terrain de plus grandesresponsabilités dans la gestion duprogramme d’assistance au pays.

Le rôle moteur joué par la Banquesur le plan sectoriel prendra desformes différentes d’un secteur àl’autre en fonction des avantagescomparatifs propres à l’institution etdes résultats déjà enregistrés dans ledomaine considéré, des optionschoisies par le gouvernement, quidevraient être éclairées par lacontribution intellectuelle de laBanque, et des avantages comparatifsdes bailleurs de fonds, de sorte que lesconcours fournis par la Banque neviennent pas se substituer à leurs dons.La Banque pourrait octroyer des prêtslimités de manière plus sélective dansun secteur donné, parallèlement à undialogue sur les réformes àentreprendre et/ou des fonctions decoordination (comme au début duprojet consacré au couloir de Beira).La meilleure façon de mieux focaliserl’action de la Banque et d’accroître lacohérence globale du programme dedéveloppement consisterait à

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global sería a través de coalicionesde gestión orientadas a losresultados en las que participaranórganos gubernamentales,comunidades locales,organizaciones de voluntarios yorganismos de asistencia externa

para la realización de programassectoriales y temáticos prioritarios. Eneste contexto, el uso imaginativo delos servicios del Banco distintos de loscrediticios y de sus instrumentos definanciamiento adaptables facilitaría laadopción de un enfoque participatoriopara la puesta en práctica de la nuevaestrategia de asistencia al país.

constituer des groupes soumis àdes critères de performance, quirassembleraient des servicespublics, des communautéslocales, des organisationsbénévoles et des organismesd’aide extérieure, et qui

interviendraient au niveau desprogrammes sectoriels et thématiquesprioritaires. Dans cette perspective, uneutilisation ingénieuse des services horsprêts de la Banque et d’instruments deprêts souples aiderait à adopter unedémarche interactive dans la mise enoeuvre de la nouvelle stratégied’assistance au Mozambique.


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Conflict andIts Aftermath

11

When 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

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-mercial sectors. When Portugal withdrew, most of the250,000 Portuguese living in Mozambique fled. Theirdeparture left the country without the skills that hadbeen operating the transport system, factories, wholesaleand urban retail trade, the professions, and government.Few Mozambicans had been educated for entrance intogovernment or nonagricultural occupations. Social con-ditions were among the worst in the world. Life expec-tancy was estimated at 41 years and literacy was a mere7 percent. The population of 11–12 million was ethni-cally and linguistically heterogeneous.

While Mozambique had underlying conditionsfavorable for economic growth (good agricultural con-ditions in parts of the country; promising mineral poten-tial including natural gas; large-scale hydropowerpotential; tourism; low population density; and good

ports, well situated for providing external trade accessto its land-locked neighbors), its modest capital stockhad been crippled by the “scorched-earth” policy of thedeparting settlers. The country’s difficulties were com-pounded over the next decade by flooding, prolongeddroughts, and extensive loss of human life. Economicactivity was severely constrained by border closures andthe consequent loss of transit traffic and Mozambicanemployment in South African mines.

The government established a one-party state sys-tem closely based on the East European model, espe-cially the reliance on a dirigiste, rather than market-based, economic system. The socialist or statist routewas seen as the only viable option for a country thatnow lacked both an entrepreneurial class and the insti-tutional framework for a market economy. In the first2–3 years after Independence, the government’s effort to

2

transform Mozambican society along revolutionarylines alienated some of the support FRELIMO (Front forthe Liberation of Mozambique) had enjoyed during thestruggle for independence. The more radical FRELIMOfaction was dominated by southerners, mainly from theShangane ethnic group. The perception of southerndominance was reinforced by the historic location of thecapital in the country’s deep south. The opposition

RENAMO (Resistencia Nacional Mocambicana) party,created through external intervention, developed consid-erable support among the populace in the centralprovinces. In the orderly post-conflict election of Octo-ber 1994, RENAMO received 38 percent of the votesfor parliamentary seats while FRELIMO attracted 44percent of the votes.


Mozambiquegained indepen-dence from

Portugal on 13 June1975, after more than 10years of guerrilla warfarewaged by the movementFRELIMO. However,independence was not fol-lowed by peace and sta-bility, as the country wassoon embroiled in furtherwarfare arising out of thecomplex conflicts under-way in the region. Fouryears (1976–79) of incur-sions from (then) Rhode-sia were followed by aninternal war which lastedfrom 1981 until 1992.The civil conflict pittedthe government of FRE-LIMO against RENAMO,a rebel group that hadbeen created by theRhodesian intelligenceservice and that was sub-sequently supported bySouth Africa as a destabi-lizing force inside

Mozambique. WhenMozambique joined theWorld Bank in September1984, the country was inthe midst of its third con-secutive war, and whilethe country had underly-ing conditions favorablefor economic growth, itsmodest capital stock hadbeen crippled. The con-flict brought on a collapseof production, trade, andsocial services, and exten-sive cultural rupture andpsychosocial damage.Real per capita GDP hadfallen by half comparedwith pre-independence.

The peace process inMozambique has beengenerally seen as one ofthe most successful tran-sitions from internal con-flict to peace in recentyears. Mozambique’srecovery and the govern-ment’s policy perfor-mance have beeninternationally recognized

as commendable, espe-cially when compared toa number of other devel-oping countries that arepost-conflict and under-taking transitions from adirigiste to a marketeconomy. The processbegan in 1989 as bothparties recognized thatneither could win byforce of arms. Thedomestic and externalinterests that had engen-dered the long conflictwere now lined up tosupport the peaceprocess. A UN operationwas established to moni-tor and facilitate theterms of the agreement,including demobilization,cease-fire monitoring, thereconstitution ofRENAMO as a politicalparty, and the elections.

Two distributionalissues have emerged. Thefirst is the concern thatthe southern region of the

country has been heavilyfavored in the location ofpublic investment. TheMaputo region in particu-lar will benefit from therecovery and enhance-ment of the east-westtransport corridors thatprovide access to Mozam-bique’s ports for its land-locked neighbors and forthe northeastern region ofSouth Africa. Nationalintegration is also ham-pered by inadequate roadtransport and by culturaland langauge differences.Growing regional imbal-ance of this kind could beworrisome in a countrystill recovering from yearsof bitter conflict. The sec-ond issue is that of distri-bution of investment, onthe one hand foreign ver-sus national investment,and on the other, invest-ment by Mozambicannationals themselves. Par-ticipation by Mozambi-

BOX 1.1: A UNIQUE SET OF HISTORICAL CIRCUMSTANCES

3

C o n f l i c t a n d I t s A f t e r m a t h

cans in the ownership ofprivatized enterprises hasbeen limited to a rela-tively small group of indi-viduals. Although, as aBank study showed, 92percent of privatizedSOEs as of March 1996were sold to Mozam-bique nationals andfirms, thereby not sub-stantiating assertions thatMozambique is being“recolonized” or that theprivatization programhas been “selling out” thecountry to foreigners,ownership is extremelyconcentrated among ahandful of Mozambicanentrepreneurs.

It is worth reempha-sizing the adversity of theconditions that the Gov-ernment of Mozambiquefaced at the start of thestabilization and reformprocess, since Mozam-bique was among thevery poorest countries ofthe world. During theconflict, about one-thirdof the population wasdisplaced, and many ofMozambique’s humanand physical resourceswere destroyed. Thecountry’s independentexperience in economicmanagement had beenentirely dirigiste, basedon East European modelsand tutelage. Crop fail-ures in 1986 and 1992caused contractions in

the GDP. Despite theseunfavorable conditions,the reform strategy, sup-ported by a substantialaid, has succeeded in sta-bilizing the economy andlaunching growth. Infla-tion was brought downto single digits in 1997after running between30–70 percent since1988. GDP has grown atan average of 5 percentover the 1990s, over 6percent in 1996, reflect-ing healthy expansion inagricultural productionand exports and anupturn in industrial out-put after years of declineas the SOE sector under-went closure and privati-zation. The governmentof Mozambique has pur-sued its reform agendawithout significant rever-sal of either strategicpurpose or any majorcomponent. Soon afterMozambique joined theBank, Bank staff pro-vided technical policyadvice that was criticalfor the design of the pol-icy agenda—criticalbecause the governmentof Mozambique policy-makers had had no pre-vious experience innonsocialist economicmanagement.

Donor satisfactionwith Mozambique’sprogress has beenreflected in recurrent

endorsement of the gov-ernment’s program at CGmeetings (the most recentwas in May 1997) andthe continuing high levelsof aid, and in the donorwillingness to participatein the recurrent debt reliefexercises. The steadycourse of reform has alsoled to a revival of directinvestment inflow fromPortuguese and SouthAfrican investors, who arelikely to have a betterknowledge basis for riskassessment, and for thestart of investor interestand inflow from furtherafield, e.g. Malaysia andthe US. A dynamicprivate sector responseis emerging to reinforcethe effectiveness of thegovernment’s economicstrategy. In sum, theaccomplishments of thepast decade can be inter-preted as having broughtMozambique in a virtu-ous circle. While the highlevels of aid have facili-tated recovery, they alsoreflect the country’s heavydependence on unilateraltransfers to cover its largefiscal and external imbal-ances, including service onits heavy external debt(even after extraordinaryrefinancing). In 1996,external aid financedaround two thirds ofMozambique’s imports.Of course, Mozambique

should not be expectedto become financiallyself-sustaining, in thesense of zero dependenceon concessional flows, forsome considerable time tocome. On the other hand,dependence at presentlevels exposes the econ-omy to the vagaries ofaid flows, and should bereduced through majorrevenue enhancementmeasures. Heavydependence also createsproblems of coordinatingnumerous donor pro-grams that reflect donorpriorities and preferencesnot always well integratedwith the government’sown strategies or adminis-trative mechanisms.

Mozambique’s post-conflict experience thusfar, and the adherence ofthe former combatants toa rule of law frameworkfor orderly political com-petition, have beenviewed rightly as a rela-tively successful case—combining conflictresolution, economictransition and creation ofpolitical and economicrules of the game thatbreak substantially fromMozambique’s historicalexperience. Nevertheless,the fragility of this stillbrief experience must beemphasized.

BOX 1.1: A UNIQUE SET OF HISTORICAL CIRCUMSTANCES (CONTINUED)

5

Evolution of theBank’s Strategyand Portfolio

22

For the first five years of Mozambique’s membership (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-turing, and small and medium-scale enterprises). Thus, ofthe total credits effective through 1990 of US$390 mil-lion, the macro reform program accounted for about 80percent, including balance of payments support com-prising 53 percent of the total.

Rehabilitation and AdjustmentThe core of the Bank’s initial strategy was to provideforeign exchange and technical support for rehabilita-tion and adjustment. Stabilization, growth, andimproved resource allocation were the broad objectives.The Bank recognized that the extremely adverse condi-tions prevailing until a peaceful settlement could bereached greatly constrained the extent and pace of theeffort to stabilize the economy and lay a foundation forpost-conflict recovery and growth. Thus, the first

adjustment credits supported sequences of incrementalsteps to tackle price and exchange rate distortions,macroeconomic imbalances, trade reform measures,and initially a restructuring rather than privatization ofstate enterprises.1

A Broader FocusIn 1991, with some prospect of peace, the Bank beganto develop a comprehensive assistance strategy for therehabilitation and reform of the economy. The firstCountry Strategy Paper (June 1991) laid out directionsfor the Bank’s portfolio evolution: these have notchanged substantially. The Bank judged the govern-ment’s initial policy performance as satisfactory, reflect-ing a high level of political commitment to reform. Thepaper saw two risks to the strategy: weak local capacityand the uncertain political situation. The strategy called

6

for limiting operations to 2–3 new projects a year (pro-jects had grown from 3 in 1987, to 14 in 1990) to focussupervision efforts on economic and sector work (ESW)and on addressing capacity deficiencies.

The paper identified five priority policy areas forgovernment and Bank attention: (i) public expendituremanagement, foreign exchange and trade policy reform,and financial sector reform; (ii) state enterprise restruc-turing and privatization; (iii) poverty reduction, includ-ing access to basic services and adjustment of the safetynet system; (iv) improved food security; and (v) capacitybuilding. To help the government develop policies andprograms, the Bank would continue its high level ofESW, focusing on capacity building and studies to assistin postwar planning, including environmental issues.The portfolio would gradually shift from macroeco-nomic to sectoral adjustment.2

In the next four years, 1991–94, IDA projects ofUS$922 million (including US$13 million of IFAD funds)extended Bank operations into agriculture, education,

institutional capacity building(legal; local government), thefinancial sector, and natural gas,with substantial additionalresources going to transportationinfrastructure and further financ-ing of the government’s macroprogram. By the end of 1994, thecumulative Bank program waslarge in relation to domestic capac-ities. It amounted to US$1,127million, of which balance of pay-

ments (or adjustment) support accounted for US$585 mil-lion, or 52 percent; transport US$313 million, 28 percent;agriculture US$73 million, 6 percent; energy US$43 mil-lion, 6 percent; and the industrial sector US$82 million, 7percent. Although many projects had technical assistanceand institution-building components, the Bank character-ized five projects as a capacity-building group (amountingto US$100 million, or 9 percent): economic management,education, legal and public administration, food security,and the financial sector.

A New Strategic Principle and a Broader PortfolioAfter the peace settlement in 1992, the Bank’s strategy(and its characterization of the strategic principle for allparties in Mozambique, as laid out in the Second Eco-nomic Recovery Credit [SERC] report), called for pro-ceeding “as quickly as possible without going so fast or

attempting so much as to cause the whole process toabort.”3 Although this principle has enabled the Bankand the government to maintain substantial agreementon the reform process on a strategic level, the formula-tion was imprecise, and differences have arisen betweenthe Bank and the government, mostly around pace,reflecting different judgments as to the potential effectsof specific measures on the “whole process.” DuringBoard discussion of the strategy paper, Executive Direc-tors cautioned that this assistance strategy was highlyambitious, and would need careful monitoring andcoordination with other donors. They urged staff todevote much more attention to creating public adminis-tration capacity, civil service rationalization, and toimplementation problems.4

By 1994 the Bank had a fully worked-out assistancestrategy that continued to adopt the government’s objec-tives and policies as the Bank’s own framework andreflected the declining priority of short-run measures.While the continuing large aid inflows were essential, theneed to move toward financial (and implementational)self-reliance had emerged as a high-priority objective.The areas for Bank assistance remained wide-ranging:macro reform, capacity building, agricultural recoveryand infrastructure reconstruction, poverty reduction, andaccess to basic social services. The Bank’s portfolio hadto be revised to take account of the changed circum-stances: the cessation of conflict, access to the country atlarge, and the resettlement of refugees and the displaced.It included modest Bank support to the government’ssafety net programs for the vulnerable urban poor.Finally, the strategy statement records that the Bank haddeveloped activities within sector projects or throughESW work addressing gender issues, environmentalproblems, and private sector development, and thatactivities in these areas would continue. The ExecutiveDirectors again expressed concern about the level of pro-posed project lending, and the need to address imple-mentation problems and intensify supervision. Theycalled on staff to cooperate with bilateral donors andaddress the proliferation of donor-funded projects.

Normalization and ConsolidationIn the next CAS, issued in November 1995 after a thirdyear of peace and normalization, the Bank’s strategy wasreoriented, and development effectiveness assumedgreater importance. Poverty reduction assumed formalstature as the Bank’s essential objective in assistingMozambique. The strategy was to be built around three


Poverty reductionassumed formal

stature as theBank’s essential

objective inassisting

Mozambique.

7

elements: continued restoration of a stable macroeco-nomic framework and removal of cross-cutting impedi-ments to growth; human resources development; andpromotion of sectors with high growth potential. TheBank would increase the effectiveness of its assistancethrough improved portfolio management, ESW, closeraid coordination, and more selective lending.

The Executive Directors welcomed this CAS, and itsemphasis on poverty reduction, governance, and devel-oping human resources. Some Executive Directors ques-tioned whether there was a strong link between thepoverty focus and the proposed lending program, andwhether the Bank was overcommitted in too manyfields, with insufficient implementation capacity, and insome areas where the Bank did not necessarily have acomparative advantage. They urged the Bank to concen-trate in areas in which it excelled, such as economicanalysis and policy dialogue. The Bank’s ESW had beenhighly relevant and useful, and had helped in donorcoordination. The resident mission had also contributedeffectively to enhance donor coordination.

In 1995 the Bank made no new loans. Many pro-jects in the portfolio were encountering implementationdelays. The government agreed to conduct a portfolioreview, which resulted in the restructuring of severalprojects and reduction or cancellation of several compo-nents. Lending resumed in 1996 with a health loan for

about US$99 million, followed by a US$100 millionloan for economic recovery support in 1997. In October1997 there were 18 active IDA credits with an originalvolume of US$837 million (US$821 million after cancel-lations). The active portfolio (including projects nearclose-out) still covered a wide range of activities inhealth, education, transportation, agriculture and ruraldevelopment, natural gas, public administration, eco-nomic management, industry, household energy, legaland other capacity building, and policy-based economicsupport. In addition, project components addressedurban, environmental, and water problems. The Bank’sESW activities included poverty assessment and work onthe structural adjustment process and economic policydialogue (fiscal management, public expenditures, capi-tal markets development, and privatization).

Following a period of rapid growth and diversifica-tion in the Bank’s country assistance program, the timehas come to streamline and reform Bank activities toenhance development impact. The major challenge of thenew CAS is to achieve greater development effectivenessthrough strategic selectivity and enhanced partnership.The record of Bank operations suggests that improvedmanagement of the portfolio of ongoing projects, moresystematic focus on capacity building and policy reform,and greater attention to aid coordination should animatefurther Bank operations in Mozambique.

E v o l u t i o n o f t h e B a n k ’ s S t r a t e g y a n d P o r t f o l i o

9

Private SectorDevelopment: BankStrategy in the Enterpriseand Financial Sector

33

Since 1989, assistance with financial sector reform and privatization has been key to the

Bank’s CAS. The Bank’s strategy evolved from support for rehabilitation of state-owned

banks and enterprises to promoting active participation 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-owned enterprises. Unfortunately, this

lending was not based on solid financial sector workand proceeded despite conspicuous price, foreignexchange, and interest rate distortions and the absenceof creditworthy companies.1 All lending to enterprisesended up going through state-owned banks. However,these banks had neither the institutional capacity northe right incentives to perform the pivotal role of enter-prise restructuring. Again in 1992, in its first financialsector study, the Bank failed to diagnose the weak cor-porate governance in state-owned financial institutionsand the potentially disastrous implications for thefinancial system and macroeconomic stabilization.2

In 1994 the Bank shifted toward a more decisivecourse on privatization—and, if necessary, liquida-tion—of state-owned banks and large enterprises. Fur-thermore, the Bank recognized the need for enterpriseand banking sector reform to proceed in tandem. This

new vision of the sector was greatly advanced by exten-sive sectoral work and was clearly articulated in thepolicy conditionalities under the Second EconomicRecovery Credit (SERC), which included the reform ofBanco Comercial de Moçambique (BCM) and largestate-owned enterprises, reduction of subsidies to otherstate-owned companies, and liberalization of prices.IERP was restructured to give UTRE, a unit within theMinistry of Finance, responsibility solely for privatiza-tion, while putting enterprise rehabilitation into asubloan component to be carried out through the bank-ing system. Technical assistance for the financial sectorreforms was carried out under the Financial SectorCapacity Building Project (FSCBP), which was instru-mental in the privatization and financial strengtheningof the Mozambican financial system. Since 1995 theBank’s major focus has been on improving a highly

10

cumbersome and overregulated business environment,accelerating privatization, and completing reforms inthe financial sector.

Instruments of the Bank’s Assistance for Private SectorDevelopmentThe Bank’s technical advice and policy dialogue havebeen crucial to the development of the private sector,which currently accounts for more than 75 percent ofthe country’s GDP, and to financial sector reform,including privatization of the former state-owned andbankrupt financial system. But the challenge of imple-menting private sector reforms in parallel with substan-tial volumes of lending in a country with virtually nomarket institutions carried risks. Rushed lending to theemerging private sector through state-owned financialintermediaries that were not ready to bring about therestructuring of state-owned enterprises proved costly.

Despite initially misguided efforts to support therehabilitation of bankrupt state-owned enterprisesthrough undercapitalized state-owned banks, the Bank’soverall assistance to the financial sector and to enterpriseprivatization provided important support to Mozam-bique’s program of structural reforms. The Bank’s strat-egy resulted in a somewhat more business-friendlyenvironment, a sounder financial system, and what maybe the most successful privatization program in Africa.

Enterprise Lending: A Dismal Early Record, but RecentImprovements in the Business ClimateDespite the precarious financial situation, weak corpo-rate governance, and nonexistent credit underwritingskills of the state-owned banks, the Bank went aheadwith SMEDP. As a result, in 1996 the rate of default onthe loans made by BCM and Banco Popular de Desen-volvimento (BPD), the two largest lenders, was morethan 50 percent for loans whose grace period hadpassed. The final default rate is expected to approach 90percent.

The Bank, through UTRE, had little choice but torely on BCM for the rehabilitation component of theIERP. BCM underwrote almost 60 percent of the totalloan amount—US$18.5 million—by making two largesubloans to just two companies. Only recently were theremaining funds utilized through private banks (Bancode Fomento e Exterior (BFE) and Banco Standard Tottade Moçambique (BST) and a newly established leasingcompany (United Leasing Company [ULC]). Althoughthe grace period of up to 5–7 years makes it difficult to

gauge the credit quality of the banks’ subloans, theimproved macroeconomic environment and the largersize of subborrowers have reduced the risks of default.The recent privatization of BCM should also have a pos-itive impact on its incentives to service and collect on theloans made by its state-owned predecessor.

Despite an initially ineffective enterprise lendingrecord, the IERP, following three formal restructurings,has become an important source of financial support forenterprise reform. It has also provided technical assis-tance for privatization, legal reform, investment andexport promotion, conferences on private sector devel-opment, capacity building in statistical collection andanalysis, and capacity building in the Ministry of Indus-try, Trade, and Tourism for implementing reforms in thebusiness environment. In particular, the project providedvaluable technical assistance in institutional strengthen-ing of government privatization agencies.

The overall perception of country risk by foreigninvestors, while still adverse, has improved somewhatover the past several years. Notable achievementsinclude improvements in financial incentives (prices andforeign exchange), the emergence of markets for foreignexchange and credit, the adoption of a revised invest-ment code, approval of export processing zones, privati-zation of customs, and a drastic reduction in the notaryfees on the registration of collateral. On the negativeside, corruption remains a serious problem.

Assistance to the Financial Sector: Sequencing Missteps,but Eventual Restructuring of the SectorThe Bank’s strategy in the financial sector has been car-ried under the Economic and Financial ManagementTechnical Assistance Credit (EFMTAC) and the FSCBC.The EFMTAC laid the groundwork for subsequentfinancial sector reforms by separating the commerciallending functions of the Bank of Mozambique from itscentral banking functions; the FSCBP moved on to pri-vatization of the commercial bank functions and thestrengthening of the central bank’s supervision capabili-ties through a twinning arrangement with the SouthAfrican Reserve Bank supervisors.

There were many missteps along the way to this ulti-mately successful outcome. From 1992 until July 1995—when the decision was made to privatize BCM—theBank devoted substantial financial resources to itsrestructuring and technical strengthening, despite BCM’salmost total deficiency of corporate governance and itswidespread practice of politically motivated lending. The


11

Bank’s technical assistance fell short of improving theinterim governance of state banks and of imposingclearly monitorable restrictions on the banks’ lendingactivities. As a result, shortly after its recapitalization,and despite the Bank’s technical assistance and policyadvice, BCM engaged in uncontrolled credit expansionand had to be recapitalized again before privatization. Ayear after BCM’s privatization, the second largest state-owned bank (BPD) was privatized, marking a new stagein the development of the Mozambican financial system.The Bank’s technical assistance during this periodfocused on strengthening the commercially viable banksand building the supervisory skills of the central bankthrough the FSCBC. Mozambique’s bank supervisorystandards are now at par with some neighboring coun-tries at a more advanced stage of development.

Since the Commercial Bank of Mozambique wasseparated from the Bank of Mozambique, there has beena profound transformation in the structure of the finan-cial sector. Lending and deposit rates were fully liberal-ized in June 1994, and the authorities have maintainedpositive real discount rates since 1995. Significantprogress has been achieved in transforming an under-developed, state-owned financial system into a viableand fully privately owned banking sector. The restruc-turing and privatization of state-owned BCM and BPDhave ended the uncontrolled expansion of credit tobankrupt enterprises and have been keys to the successof the macroeconomic stabilization program. Today,there are six private banks, a credit cooperative, a leas-ing company, three insurance companies, and 18 foreignexchange bureaus. In June 1996 the shares of non-government deposits and of lending to nongovernmentsectors in the hands of the smaller private banks (exclud-ing BCM) were 30 and 23 percent, respectively, andgrowing steadily. Moreover, the ownership of privatefinancial institutions has been diversifying, with increas-ing participation of domestic and foreign capital.

Privatization: Substantial ProgressSince 1989 the Mozambican enterprise restructuringprogram, supported by the restructured IERP, hasresulted in the privatization of over 800 of 1,250 publicenterprises, including 70 large companies. Today the pri-vate sector accounts for over 70 percent of GDP. Theprivatization succeeded in increasing the efficiency andcompetitiveness of privatized firms and in attractingnew investment. The Bank provided extensive technicalassistance and financial support to the government’s

infrastructure privatization efforts, including technicalstudies on the feasibility of private concessions for theMaputo, Beira, and Nampula ports and railroad corri-dors, and a toll road from Maputo to South Africa.

RecommendationsThe Bank’s support to Mozambique’s privatizationprogram and financial sector reforms has been highlyrelevant to the country’s eco-nomic needs. The efficacy ofBank support was high in adjust-ment operations, where enforce-ment of policy conditionalitiesresulted in highly visible eco-nomic reforms. Lending pro-grams for technical assistanceand institution-building in thefinancial sector have also beensuccessful in transforming state-owned banks into more commer-cially viable and efficient marketinstitutions. Technical assistancefor development of the privatesector facilitated enterprise pri-vatization and improved the country’s business envi-ronment.

• The Bank’s assistance to the enterprise and finan-cial sectors has been accomplished at excessivecost because of the initial misuse of resourcesresulting from an improper sequencing of reforms.

• A stronger Bank presence, better sectoral work,and more policy dialogue with the government inthe late 1980s and early 1990s might have helpedto yield better results. The losses incurred by thestate-owned banks under the SMEDP alone arelikely to cost the government around US$20 mil-lion dollars, while the cost of the final “clean-up”of the banking system after its initial recapitaliza-tion in 1993 has already reached US$93 million,and may rise further.

Financial and Enterprise Reform: Better Sequencingand New ToolsThe lack of credit underwriting skills and weak corpo-rate governance made state-owned banks highly inap-propriate conduits for channeling credit to enterprises.The capital needs of start-up small companies can bestbe addressed through nontraditional lenders or equityinvestors, such as venture capital funds or the IFC.

P r i v a t e S e c t o r D e v e l o p m e n t : B a n k S t r a t e g y i n t h e E n t e r p r i s e a n d F i n a n c i a l S e c t o r

The Bank’ssupport toMozambique’sprivatizationprogram andfinancial sectorreforms has beenhighly relevant to the country’seconomic needs.

12

• In light of the poor performance of enterprisecredit efforts and the rapidly developing Mozam-bican commercial banking system, the Bank’spresence in the enterprise sector ought to be lim-ited to policy dialogue with the government andtechnical assistance to small firms and govern-ment institutions.

• Less distorting ways should be used to provideassistance to the emerging Mozambican privatesector than the current practice of providing fundsat subsidized interest rates.

• Such assistance can be provided in the form ofmatching grant schemes to small- and medium-size firms to develop better management andinformation systems, improve their technicalcapabilities, and train workers.

The government’s initial privatization program didnot envisage any coherent social policy response to theproblem of labor retrenchments following privatiza-tion. Although the IERP has a component forretrenched workers, it was never used by the govern-ment—which did not want to develop a worker train-ing program—in large part because of lack of interestby workers. A study on Evaluating the Impact of theEnterprise Restructuring Program, carried out jointlywith the government, addressed the major concerns ofworkers and their unions with respect to the impact ofprivatization. What workers wanted if they were laidoff was what was due to them by law: back wages, pen-sions, and a severance allowance from the proceeds ofthe privatization sales.

Business Environment: Business Legislation Still NeedsReformMozambique’s economic legislation remains highly con-voluted, inconsistent, and difficult to enforce. It fallsshort of clearly defining and protecting property rightsand setting rules for their exchange. This results in hightransaction costs, which are prohibitive for small- andmedium-size entrepreneurs. In addition, there are seriousomissions in the rules for entry and exit. The Bank,through the IERP, is currently providing assistance forthe reform of business laws, including the commercialcode. The IERP is also providing support for the Min-istry of Industry, Trade, and Tourism to carry out the rec-ommendations of the Impediments to Industrial SectorReform study and the follow-on FIAS red-tape analysis.

Recommendations• The Bank should be more active in policy dialogue

with the government and in providing technicalassistance for land reform.

• Lack of clear property rights to land in agriculture,which employs 70 percent of the population, is themain obstacle to the emergence of small companies.Investors are still uncertain about the sustainabilityof many institutional reforms because of potentialsetbacks in economic policies and the anticorruptioncampaign. Corruption, a poorly trained and unmo-tivated civil service, outdated and cumbersome busi-ness legislation, and lack of business services andbasic infrastructure still contribute substantially tothe cost of doing business in Mozambique.


A gua de Maputo, apublicly ownedand managed

water company, providesservice to 50 percent of allregistered households inMaputo. The companyexhibits all the problemsof a traditional publicwater utility. On average,water is available for10–12 hours a day. Al-though almost every apart-

ment is metered, only 50percent of meters are oper-ational. Although thereported unaccounted-for-water rate is 23 percent,there are strong reasons tobelieve that the real figureis much higher. For politi-cal reasons, water tariffsfor residential con-sumers—which accountfor over 90 percent of therevenue—are kept very

low, at about 50 percentof the actual cost recoveryrate. Until May 1997, thegovernment had not raisedrates for two years, despitean upsurge of inflationforcing the company tounderbudget its mainte-nance and amortizationexpenditures—which arecurrently funded at 70 per-cent and 50 percent ofrequired costs, respectively.

The revenue loss due tounderpriced service is onlypartially compensated bythe government capitalgrants, which have beenrapidly declining over thepast few years. The com-pany, however, manages topay wages without delays.Despite its vigorous dis-connection policy, in 1997the company’s collectionrate was under 70 percent.

BOX 3.1: CASE STUDIES IN ENTERPRISE RESTRUCTURING

13

P r i v a t e S e c t o r D e v e l o p m e n t : B a n k S t r a t e g y i n t h e E n t e r p r i s e a n d F i n a n c i a l S e c t o r

The company consistentlyfails to generate enoughrevenue to cover its oper-ating expenses, and as aresult has accrued largeaccounts receivable. Forinstance, its annual debt tothe local power companyamounts to US$4 million.Under these circumstances,the company is unable toexpand the service cover-age to new customers orto make even marginalimprovements in the qual-ity of service to presentconsumers. Currently, withthe World Bank’s assis-tance, the government isconsidering bringing in aprivate operator through along-term concession.However, in the absence ofan economically viable tar-iff-setting mechanism, suchan undertaking wouldrequire major governmentsubsidies, making the eco-nomics of the project con-tingent upon an unpredict-able government budgetingprocess. Unless the govern-ment is prepared to set therates at least equal to thecost recovery level, anduse alternative regulatoryinstruments (for instance,rate-of-return caps), it mayprove difficult to attractnew investment forextending the service cov-erage and improving thequality of service.

Electricidade deMoçambique (EDM) was

founded in 1977. It is theonly national power com-pany, which operates allgeneration and transmis-sion as a vertically inte-grated, state-ownedmonopoly. In 1995 thecompany was transformedinto a public company,solely owned by the state.In 1996 EDM entered intoa performance agreementwith the government,which specified the rightto operate the assets andcollect the revenues. Theagreement also set out themain service, operational,and maintenance qualitystandards, as well as thetariff escalation schedule.Under the contract, thecompany has assumed allthe debts of its predeces-sor. Unfortunately, most ofthe loan proceeds hadbeen used to pay for devel-oping the power infra-structure that subsequentlywas destroyed by the war.

As with many otherstate-owned utilities, forpolitical reasons, EDM’selectricity prices are keptwell below productioncosts. For almost twoyears the governmentdelayed a recent 1997 tar-iff increase. This has had anegative impact on thecompany’s financial posi-tion. As a result, the com-pany postponed its plansto expand service to newcustomers and entered into

a debt restructuring agree-ment with the government.Nevertheless, the corpora-tization of EDM, with thesubsequent conclusion of aperformance agreement,has had a positive impacton the company’s bottomline. Substantial progresshas been made in improv-ing revenue collection,reducing energy distribu-tion losses, and cuttingoperational costs. In 1996EDM launched an activeloss reduction campaign inMaputo, which targetedenergy losses and lossescaused by poor collection.A special disconnectiontask force has beenformed. EDM’s efforts tocollect from the govern-ment institutions, however,have failed, as threats tocut off the service couldnever be enforced. In lessthan two years, the collec-tion ratio has improved—from 75 percent in 1995to 93 percent, at the endof 1997—while energylosses have declined from41 percent in 1995 to 26percent in 1997. Similarcosts and loss-reductionprograms are currentlyunder implementation inBeira and Nampula. At themoment, the company isintroducing an integratedcustomer information andbilling system, which willprovide faster response totechnical problems and

improve collection. Tosupplement its domesticrevenue, EDM will beexporting energy to Zim-babwe. Its future exportrevenues are expected toaccount for 8 percent ofthe total domestically gen-erated revenues. Despitethe politically constrainedtariff-setting mechanism,the company is expectedto break even for the firsttime ever in 1998, whichpresents an opportunityfor its privatization.

All this clearly illus-trates the need to insulateAgua de Maputo andEDM from politicallymotivated governmentinterventions. As has beendemonstrated by EDM, aperformance agreementwhich spells out the rightsand contractual obligationsof the parties can becomethe first important steptoward financial sustain-ability of public utilities,improved cost efficiency,and better-quality servicefor consumers. Yet restruc-turing and performanceagreements fall short ofachieving these objectives.While the shape of reformhas yet to be finalized, it isclear that the problems ofa politically controlled tar-iff-setting mechanism andpoorly enforceable collec-tion can only be addressedthrough more private par-ticipation in these sectors.

BOX 3.1: CASE STUDIES IN ENTERPRISE RESTRUCTURING (CONTINUED)

14


When Mozam-bique became amember of IFC

in 1984, the country wasstill in the middle of a war,and its economy was dev-astated. IFC made its firstinvestment in a cotton pro-duction project, (Lomaco) in1987, which was followedby another investment forthe rehabilitation of thePolana Hotel in 1992.

In July 1990 FIAS wasasked to assist the Banco deMozambique in reviewingits debt-for-equity conver-sion program. FIAS foundthat the legal framework fordebt conversion was seri-ously flawed, and proposedchanges necessary to makethe program more effective.These were accepted by thegovernment. Subsequently,FIAS was asked to conducta study of the investmentclimate. The report reviewedissues and procedures froma foreign investor’s perspec-tive and suggested mea-sures to improve theinvestment framework. Thestudy recommended adop-tion of a swift registrationprocess and enactment of anew company law. Otherrecommendations relatedto investment incentives,taxes, ownership restric-tions, foreign exchange allo-cation process, landownership and labor laws.Many recommendationswere adopted by the gov-

ernment. In FY94–95 FIASwas requested to review thelegal framework for foreigndirect investment. FIAS con-cluded that many of themeasures proposed by thegovernment changes werecounterproductive, and thegovernment subsequentlyrevised its proposals, in part.This exercise also analyzedthe legislative frameworkand operations of theInvestment PromotionCentre (CPI) and made rec-ommendations for a legal/operational structure of theCPI which were subse-quently implemented.

Following the presiden-tial and legislative electionsin 1994, a joint Bank-IFCreport on conditions for pri-vate sector developmentwas issued in 1995. Thisreport concluded that themain constraints to privatebusiness were to be found inthe excessive transactioncosts facing private com-panies, partly due to inor-dinately high bureaucraticbarriers. In 1996 IFC andFIAS put together a reporton administrative barriers tobusiness. This report wasdrafted with the cooperationof the government agenciesinvolved. The conclusions ofthe report were presented invarious international forumsand have been the basisfor an administrativereform which the govern-ment is now undertaking.

The current strategy ofIFC is in line with thesedevelopments, and theincreasing interest inMozambique from privateinvestors, including foreign-ers. IFC’s priority is to focuson sectors in which thecountry has competitiveadvantages. Those sectorsinclude: (i) transport andport infrastructurebecause of the country’sstrategic location as agateway for surroundingcountries; (ii) mineralextraction sectors includ-ing natural gas; (iii) export-oriented sectors, in partic-ular energy-intensive indus-tries and agriculture; (iv) thefinancial sector which needsfurther diversification anddepth; and (v) small- andmedium-enterprises (SMEs).

IFC’s first investment inthe SME sector through theAfrica Enterprise Fund(AEF) was approved in1995. In 1995–96 IFCapproved its first invest-ments in support of thecountry’s comprehensiveprivatization program (acement company andcashew nut processor). IFCalso approved its first invest-ment in the financial sector,in a recently established pri-vate commercial bank.These investments have notyet been evaluated. IFCalso conducted a study toestablish regulations for theleasing industry.

In 1997 IFC assignedan investment officer to theBank’s Maputo office toreinforce its ties with thelocal business community.The improved business envi-ronment and the increasedinterest from the private sec-tor translated into recordapprovals in 1997, in-cluding an investment inMozal—an aluminumsmelter—of up to US$120million and investments inagriculture and the fishingindustries. As of Septem-ber 1997, IFC’s total com-mitted and approvedinvestments amounted toUS$144 million.

IFC will continue allo-cating significant resourcesto Mozambique in thesesectors. IFC sees its role as:(i) providing scarce long-term financing; (ii) helpingestablish Mozambique as agood business address; (iii)ensuring that projects meetthe requirements of IFC/World Bank Environmen-tal guidelines; (iv) con-tributing to capacity-building in the private sectorthrough its special initia-tives—the Africa ProjectDevelopment Facility(APDF) and African Man-agement Service Company(AMSCO); and (v) helpingto implement the WorldBank Group strategy forprivate sector develop-ment in coordination withthe Bank and FIAS.

BOX 3.2: IFC AND FIAS: STRATEGY AND ACTIVITIES IN MOZAMBIQUE

15

Instruments ofBank Assistance forInfrastructure Development

44

The 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, although it put rehabilitation of fixed

facilities (rail tracks, ports) as a second priority, behindmaintenance.

The Bank’s knowledge of the transport sector evolvedgradually. Bank assistance to the sector started with theFirst Rehabilitation Credit in 1985, followed by supportfor the Beira Corridor rail and ports rehabilitation pro-gram in 1989. The first transport sector review tookplace in 1988–89. It recommended infrastructure andequipment investment in transit routes to the sea, devel-opment of feeder roads to the railway system, rehabili-tation and maintenance of roads to the small and majorports, and development of appropriate capacities totransport commodities by road, rail, and coastal ship-ping. This incremental approach was realistic, given thecontinuing conflict in the country until the 1992 peaceagreement. This strategy provided a strong basis for theBank’s operational involvement and for providing lead-

ership in a large, capital-intensive sector where a multi-tude of donors were operating with little if any coher-ence. With the 1992 peace agreement, the Bank was in agood position to address the critical transportationdevelopment issues for integrating Mozambique alongits unusually long north-south distances (some 2,500km) and the east-west main transport corridors of vitalimportance for Mozambique and its neighboring coun-tries to the west.

RailroadsMozambique has three international corridors—Beira inthe center, Nakala in the north, and Maputo in thesouth—that are important to Mozambique as a sourceof income and employment, and to its landlocked north-western neighbors and South Africa as gateways. TheBank’s contribution through the Beira Corridor Project,

16

mainly at the institutional and human resource levels,has been helpful despite various delays. It confirmed theBank’s concern that major improvements in the effi-ciency of the large investments of the Mozambique rail-road (CFM) required some form of privatization orconcessioning. This approach was developed under thesecond credit for railways, the Maputo Corridor Revi-talization TA. After many delays and considerable effortby the Bank, the government and CFM recently agreedon an international tender for the concessioning ofCFM’s southern system.

Roads and PortsOn the basis of the 1989 transport sector report andmuch project preparation work, the Bank extended twocredits, in 1992 and 1994, for the rehabilitation andstrengthening of the road and coastal shipping infrastruc-ture, which is essential for Mozambique’s north-southintegration. An initial project focused on improvements inpolicy, institutions, and human resources. Major progresshas been made, with important benefits for the economyas a whole. The second project was part of a major invest-ment program in the sector, cofinanced at more thanUS$400 million by a large number of donors. The Bankplayed a useful role as leader in this effort. However, thegovernment has reduced the annual level of expenditureon the program. Moreover, differences in donor proce-dures have resulted in important delays in the implemen-tation of major road rehabilitation work, including somefinanced by the European Union (EU).

Despite the large volume of work required, espe-cially on the Road and Coastal Shipping Projects, andthe many cofinanciers, supervision has been successfullycarried out from HQ—and even with remarkably lim-ited inputs—a reminder that high-quality staff inputs are

more important than quantity.

RecommendationsThe Bank contributed to shapingthe sectoral strategy for transportfrom the beginning of its involve-ment in Mozambique. The 1989sector report was a healthy coun-terpoint to the government’s ini-tial focus on the country’straditional transit function for theneighboring inland countries. As

a result, the north-south transport system, which offeredmajor opportunities for greater national integration,

was made a higher priority. The attention given in thesector report to major policy issues and in particular tothe urgent need for catching up at the institutional andhuman resource development levels, helped shape theinitial strategy for the sector.

Bank performance under the four project operationswas basically sound. Major Bank efforts went intopreparation and supervision. The Bank worked closelywith the government and donors to achieve a stream-lined, well-prioritized (but still very ambitious) invest-ment program. A large number of donors have feltcomfortable with Bank leadership. Excellent communi-cations have been maintained, although no project offi-cer has been stationed in Maputo. Progress inliberalizing and privatizing coastal shipping and truck-ing has also been favorably affected by Bank assistance.

The Bank should have taken a harder look at the fis-cal feasibility of the agreed large investment program onthe Second Roads and Coastal Shipping Credit. How-ever, the establishment of a Road Fund was an impor-tant step toward ensuring that road user charges arechanneled into the roads.

There are several recommendations for future workin the sector:

• The Bank’s initiative to seek major efficiencyimprovements in the railways-ports corridorsthrough privatization and concessioning should becontinued, especially the efforts to address theexcess personnel issue, as long as government sup-port, in the context of the broader country dia-logue, remains strong.

• The “big push” approach in the roads sector hasalready resulted in important progress on the pol-icy and institutional and human resources develop-ment fronts. However, deeper fiscal and economicanalysis is needed to ensure that investments arenot divorced from fiscal realities.

• Strong aid coordination leadership, based on thor-ough analytical work, should continue and shouldlead to greater use of common procedures, espe-cially on procurement. But donor rigidities in thisarea persist.

• In light of experience so far, a good case can bemade for continued substantive Bank involvementin the sector, both in railways and ports (east-westcorridors) and roads and coastal shipping (north-south), taking into account the need for closerlinkages between the Bank’s fiscal work and sectorinvestment programs.


The Bankcontributed to

shaping thesectoral strategy

for transport fromthe beginning of its

involvement inMozambique.

17

Energy: Need for a New Look at the SectorAs a result of strong initial sector work in 1985–86, theBank was able to establish soundly based dialogue withthe government on an energy sector strategy and todevelop a sequence of priority operational activities.This initial effort was especially important in a sectorwith a wide range of primary energy resources and aconsumption base that relied mainly on traditional fuel-wood sources. This dependency caused serious environ-mental problems. Energy pricing was highly distorted,with fuelwood trading freely, but other sources of energysold at well below economic cost.

Strategy and ImplementationThe Bank’s strategy emphasized meeting Mozambique’senergy needs from domestic sources, where economic;developing the country’s potential to benefit from tran-sit trade in energy products for neighboring (inland)countries and trade in electricity; and investing inenergy-intensive industries for export only if certain eco-nomic, financial, and market conditions were met. Thestrategy was underpinned by detailed recommendationsto secure stable energy supplies, strengthen institutionsdealing with energy, remove distortions in energy pric-ing, address the urban household energy crisis, and pro-mote the interest of foreign oil companies in petroleumexploration.

The Energy TA and Rehabilitation Project of 1987addressed institutional and policy issues, and financedsome emergency requirements in power and petroleumsupply. The project relied heavily on foreign experts. AnUrban Household Energy Project followed in 1989,focusing on temporarily increasing fuelwood supplieswhile substituting commercial energy supplies for fuel-woods (by financing household wiring and coal stoveconstruction) and correcting distorted prices. Theseambitious projects involved several executing agenciesand considerable coordination. In 1993 the Bankextended a credit for a Gas Engineering Project, afteranother energy project had provided useful assistance tothe Empresa Nacional de Hidrocarboneras (ENH). Theproject proved the existence of additional gas reserves.

The Bank’s role in the energy sector has been gener-ally positive. The Energy Rehabilitation and UrbanHousehold Energy projects have led to importantprogress in the sector. The fuelwood program has beenremarkably successful, as has the new pricing policy forpetroleum. But the household program for electricitywiring and coal stoves largely failed, and success in the

electricity sector has been uneven. Although the recentelectricity law will open the sector to private activities,the financial soundness of the national electricity com-pany, EDM, has remained shaky. The Gas EngineeringProject helped strengthen ENH and increased its abilityto negotiate a satisfactory joint venture agreement witha major foreign partner on use of the gas reserves. Theenergy sector is changing quickly, however, and there isan urgent need for a fresh review of the sector.

RecommendationsWhile the Bank’s effectiveness in the energy sector hasbeen mixed, the sector is too important for the develop-ment of Mozambique not to give it the attention whichthe Bank could bring by using its comparative advantage.

Bank performance was highly satisfactory in the ini-tial strategy development, but mixed in project concep-tion and preparation and during supervision, and incontinued strategy development and aid coordination.Substantial Bank involvement in the energy sector,where there are many other donors, requires not onlyintellectual leadership, which the Bank demonstrated inthe initial energy sector work, but active leadership dur-ing implementation, with both government entities anddonors. The Bank seems to have been more timid thanin other sectors in coordinating activites and in seekingto influence those donors providing grant funds. TheBank should have been able to exert a healthy presencein the sector since there were relatively few donors—andmany other opportunities for their grant financing inMozambique.

• It is important to get across the message that grantfinancing cannot be considered “free” when itsupports low-priority and unnecessary projects,and thereby impedes future, more important oper-ations.

Urban Development: Too Complex and Too LittleRapid urbanization in recent decades, much of it aresponse to the protracted civil conflict, has placed a sig-nificant burden on Mozambique’s urban infrastructure,housing, and institutional capacity. Close to 40 percentof the population now live in cities, about one-third ofthem in absolute poverty. Poor urban neighborhoodslack access to water, sanitation, and adequate healthcare, and crime is rampant. Environmental degradationis a serious problem.

In the past decade, the Bank has undertaken twourban development projects—one completed, the other

I n s t r u m e n t s o f B a n k A s s i s t a n c e f o r I n f r a s t r u c t u r e D e v e l o p m e n t

18

ongoing—and a sector review of urban local govern-ment and environment. Two water projects are currentlyunder preparation and an “urban environment” projectis in the pipeline. The Urban Rehabilitation Project(PRU), approved in August 1988 and closed in October1996, was intended to assist the government in stem-ming the rapid deterioration of basic urban infrastruc-ture and services in Maputo and Beira, the country’slargest cities, and to mitigate some of the social costs ofstructural adjustment through: (i) rehabilitation ofurban infrastructure (roads, water, waste management)and housing; (ii) employment generation; (iii) strength-ening local institutions; and (iv) support to governmentinitiatives in cost recovery, institutional reform, and newpolicy directions.

A sector review was completed in 1991. It con-cluded that local governments lacked legal, administra-tive, financial, and political autonomy and thatinstitutional reforms to decentralize decisionmaking andstrengthen municipal governments were essential formore effective management of urban development. Thereview found that Mozambique’s urban environmentwas degrading rapidly because of deferred maintenance,lack of skilled personnel and financial resources, and thewide disparity between supply of and demand for urbaninfrastructure and basic services. The review proposed aLocal Government Reform and Engineering Project(PROL), which was approved in September 1993. Itsobjective was to support the government’s decentraliza-tion program by assisting with its municipal reform andcapacity-building initiatives. The principal output of theproject has been a new legal framework for local gov-ernments, which is expected to lead to the first munici-pal elections (for some 33 provincial capitals and otherurban areas) in April 1998. Other than that, the mosttangible products associated with PROL—rapid map-ping in the five participating cities—are those whosefunding was picked up by other donors.

Despite these efforts, urban development hasreceived insufficient attention from the Bank to date.Urban productivity is important for sustainable nationaleconomic growth, and the persisting problems ofpoverty and environmental degradation associated withrapid urbanization and weak local institutions need tobe systematically addressed. PRU was too ambitious andcomplex for Mozambique’s limited institutional andfinancial capacity in the sector. While it achieved manyof its physical targets, and the roads component had apositive impact on Maputo and Beira, project imple-

mentation suffered from procurement and disbursementproblems, changes in task managers, and coordinationdifficulties with some executing agencies. The creditlines for small enterprises and the acquisition of buildingmaterials failed, and the project proved generally unsuc-cessful in institution building, cost recovery, and otherpolicy objectives. As a result, many of its benefits are ofdoubtful sustainability. Both Borrower and Bank perfor-mance were mixed: an undisbursed IDA credit balanceof some US$7.4 million was canceled. The ICR’s overall“unsatisfactory” rating for the project outcome is justi-fied, although the extremely dynamic and difficult cir-cumstances under which PRU was prepared andimplemented should be clearly recognized. The sectorreview gave insufficient attention to the lack of capacityin the central government to effectively implement rapiddecentralization in Mozambique. The study also under-estimated the importance of transparency and politicalconsensus building among the major stakeholders,including the political parties and other representativesof civil society, with respect to the decentralizationprocess. These continue to be major constraints thathave contributed directly to the sluggish performanceand limited results of PROL.

PROL has proceeded slowly and has generatedfew concrete results to date. The project appears toshare many of the problems experienced by PRU,including over-ambitious objectives, poor interinstitu-tional coordination, and lack of government owner-ship of some subcomponents. The project underwent amid-term review in September 1996, and its originalclosing date (March 1998) is likely to be extended forone year. Given the critical importance and complex-ity of local government reform, the Bank’s decision toextend PROL, despite its limited results thus far, isreasonable, but the project will continue to requireclose supervision.

Recommendations• Urban productivity is important for sustainable

national economic growth, and persisting prob-lems of poverty and environmental degradationassociated with rapid urbanization and weak localinstitutions need to be systematically addressed bythe government. The donor community shouldgive greater priority to urban development in gen-eral, and sustainable local economic growth,poverty reduction, and environmental improve-ment in particular.


19

• The Bank should encourage and help the govern-ment to develop and implement a national urbandevelopment policy to identify priorities for theprovision of basic urban services and assess cur-rent institutional arrangements and the effective-ness of Bank and other donor support to thesector. The Bank can contribute directly to thisprocess through its proposed sector study. Thestudy should also examine conditions in the urbanland and housing markets. Lending should be lim-ited and contingent on adequate borrower com-mitment to implement an agreed sector strategy.

• Rapid environmental assessments and local envi-ronmental action plans should be prepared andimplemented for Mozambique’s principal urbancenters. The Bank should work closely with otherdonors to strengthen this national institutionalcapacity and, in close consultation with all keystockholders, for subnational governance andurban management more generally.

• Future Bank urban projects should be based on asystematic assessment of priorities at the individualcity level, and be more decentralized, demand-dri-ven, and action-oriented than current Bank-sup-ported activities through PROL. Building onsuccessful aspects of PRU and local NGO experi-ence, future urban projects should focus more onconcrete, cost-effective interventions in low-incomeurban and peri-urban areas, including the use ofappropriate technologies and broad local commu-nity participation, and less on traditional technicalassistance, which has generated few tangible results.

• The Bank may consider placing an urban develop-ment/“brown” environmental specialist in the resi-dent mission to facilitate its dialogue with, andassistance to, the client on sectoral policy and opera-tional issues. Adaptable lending instruments shouldbe considered to ensure that resources provided arein line with domestic implementation capacity.

Environment: Turning Policy into ActionNatural resources and environmental quality are essen-tial both for Mozambique’s short-term economic growthand its longer-term sustainable development. Thenational economy will continue to be highly dependenton the country’s rich, mostly untapped, natural resourcebase, and the long-term implications of natural resourcedepletion need to be clearly recognized. Mozambiquecan avoid the costly degradation that has plagued other

countries in the region—although incipient signs areemerging even now in the acceleration of unmanagedand uncontrolled natural resource use. The potentialenvironmental effects of new public and private sectordevelopment initiatives must be properly assessed andmitigated, and the institutional capacity needed to man-age the environment must be put in place, from the pub-lic sector to the local community level.

A GEF Transfrontier Conservation Areas (TFCA)Project was approved in December 1996, and severalIDA projects, ongoing and under preparation, haveenvironmental components, but there are no free-standing Bank environmental projects. The TFCA pro-ject, which is still in its early stages, seeks to help thegovernment create enabling policies, activities, andframeworks for rehabilitating, conserving, and manag-ing biodiversity and natural resource endowments inthree transfrontier conservation areas (bordering onSouth Africa and Zimbabwe). The Bank providedstrong technical support to the preparation of this pro-ject, which required nearly five years, and is closelymonitoring its implementation. Projects under prepa-ration with significant environmental dimensionsinclude the Agricultural Sector Investment Program(PROAGRI), which has land management and forestand wildlife management components and will supportenvironment-friendly agricultural research, a Coastaland Marine Biodiversity Management Project for pos-sible GEF funding, and the National Water Sector IProject, which includes a water resource managementcomponent that focuses on some of the internationalrivers upon which Mozambique is highly dependentfor its water supply. The Bank, together with SIDA, hasalso supported integrated coastal zone management inMozambique through the organization of a nationalworkshop. Over the past five years, the Bank has sup-ported the national environmental action planningprocess in Mozambique and has had a strong fieldpresence in natural resource management in the formof a local environmental specialist.

As part of its support of government efforts todevelop an agricultural development strategy and pro-mote urban rehabilitation in the late 1980s and early1990s, the Bank produced a technical paper on the inte-gration of environmental concerns in a strategy for sus-tainable agricultural development. This paper identifiedthe prolonged civil war and displacement of large num-bers of people from rural areas as the key environmen-tal problem by increasing pressures on fuelwood,


20

mangrove, and fisheries resources. A sector study ofurban local government and the environment identifiedwater quality, waste disposal, erosion, deforestation, soilfertility loss, and degradation of coastal and waterresources as the main problems needing to be addressed.

Around the time of the peace accord in late 1992,the Bank began to support government preparation of aNational Environmental Management Program(NEMP). A country environmental strategy paper(CESP) issued in December 1993 affirmed that environ-mental problems appeared to be severe only in urbancenters, and transport corridors. Three general prioritieswere identified: integrating environmental guidelinesinto sector development policy; improving the enforce-ment of natural resource use rights at the local level; andestablishing a coordination mechanism at the nationallevel while maintaining a structure of decentralized envi-ronmental management. The Bank hoped to follow upthe NEMP with an IDA operation, but the governmenthas decided to rely instead on the ample grant fundingavailable to it. Bank procedures were seen as too time-consuming and bureaucratic. As a result, the Bank’sstrategy has been to work with other donors and localstakeholders to mainstream environmental concerns insectoral operations, particularly for agriculture, water,and urban development. Here again, use of adaptablelending instruments should be considered to adaptresource transfers to implementation capacities.

The presence of an environmental specialist in theresident mission over the past four years has facilitatedinteraction with the government, other donors, the pri-vate sector, and NGOs. Bank technical support on envi-ronmental and natural resource matters has beenwelcomed by the government and local stakeholders,but its project processing time is perceived as too lengthyand requirements seen as too demanding when com-pared with those of other donors.

Recommendations• Environmentally (and socially) sustainable devel-

opment—and not just “sustainable, private sector-led, poverty-reducing growth”—should be theoverriding long-term objective of Bank assistanceto Mozambique. Considering the critical impor-tance of renewable natural resources for thenational economy, particular attention needs to begiven to sustainable, decentralized, community-based natural resource management and the long-term implications of natural capital depletion.

• In light of prospects for continued rapid economicgrowth in a context of incipient or weak publicsector institutions, special emphasis should also begiven to properly assessing, minimizing, mitigat-ing, or compensating for adverse environmental(and regional and social) impacts of macro-economic and sectoral policies and new invest-ment projects. In short, environmental (and social)concerns need to be more fully “mainstreamed,”both in country development decisionmaking andin Bank assistance to Mozambique.

• The Bank needs to work closely with other donorsto help the government convert the NEMP (whichprovides a broad strategic framework) into aneffective national environmental action plan withclearly defined priorities, policy, institutional andinvestment measures, institutional responsibilities,and timetables for implementation. This shouldalso provide the guiding and coordinating mecha-nism for Bank and other donor support for theenvironment.

• The Bank and other donors should help MICOAclearly define its responsibilities in relation toother government agencies active in environmen-tal—especially natural resource—management.Similarly, the donor community should helpMICOA further develop the legal and regulatoryframework for environmental management andstrengthen its technical and institutional capacityto undertake effective environmental planning,monitoring, and enforcement.

• The Bank and other donors should give priority toenhancing MICOA’s capacity to orient and evalu-ate—and local private sector/NGO capacity toundertake—environmental assessments of newinvestments, especially for “megaprojects” such asthe Pande Gas and Maputo and other major cor-ridor developments, whose induced developmentand cumulative impacts also need to be carefullyexamined. The potential environmental impacts ofadjustment operations should also be assessed.MICOA’s capacity to monitor and control imple-mentation of environmental management plansderived from environmental assessments needs tobe strengthened, and the Bank should intensify itssupervision and follow-up of environmental miti-gation measures associated with its ongoing andfuture lending operations, particularly in the infra-structure, energy, and agricultural sectors.


21

• The development community should give greaterattention to transboundary environmental issues,particularly water resource, dryland, forest andwildlife management, and biodiversity conserva-tion. This includes being increasingly active indonor coordination in the Southern Africa Devel-opment Community (SADC) countries.

• Over the medium term, the Bank and its developmentassistance partners should expand their activities toinclude promotion of (i) improved on-farm land andwater management and soil conservation throughrural extension and local community involvement; (ii)social forestry; (iii) improved fisheries management;and (iv) environmentally sound tourism.


23

Social Amelioration: Reducing Poverty Through Agricultural Growth

55

The 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, whichincluded support to agricultural marketing, im-proved producer prices, and a safety net for staplesand other essential goods for the most vulnerable.

• Agricultural Rehabilitation and Development(ARD) of 1990, which included interventionsexpected to benefit 50,000 small-scale farmers and600 skilled and 2,000 unskilled laborers, and theAgricultural Services Rehabilitation and Develop-ment (ASRD) of 1992, which addressed povertybroadly by upgrading agricultural services, provid-ing working capital for smallholder production,and improving rural water supply. Both projectsintroduced a concern for rural poverty in projectpreparation and appraisal. However, the first proj-ect was closed, and the second was restructuredand had limited outreach. This focus followed

from the pattern of cashew production in Mozam-bique: the project did not otherwise target the poor.

• Economic Recovery Credit (IDA, US$180 million,Switzerland, US$6 million) of 1992, which specif-ically addressed poverty alleviation, in efforts toincrease the productivity of the poor, improvebasic social services, and establish a social safetynet. The government would establish a coordinat-ing body for poverty policy formulation, replacefood subsidies with targeted income transfers, andprepare a report on land distribution.

• Rural Rehabilitation Credit of 1993, which wasdesigned to benefit 200,000 rural smallholderhouseholds displaced during the war and toimprove rural water supply in the provinces ofSofala and Zambesia. The Seeds For Work pro-gram was the only component initially targeted

24

directly to the poor. Subsequent restructuring ofthe project substantially expanded its poverty-alleviation components to include communityprojects in rural areas for the rehabilitation ofschools, construction of water supply and sanita-tion facilities, and other community-determinedinfrastructure needs.

• Second Economic Recovery Credit (SERC) of1994, which continued to protect governmentspending in the social sectors, while focusing onsound macroeconomic management, reconfirmedagricultural growth as the driving force behindpoverty reduction, and proposed continuedemphasis on removing constraints to marketing,rehabilitating transport, and improving health andeducation in rural areas.

The Bank was prominent in the US$10.5 millionSocial Dimensions of Adjustment (SDA) Project, whichwas financed by grants from Germany, the Netherlands,Switzerland, and the United Kingdom. The SDA forMozambique was prepared by a Bank mission in

1989, with representatives fromdonor governments, but no NGOparticipation. The project wassubsequently administered andsupervised by the Bank. The SDAinitiative, which was plagued byslow startup and lack of system-atic planning, was to a largeextent superseded by the 1993Food Security Capacity BuildingProject, which supports a Poverty

Alleviation Unit in the Ministry of Finance. Althoughthe US$6.3 million project is not formally classified as apoverty oriented project, it provided significant supportto poverty alleviation by strengthening national capacityfor monitoring poverty and for designing policies andprograms for national food security. Under this project,the Poverty Alleviation Unit has compiled district pro-files on food security and nutrition, a review of formalsafety nets, a participatory poverty assessment, and arural poverty profile. The Unit is analyzing the NationalHousehold Survey that will shed further light on povertyand is preparing a poverty database assessment.

How Appropriate Was the Bank’s Poverty Strategy? The Bank consistently emphasized increased agriculturalproductivity, especially for smallholder agriculture, asthe engine of growth and the means of addressing rural

poverty. Throughout the adjustment programs, the Bankendeavored to protect social expenditures, poverty-reduction gained greater definition in the Bank’s man-date, and policies and programs were increasinglyassessed for their probable effect on poverty. Assistancein all sectors, such as liberalization of tariffs, roads, andexpansion and rehabilitation of the health and educa-tion system, was expected to benefit the rural popula-tion. The Bank’s strategy has continued to emphasize theimportance of building internal capacity for monitoringand analyzing poverty in Mozambique, since the currentabsence of monitoring makes it impossible to determinewhether assistance has benefited the poor preferentiallyor in proportion to their numbers in the population.1

For urban areas, the tension between poverty allevi-ation through growth and through income protectionfor the poor has been more acute than in rural areas.The Bank has consistently protected social sector expen-diture in adjustment programs and has directed its assis-tance to local capacity building in poverty analysis andpolicy. While this now appears to be advancing satisfac-torily, progress has undoubtedly been slow.

Recommendations• The Bank is now in a good position to sharpen the

poverty-reduction focus of the existing lending pro-gram, particularly for rural smallholders. The reha-bilitation of the road network and improvedsecurity make possible a closer focus on poverty,with special attention to the most vulnerable house-holds.

• Government commitment and capacity to assessand monitor poverty remain crucial. The Bankneeds to continue to nurture this capacity to ensuremore and better analysis of data on the distributionof growth and on the effects of reform programson the poor. The very limited data now availableseriously limit assessing the effect of the strategiesand fine-tuning their poverty impact.

Attention to Gender Issues Has Been SporadicThe active participation of women in the liberationstruggle, and the emancipation of women as an explicittask of the government after Independence, have placedgender issues clearly on the development agenda ofMozambique for more than 25 years. The MozambicanWomen’s Organization (OMM), linked to the rulingFRELIMO party, was given the specific mandate to inte-grate women into national development. Greater efforts


The Bank hasconsistently

protected socialsector expenditure

in adjustmentprograms.

25

to educate girls, adult literacy campaigns, free healthcare and increasing the participation of women in polit-ical life were key programs of the socialist government.

The government’s 1995 Agricultural Policy andStrategy for Implementation, recognizes women’s cen-tral importance to agriculture and integrated ruraldevelopment, and places a high priority on their partici-pation in programs of professional training, rural exten-sion, and production and marketing activities.

Despite substantial progress in addressing genderimbalances in development, however, the situation ofwomen in Mozambique remains precarious. Illiteracy is77 percent among women and 42 percent for men, whileenrollment in primary school is 54 percent for girls and75 percent for boys. Malnutrition is higher among girlsthan boys, and maternal mortality rates are high, at 123per 1,000. Although women constitute 52 percent of theworkforce, they are heavily segregated by sector: 90 per-cent work in agriculture. War and migration haveresulted in a large proportion of households headed bywomen (22 to 29 percent). Their double responsibilityfor household maintenance and income generationmakes them especially vulnerable to poverty. The gov-ernment recently completed a gender action plan;2 thiscovers poverty and employment, education and training,health, violence and women’s rights, women in environ-mental conservation and agriculture, and institutionalmechanisms for the advancement of women.

The Bank’s draft Agricultural Sector Memorandumof 1993 addressed gender issues at length and recog-nized that women were responsible for all crop hus-bandry, harvesting, and home processing of food crops.Particular attention was drawn to the difficulties experi-enced by female-headed households. Despite this analy-sis, no policies or program interventions addressedwomen farmers or women’s time constraints to increaseagricultural production. The Bank’s 1995 CountryAssistance Strategy also explicitly addressed genderissues, citing the large share of female-headed house-holds. The Assistance Strategy aimed to address genderdifferences through service delivery to women in healthcare, education, water, and agriculture. It did not discusswomen’s constraints in contributing to economicgrowth, their work in rebuilding the country, theirstrong participation in agriculture, their contribution toprivate sector development, or their special needs in thedevelopment of property laws.

In view of the key place of women in the Mozambicaneconomy, Bank preparation and appraisal missions made

special efforts to include attention to gender issues in proj-ect preparation, but this attention was neither systematicnor consistent in the absence of a clearly articulated strat-egy on gender issues. Although project and country strat-egy documents repeatedly note a lack of information ongender issues in Mozambique, there was a good deal ofinformation available to those who looked for it (much ofit prepared for the Beijing Conference).

This sporadic attention to gender in project designwas not compensated for in implementation and super-vision. Mainstreaming was weak, and gender compo-nents did not feature prominently in supervision.

The lack of an explicit gender strategy resulted inintermittent attention to gender in both the design andimplementation of the lending program. The lack of ana-lyzing and prioritizing the main areas for action on gen-der may also account for the tendency to see women moreas a vulnerable group in need of social services than as keyeconomic agents and equal participants in development.Greater attention to gender analysis would have given theBank a better understanding of some of the issues itaddressed. Analysis of gender issues in specific sectorscould have strengthened the portfolio. Given women’spivotal importance as agricultural producers, their accessto land is a significant issue in land tenure reform; thelegal position of women, in personal as well as businesslaw, has important implications for business developmentas well as for civil rights: so far, the Bank’s assistance hasbeen limited to a small grant to an NGO.3

There was limited identification of key genderissues, no policy mandate to address these, and littledemonstrated ability to design concrete interventions.

RecommendationsThe Bank could deal with gender issues in the portfolioin a number of ways:

• Gender needs to be fully integrated into the CountryAssistance Strategy and the subsequent lending pro-gram. This will require a coherent gender strategy,covering all major sectors where the Bank is active inMozambique. Beginning with PROAGRI and edu-cation, where work has been initiated, gender sec-toral strategies would also need to be developed.

• The Bank should consult with the government, thedonor community, and civil society on projectdesign and implementation to gain a better under-standing of gender and development issues inMozambique. This would strengthen its credibilityas a participant in the development dialogue.

S o c i a l A m e l i o r a t i o n : R e d u c i n g P o v e r t y T h r o u g h A g r i c u l t u r a l G r o w t h

26

• Resident mission staff should be trained andassigned to cover gender issues.

• The existing portfolio will need explicit attentionto potential gender issues in supervision. Thematicsupervision covering several projects or sectorsmay be helpful in containing the cost of this.

• Some retrofitting of the existing portfolio to includegender analysis and action may be appropriate, par-ticularly in the course of project restructuring.

The Bank in the Health Sector

BackgroundMozambique’s health is at a pretransitional epidemio-logical stage, with high infant, child, and maternal mor-tality, and high fertility; all these indicators are wellabove the average for Sub-Saharan Africa, and the evi-dence shows little change since 1986. The main healthproblems are infectious and parasitic diseases (particu-


Of 30 credits toMozambiqueduring

1988–97, half mentionedgender issues, and half ofthese proposed interven-tions over a broad rangeof activities:• Agricultural Services

Rehabilitation andDevelopment of 1990and Agricultural Reha-bilitation and Develop-ment Projects of 1992were both designed togive women equalaccess to extension ser-vices and to includethem in credit pro-grams. The AgriculturalServices project notedthat the rural watersupply componentswould benefit womenbut did not consider therelevance of genderissues to its land tenurecomponent. Implemen-tation did not proceedas outlined, however.Project managementwas unaware of anyspecial attention to bepaid to women in

extension or training.• The Rural Rehabilita-

tion Project of 1993,specified that half therural developmentagents selected bewomen. The projectwould also address ruralwater and fuel supply aswell as tenure rights, andhad a seed distributioncomponent for women.In the 1997 restructuringof the project, the seeddistribution componentwas canceled, but thecommunity developmentcomponent wasincreased, and the train-ing of community spe-cialists made explicitprovision for includingseparate meetings withwomen in the commu-nity to take their viewsinto account in planningand decisionmaking.

• Health and NutritionProject (1989) andHealth Sector RecoveryProject (1995) did notanalyze gender issuesspecifically, but theHealth Sector Recovery

project stated thatwomen and childrenwould be the primarybeneficiaries. Despiteactive NGO-sponsoreddiscussion of violenceagainst women, thehealth sector projectsdid not draw attentionto this issue.

• The Legal and PublicSector Capacity Build-ing Project (1992)included a small com-ponent of technicalassistance to theWomen’s Associationfor Law and Develop-ment (MULEIDE) forwork on women’s legalrights and to raiseawareness of women’srights issues. However,the Bank showed littlefurther interest in thecomponent, and therewas no supervision.

• The Human ResourcesDevelopment Project(1992) analyzed the gen-der distribution of thestudent body at pre-uni-versity and universitylevels and provided for

pre-university scholar-ships, primarily for girls,and the construction ofdormitories that wouldallocate space to womenstudents in proportionto their numbers.

• The Education andManpower Develop-ment Project (1988) andthe Second EducationProject (1990) did notaddress gender issuesexplicitly, althoughEducation II wasamended to providefunds for pilot initia-tives on girls’ education,and an Adviser forGirls’ Education wasappointed to coordinateactivities.

• The Economic RecoveryCredit II (1992) devotedsome space to theanalysis of gender issuesbut did not propose anyactivities related to gen-der. The EconomicRecovery Credit IIImentioned gender onlyin noting that half of allsmall farmers werewomen.

BOX 5.1: GENDER DIMENSIONS OF THE BANK’S LENDING PROGRAM

27

larly diarrhea), acute respiratory infections, measles,tetanus, tuberculosis, malaria, pneumonia, and childmalnutrition. After Independence in 1975, the healthservices were nationalized and there was a threefoldincrease in the physical infrastructure, as the govern-ment attempted to correct the imbalance of service avail-ability from a mostly curative urban service to offeringprimary health care and favoring rural areas. But duringthe emergency in the 1980s, the health sector was seri-ously affected by the country’s political and economicupheavals. Financial resources for health declined, inse-curity in rural areas increased, and health facilities weretargeted by guerrillas. By 1985 almost one-third of thehealth centers and posts had been damaged ordestroyed. A serious issue underlying the problems ofhealth services performance is the erosion of the salariesof the health staff by inflation and the proliferation ofad-hoc compensatory practices.

Following relief and emergency assistance by donorsand NGOs, the health sector fell into heavy dependenceon external aid, a situation that persists to this day.Almost all investments in the sector (about 90 percent)are covered by grants and credits. Despite this aid, thehealth services reach only 40 percent of the population,and there are persistent problems of poor quality, in partas a result of the extremely low salaries of health staffand shortages of medicines in the health facilities, aggra-vated by irregular imports and distribution by multipledonors. The share of recurrent costs for health from thenational budget amounts to less than US$1 per capitaand cost recovery is very low (in total, less than 4 percentof the public health expenditures); as a consequence,donor funds (including IDA credit funds) are oftenneeded to cover emergency shortages. In 1991–92 theMinistry of Health undertook a comprehensive policyreview toward the development of a more cohesiveapproach to rehabilitate, maintain, and operate thehealth sector. The Health Sector Recovery Program wasthe organizing principle for all foreign assistance inhealth, including the second IDA-financed health project.Its objectives are the improvement of the health status ofthe population in general and, in particular, a decrease ininfant, child, and maternal mortality. These objectiveswere to be achieved through an increase in health cover-age (from 40 to 60 percent) by 2000, with better quality.

Bank/IDA Studies and Assistance (1986–97)The Bank undertook a Health Sector Review in1986–87 and a Food Security Study in 1989 as a basis

for a dialogue on health and nutrition. This study iden-tified, as priorities for the sector, slowing populationgrowth, improving quality, coverage and cost-effective-ness of health services, and addressing malnutrition. Inview of the then-prevailing insecurity in the country, thestudy recommended a phased approach that wouldbegin with rehabilitation of health facilities and trainingin the urban areas, extending to rural areas as the situa-tion improved. Alleviating nutritional deficiencies andimproving food security would require action in threemain areas: food distribution and rationing, nutritioninterventions in the health sector (oral rehydration, vac-cinations, nutrition monitoring, and education), andnutrition-related actions in other sectors, includingwater and sanitation and family food production.

How valid were these recommendations? The poorconditions of health and nutrition in Mozambique(exacerbated by the armed conflict in large parts of thecountry) justified attention to food security and restora-tion of basic health services. Recommending slowingpopulation growth was misplaced as a short-term prior-ity, given the existing conditions of war and instability.However, since there was at the time a strong need foraccess to better-quality reproductive and child healthservices (including child spacing) to address high mater-nal mortality, ensure safe deliveries, and decrease infantand child mortality and morbidity, the focus on theseaspects of primary health care was well advised.

The 1989 Study on Food Security addressed daunt-ing problems of inadequate food supply, debilitatinginfectious disease and resulting serious malnutrition in acountry at war, with weak techni-cal and administrative capacityand extremely limited budgetresources. The study recommendedreconstructing the health systemand giving priority to programsthat could lower nutrition vulner-ability and rehabilitate water andsanitation facilities. It correctlyrecommended a long-term strat-egy to rehabilitate agriculturalproduction, particularly familyfood production, create employ-ment, and establish a social safetynet. Given the gravity of the nutri-tion problems, IDA’s response was pertinent. It includeda food security project (Credit 2487) for US$6.3 millionthat became effective in February 1994 (to date, this has


Following reliefand emergencyassistance bydonors and NGOs,the health sectorfell into heavydependence onexternal aid, asituation thatpersists tothis day.

28

disbursed 40 percent). Food security measures wereintroduced in several other projects.

As a follow-up of these studies, IDA approved aHealth and Nutrition Project in 1989, with an IDAcredit (Credit 1989) for US$27 million, after a shortpreparatory period. The Staff Appraisal Report (SAR)estimated that 50 percent of the population would haveimproved access to health services and about 9 percentwould have increased access to food through the project.The objectives were to strengthen capacity in health andnutrition policy formulation and management and toimprove efficiency and service quality within existingbudget constraints to mitigate some of the social costs ofadjustment. Stronger service capacity was to beachieved, in addition to financing the reconstruction ofthe physical health infrastructure through subcompo-nents that would have required considerable inputs oftechnical expertise and detailed operational plans andactions on health financing, service management, effec-tive primary health care service models, hospital effi-ciency, facility maintenance, pharmaceutical supplysystem, food distribution and education, and staff train-ing. At both appraisal and during supervision, the com-plexity of the tasks involved to carry out this ambitiousagenda may have been underestimated.

As a result, during the first three years there was verylittle activity regarding the substantive components of theproject, and only 10 to 15 percent (excluding the initialSpecial Account deposit) of the credit funds were actuallydisbursed for contracted work (compared to an estimateof 50 percent at appraisal). It is unclear if the presenceand programs of the many other donors could have beentapped to assist in implementation. The project wasrestructured in 1995 by making additional disbursementscontingent on improvements in performance and bychanging the categories of the financiable items, frompolicy and institution-building activities to financing ofrecurrent costs, particularly pharmaceuticals. This redi-rection of IDA financing toward recurrent expenditurescovered a major gap for operation of the health system.Additionally, financing was redirected to two worthwhilepurposes: (a) prepare designs of health centers for thesecond project, and (b) support the development of aNational Health Sector Strategy, which subsequentlybecame the basis for the Health Sector Recovery Program(HSRP). Nevertheless, long-term objectives regardingmanagement and maintenance system improvements,primary health care, increased hospital efficiency, studiestoward long-term financial sustainability, and human

resource development remained mostly unfulfilled. Withthese changes, disbursements accelerated, but it tookeight years to fully use the credit funds.

Taking into account the difficult experience of thefirst project, IDA based the preparation of the secondhealth project (Credit 2788)—the Health Sector Recov-ery Program—on a much higher recognition of the activ-ities of other donors and on the need to support theMinistry of Health in integrating the proliferation andprovincial fragmentation of donor-assisted projectsthrough a master plan—the HSRP. The adoption by theMinistry of Health of the HSRP and the widespreadacceptance of the program by the other foreign donorsmay be deemed as a solid accomplishment toward amore structured process for the reconstruction and reha-bilitation of the health system in Mozambique. The pro-gram had three main components: (a) health servicedelivery, including infrastructure for health facilities andlaboratories, pharmaceutical and medical supplies, main-tenance, food, and provincial operational costs; (b) insti-tutional support consisting of improvement of the supplysystem, provincial health management, information sys-tem, and program management; and (c) human resourcedevelopment (both in-service and academic training).This five-year program amounted to US$355.7 million,out of which IDA would finance US$98.7 million.Donors agreed to contribute US$140.5 million, partici-pating in almost all components, and the governmentcommitted to finance the remaining US$116.5 million.

Preparation was not completely immune to coordi-nation problems. Donors thought that they had beeninsufficiently consulted by IDA during the intensiverounds of preparations, and that they had been invitedto join an already completed program. The provincialand district health authorities and technical staff(responsible for implementation of the public health ser-vices and programs on a partially decentralized basis)had little involvement. These problems are currentlybeing addressed by IDA through changes in the type oflending operation and in implementation arrangements.Regarding the form of investment lending, although thisbegan as a specific project with pre-identified financingcategories and items, it has now evolved into an agreedhealth Sector Investment Plan (SIP) with annual assess-ments that will enable IDA and other donors to regulatefunding according to performance. The government anddonors will support a share of the health budget withagreed instruments for accountability and transparency.It is too early to know whether these changes will help


29

accelerate the sluggish flow of credit funds (since crediteffectiveness in April 1996, the credit has disbursed only5 percent).

The actions taken by IDA in the last year regardingchanges in the project to increase complementarity withdonors point in the right direction. Several implementa-tion arrangements are being worked-out between IDAand the donors and there has been progress in adoptingspecial provisions for providing technical assistanceunder a trust fund managed by UNDP and for budgetarysupport to the provinces. Other areas being studied forcommon donor action are pharmaceuticals, training,and infrastructure. It is of paramount importance topursue these arrangements so that donors, as well asprovincial and district health offices, identify fully aspartners in the Health Sector Recovery Program. Duringthe next year, it will be possible to assess the effective-ness of these new mechanisms for channeling externalassistance to the health sector, and the extent to whichIDA funds will be required to fill the gaps left by otherdonors.

Assessment of ResultsTo sum up, although IDA strategy in the health sectorin Mozambique during the last twelve years has been,for the most part, technically correct, the capacity forimplementing projects and disbursing funds for thepurposes originally established at appraisal remainsuneven. The projects have had limited effect in advanc-ing the strategy and in meeting the stated objectives ofinstitutional development. On the positive side, IDApresence in the sector strengthened the dialogue withthe government regarding the desirability of devotingmore resources from public expenditures to health, andwas successful in promoting an improvement in the bal-ance between investments and recurrent expenditures.And in the preparation of the Health Sector RecoveryProgram, the comparative advantages and activities ofall other donors were taken into account and consoli-dated in an overall program. Yet much more is neededto make IDA financial assistance and technical presenceeffectively complementary to an abundant flow of grantfunds and technical assistance to the health sector.Donors maintain that they could provide the necessaryfinancial resources to meet the requirements of theHealth Sector Recovery Program through grants, but atthe same time, they see an important task for IDA inproviding intellectual leadership and policy guidance atthe macro level.

The following remain outstanding issues for IDAand other donors in the health sector in Mozambique:(a) working closely to encourage cohesive action amongdonors, and genuine ownership of the HSRP by all con-cerned parties; (b) revisiting and strengthening the pri-mary health care model and making improvement ofthese services an absolute priority; (c) applying substan-tial efforts to increase capacity building among provin-cial and municipal health offices and, at the same time,ensuring an active participation of those levels in allphases of annual program development and in evalua-tion of implementation; (d) increasing internal effi-ciency, particularly regarding hospitals, that consume alarge proportion of health resources (such improvementswould liberate more resources to enhance quality andexpand primary health care to rural areas) and (e) initi-ating a well-documented debate on health delivery andfinancing alternatives (addressing particularly the prob-lems of low coverage and inadequate staff compensa-tion) with the participation of national and provincialhealth professionals, economists, members of the civilsociety, and the private sector to ensure the beginning ofa phased process toward successful health care reform.This process, seen with a regional perspective, wouldhave a time horizon of 15 to 20 years (as stated in Bet-ter Health in Africa, World Bank, 1994).

The Future of IDA AssistanceIn the near term (the next five years), through properimplementation of Credit 2788, IDA could be the effec-tive lender and intellectual leader by filling needed gaps,while strengthening the partnership with the otherdonors. To do this, the IDA would need to supporttimely and well-designed economic and sector work inhealth, as well as joint studies and seminars with otherdonors. With a long-term horizon, prospects for futureIDA lending to Mozambique for traditional projectsthat only seek the expansion of health services, in theabsence of health policy reform, are weak, given theexperience of difficulties in credit utilization and assum-ing a continued commitment to assist on the part of thedonor community. However, there could be opportuni-ties for IDA to lead a strong health policy dialogue andprovide financing for health sector reform, on the basisof a SIP or an adaptable program credit, toward effi-ciency and sustainability. IDA responsibilities wouldneed to be periodically reviewed and revised as appro-priate, in the light of changing economic and health sce-narios in Mozambique.


30

EducationDuring the 12-year involvement of the Bank in the edu-cation sector in Mozambique, one project was com-pleted, two are ongoing, and one is in preparation.Although there has been some recovery in enrollmentrates following the end of conflict (from 56 percent in1993 to 62 percent in 1996), the sector is still plaguedby access, quality, and equity issues. To date, the Bank’sassistance in the education sector has included:

• Education and Manpower Development Project(Education I), designed as part of Mozambique’sEconomic Rehabilitation Program (ERP) of 1986.Because of the violence in the countryside, theproject was limited to the capital, Maputo. Theproject was intended to respond selectively toimmediate needs in the education sector, whilebuilding knowledge about the requirements of theeducation system and of a comprehensive sectorstrategy. The project was approved in May 1988and amended in 1991 and 1995 to respond tochanged borrower circumstances and priorities.

• Second Education Project (Education II), formu-lated in 1990, ensured continuity of financing forseveral of the priority activities of the first project,including reconstruction of the primary schoolnetwork, provision of learning materials, andinstitutional development. Education II empha-sized educational quality by focusing on teachertraining and on the development and provision oftextbooks. It reintroduced an experimental bilin-gual education program.

• Capacity Building: Human Resources Develop-ment Project (HRDP) of 1992 provided support tosecondary and university education.

Implementation ExperienceThe projects improved educational infrastructure—numbers of schools, classrooms, quality of teachers,education management—thereby allowing enrollment toexpand. Support contributed to improved primary andsecondary education, by constructing and restoringclassrooms, providing learning material, and trainingteachers; improved the quality and efficiency of the uni-versity, by enhancing management and planning capac-ity; and improved management of the education sector,particularly in planning, financial monitoring, and con-trol. However, evidence about the institutional objec-tives is scarce. Owing to institutional weakness,satisfactory implementation of all aspects of the educa-tion projects was not achieved. During the period cov-ered by the Bank assistance, the government systemchanged, as well as its objectives, methods, and priori-ties. Despite the government efforts (Education I) toimprove MINED management capacity, it is still weak,centralized, and bureaucratic. This results in slow andinefficient project implementation.

The World Bank, donors, and government are nowdiscussing a Strategic Plan 1997–2201 for the sector,


T he Bank hashelped to defineissues, build

consensus and mobilizeresources against AIDSin Mozambique, at lim-ited cost.

The World Bank co-sponsors and chairs theUNAIDS initiative inMozambique. A groupof agencies—UNICEF,UNFPA, UNESCO,UNDP, WHO, and theWorld Bank—havejoined to develop acountry program againstAIDS. Although theprevalence of HIV infec-tion is at less than 10percent, Mozambique issurrounded by countrieswith prevalence rates of25 percent and above.Infection has spreadmainly along the majortransport corridors intoMozambique, and islikely to grow as trans-portation is rehabili-tated. Although largelyinvisible at present, thespread of AIDS will bemost easily prevented byprompt actions now.

In its first year ofactivity, the UNAIDSinitiative has focused ongetting commitment andsupport at high levels.There is a division ofresponsibility amongagencies: the WorldBank has introduced aninnovative AIDS educa-tion component into itslending for the trans-port sector. Through aslight modification inthe tender documentsfor the ROCS project,each contract with con-struction companies forroad construction andrehabilitation willinclude a small subcon-tract to an NGO forAIDS education. Thesubcontracts are gener-ally well below 1 per-cent of the totalcontract and range fromUS$10,000 toUS$60,000. NGOs willprovide AIDS educationand condom distribu-tion for the construc-tion workers and forthe population in theareas of construction.

BOX 5.2: CONFRONTING AIDS

31

drafted by the Ministry of Education. The World Bankis presumed to participate as last donor, to ensure conti-nuity of objectives.

RecommendationsThe recommendations that emerge from the World Bank’s12 years of education assistance in Mozambique are:

• Although the Ministry of Education has certainlyimproved its capacity, it is still weak. As a result oflow salaries, the ministry has lost many trainedstaff, including teachers, to the private sector. Thesolutions to this critical issue lie within the frame-work of civil service reform, and need to beaddressed in the macroeconomic dialogue.

• Collaboration between the government ofMozambique and the Bank has been a learningprocess for both parties, as the country undergoesa political and socioeconomic transformation. TheBank has shown flexibility in the implementationof projects to accommodate the rapidly changingneeds of the country.

• NGOs are closely involved in education in thecountryside, especially in areas where the govern-ment is still unable to help. Care must be taken notto intensify inequities or regional or group differ-ences in the country, especially between the northand the south.

• For the future, the ongoing Sector Investment Pro-gram (SIP) may provide an opportunity for theBank to materialize its long-term commitment toeducation in Mozambique. The plan should be setup in phases, simple and small enough to alloweffective implementation by the Ministry of Edu-cation. In preparation and implementation of theSIP, the Bank should adjust to the government’space and to the programs of other key donors. Useof adaptable lending instruments should beexplored.

• Building classrooms adapted to the needs of thecountry, with the participation of communities,and increasing the number of teachers willimprove the enrollment rates. Better-trained teach-ers, more teaching and learning materials,increased learning time and improvement ofpupils’ health will have a positive effect on thequality of education. Special attention should bepaid to education coverage in rural areas and togirls’ education, especially in the northern part ofthe country.

• Until now, World Bank projects have focused onthe formal education system; this does not reachthe people displaced by the war, which left manyorphans, widows, and street children. The onlyway to help young people in Mozambique outsidethe education system to join society is to reachthem through an informal education system.

• Portuguese is the language of instruction, but it isnot the mother tongue of most Mozambican stu-dents, for whom primary school is their first contactwith the Portuguese language. It would be better tobegin school in the mother tongue, switching gradu-ally to Portuguese during the primary school years.


In the context ofEducation II, INDE(The National Insti-

tute for the Develop-ment of Education)re-introduced experi-mental bilingual educa-tion through thePEBIMO project.Results were mixed,mainly because of diffi-culties experienced inapplying an appropriatemodel of bilingual edu-cation. Teachers, schooldirectors, and parentsare pleased because thefirst language has facili-tated teaching and learn-ing in all subject areas,and because studentshave learned to read andwrite in both languages.Judging by test results,most bilingual studentsdo not yet function atthe same level of Por-tuguese as their peerswho have studied it

since class 1 (for ap-proximately double thetime). However, themost advanced bilingualstudents have alreadyachieved levels compara-ble to those of their oralPortuguese skills, andthey are indeed transfer-ring the skills they havegained in their first lan-guage to the second.Even more encouraging,parents report that theirchildren who attendbilingual classes aremore motivated, takeinitiatives at home, andhelp other children withtheir homework. All thissuggests that use of themother tongue con-tributes to self-confi-dence and satisfaction inlearning. An unexpectedpositive outcome hasbeen an increase in theprestige of the mothertongues.

BOX 5.3: EXPERIENCE WITH BILINGUALEDUCATION

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Assistance for Agricultureand Rural Development:Rebuilding the Sector

66

Mozambique’s new agricultural development strategy considers agriculture as the

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 agricultural exports to their early 1980

levels, increase the supply of raw materials to local pro-cessing industries, and stem the environmental degrada-tion caused by over concentrations of people displacedby conflict.

Bank Strategy: The Right DirectionThe Bank strategy has supported similar objectives. The1995 Country Assistance Strategy (CAS) focused onreducing poverty through expansion and improvement ofsocial services and infrastructure, especially in the ruralareas, and improved management of natural resourcesand the environment. The 1997 CAS establishes thatagricultural development and sound natural resourcesmanagement are fundamental to growth and povertyreduction. It refers to the improvement of infrastructurein rural areas and social investments, but it does notclearly define the strategy to achieve these objectives.

Bank support in agriculture includes: • Agricultural Rehabilitation and Development

Project (ARDP) of 1990, whose objectives were tosupport government’s efforts to assist smallholderproduction and export of cashews through selec-tive rehabilitation of physical infrastructure andservices, the provision of technical assistance, andthe implementation of policy reforms in pricingand marketing. The project also supported therestructuring of state and commercial agriculturalenterprises.

• Agricultural Services Rehabilitation and Develop-ment Project (ASRDP) of 1992, whose objectivewas to increase production and returns fromsmallholder foodcrop and cotton cultivationthrough the rehabilitation and development ofagricultural services and the strengthening of insti-

34

tutional capacity in the Provinces of Nampula andCabo Delgado.

• Rural Rehabilitation Project of 1993, whoseobjective was to undertake, on a pilot basis, activ-ities to support decentralized rural economicrecovery while creating the capacity necessary toaddress broader post-war rehabilitation needs.

• Other assistance, such as studies of the cashewnut, cotton, irrigation, and forestry subsectors andsupport for the Smallholder Agriculture (SectorInvestment Program) Rural Action Program andland policy, and agriculture pricing and marketingstudies. The Bank has also supported the govern-ment in restructuring the Ministry of Agricultureto strengthen its institutional capacity to imple-ment agricultural policies.

Consistency with the StrategyThe strategy adopted by the Bank to assist the countryin the post-war rehabilitation was appropriately prag-matic, considering the planning difficulties during thecivil war and post-war periods, and the fact that therural infrastructure of the country was almost totallydestroyed. The difficulty of obtaining accurate informa-tion, and the uncertainties of the future, made the plan-ning task difficult. Macroeconomic policies had positiveeffects that reflected directly in the agricultural sector,such as liberalizing marketing and price controls and,indirectly, through economic stabilization. The projectsfinanced by the Bank aimed at cashew rehabilitation andrural and agricultural services rehabilitation. However,project design was excessively complex, because of over-estimating government institutional capacity. Securityproblems in the early years also constrained projectdesign. Thus, the project for cashew rehabilitation wasaimed at two southern provinces (Inhambane andGaza), although the concentration of the cashew crop isin the north, because at the time the war was still on andthere was no security to protect work in the north.

ImplementationThe effectiveness of the ambitious investment programwas hampered first by the war and then by the weakinstitutional capacity of the public sector. The Ministryof Agriculture was unprepared to lead a market-drivenagricultural sector. (The three agricultural projects have

been restructured.) Agricultural projects were not prop-erly integrated into the budgeting process, or into the(confusing and incomplete) information managementsystem. Disbursement lags have been a continuing prob-lem. The ARDP became effective in April 1990, but aftersix years of implementation only 37 percent of fundshad been disbursed. The ASRDP, which became effectivein December 1992, had used only 30 percent of thecredit by October 1997. The RRP, effective in 1993, hadabsorbed only 38 percent by October 1997.

The Ministry of Agriculture is too large for theresponsibilities it has and for its meager financial andhuman resources. It needs to be restructured to makemore economic use of its resources (financial, human,technical, and physical), provide better services andfacilities (extension, land, credit, inputs, to producers),and upgrade the administrative and technical skills ofthe staff.

Systems of support and control related to the fieldoffices need to be strengthened.

In recent years the Bank has devoted insufficientresources to supervising its agriculture portfolio (10 and15 staffweeks per project in FY96 and FY97, comparedto an average of 20 staffweeks for the Africa Region inthose two years).

RecommendationsOED recommends that those responsible:

• Apply much stronger supervision effort to com-pensate for the limited institutional capacity in thesector.

• Implement faithfully the measures agreed upon inthe Portfolio Implementation Plan related to (i)better integration of the investment projects intothe planning and budgeting processes of the gov-ernment; (ii) project programming; (iii) prepara-tion of contracts; (iv) budgetary execution; (v)expenditure reviews; and (vi) portfolio monitoring.

• Assist in reforming the Ministry of Agricultureand Fisheries and in preparing the necessary legaland administrative instruments for implementingthe Política Agraria.

• Avoid overprogramming in agriculture by coordinat-ing closely with other donors and by reducing thescope of PROAGRI, modifying the time frame for itsexecution, or using adaptable lending instruments.


35

Portfolio Management:Quality at Entry

77

By the time Mozambique became a member country in the Bretton Woods institutions,

the Bank’s experience had long established that the quality 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 WorkSubstantial efforts went, right from the beginning, intothe macroeconomic work which was to underlie the threeeconomic rehabilitation operations in the 1980s andtheir successors in the 1990s. The evidence suggests thatmuch of this work yielded significant benefits, althoughwith some important weaknesses.

Turning to the sector level, there have been goodexamples of how sector work usefully underpinned sub-sequent operations. In 1985–86, comprehensive and high-quality sector work was undertaken in energy. This effortestablished early on a strong basis for a dialogue with thegovernment on a sector strategy and, consistent with thatstrategy, a number of operations. However, the sectorwork was unable to recognize fully all on-the-ground real-ities which could be realized only over time through theBank’s operational involvement. In transport, on the

other hand, the approach initially was incremental, evenpiecemeal, largely in the context of the operational sup-port to the sector begun in 1985 under the First Reha-bilitation Credit and through extensive (formal)transport sector work setting the stage for an “enclave-type” (Beira Corridor) project. Before starting out on amajor nationwide transport project, the Bank undertooka transport sector study in 1988–89 which, because ofthe preceding operational involvement, gave the trans-port sector strategy a higher reality check than was givento the energy sector.

In other sectors, the contribution of sector workbefore project assistance has been more mixed. The firstoperations in the urban, education, health, and financialsectors did not have the benefit of formal sector reviews.Indeed, in the health and financial sectors, such work fol-lowed initial operations, while formal sector work has not

36

yet been carried out in urban development and education.The first financial sector study of 1992 failed to diagnoseweak corporate governance in state-owned financial insti-tutions. Only from 1994 onward did extensive sectorwork provide the support for reform and a sense of direc-tion in the financial and related enterprise sectors. For theinitial operations in the four sectors named in this para-graph, success has been elusive. In agriculture, on theother hand, a substantial sector work effort in 1987–88prepared the ground for the initial three Bank-assistedagriculture operations. But a post-conflict agriculture sec-tor report, initiated in 1992, only became available as aninternal draft in mid-1997, after several redraftings. Theresults, on the whole, have been disappointing—areminder that even extensive sector work done beforeproject development, while necessary, is not in itself a suf-ficient condition for ensuring project success.

Other formal sector work was undertaken to under-pin TA operations (Capacity Building Study—1993) oradvise the government on sector policies and strategy,without being followed by an operation (Telecommuni-cations Sector Memorandum—1991). Another sectorreport entitled: Public Sector Pay and EmploymentReview (1991) appears to have had little effect on across-cutting problem affecting virtually all Bank-assisted activities in Mozambique—even now, six yearslater. Numerous other brief reports were prepared toaddress specific operational needs or to assist the gov-ernment, but these were not formal reports that could bemade readily available to wider audiences.

The linkages among macro-economic analysis, public fi-nances, and sector investmentprograms need to be strength-ened. Investment projects havebeen initiated without the assur-ance that the government’s finan-cial programming could providecounterpart funds and recurrentbudgets needed for both theirconstruction and operation. Thishas resulted in wasteful delays inproject completions, in theneglect of maintenance of com-

pleted structures, and in lack of operating funds, partic-ularly in some social sectors.

Although resources devoted to ESW have declinedsignificantly since the early 1990s,1 the Bank’s knowl-edge has increased substantially in most sectors where it

has been involved in operations and where many studieshave been carried out by consultants under Bank andother financing. This expanded knowledge should pro-vide excellent opportunities for reassessing and updating(infrequently and as a function of major changes) strate-gies through appropriate sector work.

State of Preparation/Readiness of Project by Timeof Approval During the initial period when the government and, attimes, donors pressed for Bank operational assistance,most lending took the form of assistance for quick reha-bilitation and emergency reconstruction. Indeed, virtu-ally all the initial nonprogram operations (1987–89): theEnergy TA and Rehabilitation, the Education and Man-power Development, Urban Rehabilitation, the Healthand Nutrition, the Urban Household Energy, and theBeira Corridor Projects—responded to emergency situa-tions. Thus project preparation was generally con-densed—although not in all cases (for example, theBeira Corridor Project)—and, as we have already seen,more often than not, without the benefits of precedingformal sector work.

During the initial period (as evidenced, in particular,for the few projects for which there is now an ICR),Mozambique had no experience in working with theBank, and had been used to the opaque systems andhighly centralized procedures of a socialist regime. Thecountry had come out of Independence with extremelylimited institutional and human resource capacities.Even with the best project preparation—and the fre-quent, full use of the PPF—many expectations regardingproject implementation schedules were to be dashed.Because of these start-out conditions in a new membercountry, this chapter attaches greater importance to thedesign features of Bank-assisted projects and the effortsmade during supervision to overcome implementationproblems than to the state of preparation, in a narrowproject sense, at the time of Bank Board approvals.

Even so, some cases can be pinpointed where a proj-ect was premature, measured by government readiness(the Maputo Corridor Revitalization TA Project was atleast a year early against the political agenda of the gov-ernment/CFM) or by the Bank’s even shorter experience(the Urban Household Energy Project went ahead,despite a two-year delay in the Energy TA and Rehabil-itation Project which had been designed precisely toensure initial minimum improvements in preparation offuture projects in the sector).


The linkagesamong

macroeconomicanalysis, public

finances andsector investmentprograms need tobe strengthened.

37

Complexity of Projects The Bank has sought to ensure that an appropriateframework existed, or was being set up, for implement-ing Bank-assisted projects and their eventual operations.In doing so, it focused on the pertinent legal and policyframework, the organizational setup, and manage-ment/human resources. Given the generally weak exist-ing institutional and policy framework within whichthese projects were to be implemented, there was a per-vasive danger of “overload” through overly complexproject design. To illustrate just one area of systemicweaknesses, virtually all the entities into which Bankfunds were to be disbursed had inadequate accounts andno audits; other management information systems weredeficient or nonexistent. At the same time, the conceptof financial viability, even of the largest public enter-prises, was new.

Expectations of quick solutions for important insti-tutional and policy problems were not realistic. Theapproach used in the energy and transport sectors for asequence of projects with initial focus on improvingglaring weaknesses at the institutional and humanresources levels was well-conceived and (eventually)paid off. This is true even though success was partial. Inother areas where there had been less of an effort towarda sector strategy or where essential preconditions didnot prevail (as in financial intermediation), the qualityof project design was insufficient to deliver even mini-mal success.

ICRs have found the institutional design of a num-ber of Bank-assisted projects to be deficient, in thatBank assistance led to the creation of new line entities(“PIUs,” generally within a ministry), thereby weaken-ing existing units which were performing essential func-tions. Controversy on this matter has been greatlyaccentuated as a result of the shortages of highly quali-fied national manpower—which could not be correctedmuch in the short run—and by the transfer of the besttalents from the “normal” government departments into“special units.” This was largely attributable to theinadequate salary levels across the “normal” public sec-tor services, while exceptions became standard for PIUs(whether funded under Bank-financed or other projects).

The experience with new PIUs has been poor insome sectors (urban, and especially agriculture). Con-versely, using existing line units for executing projectshas been successful in roads (DNEP), in coastal shipping(GAPROMAR), and in gas (ENH). In the railways/portsprojects there was no choice but to use CFM, a mono-

lithic and highly traditional railways enterprise. In twoenergy projects, existing agencies (mainly EDM andPETROMOC) have carried implementation responsibil-ities; a project unit in the Energy Ministry (Energymoved across ministries during implementation) actedas a helpful coordinator (PCU), although not in a linefunction. However, to illustrate that problems can alsoarise with a PCU, and not just with a PIU, please notethat a component in the Urban Household Energy Proj-ect, the wiring of 40,000 houses (the PROLEC pro-gram), did not succeed under a coordinating entitywithout experience and “without teeth.”

A different model for successful project implemen-tation has been the transformation of public agenciesinto private agencies. This was a requirement in the caseof financial intermediaries which turned a failed initia-tive into a successful Bank-assisted project and—mostimportant—which has much improved the chance foreventual project sustainability.

The use of TA as a major element to obtain timelyproject implementation has confirmed the Bank’s longexperience that this is a double-edged instrument withmajor risks for project sustainability. This has been espe-cially true in cases where foreign experts were used forline responsibilities and where local counterparts wereeither overstretched or insufficiently qualified to takeover fully the tasks carried out by these experts (illus-trated in the ICR for the Energy TA and RehabilitationProject and in supervision reports on the Beira CorridorProject). With the volume of TA provided under bilateralassistance, often directly linked to Bank-financed opera-tions, there is the additional complication that the Bankmay not be able to influence the quality of such TA.

Equally important have been project design issuesrelated to policy conditions introduced in some projectswhich the Bank considered essential at the time of pro-ject appraisal and Credit Agreement, but which laterwere neglected in the sense that the Bank did not use theremedies available under its CAs.

Relations with Development Assistance PartnersWith aid from a large number of donors adding up to anextraordinarily high level of resources spread over virtu-ally every major economic and social activity in Mozam-bique, each Bank-financed operation was probablyinfluenced by, and in turn affected by, some such assis-tance. Given the expectations from donors for the Bankto coordinate at the macroeconomic and sector levels,“quality at entry” for Bank-financed operations has

P o r t f o l i o M a n a g e m e n t : Q u a l i t y a t E n t r y

38

required careful recognition of activities supported bysuch donors. Greater efforts to resolve conflicts in viewsabout sector strategy (and shared responsibility for out-comes through businesslike partnerships) wouldimprove the quality of external assistance.

Top quality at entry for a Bank-financed projectrequires such a project to fit into a well-designed sectorinvestment program and to be fully coordinated withother donor assistance (whether this coordination isundertaken by the Bank or some other entity). Probablythe ROCS program has been closest to the optimum.Not only did it require an extraordinary effort on thepart of the Bank in preparing the ground in a sectorwhere the Bank’s expertise was not questioned—partic-ularly with the highly professional task manager leader-ship provided—it called for a concomitant level ofsupervision. In energy, the initial sector leadership leftno doubt about the ability of the Bank to work out withthe government a well-designed sector investment pro-gram. However, this advantage was eroded by a combi-nation of various donors doing things their own way(mainly through large, long-term bilaterally grant-financed consultant inputs and through grant financingfor some uneconomic investments), a lack of Bank lead-ership, especially on the agreed sector policy issues, anda less than enthusiastic reliance on the Bank by the gov-ernment and some of its agencies, mainly EDM.

Some donors with large programs felt threatened bythe Bank taking an interest in “their” sectors, especiallywhen the Bank moved ahead with substantial lending.The Bank’s move toward sector investment lendingopens up important opportunities for strengthening sup-port vis-à-vis development partners and placing greaterresponsibility on Mozambican agencies to deliverresults. Sectors with large investment requirements andwhere the Bank’s own professional staff base is strongestare most appropriate for Bank leadership. Elsewhere,management coalitions should be designed with appro-priate leadership responsibilities for other donors andwith specific responsibilities allocated to voluntary agen-cies and local communities. This implies greater decen-tralization of country assistance responsibilities to thefield.

Quality of Bank Supervision

Adequacy of Bank SupervisionThis section addresses quantity of supervision, quality intechnical capabilities, continuity in task management,

and effectiveness vis-à-vis the borrower/executingagency. Project supervision has been the most dynamicelement among all the categories of use in Bankresources, growing from one staffyear (SY) to over 10SY between FY88 and FY95 and declining since then to9 SY (FY97) as the number of projects under supervisionincreased from 3 in FY88 to a peak of 25 in FY94 andthen declined to 23 in FY97. The average supervisioneffort per project (whether measured in SW or constantdollars) was virtually the same in FY97 as in FY90—at20 SW. Annual variations in these averages betweenthese two end-years, however, have been significant(between 15 and 22 staffweeks). On a sectoral basis,variations have been even wider, with public sectorreform (early 1990s), energy (mid 1990s) and now(FY97) human resources projects getting the largestsupervision effort. Overall it is worth noting that aver-age project supervision effort for Mozambique has beenlower than for the Africa Region as a whole (except inFY95), but consistently lower in recent years than forneighboring Malawi, Zambia, and Zimbabwe, in spiteof their much longer familiarity with Bank operationsand, at least for the two latter countries, more advanceddevelopment indicators.

Quality of inputs and frequency of changes in TMhave largely determined how effective the Bank has beenin the supervision of its project portfolio. Changes inTMs are costly, although from time-to-time inevitable—as are changes on the borrower’s side. However, fre-quent TM changes in a short period will tend to reducethe Bank’s effectiveness. ICRs show this to have been thecase in the Urban Household Energy Project and in theUrban Development Project. A TM change may bedesirable, as when supervision cries out for newapproaches—or to capture the benefit of new ideas/approaches associated with such a change (this was pos-sibly the case for the CFM projects with a new railwayengineer taking TM responsibilities in 1993 and beingforceful on privatization/concessioning). A more fre-quent cause has been absence of the full range of pro-fessional capacities required for adequate supervision.The absence of a power engineer in the supervision ofthe first two energy projects with major investments/TAfor EDM during the last ten years was probablyreflected in the Bank’s limited effectiveness vis-à-vis thisagency. The absence of a railways financial analyst dur-ing much of the supervision of the CFM projects mayexplain the slowness in getting the basic accounts withthat important borrower to an acceptable level.


39


TABLE 7.1: STAFFYEARS BY MAIN SERVICE

FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97

Total staffyears 4.6 5.5 9.9 11.5 15.6 15.4 16.5 20.8 18.2 19.4 20.8 19.6 20.6Client services 4.4 5.2 9.7 11.2 15.0 14.9 15.5 20.3 17.8 18.0 19.5 18.5 18.3Lending 0.7 1.9 5.7 6.4 6.5 6.3 4.5 10.7 7.3 5.8 5.2 6.9 5.7Project supervision 0.0 0.8 0.4 1.0 2.4 4.3 4.6 4.3 7.0 7.9 10.4 8.6 9.0Country ESW 3.7 2.3 2.9 2.9 4.5 2.5 4.7 3.7 2.8 3.5 2.9 2.0 1.9Aid coordination/

cofinancing 0.0 0.1 0.7 0.4 0.3 1.2 1.2 0.9 0.5 0.6 1.0 0.7 0.4Technical assistance 0.0 0.1 0.0 0.5 1.3 0.7 0.5 0.7 0.2 0.1 0.0 0.3 1.4Support to client

service 0.0 0.3 0.2 0.3 0.6 0.4 1.0 0.5 0.4 1.4 1.1 0.9 1.8

Source: Planning and Budgeting Department, World Bank.

TABLE 7.3: SUPERVISION INTENSITY BY SECTOR (STAFFWEEKS PER PROJECT)

FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 AVERAGE

MozambiqueAgriculture 0 13 6 10 19 19 10 15 13Human development 14 16 17 8 13 24 16 31 16Public sector reform 14 32 30 24 16 14 13 20 20Energy & mining 10 7 12 12 14 30 37 22 15Finance 0 0 0 0 0 18 12 15 15Infrastructure &

urban development 14 16 10 22 28 14 16 13 17Multisector 14 13 4 13 10 2 2 2 9

AfricaAgriculture 13 14 16 18 19 17 20 20 16Human development 15 17 19 21 23 19 23 21 18Public sector reform 11 12 17 19 18 16 19 25 16Energy & mining 14 16 11 18 16 18 27 22 17Finance 12 11 12 14 14 16 21 18 14Infrastructure &

urban development 14 10 11 13 15 15 20 20 14Multisector 5 7 9 13 7 8 11 16 10


TABLE 7.2: SUPERVISION EFFORT (STAFFWEEKS PER PROJECT)

FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97

IBRD/IDA 15 15 15 15 14 16 15 17 19 20 21 22 23Africa region 14 14 15 15 14 17 16 18 21 22 21 24 23Mozambique 0 43 11 18 15 20 17 15 16 16 22 18 20Malawi 9 12 14 11 11 16 15 19 23 28 30 32 28Uganda 16 15 15 16 13 22 19 18 18 21 26 31 27Zambia 14 18 13 9 6 12 6 22 20 18 23 24 21Zimbabwe 13 14 13 13 11 13 14 15 19 15 30 22 23Bolivia 7 9 28 22 20 17 17 18 18 19 18 21 18Malaysia 11 10 7 6 7 10 8 8 10 14 14 17 11Nepal 11 12 14 15 13 18 18 16 22 22 19 20 34Tunisia 14 11 11 8 7 11 9 8 11 14 16 17 15


40

Attention to Policy, Institutional and Physical Aspects ofProject Implementation Physical objectives have generally been achieved withmore success than agreed policy objectives; problems onthe whole have been even more stubborn regarding theachievement of agreed institutional objectives. Typically,Bank operations started with a dialogue on macro andsome sector policy matters through a series of balance ofpayments support (Rehabilitation) operations which, ina broad sense, achieved their objectives. Policy objec-tives under project lending were related mainly to eitherthe financial performance or privatization of entitiesproviding economic services, in energy, transport, water,and (very important) through financial intermediation.The financial performance of state enterprises in theseareas has been generally well below the agreed objec-tives. In financial intermediaries, eventual privatizationensured that financial performance was no longer sub-ject to the destructive political interference that charac-terized the nonperformance of the intermediaries whileheld in public hands. The Bank’s successful effort to helpprivatization of the banking system, achieved underagreed policy conditionality for nonproject lending andwell-focused TA, has paid off handsomely—which illus-trates that the initial approach (to work through publicsector banks and put them on a financially sound basis)was futile.

As evidenced in the few ICRs available (Energy TAand Rehabilitation and Urban Projects), the Bank’s per-formance during supervision in seeking compliance withagreed financial performance objectives has been inade-quate. In energy, some confusion might have been createdby including the covenants in the policy letters under thesecond and third Economic Rehabilitation Credits identi-fying which TMs and Bank units should carry the neces-sary dialogue. The existing covenants were neitheramended nor enforced. Clearly there was no tradition inMozambique for an adequate cost recovery for these util-ity services. The fact that electricity and, to a lesser extent,water served mainly a generally better-off population(today less than 10 percent of Mozambique’s populationhas access to electricity) was not used—at least there wasno reference in the two ICRs—in the discussions on thesocial impact of Bank operations illustrates the inade-quacy of the dialogue with the government on this sub-ject. Financial performance objectives seem to have beenbetter addressed during supervision under the railways/ports projects with CFM, where charges were leviedmainly for transit services to neighboring countries.

The limited effectiveness of including a policy dia-logue on sector-specific policy issues under nonprojectlending has been evident in energy and in the transportsector, where the critical progress on major issues (suchas freeing of freight rates in trucking and coastal ship-ping) was being achieved eventually under the ROCSprogram in conjunction with supporting changes on theinstitutional side. This was achieved through effortsboth during the project preparation and the supervisionphases of the ROCS program. Possibly the references tofreight rates and privatization under the initial Rehabil-itation Credits helped to prepare the ground for subse-quent actions under the ROCS program.

On the institutional side, effectiveness of projectsupervision has been a function of project design referredto earlier, but also of supervision staff experience andenthusiasm, including continuous alertness to newopportunities for improvements whether outlined in theoriginal project or not. In virtually every project, therehave been examples of such initiatives by TMs and theirmission team members, most often through their dia-logue with borrowers during supervision missions or theuse of consultants to address specific issues. It is also herethat appreciation of Bank expertise has been expressed(as under the Gas Engineering Project) in helping ENH toopen doors to international expertise, and even in identi-fying potential partners. But in some areas, Bank super-vision did not succeed in fostering achievement of agreedinstitutional improvements.

Adapting Projects to Changing Circumstances andUsing Review Processes for Improving the Portfolio The Bank’s most successful supervision has always beenbased on maintaining a close dialogue with the borrowerwhile adapting a project to changing circumstances. Thesuccessful supervision of individual projects also meansthat pending problems (including the adjustment of a pro-ject to new circumstances) should not wait for portfolioreview processes. The value of the latter lies in theiraddressing and solving across-the-board rather thanproject-specific issues or, if the latter need to be addressed,the focus ought to be on those that have a countrywidegeneric dimension. Strongly related to a sound supervi-sion effort by the Bank is the use of realistic ratings forquickly flagging major issues: there should be encourage-ment for changing a rating to “U” (unsatisfactory) whena major problem affects a project—and back to “S” (sat-isfactory) when a major problem has been resolved. Anexample: a certain timidity could be observed in this


41

respect when ROCS-2 faced a major implementationproblem with MPF’s reluctance to make available theresources needed for continuing the program.

During the initial years, supervision was over-whelmed by a lack of familiarity with the Bank and itsoperational procedures. This was in addition to theunderlying weaknesses in public administration. While onthe former much progress has been made, the latter hasremained—and will remain—a factor, although withgreat variations and, in some areas, with encouragingprogress. A recognition toward the mid-1990s that port-folio implementation needed much greater attention hasclearly been helpful. While new lending was limited,much effort has since gone into “straightening out” theportfolio as a whole. It has been especially helpful thatthis effort was translated into a joint government-Bankportfolio review process in 1996–97. This has given boththe Bank and the government the opportunity to take asystemic approach to portfolio management. A few yearsago such a joint approach was unlikely to have been fea-sible. Extensive assistance by the Bank—and others—toMFP during the previous years helped to build capacitywithin the ministry to undertake such an effort.

The MFP, in its 1997 Revisao da Carteira de Pro-jectos do Banco Mundial, reviewed extensively theBank-assisted projects under implementation and con-cluded (pp. 32 and 33 of “Relatorio Final”) that:

• five projects were being closed: Education I, Healthand Nutrition, Urban Rehabilitation, Beira Corri-dor, Agriculture Rehabilitation and Development;

• three projects were so close to completion that nochange in the project could be justified: UrbanHousehold Energy, Food Security, and CapacityBuilding: Economic and Financial Management;

• three projects were close to completion with con-siderable unused credit balances and specificimplementation issues, for which partial cancella-tion should take place: ROCS-1 (unused line ofcredit for private sector; US$6.2 million), Indus-trial Enterprise Rehabilitation (reduction in creditline: US$12 million) and Rehabilitation and Devel-opment of Agriculture Services (US$7.9 million);

• five projects were to be rescheduled withoutreduction of credit: Rural Rehabilitation, Educa-tion II, ROCS , and Capacity Building (Adminis-tration and Legal Components);

• for two projects, the closing date should beextended: Capacity Building (Human Resourcesand Local Government Reform); and

• two other projects remained without furtheraction: Rehabilitation of Health Sector andCapacity Building: Financial Sector.

At a general level, the portfolio review emphasized theneed for close cooperation throughout the project cycle byall parties and for strengthened information flows.

Procurement and DisbursementThe CAR mission received comments on the complexityof procedures that make the use of Bank funding bothstaff and time consuming for borrowers. The main com-plaints came from entities having to deal with manysmall expenditures and with the least experience in Bankprocurement. Some disburse-ments under credit lines to theprivate sector also came undercriticism as being slow and cum-bersome. At the other extreme,entities with large contracts whocan compare procurement anddisbursement procedures of vari-ous financiers/donors gave favor-able marks to the Bank. DNEP(responsible for the roads compo-nent of ROCS-1 and 2) even sug-gested that the Bank seek toinduce cofinanciers to provide“genuine” cofinancing with uni-fied procurement according to Bank guidelines, con-cluding that this would speed the program and lowerthe cost.

The use of the resident mission for vetting procure-ment documents and, more important, for reviewingdisbursement requests appears to have been helpful inmaking these steps more efficient.

The regional office carried out a country procure-ment assessment for Mozambique in 1993, mainly todetermine whether existing Mozambican laws and regu-lations were consistent with the credit agreements. Theassessment found very few such inconsistencies, andthese related mainly to ambiguities in the local proce-dures. The assessment report was meant to help the TMsensure that in their processing for bid documents theypaid due attention to the pertinent local rules—this wasparticularly important since no formal regulation sub-jected procurement under Bank financing to those agree-ments and not to local rules.

Perhaps the most interesting point of the 1993Assessment Report was that the Bank faced serious prob-


A recognitiontoward themid-1990sthat portfolioimplementationneeded muchgreater attentionhas clearly beenhelpful.

42

lems in its fiduciary role because inadequate accountsand nonexistent expenditure controls throughout publicsector finances left much room for abuse. Accountingand auditing require sustained improvements. Audits arestill delayed against agreed schedules and carry morethan the usual share of qualified reports.

Role of the Resident MissionThe mission work has been most useful, both at the levelof individual projects in the small number of sectorswhere the resident mission had particular capacity andat the general level of facilitator, including procurementand disbursement. The advantages of putting—in a costeffective manner—a professional capacity into the resi-dent mission staff will vary a good deal, depending onthe Bank’s sector/project involvement, the strength ofthe borrowing entity(ies), the scope and nature of Bank-financed projects (including the role of TA, size of con-tracts), and the need for local aid coordination. Costeffectiveness is more than just a question of a dollaramount and of a particular level and quality of staffrequired in a particular sector/area. Using a top-levelprofessional (such as a railway engineer) full-time forsuch work deprives the Bank and other (African) coun-tries of his or her services, and may well be a poorinvestment (although a subregional placement may befound to be justified for some high-level professionals).

In sum, the total opportunity cost of the Bank’sinvolvement in any one sector will need to underlie adecision for transferring a TM into the field. The largerthe volume of work, the less sector specialized, the morerelated to other donors, the more there will be a case forfavoring a transfer to the resident mission. On balance,the case for shifting more responsibility to the fieldappears compelling—given the increased demands foraid coordination and the rising need to put Mozambiqueauthorities in the “driver’s seat” while monitoring astrong supportive presence. This task for the head ofmission within the new Bank policy on the location ofwork, will be most important in this context.

Recommendations The key recommendations are:

• High-quality sector work is a necessary condi-tion for sound project design and outcome and it

should increasingly be connected to the resourcemanagement processes of the government.

• A soundly built-up sequence within a long-termoperational relationship is especially importantfor the eventual successful outcome of Bank-assisted operations in the Mozambican contextwith its critical need for long-term institutionalcapacity building. Such a sequence best ensuresthat individual operations are not overloaded withconditions.

• Bank leadership, once achieved in a sector,requires a continued strong commitment to main-tain sector knowledge, to achieve the agreed pol-icy and institutional objectives, and to interactwith government and donors to improve the highquality of a sector investment program.

• The inappropriateness of PIUs rather than using(and improving) existing institutional setups forproject execution has been confirmed in Mozam-bique. This approach is likely to lead to nonsus-tainability of projects. Unfortunately thisapproach has been (and still is) encouraged bycivil service weaknesses and inadequate public sec-tor salaries.

• Quality of supervision, including continuity ofTMs, requires as much, if not more, attentionthan quantity of supervision for the Bank’s effec-tiveness during project implementation. The coreprofessional/technical leadership requires betterrecognition of expertise than has at times been thecase. Indeed, where there have been clear TMarrangements with a Senior/Principal TechnicalOfficer, supervision has tended to be best.

• More decisiveness in using the Bank’s rating sys-tem for flagging major changes in project imple-mentation should be encouraged.

• The good progress made in the use of portfolioreviews with, and by, the government (MFP) mer-its special mention.

• The resident mission has been an under-used asset.While large numbers of highly specialized staffcannot be located in the field, increased focus oncapacity building and aid coordination calls for areview of the responsibilities of the resident mis-sion in relation to headquarters.


43

Policy Issues:Reform Initiatives

88

The 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-

ket-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

attributable to production from the resettled population (a revival common 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-ment’s reform policies.

The Bank has assisted this outcome through ESWwork that has helped the government develop thereform agenda, as a lead agency among the donors, andas a source of balance of payments support and sectoralinvestment financing. The Bank’s presence has changedover this period, becoming less salient as the govern-ment’s policy dependency has declined, and as otherdonors have assumed lead coordinating responsibilitiesin some sectors.

While what-if scenarios are always conjectural, it islikely that the economic recovery would have beenstronger if the pace of reform had been less gradual incertain key respects. Inflation could have been broughtunder control earlier if financial sector reform (and crit-ically, privatization of state commercial banking) had

been pursued more vigorously. Earlier bank reform (ini-tially recommended by the Bank) would also haveimproved the efficiency of resource allocation, includingparticularly the IDA resources channeled to SOEsthrough the state banking system. Unification of officialand parallel market exchange rates could have beenachieved earlier if the transition to market-basedexchange allocation had been less gradual. Severe prob-lems of capacity in public administration, still unre-solved, could have been tackled earlier and moreeffectively if the solutions (which now appear to be inhand for possible implementation) to the salary reformproblem had been developed earlier and pursued morevigorously. These are all issues in which the Bank hasbeen a major dialogue partner with the government.However, it is important to recognize that the pace wasset by the government, reflecting the government’s judg-

44

ment respecting political feasibility, and its caution as itmoved from dirigisme to the novel and uncertain eco-nomic management of a market economy. That gradual-ism contributed to a strong sense of Mozambican“ownership” of the reform process, despite the govern-ment’s need to rely on external advice and TA. Thatclear ownership has enabled the government to be gen-erally persistent in the transition for over a decade.

Several structural problems have emerged in therecovery process and in the reform program. These areseen by Mozambican and foreign observers to havepotentially destabilizing consequences and should betaken into account in policies and programs over thenext few years. First is the prospect of a geographicdualism, with industrial development, central govern-ment power and institutions, tertiary education, andtourism concentrated in the south and capital area. Poortransportation remains a severe impediment to the coun-try’s economic integration and to the development of thepopulous rural areas of the center and north. Urban-rural and ethnicity-based divisions are also potentialsources of instability. The civil service career ladder issaid to be linked more to job performance at the center(Maputo) than in the provinces, creating a disincentivefor the best staff to work at local levels.

A second distribution problem that has receivedmedia attention concerns Mozambican entrepreneurshipand ownership in the emerging private sector. IndividualMozambican portfolio investors in privatized SOEs havebeen few in number, and apparently politically well-placed. No plan has yet been tabled stating how the gov-ernment will distribute the equity in these enterprisesbeing held for distribution to their employees. The con-cern in some Mozambican circles that foreign invest-ment inflow has thus far been primarily Portuguese andSouth African will probably abate over time as investorsfrom other countries diversify the source pattern. Thenumber of privatized SOEs acquired by Mozambicans(that is, active entrepreneurship, not portfolio) is actu-ally larger than one might expect, although thereremains a question of the extent to which these entre-preneurs are ethnically indigenous.

Bank staff are well informed on these problems andshould be able to contribute to dialogue on the distribu-tive consequences of transition and development policies,and to factor in all the relevant dimensions. The Bank’sportfolio and the location of Bank-supported activitiescan have important distributional effects and need to bedesigned with greater attention to this perspective.

Some government interlocutors see a need for greaterBank sensitivity to the political feasibility and sustain-ability of specific policy reforms and their timing. Themajor example has been differences between the Bankand the government over the timing and extent of liber-alization of cashew pricing and export policy. The Bank’sposition on the efficiency and distributive benefits justi-fying complete liberalization (reduction of the nut exporttax to zero) has been correct. The sequencing of privati-zation of the processing enterprises before reduction ofthe protective tax (or perhaps inadequate initial commu-nication and consultation with the enterprise buyers) hasresulted in intense processor and media resistance tocompletion of the liberalization schedule and unfavor-able local publicity for the Bank. The current second-bestoutcome (the export tax being reduced from 40 percentto 14 percent) represents a significant policy improve-ment. Nevertheless, the implications of protective poli-cies for poverty reduction should not be set aside as apolicy issue; the Bank’s program of TA for raising thecompetitiveness of the processing plants is appropriateand should smooth relationships all around.

The President of Mozambique has recently made astrong statement on the problem of corruption, whichnow appears to be widespread and growing. The Presi-dent’s expressed determination to cope with this prob-lem provides an opportunity for the Bank to assist at thelevel of strategic analysis and response, as envisaged inthe recently issued policy paper.

Capacity building in government will remain a pri-ority requirement for some time to come in Mozam-bique. In some areas, capacity is still weakening as thebest staff are drawn out of the civil service by higherwage offers from private firms and donors. Moreprogress could have been made if civil service reformhad moved faster. Some donor (including Bank) prac-tices respecting local hire and project execution“enclave” units have been counterproductive, weaken-ing the same ministries responsible for the investmentsand services the aid activities are designed to strengthen.Although the Bank was responsible for the most com-prehensive examination of the capacity problem inMozambique, the Bank’s project activities in this respecthave been piecemeal, ineffective, and unsustained. TheBank’s capacity-building projects in public administra-tion and education, and legal strengthening, have hadmixed results to date.

Solving the problem of weak domestic revenuemobilization is critical for enabling the government to


45

address the proper maintenance of (primarily aid-financed) public sector investments already in place,keeping new projects on stream, and supporting civilservice reform and salary reform (critical for capacity

building and for stemming corruption). Revenue mobi-lization and salary reform appear as key issues thatshould be addressed as conditions under forthcomingadjustment credits.

P o l i c y I s s u e s : R e f o r m I n i t i a t i v e s

47

Conclusions

99

The Bank’s assistance program to Mozambique is at a crossroads. The very success of

the external assistance program in helping Mozambique 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 ofinvestment projects in favor of policy-driven, results-based priority sectoral programs. The Bank should assistgovernment authorities to deepen the reform process andhelp put capacity building at the center of external assis-tance. To this end, greater responsibility for country assis-tance management should be moved to the residentmission and a deliberate effort made to implement thecountry assistance program through more participatorymeans. Management coalitions involving governmentagencies, local communities, the civil society, and leaddonors should be constructed to take charge of prioritysector investment programs focused on jointly agreedobjectives.

This will mean reorienting priorities toward theachievement of poverty reduction, sizing programs withdue regard to domestic capacities, improving the coordi-

nation of donor programs, and moving the Bank towarda more selective focus. This should combine leadership inthe economic policy dialogue with greater reliance oncollaborative arrangements involving other agents in thedevelopment community, in line with the comparativeadvantage of individual donors, and providing more sup-port to Mozambique authorities as they take on moreresponsibility (and commensurate accountability) for theintegrity of financial controls, the quality of publicexpenditures, and the coordination of aid.

As a leading donor, the Bank developed a wide arrayof sectoral operations over more than a decade. Over thesame time, government knowledge and experience hasdeepened to the point where it is the leader in some sec-tors. The Bank has demonstrated some comparativeadvantages (and disadvantages) to the major donors. Insome social sectors the bilaterals are providing, on a

48

grant basis, all the external funding that the concernedministries can absorb effectively, and in some areas thegovernment prefers not to incur debt, even on IDA terms.

Mozambique presents a formidable developmentchallenge. It is a “low outlier” in human development,gender status, the financial sector, access to financialcapital, and aid dependency. After a decade of large con-cessional aid flows, it can claim substantial progress instabilization and in the transition toward a marketeconomy. But reform has been gradual and the develop-ment effectiveness of Bank lending has been mixed. Pol-icy performance and portfolio ratings are not muchabove the average for the Africa Region or for low-income countries generally.

Effective absorption of the lessons of experiencewould go a long way to enhancing the effectiveness ofBank assistance. Looking to the future, the Bank shouldtake the opportunity of the new country assistance strat-egy process to reposition its programs so as to achievegreater strategic selectivity and more effective manage-ment of its lending and nonlending services.

RecommendationsTo this end, the following recommendations are offered:

• Use of country dialogue and available aid coordi-nation mechanisms to nurture policy reform andcapacity building. Toward the achievement ofpoverty reduction, major challenges lie ahead inrestoring health to the balance of payments,strengthening the financial sector, improving theenabling environment for private enterprise, andenhancing public sector efficacy. The Bank shouldcontinue to exercise strong leadership in these sys-temic reform areas, and do so with a clear-cutresult orientation.

• Raise the focus of Bank assistance to a higherplane than the traditional investment project byencouraging businesslike partnerships amongdonors. This process is already under way but itmust be accelerated. Given limited domestic capac-ities, the World Bank and its development assis-tance partners are financing too many projects,each governed by different modalities. The time

has come to construct management coalitions toimprove coherence and the impact of externalassistance by having the Bank, other multi-lateral/bilateral donors, and the civil society joinforces and seek results at the national level forhigh-priority sector programs, managed for results.

• Put Mozambican authorities in the “driver’s seat”in capacity-building activities and external assis-tance coordination, while giving suitable supportthrough advisory and fiduciary services. Largenumbers of expatriate consultants, project imple-mentation units, and salary supplements areundercutting civil service reform and institutionaldevelopment. Public expenditures managementneeds to be upgraded and the aggregate transac-tion cost of external assistance reduced throughmore effective coordination of assistance byMozambican authorities. The Bank should givepriority to enhancing the effectiveness of the over-all aid system by assisting the government toimprove the coherence of aid programs in the pur-suit of priority development objectives.

• Defer to other donors where they have a compara-tive advantage in taking the lead. The Bank is cur-rently stretched too thin. It needs to concentrateefforts on fewer activities and play a supporting rolewhere other development agencies have a compara-tive advantage in taking the lead. With respect to theenvironment, the rural sector, and the social sectors,the Bank has an important intellectual contributionto make, but other donors have a major presence,and the Bank’s lending role may be reduced.

• Adapt the structure and the modalities of Bankassistance to the revised objectives of the countryassistance strategy. To help Mozambique dealwith unusally complex development challenges(crushing poverty; burdensome debt; weak institu-tions; lack of human resources; social dysfunc-tions) the Bank should be responsive and nimble.Greater decentralization of authority to the fieldand imaginative use of adaptable lending instru-ments would facilitate aid coordination and makeBank assistance more effective.


49

Chapter 11. In the views of the Region, “adjustment lending was criti-

cal in setting the framework for recovery, growth, and povertyreduction. Structural adjustment involved price, trade, and agri-cultural marketing liberalization, as well as privatization—all ofwhich opened the way for rapid recovery once peace was estab-lished. It also made a strong contribution to protecting the poorthrough public expenditure management, specifically in ensuringhigher allocations for the social sectors and rural infrastructurerehabilitation.”

2. The Region has pointed out that “it’s important to explic-itly recognize . . . the 1985–92 period, as one where reforms wereadopted despite difficult conditions. The government reform pro-gram . . . toward a market-oriented system, was launched at theheight of the war years. External donor support was substantialfrom the onset, and emergency assistance was an important focus(for many donors) until peace was signed in 1992. The war hadlimiting effects both on the scope of reforms (i.e., privatization) andon the operation of sector projects (i.e., in urban areas),but . . . the reason for the observed success in the post-conflict yearsis because so much of the ground work was laid down beforehand(i.e., legal and institutional framework for privatization).”

3. In its 1993 study on Adjustment in Sub-Saharan Africa,OED endorsed the Bank judgment that the government was cor-rect to follow a phased approach to the reform process.

4. In describing Bank assistance in this period, the Regionstated that “The 1992–94 period was no doubt disruptive as thegovernment was understandably more focused on implementingthe peace process, including the first democratic elections ever.This is partly why many areas such as civil service reform, fiscalmanagement issues were not advanced much. It actually took awhile for the new government to settle in their various posts andset out their agenda. On the Bank side, our main focus at themacro level was to move forward with financial sector reform andthe privatization of large enterprises, both sources of quasi-fiscalpressures. At the sector level, preparation began for the develop-ment of sector programs in health and roads, both of which wereconceived as suitable for the post-war years of national recon-struction. (By definition this was not really possible in a countrytorn by war.)”

Chapter 21. The Region pointed out that these projects were based on

a comprehensive industrial sector survey, albeit without good datasources.

2. The Region stated that the financial sector work done inthe early 1990s did point out the grave governance problems inthe state-owned banks.

Chapter 51. In commenting on an earlier draft of this CAR, the Region

stated: “The Bank’s strategy for poverty reduction since the early90s has been to promote broadbased growth with particularemphasis on agricultural development and rural infrastructure.Given the dislocation of one-third of the population by war, theavailability of land to absorb returnees, and the pervasiveness anddepth of rural poverty, this strategy . . . implied facilitation ofreturn to the countryside, liberalization of marketing and othersupport services which the government could not possibly provide,concentrating government attention on the key responsibilities ofopening up roads and providing a favorable macro framework,and phasing out food aid quickly. The strategy has been amply jus-tified by results in terms of output growth, food security, andsocial reintegration and stability . . . But the strategy was not obvi-ous to everyone at the time, and seems not to have been fullyaccepted in [the CAR]. Criticism of the Bank’s program for failingto target the poorest, or judging success on the basis of particularprojects misses the point—Mozambique’s development strategywas profoundly geared to poverty reduction, and the Bank’s over-all program (including the large component of structural adjust-ment lending) was similarly focused on poverty reduction. For themost part, there was no tension between an emphasis on ruralgrowth and poverty alleviation.”

2. Ministerio para a Coordenação de Acção Social, Plano deAcção de Governo pós-Beijing, 1997–2000 August, 1997.

3. In its response, the Region has pointed out that the Bank’sresident mission carries out extensive consultations with localNGOs, and that gender concerns are represented in these consul-tations. The CAS consultation was based on the existing NGOBank Core Group, which is composed of 15 NGOs of the threemajor NGO networks in Mozambique: Fundação para Desen-volvimento da Comunidade (FDC), LINK-NGO Forum andKulima. MBEU, the gender NGO represented in this group, isresponsible for addressing gender issues, not only for CAS but inoverall Bank operations.

Chapter 71. Staffyears devoted to ESW for Mozambique:

FY90–91: 3.6 FY92–94: 3.3 FY95–97: 2.3

ENDNOTES

51

annexesST

ATEM

ENT

OF

BAN

K’S

LOAN

PO

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tion

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gram

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plet

ed2

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rgy

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and

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on5/

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9420

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eted

Yes

317

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tion

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8710

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tion

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52


ObjectivesThe program helped meet the country’s priority of economicrehabilitation needs within the context of the government’sEconomic Action Program (PAE) for 1984–86. The PAE wasdesigned to initiate the process of correcting structuralimbalances and rehabilitating the economy. It focused onincreasing agricultural production and trade, and called foractions to improve the supply of inputs and basic consumergoods to smallholder farmers, to provide price incentives,and to improve the financial situation of enterprises. ThePAE also provided for the introduction of a tighter credit pol-icy, changes in interest rates, and a review of exchange ratepolicy.

DescriptionThe credit helped finance part of the government’s 1985–86program of imports of equipment, spare parts, and raw mate-rials, as well as related technical assistance, in the key industry,transport, and agriculture sectors.

EvaluationAs the Bank’s first operation in Mozambique, the First Reha-bilitation Credit had limited objectives. It supported the smallinitial steps in transition to a market economy and providedimport financing to enable the industry, transport, and agri-culture sectors to begin a recovery in production and economicactivity. The credit had no formal conditionality, but the suc-cess of the initial liberalization agenda (for example, the vig-orous supply response when fruit and vegetable prices weredecontrolled in May 1985), which was experimental in theeyes of the government, encouraged the GOM to proceed. Thecredit also served as the operational basis for establishing therelationship between the Bank and the GOM. As the first of aseries of recovery-cum-adjustment loans, this credit succeededin launching this relationship, the Bank advisory role, and therole of policy-based credits that has supported the Mozambi-can recovery and transition process in the succeeding 12 years.The credit also provided technical assistance in procurementand in the GOM’s first learning experience in implementingBank regulations. The credit also supported studies of thefinancial and transport sectors that were essential for subse-quent sectoral investment programs.

PROJECT SUMMARY SHEET 1 AND PRELIMINARY EVALUATIONREHABILITATION PROGRAM (PROJECT ID 1760, CREDIT C1610), AS OF 11/97

Supervision—Form 590 RatingsN/A N/A N/A 8/8/89

Development objectives 1 1 1 1Implementation progress 1 1 1 1

DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL BASIC DATA

Approval . . . . . . . . . . . . . . . 6/18/85

Effectiveness . . . . . . . . . . . . 10/18/85

Closing . . . . . . . . . . . . . . . . 3/31/89

Approved . . . . . . . . . . . . . . . . $45m

Disbursed. . . . . . . . . . . . . . . $55.6m

Canceled . . . . . . . . . . . . . . . . . $.3m

Undisbursed. . . . . . . . . . . . . . . . . . 0

Project status . . . . . . . COMPLETED

DISBURSEMENTS AND CANCELLATIONS

Undisbursed (0%)

Disbursed (99%)

Canceled (1%)●

●

9/30

/85

3/31

/86

9/30

/86

3/31

/87

9/30

/87

3/31

/86

9/30

/88

3/31

/89

9/30

/89

0

10

20

30

40

50

60

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

Date

53

A n n e x e s

ObjectivesWith this Energy Technical Assistance and Rehabilitation Proj-ect, Mozambique hoped to bring about a sustained improve-ment in the supply and distribution of electricity andpetroleum products in the main urban areas, as well as to sup-port economic recovery beyond the short term.

DescriptionThe project consisted of (i) rehabilitation of the ElectricityCompany of Mozambique’s (EDM) and National PetroleumSupply Company’s (PETROMOC) facilities to meet currentdemands reliably; (ii) provision of operational support for threeyears; and (iii) technical assistance to EMDM, PETROMOC,the Ministry of Industry and Energy (MIE) and the NationalHydrocarbons Company (ENH). The economic benefits fromthe project were increased agroindustrial and industrial pro-duction through quick-acting relief on constraints on improv-ing the reliability of electricity and petroleum product supply toprocessing and manufacturing plants.

EvaluationThis first project in the energy sector was conceived as anemergency-type operation, but included preparation of devel-opment plans for the principal energy subsectors. Covering themain agencies of the sector and also providing assistance to theGOM, the operation was highly complex, as the large techni-cal assistance provided under the project required a good dealof coordination. The physical aspects of the project wereimplemented in full, although with an initial two-year delay.Operational support through the TA component of the projectwas effective in getting the project implemented. However, the

original expectation that this support would enable the staff ofthe beneficiary agencies to acquire training in utility operationswas not fully met, since counterpart staff assigned to workwith the specialists were either inadequately trained or fullyqualified but overstretched. The components for institutionaldevelopment and planning and policy formulation were par-tially implemented. Thus, overall, the nonphysical project out-come was moderate compared to the agreed objectives. NoERR was recalculated although the ICR observed that it prob-ably was lower than the ex ante estimate of 27 percent.

Sustainability of the project has varied among the differentcomponents. Achievements in the petroleum subsector are sus-tainable, mainly because of the change in price policy. Supportedby a follow-up Gas Engineering Credit, progress in the hydro-carbon subsector was good. In the power subsector, financialviability remained problematic at the time the credit was closed.This has still not been achieved, although under the follow-upUrban Household Energy Project, groundwork was laid for anew electricity law offering prospects for eventual improvementsonce GOM is prepared to fully address the outstanding financialissues on tariffs and the payments by government agencies.

The Bank’s performance in the preparation phase was sat-isfactory, but mixed during supervision. Not enough differen-tiation was made between procedural and substantive financialconditionalities (timely submission of audit reports andachievement of the agreed financial performance). Given thecomplexity of the operation, and especially given the influenceof the power component in the project and the institutionaland technical issues in that subsector, greater attention shouldhave been given to the supervision mission staffing by includ-ing the appropriate subsector specialty.

PROJECT SUMMARY SHEET 2 AND PRELIMINARY EVALUATIONENERGY TA AND REHABILITATION PROJECT (PROJECT ID 1764, CREDIT C1806), AS OF 11/97

Supervision—Form 590 RatingsN/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 SImplementation progress 1 2 2 2 2 2 S S


Approval . . . . . . . . . . . . . . . 5/26/87

Effectiveness . . . . . . . . . . . . 11/30/87

Closing . . . . . . . . . . . . . . . 12/31/94

Approved . . . . . . . . . . . . . . . . $20m

Disbursed. . . . . . . . . . . . . . . $20.1m

Canceled . . . . . . . . . . . . . . . . $1.6m

Undisbursed. . . . . . . . . . . . . . . . . . 0



Undisbursed (0%)

Disbursed (93%)

Canceled (7%)●

●

0

Dis

burs

emen

ts (

US$

mill

ions

)

actual

estimated

2468

101214161820

5/31/87

9/30/87

9/31/88

4/30/89

3/31/90

3/31/91

3/31/92

3/31/93

3/31/94

Date

54


ObjectivesThe major objectives of the Second Rehabilitation Credit wereto (a) support specific policy and institutional reforms in 1987and preparation of subsequent adjustment measures for 1988;(b) provide foreign exchange to finance essential imports neededfor the rehabilitation of the economy; and (c) assist the govern-ment to develop an agenda for longer-term policy changes.

DescriptionThe Second Rehabilitation Credit supported the government’sEconomic Rehabilitation Program (ERP), which was designedto reverse the declining trend of the Mozambican economy.The program involved the implementation of specific policyand institutional reforms in 1987 and studies to prepare theneeded measures for 1988. The policy areas addressedincluded (a) the external sector, including the trade regime andforeign exchange allocation; (b) pricing and distribution poli-cies; (c) fiscal policy, including public expenditures; (d) agri-cultural marketing and producer prices; (e) industrial pricingand efficiency; and (f) transport sector efficiency.

EvaluationThe GOM met all the conditions specified under this policy-based credit, enabling the second tranche (of two) to bereleased as scheduled. The conditions included specific liberal-ization measures such as the freeing of price controls on someadditional product groups, reduction in product groupsreserved for importation by state monopolies, and develop-

ment of a program for SOE reform. Keeping to the strategy ofcontinuing but gradual movement toward a market economyand the associated institutional reforms, the conditionalityunder this credit (and the associated Fund) agreement carriedthe reform forward but left a long road ahead to be traveledover some considerable period. Nevertheless, the steady pacestrengthened GOM confidence in the transition process, rein-forcing Mozambican policy “ownership” and ensuring thatthe reform policy would be sustained.

Moving away from the limited import-positive list of thefirst credit, the second financed a broad range limited by a neg-ative list, with procurement gradually shifted to the privatesector. The closing date of the credit had to be extended threetimes because of the inadequacies of the banking system pro-vision of credit to private importers. The credit also assumedthat the GOM would adhere to the reform agenda under theBank/IMF PFP. While the GOM did so, price stabilization wasnot achieved as expected because the credit expansion of thestate banking sector was not covered effectively by the frame-work of the SAF agreement with the Fund. Apart from infla-tion, the overall objectives of the PFP (budget deficit reduction,price liberalization, reduction in the gap between the officialand parallel exchange rates) were met. The economic declineof 1984–86 was reversed as GDP rose 4.0 percent in 1987 and5.5 percent in 1988. Supervision was carried out through fre-quent staff visits until a resident mission was opened in 1989.Procurement and auditing problems persisted, reflecting bothprivate and public sector capacity weaknesses.

PROJECT SUMMARY SHEET 3 AND PRELIMINARY EVALUATIONREHABILITATION II (PROJECT ID 1761, CREDIT C1841), AS OF 11/97

Supervision—Form 590 RatingsN/A 6/28/89 8/29/90 8/22/91

Development objectives 2 2 2 2Implementation progress 2 2 2 2


Approval . . . . . . . . . . . . . . . . 8/4/87

Effectiveness . . . . . . . . . . . . 10/22/87

Closing . . . . . . . . . . . . . . . . 6/30/91

Approved . . . . . . . . . . . . . . . . $70m

Disbursed. . . . . . . . . . . . . . . $72.7m

Canceled . . . . . . . . . . . . . . . . $0.1m

Undisbursed. . . . . . . . . . . . . . . . . . 0



Undisbursed (0%)

Disbursed (100%)

Canceled (0%)

●

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

0

10

20

30

40

50

60

70

80

8/31/87

9/30/87

12/31/87

3/31/88

6/30/88

8/30/88

12/31/88

3/31/89

6/30/89

9/30/89

12/31/89

3/31/90

6/30/90

Date

55

A n n e x e s

ObjectivesThe project was intended as a first IDA operation that selec-tively responded to immediate needs while assisting in devel-oping a better knowledge of system requirements and acomprehensive sector strategy. The project’s objectives werethreefold. First, it raised the quality and efficiency of primaryeducation to increase literacy and numeracy among primaryschool-age children. Second, it strengthened the training sys-tem to fill critical manpower gaps. Third, it strengthened thecapacity for education sector policy analysis with a focus onfinancial management and planning.

DescriptionFirst, the project raised the quality and efficiency of primaryeducation in the City of Maputo by renovating and enlargingfacilities, training school managers and principals, and provid-ing children with essential school supplies. Second, it strength-ened the quality and relevance of training for accountants,office managers, bookkeepers, customs officials, engineers,and economists through provision of educational materialsand equipment, curricula development, and support of fellow-ships. Third, the project improved education sector planningand financial management through training budget officers,carrying out studies on financing and management of educa-tion, and developing a strategy for strengthening the educationsystem in line with the objectives of the ERP.

EvaluationApproved in May 1988, the project become effective in Octo-ber of the same year, and it closed in December 1995 asplanned. The total credit was disbursed, with the last dis-bursement in January 1996. The construction and rehabilita-tion of primary schools was successfully completed. Thetraining of school managers and principals was successfullyimplemented, although the practical outcome of the training isquestionable. Funds were allocated to expand the provision oflearning materials to schools in Maputo and in otherprovinces. (In that respect, controversy about the quality of aportion of the book provided by an Indian company is not yetresolved.) Support for the Faculties of Economics and Engi-neering in the form of equipment, fellowships, and technicalassistance was carried out. The Faculty of Engineering wassuccessful in selling its services to the private sector.

The Ministry of Education’s capacity improved and aproject implementation team was successfully established inthe ministry. Curriculum development for accounting suffereddelays, and is now being implemented in the Education II proj-ect. All the studies planned were undertaken, and became use-ful sources of information for the Education II project.Overall, the Education I project achieved good results againstoriginal objectives and sector goals.

DISBURSEMENT PERFORMANCE: ESTIMATED VERSUS ACTUAL

Undisbursed (0%)

Disbursed (99.57%)

Canceled (0.43%)●

●

0

5

10

15

20

Dis

burs

emen

ts (

US$

mill

ions

)

actual

estimated

7/31/88

5/31/89

3/31/90

1/31/91

11/30/91

9/30/92

7/31/93

5/31/94

3/31/95

3/31/96

Date


PROJECT SUMMARY SHEET 4 AND PRELIMINARY EVALUATIONEDUCATION 1 (PROJECT ID 1763, CREDIT C1907), AS OF 11/97

Supervision—Form 590 Ratings8/19/89 8/24/90 8/23/91 8/11/92 10/1/93 6/30/94 6/28/95 6/28/96

Development objectives 2 2 2 2 1 HS HS SImplementation progress 2 2 2 2 1 HS HS HS

BASIC DATA

Approval . . . . . . . . . . . . . . . 5/17/88

Effectiveness . . . . . . . . . . . . 10/12/88

Closing . . . . . . . . . . . . . . . 12/31/95

Approved . . . . . . . . . . . . . . . $15.9m

Disbursed. . . . . . . . . . . . . . . $16.3m

Canceled . . . . . . . . . . . . . . . . $0.1m

Undisbursed. . . . . . . . . . . . . . . . . . 0


56


ObjectivesThe project’s objectives were to stem the deterioration in basicurban infrastructure and services in Maputo and Beira, and tomitigate the social effects of structural adjustment through theimplementation of a program of urban rehabilitation andemployment generation. This program aimed to: (i) rehabili-tate key elements of urban infrastructure and housing; (ii) pro-vide employment through labor-intensive constructionmethods and stimulation of small and microenterprises, par-ticularly in the building materials industry; and (iii) strengthenthe local institutions responsible for provision and mainte-nance of urban infrastructure and services and assist theirefforts to become more financially independent throughresource mobilization at the local level. The project also aimedto demonstrate the replicability of new approaches to infra-structure rehabilitation and housing rehabilitation.

DescriptionThe project consisted of the following interrelated componentsin Maputo and Beira: (i) rehabilitation and limited extensionof the road, storm drainage, water distribution and seweragenetworks, and of coastal protection works (45 percent of pro-ject costs); (ii) rehabilitation of low-income housing togetherwith completion of unfinished (since Independence) buildingsand upgrading and extension of sites and services (33 percentof project costs); (iii) provision of equipment and spare parts

for municipal services (6 percent of project costs); (iv) provi-sion of credit for small and micro-enterprises and for materialsloans for home construction (7 percent of project costs); and(v) technical assistance and training for the implementingagencies, the municipal authorities (through the Center forUrban Management), and the institutions responsible for pro-motion of small-scale enterprises together with project man-agement (9 percent of project costs).

EvaluationBecause of its negligible impact on sector policies, financialobjectives, and institutional development, and its uncertainsustainability due to poor cost recovery, the ICR rated theproject as unsatisfactory overall.

However, it is important to consider the context in whichit was prepared and implemented. PRU was the Bank’s firsturban operation in Mozambique and prepared very rapidly.The project was identified in October 1987, appraised in April1988, and presented to the Board in August 1988—on a near-emergency basis without any prior sector work—but itoccurred during a tumultuous period in the country’s recenthistory. As the ICR correctly pointed out, “these factors—pos-sibly the poorest country in the world, civil war, impoverishedhuman resources, and poor information base—combined tomake PRU a very risky project, which the complexity of thedesign heightened.”

PROJECT SUMMARY SHEET 5 AND PRELIMINARY EVALUATIONURBAN REHABILITATION (PROJECT ID 1789, CREDIT C1949), AS OF 11/97

Supervision—Form 590 Ratings6/15/89 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 SImplementation progress 1 2 2 2 2 S S S S


Undisbursed (0%)

Disbursed (88%)

Canceled (12%)●

●

0

10

20

30

40

50

60

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

7/31/88

5/31/89

3/31/90

1/31/91

11/30/91

9/30/92

7/31/93

5/31/94

3/31/95

1/31/96

1/31/97

Date

DISBURSEMENTS AND CANCELLATIONSBASIC DATA

Approval . . . . . . . . . . . . . . . . 8/2/88

Effectiveness. . . . . . . . . . . . . 2/14/89

Closing . . . . . . . . . . . . . . . 10/31/96

Approved . . . . . . . . . . . . . . . . $60m

Disbursed. . . . . . . . . . . . . . . $53.7m

Canceled . . . . . . . . . . . . . . . . $7.3m

Undisbursed. . . . . . . . . . . . . . . . . . 0


57

A n n e x e s

ObjectivesTo help improve health and nutrition status, the project hadfour main objectives: (a) strengthening capacity in policy for-mulation and management on health and food security issues,with special attention to resource mobilization, institutionaldevelopment, information systems, planning, and analysis; (b)improving efficiency, to enhance the impact of services withinthe tightly constrained budget; (c) improving service quality, toenhance the provision of basic needs for the population; and(d) helping to mitigate some of the social costs of adjustment,to help sustain the ERP.

DescriptionThe project (i) facilitated development of improved policies inthe health sector in cost-recovery, manpower planning, andfacility management through studies and assistance in imple-mentation of these studies’ recommendations; (ii) strengthenedthe MOH through reorganizing the central ministry, developinga better financial management information system, and estab-lishing a central unit (under the Department of Planning) tomanage and supervise the implementation of investment pro-grams; and (iii) contributed to improving food security policiesand information by aiding in policy analyses regarding foodpricing and distribution and improvements to the food securityinformation system. It also (i) supported the selected healthfacilities; (ii) improved hospital efficiency through establishingbetter management procedures; (iii) strengthened health facilitymaintenance capability at the provincial and central levelsthrough technical assistance for MOH maintenance centers andthe provision of initial stocks of basic materials and vehicles;(iv) improved the pharmaceutical supply system through con-struction/renovation of drugs storage facilities in Maputo and

Beira with a view to strengthening inventory control and reduc-ing spoilage and upgrading overall management; (v) improvedhealth manpower training, through enhancement of teachingquality, curriculum development, and capacity for in-servicetraining and through upgrading of training centers, teachingmaterials and technical assistance; and (vi) increased the effi-ciency of the urban food distribution system through stream-lining food supply management and information in the rationsystem, easing the transport shortage for moving food suppliesfrom central depots to consumers in Maputo and Beira, sup-porting supplemental feeding programs targeted to primaryschool children in Maputo and Beira, and improving the nutri-tional status of factory workers.

EvaluationThis loan was 99 percent disbursed and the closing date wasextended until December 31, 1997. This was a complex projectseeking expansion of health services and institutional develop-ment, which would have required considerable inputs ofdetailed programming, technical expertise and activities forconsensus building among donors and with implementors (theprovinces), but these needs were apparently underestimated ordifficult to carry out. As a result, during the first three years,there was little action and only 10 to 15 percent of the loan wasdisbursed, compared to the 50 percent estimated at appraisal.Construction started only in 1994. There were several exten-sions of the closing date and redirection of items to finance. TheDCA was amended in May 1993 to cover much-needed recur-rent costs, particularly medicines and medical materials. Thisproject also financed preparation of the Health Sector RecoveryProgram. Achievements fell short of the original objectives, butredirection of financing served useful purposes.

PROJECT SUMMARY SHEET 6 AND PRELIMINARY EVALUATIONHEALTH & NUTRITION (PROJECT ID 1787, CREDIT C1989), AS OF 11/97

Supervision—Form 590 Ratings8/21/89 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 SImplementation progress NR 2 1 2 2 S S S S


Canceled (0%)

Disbursed (99%)

Undisbursed (1%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . . 3/14/89

Effectiveness . . . . . . . . . . . . 10/30/89

Closing . . . . . . . . . . . . . . . . 6/30/97

Approved . . . . . . . . . . . . . . . . $27m

Disbursed. . . . . . . . . . . . . . . $29.8m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . . $.44m

Project status . . . . . . . . . INACTIVE0

5

10

15

20

25

30

Dis

burs

emen

ts (

US$

mill

ions

)

actual

estimated

3/31/89

1/31/90

11/30/90

9/30/91

7/31/92

5/31/93

3/31/94

1/31/95

11/30/95

9/30/96

7/31/97

Date


58


ObjectivesThe objectives of the ERP were (a) to reverse the decline inproduction and restore a minimum level of consumption andincome for all the population, particularly in the rural areas;(b) to substantially reduce the domestic financial imbalancesand strengthen the external accounts and reserves; (c) toenhance efficiency and establish the conditions for a return tohigher levels of economic growth once the security situationand other exogenous constraints have eased; (d) to reintegrateofficial and parallel markets; and (e) to restore orderly finan-cial relationships with trading partners and creditors.

DescriptionThe credit supported the Economic Rehabilitation Program(ERP), initiated in 1987. The ERP was a broad-based programof economic policy reform designed to restore Mozambique tosustainable growth. The Third Rehabilitation Credit (TRC)supported the deepening of the ERP by focusing on the key ele-ments of policy adjustment needed to deepen and sustain theeconomic recovery. In addition to the continued support forappropriate fiscal and exchange rate adjustments, the TRCsupported policy action in three key areas. These policy ele-ments included (i) initiation of trade policy reform through

phased reduction in the administrative allocation of foreignexchange, through the establishment of a mechanism for non-administrative allocation for foreign exchange, and reform ofthe trade tariff structure; (ii) improvements in the use of pub-lic expenditure; and (iii) completion of the first phase of pric-ing and distribution reform.

EvaluationSteady GOM prosecution of the stabilization and reform agen-das continued under the third adjustment credit. Reforms initi-ated in the second credit were carried forward in further partialsteps, e.g., further reductions in products subject to price con-trol. Specific conditions were met, largely on time, with secondtranche release delayed six months over one debatable failure tomeet compliance. A system of partial nonadministrative alloca-tion of foreign exchange was introduced on an experimentalbasis. Public expenditure management was improved. Privati-zation of SOEs accelerated (supported by other Bank credits).The efficiency of public sector resource allocation improvedunder the third ERC, providing the basis for subsequent large-focus policy studies. Procurement continued to be a problem,with GOM implementation burdened by having to operateunder a multiplicity of donor procurement regimes.

PROJECT SUMMARY SHEET 7 AND PRELIMINARY EVALUATIONREHABILITATION III (PROJECT ID 1773, CREDIT C2021), AS OF 11/97

Supervision—Form 590 Ratings8/24/89 8/27/90 8/22/91 9/25/92 6/30/93 6/30/94

Development objectives 1 3 2 2 1 HSImplementation progress 1 3 2 2 2 S


Approval . . . . . . . . . . . . . . . 5/18/89

Effectiveness. . . . . . . . . . . . . . 8/4/89

Closing . . . . . . . . . . . . . . . . 4/30/94

Approved . . . . . . . . . . . . . . . . $90m

Disbursed . . . . . . . . . . . . . . $91.2m

Canceled. . . . . . . . . . . . . . . . . . $1m

Undisbursed. . . . . . . . . . . . . . . . . . 0



Undisbursed (0%)

Disbursed (99%)

Canceled (1%)●

●

Data not available.

59

A n n e x e s

ObjectivesThe project was designed to bring about quickly an enhance-ment of supply and a significant reduction in energy costs toabout one-quarter of the households in the main urban centers,particularly Maputo, Beira, Nampula, Nacala, and Quelimane.A further objective was to continue the institutional and finan-cial strengthening of the principal energy supply companies ini-tiated under the Energy TA and Rehabilitation Credit. Theproject also aimed to slow down significantly deforestationaround the urban centers and to improve air quality.

DescriptionThe project made available to urban households a variety ofcommercial fuels to substitute high-cost and scarce wood fuelsand charcoal. It facilitated a rapid increase in electrification ofurban areas eventually to about 351 households. The projectalso included provision of coal stoves to 101 households andimproved efficiency in the use of traditional fuels. A biomassenergy unit was established to focus efforts in traditionalenergy. Over the next few years, some households were elec-trified and coal stoves were introduced. The household energyshortfall was met with other commercial sources, especiallykerosene and LPG. Long-term credit was available from alocal bank (BPD). Apart from support implicit in local interestrates for householders, no subsidies were envisaged in imple-menting the strategy. The project consisted of: (i) power systemreinforcement in Mozambique’s cities together with connec-tion of 40,000 houses, provision of coal stoves to about50,000 households, reinforcement of kerosene and LPG distri-bution facilities, improvements in wood fuel supply and oper-ations, provision of stoves, lamps, pots and pans, drums, and

cans; and (ii) technical assistance and consultancy support toreinforce the operations of EDM, PETROMOC, and Mocacor,to support the project coordination and implementation, andfor the wood fuels and coal programs.

EvaluationThis complex project, following closely on, and during supervi-sion fully coordinated with, the predecessor operation (EnergyTA) during most of its implementation, achieved its physicalobjectives except for most of the household wiring programand the acquisition of coal stoves. Special mention should bemade of the successful woodfuel component. On the institu-tional side there has been important progress. First, at the levelof the restructured PETROMOC, and most recently throughnew legislation for the electricity sector, which should open theway for an eventual private sector involvement. (Some smallpilot systems are being tested for this.)

Sustainability for the electricity sector, and for EDM inparticular, has been elusive in the absence of adequate supportfrom the GOM for the needed tariff adjustments, improve-ments in the tariff structure, and a system of settling debts ofgovernment and its agencies. There have been some uneco-nomic investments in the sector because of insufficient coordi-nation among donors.

As for the Bank’s supervision performance, the commentsmade under the Energy TA and Rehabilitation Project apply. Inaddition, however, the more recent progress in the sector on theinstitutional side has benefited from the patient support of theBank. The project is about to be completed. The closing date hasbeen extended by one year and is now set for December 31,1997; an ICR will be prepared during the first semester of 1998.

PROJECT SUMMARY SHEET 8 AND PRELIMINARY EVALUATIONURBAN HOUSEHOLD ENERGY CREDIT (PROJECT ID 1793, CREDIT C2033), AS OF 11/97


Development objectives 1 2 2 2 2 S S SImplementation progress 1 2 3 3 2 S S S


Canceled (0%)

Disbursed (67%)

Undisbursed (33%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . . . 6/8/89

Effectiveness. . . . . . . . . . . . . 4/27/90

Closing . . . . . . . . . . . . . . . 12/31/97

Approved . . . . . . . . . . . . . . . . $22m

Disbursed. . . . . . . . . . . . . . . $15.9m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . . $7.9m

Project status . . . . . . . . . . . ACTIVE0

5

10

15

20

25

Dis

burs

emen

ts (

US$

mill

ions

)

6/30/89

2/28/90

10/31/90

6/30/91

2/28/92

10/31/92

6/30/93

2/28/94

10/31/94

6/30/95

2/28/96

10/31/96

6/30/97

2/28/98

Date

estimated

actual


60


ObjectivesThe primary objective of the project was to contribute to theupgrading of the Beira Transport Corridor and institutional devel-opment of CFM(C) to restore its financial viability and its cost-effi-cient transit functions, which are vital to Zimbabwe and Malawifor least-cost access to the sea and constitute an important sourceof foreign exchange and employment for Mozambique.

DescriptionThe overall Beira Transport Corridor Program comprised therehabilitation of all the elements that make up the transportcorridor linking Zimbabwe with the Indian Ocean at the portof Beira, including deepening of the access channel, and reha-bilitation of the port and of the railway and road to the bor-der town of Machipanda, with capacity building technicalassistance and training for the institutions responsible for cor-ridor operations. The proposed IDA-assisted project included(i) technical assistance to run port and railway operations inthe Beira Corridor during the 1989–95 period; (ii) manpowerdevelopment and training for all levels of staff in the port andrailways; (iii) rehabilitation and acquisition of motive powerfor main line and shunting operations; and (iv) technical assis-tance for the implementation of a railway/port cost accountingsystem and a management information system.

EvaluationThe physical objectives of the Beira Corridor Program,

financed mainly from other sources, were achieved, to a largeextent. The capacity of CFM(C) to handle the transit trafficthrough this corridor was reported to have been brought backto at least the pre-Independence level, although present trafficis below SAR forecast. However, dredging the entrance chan-nel to the port of Beira, which was to be financed by Europeandonors, was much delayed, thus reducing the efficiency of thisport into which large non-Bank-financed investments havebeen sunk, as part of the Beira Corridor Program.

Bank-assisted institutional improvements have beenrelated to the restructuring of CFM(C), not least because of theBank’s insistence on creating “result centers.” Thus, for thefirst time, CFM(C) management got a sense of where it cov-ered cost and where it did not. Progress on the accounting sys-tem has been substantial although much delayed; informationon assets and depreciation has become available recently.Overall, CFM(C)’s overall financial performance was reportedsatisfactory, as measured by the originally agreed objective(although with considerable cross-subsidies from the port tothe railways operations).

Since 1994, missions have reported a large surplus of thelabor force but found that this issue may be addressed only inthe context of CFM as a whole. Indeed, the follow-up railwayproject for the Maputo Corridor Revitalization made a start indealing with this politically sensitive subject for the consider-ably larger southern system of CFM. The closing date for thisproject was June 30, 1997; an ICR is under preparation.

PROJECT SUMMARY SHEET 9 AND PRELIMINARY EVALUATIONBEIRA CORRIDOR (PROJECT ID 1770, CREDIT C2065), AS OF 11/97


Canceled (0%)

Disbursed (69%)


●

BASIC DATA

Approval . . . . . . . . . . . . . . . 9/14/89

Effectiveness. . . . . . . . . . . . . 7/10/90

Closing . . . . . . . . . . . . . . . . 6/30/97

Approved . . . . . . . . . . . . . . . . $40m

Disbursed. . . . . . . . . . . . . . . $30.2m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . $13.7m

Project status . . . . . . . COMPLETED0

5

10

15

20

25

30

35

40

45

Dis

burs

emen

ts (

US$

mill

ions

) estimated

actual

9/30/89

9/30/90

9/30/91

9/30/92

9/30/93

9/30/94

9/30/95

9/30/96

9/30/97

Date



Development objectives 1 2 1 2 S S S 2Implementation progress 1 2 2 2 S S S S

61

A n n e x e s

ObjectivesThis first effort to provide institutional support by IDA setmodest goals, limiting this initiative to those activities thatwere vital to two priority institutions: the Ministry of Finance(MOF) and the Bank of Mozambique (BOM). Project objec-tives were to provide support to these two priority institutions,to (i) carry out technical analyses in economic policy formula-tion, capital budgeting (to include selection, analysis, pro-gramming, and monitoring of projects), and bankingoperations; (ii) define specific needs and prepare programs ofinstitutional support as the basis for immediate action as wellas subsequent follow-up; (iii) increase the stock of qualifiedprofessionals needed in two essential areas (accounting andeconomic analysis); and (iv) increase the productivity andeffectiveness of the two priority institutions by furnishing themwith the basic systems and equipment needed for their day-to-day operations, particularly in financial systems and produc-tion of basic economic information.

DescriptionThe project consisted of two main components. The first wasfor MOF to provide assistance to (i) the Economic Analysis andPrice Department in the National Treasury Directorate toimprove the collection and analysis of economic informationfor economic policy formulation; (ii) the National BudgetDirectorate to improve capital budgeting, and (iii) the carryingout of an accounting training program. The second was forBOM to provide assistance to (i) strengthen the Economic

Research Department to improve data collection, economicanalysis, and policy formulation, including the establishment ofa Documentation Center; (ii) improve banking operations bycomputerizing banking systems and introducing modern equip-ment; and (iii) strengthen the legal advisory services providedwithin BOM, especially regarding external financing and nego-tiations with creditors. Financing would be provided for advi-sors, consultants, training, computers, and other equipment.

EvaluationThe project laid the groundwork for the subsequent reforms inthe financial sector. It succeeded in separating the commerciallending functions of the BOM from its central banking func-tions, which marked the beginning of a profound transforma-tion in the structure of Mozambique’s financial sector. Someproject components were counterproductive to financial sectorreform. The project failed to improve the interim governance ofstate banks and to impose clearly monitorable restrictions onthe banks’ lending activities. From 1992 to July 1995, the pro-ject devoted substantial financial resources to the restructuringand technical strengthening of state-owned BCM—the largestcommercial bank of Mozambique. Such assistance was hardlyjustifiable given BCM’s virtually absent corporate governanceand widespread practices of politically motivated lending. As aresult, shortly after its recapitalization, and despite the Bank’stechnical assistance and policy advice, BCM engaged in uncon-trolled expansion of credit and had to be recapitalized againbefore its privatization in July 1996.

PROJECT SUMMARY SHEET 10 AND PRELIMINARY EVALUATIONECONOMIC AND FINANCIAL MANAGEMENT (PROJECT ID 1762, CREDIT C2066), AS OF 11/97


Canceled (0%)

Disbursed (92%)

Undisbursed (8%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . 10/17/89

Effectiveness. . . . . . . . . . . . . 6/29/90

Closing . . . . . . . . . . . . . . . 12/31/97

Approved . . . . . . . . . . . . . . . . $21m

Disbursed. . . . . . . . . . . . . . . $21.7m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . . $1.9m


5

10

15

20

25

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

10/31/89

5/31/90

12/31/90

7/31/91

2/28/92

9/30/92

4/30/93

11/30/93

6/30/94

1/31/95

8/31/95

3/31/96

10/31/96

5/31/97

Date



Development objectives 2 2 3 2 S S S SImplementation progress 2 3 2 2 S S S S

62


PROJECT SUMMARY SHEET 11 AND PRELIMINARY EVALUATIONINDUSTRIAL ENTERPRISE RESTRUCTURING PROJECT (PROJECT ID 1784, CREDIT C2081), AS OF 11/97


Canceled (0%)

Disbursed (53%)


●

BASIC DATA

Approval . . . . . . . . . . . . . . 12/21/89

Effectiveness. . . . . . . . . . . . . . 8/6/90

Closing . . . . . . . . . . . . . . . 12/31/98

Approved . . . . . . . . . . . . . . . $50.1m

Disbursed. . . . . . . . . . . . . . . $29.8m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . $26.4m


10

20

30

40

50

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

12/31/89

12/31/90

12/31/91

12/31/92

12/31/93

12/31/94

12/31/95

12/31/96

12/31/97

Date


ObjectivesThe project’s overall objective was to restore production andefficiency in a selected group of major industrial and agro-indus-trial enterprises. The project aimed to (a) introduce a frameworkand criteria for selecting enterprises for rehabilitation based oneach enterprise’s potential economic, financial and technical via-bility and on its management capacity to operate efficiently andprofitably; (b) finance the rehabilitation, financial restructuring,and operational support of selected enterprises. The restructur-ing process would, where appropriate, include rationalization ofcapacity, privatization, and technical partnership arrangements,or if necessary, closure of nonviable operations; (c) protect theenvironment and worker safety by requiring that each BE intro-duce measures to minimize the discharge of pollutants and pro-vide a safe working environment for their workers; (d)strengthen government’s capacity to implement the rehabilita-tion program; and (e) support policy reforms and subsectorreviews designed to strengthen enterprise operations in a mar-ket-oriented environment.

DescriptionThe project had two components. The Enterprise Rehabilita-tion Component (ERC) was channeled through the Bank ofMozambique for the rehabilitation, financial restructuring,and operational support of about 15 existing priority enter-prises that are potentially viable. The Technical AssistanceComponent was comprised of (a) financing experts and con-sultancy services to strengthen government’s capacity to imple-ment the overall rehabilitation program; (b) financing theconsultancy costs of feasibility studies, developing rehabilita-

tion plans and operational technical assistance to potentialBEs; and (c) conducting subsector and policy studies.

EvaluationInitially the project attempted to support the rehabilitation ofstate-owned companies. However, its original design wasrestructured into an enterprise privatization project. The proj-ect investment component financed loans to large, privatizedcompanies. Lending to firms was accomplished through localcommercial banks, with BCM, the largest formerly state-owned commercial bank, accounting for the biggest share oflending. Although the continuing grace period—up to 5–7years—makes it difficult to gauge the credit quality of thebanks subloans, the improved macroeconomic environmentand larger subborrowers substantially reduce the probabilityof defaults. The recent privatization of BCM should also spurits incentives to service and collect on the loans made by itsstate-owned predecessor. The disbursement under the projectwas slow, which could largely be attributed to a complicatedprocurement and disbursement process. In October 1997, theRegion finally simplified disbursements through the project bymoving the current special account from Citibank to localcommercial banks and introducing two more special accountsfor each major component of the credit, and the executingagency that administers it. Despite its relatively unsuccessfullending component, the project has become an importantsource of financial support for enterprise reform and privati-zation, including legal assistance to the private sector and con-ferences on private sector development, financial sectorrestructuring, and national capacity building.


Development objectives 2 2 2 3 U S S SImplementation progress 2 2 2 3 U S S S

63

A n n e x e s

ObjectivesThe objectives of the project were (a) to promote the rehabili-tation and development of the SME sector by financing smalland medium enterprises capable of efficient operation withinthe reformed business environment; (b) to promote institutionrebuilding by restoring the capacity of the public and privatesector banks to deliver and manage term credit to SMEs; and(c) to assist in the formulation of government policy for SMEdevelopment.

DescriptionThe project had an SME financing and an institutionalstrengthening component. Under the financing component, aline of credit was made available through a subsidiary admin-istration agreement between the government and BM (Cen-tral), for onlending to BM (Commercial), the state-controlledBanco Popular de Desenvolvimento, and the private BancoStandard Totta. The foreign exchange risk was to be borne byBM (Central) on behalf of the government, with credit riskabsorbed through appropriate spreads by the commercialbanks. The line of credit was to be supervised by an apex unitin BM (Central), overseen by a government interdepartmentalcommittee. Subject to meeting eligibility and efficiency (includ-ing environmental) criteria, subproject loans were available forfixed investment and incremental permanent working capital.To ensure satisfactory project implementation, an annualreview of project issues, including onlending interest rate andterms, was to take place. Under the institutional-strengtheningcomponent, a training program funded by UNDP was alreadyunder way and was to be completed before implementation of

the project. This trained about 50 banking and promotionalstaff in loan appraisal and loan processing, with IDA fundingfor follow-up training. Technical assistance was also to be pro-vided through BM for the start-up and operation of the apexunit and the credit mechanism, for strengthening of accountingcapabilities in the participating banks, and for studies to assistthe restructuring of the banking and industrial sectors.

EvaluationOverall, the outcome of the project has been highly disap-pointing because of the extremely high rates of default forloans originated by the two formerly state-owned banks. Theprecarious financial situation, weak corporate governance,and nonexistent credit underwriting skills of the state-ownedbanks did not deter the Bank from going ahead with the proj-ect under which BCM and BPD ultimately became the twolargest lenders. The Bank is alleged to have put substantialpressure on the management of the banks to ensure the expe-dient disbursements of project funds; this undermined evenfurther the credit quality of subloans. As a result, in 1996, therate of default on the loans made by BCM and BPD was inexcess of 50 percent for loans with the ended grace period.The final rate of default on loans originated by these twobanks is expected to approach 90 percent upon the expirationof the grace period for the remaining loans. The loan designsuffered from insufficient previous economic work in thefinancial and enterprise sectors. The implementation of theproject was adversely affected by a high staff turnover of taskmanagers; this also had a negative impact on the quality of theproject.

PROJECT SUMMARY SHEET 12 AND PRELIMINARY EVALUATIONSMALL AND MEDIUM ENTERPRISE DEVELOPMENT PROJECT (PROJECT ID 1794, CREDIT C2082), AS OF 11/97


Canceled (0%)

Disbursed (91%)

Undisbursed (9%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . 12/21/89

Effectiveness. . . . . . . . . . . . . . 6/7/90

Closing . . . . . . . . . . . . . . . 12/31/97

Approved . . . . . . . . . . . . . . . . $32m

Disbursed. . . . . . . . . . . . . . . $32.6m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . . $3.1m

Project status . . . . . . . . . . . ACTIVE

10

15

20

25

30

35

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual5

0

12/31/89

11/30/90

10/31/91

9/30/92

8/31/93

7/31/94

6/30/95

5/31/96

4/30/97

Date



Development objectives 2 2 2 2 S S U UImplementation progress 2 2 2 2 S S S S

64


ObjectivesThe project supported GOM’s efforts to (a) reverse the declinein production and marketing of cashew nuts and in themedium-term, restore exports to their levels of the 1970s; (b)make small- and medium-scale state and commercial agricul-tural enterprises more efficient and profitable; and (c)strengthen local capacity to formulate and implement long-term growth strategies for the irrigation and cashew subsectorsonce the security situation and other constraints had eased.

Description The project components included (a) rehabilitation and devel-opment of the cashew subsector; (b) assistance to state andcommercial agricultural enterprises; and (c) specific subsec-toral studies and surveys. Under the first component, financingwas provided for (a) equipment, incremental costs, and techni-cal assistance to agricultural extension, research, and cashewnut nurseries; (b) investment credit (equipment and materials)to commercial farmers and traders and for the rehabilitation ofthree cashew processing factories; and (c) technical assistance,equipment, and incremental costs to the State Secretariat forCashew and the State Cashew Nut Enterprise. Because womenplay a dominant role in agriculture in general and cashew mar-keting in particular, an evaluative survey would be carried outto assess factors determining the agricultural productivity ofwomen and measures to be taken to enhance benefits accruingto them. Under the second component, financing for technicalassistance, incremental costs, and equipment was provided todevelop a capacity within MOA to address the rehabilitationneeds of state and private agricultural enterprises and to pro-vide them with managerial and planning assistance and train-ing. Under the third component, complementary studies and

surveys such as a National Irrigation Development MasterPlan, a National Cashew Tree Population Survey, and aNational Cashew Development Master Plan (including newareas) were financed.

EvaluationThe project was designed before the end of the civil war. Theimplementation of the ARDP met with the following main dif-ficulties: (i) numerous and rapid changes in the government ofthe country, including the Minister of Agriculture, once peacewas achieved in 1992; (ii) changes in the government’s priori-ties relative to some of the components of the project; (iii) lackof a coherent government policy to guide the extension activi-ties, a fundamental component of the operation; (iv) extremelylow administrative capacity, both at the central and provincialoffices of the MAF; (v) scarcity and unpredictability of coun-terpart funds; (vi) irregularities in the project’s accounts. How-ever, the following positive results were obtained: (i) creationin two provinces (Gaza and Inhambane) of a functioning coreof field extension workers and supervisors; (ii) improvement ofthe links between extension and research; (iii) development ofdemonstration plots, with the collaboration of the farmers; (iv)consolidation and continuation of preexisting research andextension activities.

In 1996 the Bank’s three agricultural operations inMozambique were restructured. As for this project, the fol-lowing agreements were reached: (i) the components relative toresearch and extension were taken over under C2337 (Agri-culture Services Rehab); (ii) the components pertaining to ruralwater supply were absorbed by C2479; (iii) the remainingcomponents were discontinued and the balance of funds can-celed (US$10.5 million).

PROJECT SUMMARY SHEET 13 AND PRELIMINARY EVALUATIONAGRICULTURAL REHABILITATION & DEVELOPMENT (PROJECT ID 1765, CREDIT C2175), AS OF 11/97


Undisbursed (0%)

Disbursed (39%)

Canceled (61%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . 9/6/90

Effectiveness. . . . . . . . . . . . . 4/30/91

Closing . . . . . . . . . . . . . . . . 6/30/99

Approved . . . . . . . . . . . . . . $15.4m

Disbursed. . . . . . . . . . . . . . . $6.3m

Canceled. . . . . . . . . . . . . . . $9.7m

Undisbursed. . . . . . . . . . . . . . . . . . 0


5

10

15

20

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

9/30/90

5/31/91

1/31/92

9/30/92

5/31/93

1/31/94

9/30/94

5/31/95

1/31/96

9/30/96

5/31/97

1/31/98

9/30/98

5/31/99

Date


Supervision—Form 590 Ratings8/23/91 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 UImplementation progress 2 3 2 S S U U

65

A n n e x e s

ObjectivesThe main objective was to facilitate implementation of the ten-year sector development plan, focusing especially on: (i)improving quality and efficiency in primary education throughstrengthening critical and strategic inputs to effective learning;(ii) upgrading the effectiveness of the university for nationalcapacity building in essential skill specialties, by improvingteaching of the basic sciences, engineering, and economics andby promoting better long-range strategic planning at the uni-versity; and (iii) strengthening the management of the educa-tion sector.

DescriptionThe project supported improvements in (i) primary educationthrough financing pre-service and in-service teacher training;pedagogical support, and distance education; rehabilitationand limited expansion of schools in Maputo Province and City,Dondo, Beira and Nacala; and pilot-testing of five qualityimprovement initiatives (local language instruction, floodingclassrooms with reading materials, student achievement test-ing, extramural programs, and student health interventions);(ii) university education through strengthening the faculties ofeconomics, engineering, and the basic sciences and throughfurther refining the university’s ten-year development pro-gram; and (iii) management in the education sector through

improvements in planning and financial management, trainingof ministry personnel, and establishment of maintenancesystems.

EvaluationAfter a timid beginning, the Bank’s intervention in educationin Mozambique became more consistent with the Education IIproject. The project integrated in its objectives those activitiesof Education I which were not implemented during the lifetimeof that project. Implementation progress was balancedbetween quality-enhancing activities and infrastructure devel-opment; however, the latter accounted for the bulk of dis-bursements. To correct this relative imbalance, UNDP, thedonor partner in the project, became more involved in quality-enhancing activities beyond its supervision of the teacher train-ing component.

In the context of quality-enhancing activities, experimen-tal bilingual education was introduced to see whether thiscould improve learning results in primary education. Althoughteachers and parents were pleased with this experience, resultswere mixed, following difficulties in finding an appropriatebilingual education model. The overall project performancehas been satisfactory. Issues and delays were the result of insuf-ficient communication, misunderstanding, and inefficientbureaucratic practices in the government apparatus.

PROJECT SUMMARY SHEET 14 AND PRELIMINARY EVALUATIONEDUCATION II (PROJECT ID 1776, CREDIT C2200), AS OF 11/97


Canceled (0%)

Disbursed (83%)


●

BASIC DATA

Approval . . . . . . . . . . . . . . 12/20/90

Effectiveness. . . . . . . . . . . . . 7/26/91

Closing . . . . . . . . . . . . . . . . 4/30/98

Approved . . . . . . . . . . . . . . . $53.7m

Disbursed. . . . . . . . . . . . . . . $45.7m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . . $9.7m


1

2

3

4

5

6

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

12/31/90

6/30/91

12/31/91

6/30/92

12/31/92

6/30/93

12/31/93

6/30/94

12/31/94

6/30/95

12/31/95

6/30/96

12/31/96

6/30/97

12/31/97

Date


Supervision—Form 590 Ratings8/23/91 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 SImplementation progress 2 2 3 U S S S

66


ObjectivesThe project supported GOM’s efforts to (a) rehabilitate anddevelop agricultural services; (b) reverse the decline in produc-tion of foodcrops and cotton, thus reducing poverty andimproving food security; and (c) strengthen institutionalcapacity to formulate and implement agricultural developmentactivities.

DescriptionThe project directly assisted some 130,000 small-scale familyfarmers producing foodcrops and cotton in the Nampula andCabo Delgado Provinces. Project interventions included theprovision of upgraded (a) agricultural services such as exten-sion and applied research, including the involvement of oneJVC in 1–2 districts in the provision of integrated agriculturalservices (39 percent of total project cost); (b) working capitalfor smallholder agricultural production, mostly through creditgroups, and for marketing (27 percent); (c) rural water supplyfacilities which also included the carrying out of an inventorysurvey, and O&M study and a 5-year development plan (10percent); (d) land use and management services, including col-lection of basic data of land tenure and use and conservationneeds (6 percent); and (e) institutional development, includingtraining of MOA personnel (18 percent). The project was to becoordinated by a project coordinator, and activities under eachintervention would be coordinated by a component coordina-tor. The project financed the provision of technical assistance,training, incremental salaries, incremental recurrent opera-tional costs including credit and the purchase of vehicles,equipment, and materials.

EvaluationOriginally, the project was envisioned to cover 12 districts;however, the planned coverage has been expanded to 17 dis-tricts. The overall status of project implementation is rated sat-isfactory. By the end of 1996, the only extension services in thenamed provinces were those provided by the project. Specificevaluation exercises have revealed that (i) the “extension mes-sages” have been adopted by a considerable number of farm-ers; (ii) there have been positive changes in the methods ofcultivation (foodcrops and cotton); (iii) the farmers haveincreased the cultivated areas, and in so doing have beenapplying practices transmitted by the extensionists. New link-ages have been established between agricultural research andextensionists and between the latter and the farmers. The othercomponents have proceeded reasonably well.

The implementation of the project has been hindered by:(a) the administrative weaknesses both at the central andprovincial levels; (b) the delayed participation of pertinentcentral directorates and institutes (INIA, DNER, andDINAGECA) in the execution of the activities; (c) the diffi-culties in the hiring of local personnel; (d) the insufficientprovision of counterpart funds; and (e) the delays in the set-tlement of accounts. The project has been restructured tobecome nationwide in coverage and to be integrated into theagriculture integrated sector program (PROAGRI or ASIP)currently under consideration. In 1996–97 there has been areasonable improvement in disbursements.

PROJECT SUMMARY SHEET 15 AND PRELIMINARY EVALUATIONAGRICULTURAL SERVICES REHABILITATION (PROJECT ID 1781, CREDIT C2337), AS OF 11/97


Canceled (34%)

Undisbursed (34%)

Disbursed (32%)●

●

●

BASIC DATA

Approval . . . . . . . . . . . . . . . 2/11/92

Effectiveness . . . . . . . . . . . . 12/15/92

Closing . . . . . . . . . . . . . . . 12/31/00

Approved . . . . . . . . . . . . . . . . $35m

Disbursed. . . . . . . . . . . . . . . $11.4m

Canceled . . . . . . . . . . . . . . . $12.3m

Undisbursed . . . . . . . . . . . . . $12.3m


5

10

15

20

25

30

35

40

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

2/28/92

9/30/92

4/30/93

11/30/93

6/30/94

1/31/95

8/31/95

3/31/96

10/31/96

5/31/97

12/31/97

7/31/98

2/28/99

9/30/99

Date



Development objectives 2 2 S S S SImplementation progress 2 2 S S S S

67

A n n e x e s

ObjectivesThe primary project objectives were (i) to support the agri-cultural development contemplated in GOM’s PDP and inIDA’s Rural Rehabilitation Project (FY93), by making coastalshipping cost-efficient and moving toward privatization andby initiating the phased rehabilitation of Mozambique’scoastal ports; and (ii) to build the institutional capacity nec-essary for effective planning and monitoring of the coastalshipping subsector.

DescriptionThe project included (i) technical assistance (TA) and trainingby general consultants (GC) to MTC for overall project man-agement, including policy and regulatory reform, facilitationof greater private sector involvement (awarding port manage-ment contracts, preparing state enterprises for divestiture),improvements in procurement and materials management, anddevelopment and preparation of subsequent phases of a long-term transport sector improvement program, including (a) effi-ciency improvement in the road transport (trucking) subsector,and (b) TA and studies for rehabilitation final engineering andfor institutional strengthening and capacity building in roadinfrastructure; (ii) TA to DNM and to GAPROMAR (the des-ignated GOM unit to be responsible for project coordinationand implementation, local small ports management and oper-ations entities, and local training institutions, including theTraining Division of CFM); (iii) a feasibility, preliminary engi-neering, and environmental study for the rehabilitation ofsmall ports (already completed); (iv) phased small ports infra-structure rehabilitation, including repair or replacement ofcargo handling, navigational aids, and communications equip-ment; and (vi) supervision of works.

EvaluationThis was presented to the Board as the first in a series of proj-ects designed to rehabilitate and systematically strengthenMozambique’s transport system. Previously GOM had givenprimary attention to the country’s three east-west railway cor-ridors. With this project, the first step was taken to tackle thenorth-south connections (both for roads and coastal shipping)in the context of a sector program designed to initiallystrengthen institutional and human resource capacities, in coor-dination with improvements in sector policies, while startingout modestly on investments. The credit was extended beforethe end-1992 peace agreements, and therefore focused on sec-tor policies, institutional development, and human capacitybuilding with investment limited to secure (coastal) areas. A fol-low-up credit covering major investments was extended in1994. Since then the two projects have been supervised as anintegrated program enabling the Bank to more effectively helpMozambique to benefit from large donor support.

Major progress has been made in liberalizing—includingprivatizing—of both the trucking and, more slowly, the coastalshipping industry. This has already led to considerable effi-ciency gains for the sector and the economy as a whole, notleast by favoring the integration of formerly isolated ruralareas. Progress has also been significant in institutionalstrengthening and much increased human resource capacitiesthrough education and training in the highway subsector andother transportation agencies. Overall, there has been success-ful progress with this project, which has greatly benefited fromthe large investment program being carried out in the sector.

PROJECT SUMMARY SHEET 16 AND PRELIMINARY EVALUATIONFIRST ROAD AND COASTAL SHIPPING (PROJECT ID 1790, CREDIT C2374), AS OF 11/97


Canceled (0%)

Disbursed (66%)


●

BASIC DATA

Approval . . . . . . . . . . . . . . . . 6/2/92

Effectiveness. . . . . . . . . . . . . 9/17/92

Closing . . . . . . . . . . . . . . . . 6/30/98

Approved . . . . . . . . . . . . . . . $74.3m

Disbursed. . . . . . . . . . . . . . . $50.5m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . $26.1m


20

40

60

80

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

6/30/92

11/30/92

4/30/93

9/30/93

2/28/94

7/31/94

12/31/94

5/31/95

10/31/95

3/31/96

8/31/96

1/31/97

6/30/97

11/30/97

4/30/98

Date



Development objectives 1 1 S S S SImplementation progress 1 2 S S S S

68


ObjectivesThe objectives of the Bank’s assistance strategy for Mozam-bique were to establish an economic environment conducive toeconomic growth while reducing poverty, and to support therehabilitation of key economic and social infrastructure. Theoverall approach was to strengthen key institutions, policies,and functions in a way that was conducive to increased pro-ductivity of public resources, enhanced private sector growth,and reduced poverty.

DescriptionIn earlier adjustment operations, IDA had been supportingMozambique’s Economic and Social Rehabilitation Program(ESRP). The credit provided support for the ESRP. The objec-tives of the credit were to enhance private sector-based growth,redeploy budgetary expenditures toward key social sectors andsmallholder agriculture, and provide support for drought-relief. The credit had four main components: first, it improvedforeign exchange allocation and export incentives by develop-ing a consolidated market for foreign exchange, liberalizingprices of manufactured products and reforming agriculturalmarketing; second, it strengthened the role of the CentralBank, improved access to credit by the private sector, anddeveloped commercial banking services; third, the credit accel-erated the restructuring and privatization of the state enter-prise sector and established a transparent system forprivatization; fourth, the credit reoriented budgetary expendi-tures to protect a set of high-priority activities in primaryhealth, primary and secondary education and smallholders inagriculture, and provided support for the implementation oflimited targeted direct income transfers to poor households.

The proceeds of the credit were used by Mozambique to sup-port the enlargement of the secondary market and financetechnical assistance to strengthen the government’s capacity toextend the privatization process to large enterprises and toreform the banking sector. It was expected that up to US$10million would be used for restoring the productive potential ofagriculture destroyed by the drought.

EvaluationSubstantial progress was made toward achieving the majorobjectives of the credit. The administratively managed systemof foreign exchange allocation was replaced with market-based allocation, including a substantial real devaluation. TheCentral Bank of Mozambique and the Commercial Bank ofMozambique were established as separate entities and a diver-sified set of private financial institutions was created. Thirty-two major public enterprises were privatized, comprisingtwo-thirds of the production capacity of the public sector.Redeployment of budgetary expenditures resulted in signifi-cant increases in the volume of health and primary educationalresources. A safety net assisting 80,000 urban poor was estab-lished, while the number of families nationwide in need offood assistance declined from over one million in 1994 to90,000 in 1996. However, progress toward stabilization wasmodest. While economic growth accelerated during the imple-mentation period to 6 percent annually, progress towardrestoring fiscal equilibrium has been elusive, hampered bydeclining revenues, difficulties in coordinating external aid, alarge and unsustainable burden of external debt, and limitedinstitutional capacity.

PROJECT SUMMARY SHEET 17 AND PRELIMINARY EVALUATIONECONOMIC RECOVERY CREDIT (PROJECT ID 1775, CREDIT C2384), AS OF 11/97


Undisbursed (0.00%)

Disbursed (99.9%)

Canceled (0.02%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . . 6/11/92

Effectiveness. . . . . . . . . . . . . . 8/3/92

Closing . . . . . . . . . . . . . . . . 6/30/96

Approved . . . . . . . . . . . . . . . $180m

Disbursed. . . . . . . . . . . . . . $188.3m

Canceled . . . . . . . . . . . . . . . $0.03m

Undisbursed. . . . . . . . . . . . . . . . . . 0


50

100

150

200

Dis

burs

emen

ts (

US$

mill

ions

) estimated

actual

6/30/92

11/30/92

4/30/93

9/30/93

2/28/94

7/31/94

12/31/94

5/31/95

10/31/95

4/30/96

10/31/96

Date


Supervision—Form 590 Ratings9/25/92 6/30/93 6/30/94 6/29/95 6/24/96

Development objectives 1 1 S S SImplementation progress 2 2 S S S

69

A n n e x e s

ObjectivesThe project’s main objective was to build and maintain capac-ity in key public institutions and skill areas by expanding thesupply of well-trained senior planners, policy analysts, man-agers, and technicians and by enhancing pay and other incen-tives and conditions of employment for senior civil servants.Specific objectives included (a) increasing the quantity andimproving the quality of university graduates and strengthen-ing UEM’s role as a participant in development policy dia-logue; and (b) improving learning achievement in uppersecondary education so as to eliminate the need for remedialtraining at the university or in the workplace.

DescriptionThe project contributed to building capacity in Mozambiquethrough the following two components: (a) University Stabi-lization—systems development and training in universityadministration, financial management, and maintenance; pro-vision of textbooks, computers, and library materials; con-struction and upgrading of staff housing, libraries, studentdormitories, and other campus facilities; and staff developmentscholarships (63 percent of project costs); (b) Quality Improve-ments in Upper Secondary Education—development of a newteacher training program; support to curriculum and examina-tion reform; provision of textbooks and learning materials;training for school managers and administrative staff; rehabili-

tation of pre-university schools and special measures to increasefemale enrollment (37 percent of project costs).

EvaluationThe project is characterized by a slow disbursement—at mid-review last September, the disbursement was at 32%. The lagis largely due to civil work in the university component of theproject. This, in turn, is due to the level of counterpart fundsprovided by the Government of Mozambique (GOM). Toresolve the issue, action is being taken to reduce counterpartfunding from 20 percent to 15 percent without violating theBank’s rules (using IDA funds to pay local taxes).

University component of the project: Civil work is notmoving fast: only staff apartment construction or rehabilita-tion has been completed. The quality improvement has madesignificant progress. In that regard, training has been the mostsuccessful activity in disbursement (52 percent). Cumulativelyup to June 1997, seventy-two teaching staff have received fel-lowships toward studies abroad, while 1,230 participated inshort courses. Still within the quality improvement subcompo-nent, provision of books and information technology as wellas twinning arrangements with foreign universities are bothprogressing, but delays and some issues (establishment of abook fund) have to be addressed. Secondary education (EPU)component: Implementation is progressing satisfactorily, withthe exception of a limited number of specific constructions.

PROJECT SUMMARY SHEET 18 AND PRELIMINARY EVALUATIONCAPACITY BUILDING: HUMAN RESOURCE DEVELOPMENT (PROJECT ID 1797, CREDIT C2436), AS OF 11/97


Canceled (0%)

Undisbursed (66%)

Disbursed (34%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . 11/19/92

Effectiveness. . . . . . . . . . . . . 12/1/93

Closing . . . . . . . . . . . . . . . . 6/30/99

Approved . . . . . . . . . . . . . . . $48.6m

Disbursed. . . . . . . . . . . . . . . $16.2m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . $31.4m


101520253035404550

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

11/30/92

5/31/93

11/30/93

5/31/94

11/30/94

5/31/95

11/30/95

5/31/96

11/30/96

5/31/97

11/30/97

5/31/98

11/30/98

5/31/99

Date



Development objectives 2 S S U UImplementation progress 2 S U U U

70


ObjectivesThe project’s main objective was to build and maintain capac-ity in key public institutions and skill areas by expanding thesupply of well-trained senior planners, policy analysts, man-agers, and technicians and by enhancing pay and other incen-tives and conditions of employment for senior civil servants.Specific objectives included (a) strengthening legal institutionsand professional capabilities and (b) developing public admin-istration and management skills and enhancing civil servicepersonnel systems. Capacity building in Mozambique wouldexpand significantly the supply of higher-level humanresources, which is a necessary condition for the achievementof all IDA program objectives. The project also contained spe-cial measures to further the process of public sector reform andto increase women’s educational opportunities and participa-tion in the legal profession.

DescriptionThe project contributed to building capacity in Mozambiquethrough the following two components: (a) StrengtheningLegal Institutions—implementation of a long-term strategy tostrengthen legal institutions and expand legal education; pre-service and in-service training for lawyers, magistrates, andother legal workers; and creation of computerized legal databases and library collections (53 percent of project costs); and(b) Improving Public Administration and Development Man-agement—establishment of a Ministry of State Administration(MAE) planning unit to formulate civil service reform policiesand oversee their implementation; technical assistance andtraining to support ongoing improvements in public sector per-sonnel management (job grading, recruitment and promotion,career structures, training for professional growth); monitor-

ing and coordination of an incentives scheme for senior civilservants, to be financed by donors; and creation of a fund forin-service training in public administration and management.

EvaluationBoth project components have experienced serious implemen-tation problems and slow disbursement. However, since theMidterm Review in November 1996, implementation appearsto be improving, particularly under the legal component. Prob-lems have included (i) lack of continuity—the project has had4 task managers, with the MAE complaining that each haswanted to revise the project; (ii) initial project design requiredmicromanagement by the Bank, now revised; (iii) the projectcalled for the GOM to prepare a strategic legal reform roadmap (still not done), many donors providing legal/judicial TA,but inadequate coordination has meant that Mozambique stilllacks a comprehensive legal reform program. The Mozambi-can task force that authored a recent study under the Bank-supported “Partnership for Capacity Building in Africa”concluded that the country’s judicial system was seriously defi-cient and lacked credibility in the eyes of society. The sum ofBank and other aid in legal system capacity-building appearsnot to be commensurate with the magnitude and character ofthe system’s difficulties.

The effort to create an effective policy unit in MAE toaddress civil service reform has been unsuccessful thus far. Theslow progress in development of a reform plan covering civilservice salary structure and levels has been a major factor delay-ing a critical requirement for GOM capacity building across theboard. While project implementation has showed improvement(in procurement, and appointment of MAE staff), achievementof project objectives remains uncertain.

PROJECT SUMMARY SHEET 19 AND PRELIMINARY EVALUATIONLEGAL & PUBLIC SECTOR CAPACITY (PROJECT ID 1810, CREDIT C2437), AS OF 11/97


Canceled (19%)

Undisbursed (33%)

Disbursed (48%)●

●

●

BASIC DATA

Approval . . . . . . . . . . . . . . 11/19/92

Effectiveness` . . . . . . . . . . . . 2/28/94

Closing . . . . . . . . . . . . . . . . 6/30/99

Approved . . . . . . . . . . . . . . . $15.5m

Disbursed. . . . . . . . . . . . . . . . $7.4m

Canceled . . . . . . . . . . . . . . . $2.93m

Undisbursed . . . . . . . . . . . . . . . $5m


2

4

6

8

10

12

14

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

11/30/92

6/30/93

1/31/94

8/31/94

3/31/95

10/31/95

5/31/96

12/31/96

7/31/97

2/28/98

9/30/98

Date



Development objectives 2 S U U SImplementation progress 2 S U U S

71

A n n e x e s

ObjectivesThe overall project objective was to assist the government torestructure CFM(S) to improve its long-term efficiency. Toachieve this objective, the project aimed to (i) facilitate govern-ment’s divestiture of direct involvement in the management andoperation of those transport facilities in the corridor wherethere was no demonstrable competitive or regulatory advantageto such participation, and to assist it to do so on the most com-mercially advantageous terms; and (ii) assist government inensuring that the substantial proportion of the work force thatwas likely to be redundant as a consequence of this restructur-ing is adequately cushioned against the effects of loss ofemployment. A subsidiary and related objective of the projectwas to enhance confidence in the capacity of the system byfinancing equipment to relieve bottlenecks in container termi-nal operations and to strengthen communications with neigh-boring systems.

DescriptionThe project included the following components, whichformed the basis for deciding on the scope of private sec-tor participation in the provision of services on theCFM(S) system: (i) Investment and Financial AdvisoryServices; (ii) Legal Advisory Services; (iii) EnvironmentalAnalytical Services; (iv) Labor Redeployment Strategy;and (v) Equipment.

EvaluationThis project was difficult to negotiate and its implementationprogress was slow in the initial years. The project responded tothe Bank’s concern that a major improvement in the largeCFM(S) investment required progress toward privatization/concessioning. The GOM, and even more CFM, were not ini-tially convinced about this important step. Over time, andwith much patience and effort on the part of the Bank, themain item financed under the credit (a large consultant con-tract for financial advisory services) was concluded in 1995,but even then cooperation with the chosen consultant provedto be less than satisfactory. Moreover, CFM went ahead withsome limited concessioning without public bidding. However,by fall 1997, GOM/CFM agreed with the Bank on an ICB ten-der with a view to obtaining a concession agreement on theprincipal rail and port facilities of CFM(S). Bids are to be sub-mitted by December 17, 1997.

A special effort has been made by the Bank’s staff to helpdevelop appropriate solutions to the large labor redundancyidentified for CFM(S). Although the study on the subject wasto be by USAID, Bank staff have taken a good deal of initia-tive in this important matter, especially with the improvedprospects for concessioning. The Bank recognized that a solu-tion on the labor issue needed to be in hand before a conces-sionaire could be expected to make major financialcommitments in the new railway and port venture(s).

PROJECT SUMMARY SHEET 20 AND PRELIMINARY EVALUATIONMAPUTO CORRIDOR (PROJECT ID 1802, CREDIT C2454), AS OF 11/97


Canceled (0%)

Disbursed (56%)


●

BASIC DATA

Approval . . . . . . . . . . . . . . . 1/19/93

Effectiveness. . . . . . . . . . . . . 9/27/93

Closing . . . . . . . . . . . . . . . 12/31/98

Approved. . . . . . . . . . . . . . . . $9.3m

Disbursed. . . . . . . . . . . . . . . . $5.3m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . . $4.1m


0123456789

10

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

7/31/94

12/31/94

5/31/95

10/31/95

3/31/96

8/31/96

1/31/97

6/30/97

11/30/97

4/30/98

9/30/98

2/28/99

Date


Supervision—Form 590 Ratings6/30/93 6/30/94 6/29/95 6/24/96` 6/12/97

Development objectives 1 S S S SImplementation progress 2 S S S S

72


ObjectivesThe project was designed to support the NRP. Its primaryobjective was to undertake, on a pilot basis, activities to sup-port decentralized rural economic recovery, while creating theinstitutional capacity and procedures necessary to addressbroader post-war rehabilitation needs. Specific objectives were(a) to strengthen the capacity of the provincial institutions thatwill plan, implement, and manage national reconstructionactivities; and to test and further improve the procedures fordecentralized rural development; (b) to provide informationabout land use to assist with planning future infrastructureinvestments and facilitate the resettlement of returnees; and tosupport the development of land policies that will providegreater tenure security for smallholders; (c) to help householdsreturning to their traditional lands recover their self-suffi-ciency, reducing the need for food imports and restoring thecountry’s productive capacity; and (d) to improve the livingconditions and health of rural households by providing accessto potable water and to reduce the amount of time and energyspent by women and children in collecting and carrying water,thus increasing their opportunities for productive work, edu-cation, and social activities.

DescriptionField activities took place in Sofala and Zambzia Provinces.The project included four components: (a) Support for Decen-tralization Component (34 percent of base costs); (b) LandComponent (15 percent of base costs); (c) Distribution ofAgPacks Component (25 percent of base costs); and (d) RuralWater Supply Component (26 percent of base costs).

EvaluationThis was a complex project, considering the low administra-tive capacity of the implementing agency. There was an excessof optimism on the part of the Bank and the country. Afterthree years of facing difficulties arising from project complex-ity and weak leadership of the implementing agency (INDER),by the end of 1996 the project was implementing most of itsdeveloping objectives. Considerable progress had beenachieved under the component Decentralization. In Sofala, forinstance, more than 30 microprojects, developed with commu-nity participation, have been completed (schools, health center,wells, and latrines have been built or repaired); more than onehundred are under execution. As for the subcomponent Train-ing, through a participatory methodology, many microprojectsto be funded by the project itself or by the provincial budgetswere identified. District administrators and community leaderswere trained to assist communities in the identification of localneeds. With reference to the component Rural Water, invento-ries of sources of water and a study on management of ruralwater and sanitation were completed; and small water supplysystems were rehabilitated. The land study and pilot demarca-tion of smallholder lands and the national land use mappingare under way. The former was transferred to ASRDP(C2337). The project’s development objective was rated unsat-isfactory (end of 1996), but with a new leadership at the imple-menting agency (INDER), project restructuring, andintensified supervision, most of the objectives are now beingmet, disbursements have picked up, and procurement andfinancial progress are adequate.

PROJECT SUMMARY SHEET 21 AND PRELIMINARY EVALUATIONRURAL REHABILITATION (PROJECT ID 1796, CREDIT C2479), AS OF 11/97


Canceled (0%)

Disbursed (41%)


●

BASIC DATA

Approval . . . . . . . . . . . . . . . 3/30/93

Effectiveness. . . . . . . . . . . . . 12/8/93

Closing . . . . . . . . . . . . . . . 12/31/98

Approved . . . . . . . . . . . . . . . . $20m

Disbursed. . . . . . . . . . . . . . . . $8.3m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . . $12m


5

10

15

20

25

Dis

burs

emen

ts (

US$

mill

ions

) estimated

actual

3/31/93

8/31/93

1/31/94

6/30/94

11/30/94

4/30/95

9/30/95

2/28/96

7/31/96

12/31/96

5/31/97

10/31/97

3/31/98

8/31/98

1/31/99

6/30/99

Date



Development objectives 2 S U U UImplementation progress 2 S U U S

73

A n n e x e s

ObjectivesThe overall objective of this project was to strengthen nationalcapacity to confront and deter the major causes of food inse-curity among rural and urban households in Mozambique.Specific objectives were to (a) establish an institutional focalpoint for food security policy development and coordinationof strategy implementation; (b) improve understanding of foodsecurity issues and responses among decisionmakers and staffof relevant sectoral ministries; and (c) incorporate research on,and teaching of, food security-related issues and smallholderagriculture in university and relevant pre-service vocationaltraining programs.

DescriptionThe project had three main components. First, policy develop-ment through staffing and equipping a Food Security PolicyUnit (FSPU). Second, awareness-creation and in-service train-ing. Third, strengthening the food security dimension ofselected pre-service training.

EvaluationThis was a relatively small project ($6.3m); however, it hasalready contributed significantly to the development of anational institutional capacity to confront and deter the majorcauses of food insecurity and face the problems of poverty in adeliberate and planned fashion.

As an institution-building project, its activities comprisethe carrying out of research, creation of information systems,drafting of legislation and strategies, and training of personnel.During the last three and half years, through the project orthanks to its incentives: (1) sources of socioeconomic informa-tion have been or are being created (national household surveydata base, district profiles on food security and nutrition sta-tus); (2) drafts of policies and strategies have been written andwidely debated. Examples are the draft for a National Popula-tion Policy and that for a strategy for Food Security and Nutri-tion; (3) the Food Security Policy Unit of the government hasbeen staffed and strengthened; (4) discussion meetings havetaken place, through inter-departmental cooperation, in vari-ous parts of the country. This has increased the awareness ofcivil society to the issues the project deals with; (5) on-the-jobtraining has taken and is taking place. Pre-service training onthese matters is being tackled through seminars and lectures atthe university.

Although this is not a food-production or distributionproject, it is preparing government institutions to better under-stand the issues involving food security and alleviation ofpoverty. The project’s closing date is February 28, 1998, but itis expected that this will be extended.

PROJECT SUMMARY SHEET 22 AND PRELIMINARY EVALUATIONFOOD SECURITY (PROJECT ID 1801, CREDIT C2487), AS OF 11/97


Canceled (0%)

Disbursed (40%)


●

BASIC DATA

Approval . . . . . . . . . . . . . . . 4/27/93

Effectiveness. . . . . . . . . . . . . 2/25/94

Closing . . . . . . . . . . . . . . . . 2/28/98

Approved. . . . . . . . . . . . . . . . $6.3m

Disbursed. . . . . . . . . . . . . . . . $2.6m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . . $3.9m


1

2

3

4

5

6

7

Dis

burs

emen

ts (

US$

mill

ions

) estimated

actual

4/30/93

10/31/93

4/30/94

10/31/94

4/30/95

10/31/95

4/30/96

10/31/96

4/30/97

10/31/97

4/30/98

10/31/98

Date




74


ObjectivesThe main objectives of the proposed engineering credit were to(a) strengthen the urban management capability of local gov-ernments through the preparation and implementation ofadministrative, financial, and legal reforms and technical assis-tance and training programs; (b) lay the basis for sustainableand environmentally sound urban rehabilitation and develop-ment by undertaking five-year urban development and finan-cial plans, feasibility and engineering studies, and pilotprojects; and (c) serve as a focal point for the efforts of bilat-eral, multilateral, and NGO agencies acting in the urban/localgovernment sector, thus minimizing overlap and maximizingdevelopment efforts.

DescriptionThe project included the following components for the fivemajor regional centers along the coast (Maputo, Beira, Queli-mane, Nampula and Pemba): (a) technical assistance; (b) train-ing of central and local government legal, managerial andadministrative staff; (c) consultant services; and (d) pilot pro-jects to test appropriate, low-cost technological approaches tourban and environmental management.

EvaluationSince PROL is still under implementation and is likely to beextended at least until March 1999, it is premature to attemptan evaluation. Nevertheless, local government reform is an

important and complex area, and the Bank appears, initially,to have both underestimated the difficulties involved and over-estimated MAE’s implementation and coordination capacity.In addition, project decisionmaking is highly centralized and,allegedly because of the political sensitivities associated withthe reform program, not very transparent. These elements havecaused significant delays, slow disbursements, and relative lackof results to date. Current project staff point to overambitiousobjectives and associated “design flaws”—or poor “quality atentry”—as being among the principal factors contributing toPROL’s implementation problems. It has been noted, forinstance, that the focus on rapid decentralization was probablynot appropriate for a country such as Mozambique, with sucha poor national budgeting and expenditure control system andno history of democracy. These are valid observations.

While recognizing that project performance has been farfrom satisfactory, the Bank is also aware that effective publicsector reform, including substantial institutional and financialstrengthening of subnational levels of government, is a pre-condition both for effective decentralization and improvedurban management. This awareness underlies the Bank’s deci-sion to agree to a one-year extension rather than canceling thecredit on the original closing date (unless implementation fur-ther deteriorates). Given the critical importance and complex-ity of local government reform, the Bank’s position isreasonable. However, there is clearly a continuing need forclose supervision of this project.

PROJECT SUMMARY SHEET 23 AND PRELIMINARY EVALUATIONLOCAL GOVERNMENT REFORM: PROL (PROJECT ID 1791, CREDIT C2530), AS OF 11/97


Canceled (0%)

Undisbursed (68%)

Disbursed (32%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . . 6/29/93

Effectiveness. . . . . . . . . . . . . 7/20/94

Closing . . . . . . . . . . . . . . . . 3/31/98

Approved . . . . . . . . . . . . . . . $23.2m

Disbursed. . . . . . . . . . . . . . . . $7.4m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . $15.6m


5

10

15

20

25

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

6/30/93

12/31/93

6/30/94

12/31/94

6/30/95

12/31/95

6/30/96

12/31/96

6/30/97

12/31/97

Date




75

A n n e x e s

PROJECT SUMMARY SHEET 24 AND PRELIMINARY EVALUATIONSECOND ROAD AND COASTAL SHIPPING (PROJECT ID 1804, CREDIT C2599), AS OF 11/97


Canceled (0%)

Undisbursed (60%)

Disbursed (40%)●

●

020406080

100120140160180200

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

4/30/94

9/30/94

2/28/95

7/31/95

12/31/95

5/31/96

10/31/96

3/31/97

8/31/97

1/31/98

6/30/98

11/30/98

4/30/99

9/30/99

2/28/2000

Date


ObjectivesThe primary objective of the project was to contribute to therestoration of economic growth through (i) improving roadtransport and protecting selected past road investments by reha-bilitating priority roads and eliminating much of the huge back-log of periodic maintenance, and resuming regular maintenance;the goal is to restore serviceability and maintainability to the1973 level by 2000, with 85 percent of the paved network and60 percent of the unpaved network in good or fair condition,compared to 50 percent of the paved network and 15 percent ofthe unpaved network at present; and (ii) further strengthening thecapacity of the road sector, by continuing the regulatory reformand institution building initiated under ROCS-1, to ensure effec-tive planning and monitoring by the government, and by thedevelopment of private sector contractors and operators.

DescriptionThe project comprised the government’s agreed roads invest-ment program for the five years 1994–1998, coordinating alldonor-financed initiatives in the sector through discrete paral-lel subprojects. Because of uncertainty surrounding projectedagricultural development and road conditions, only the firsttwo years of the program were defined and appraised in detail,with the overall scope of the five-year program and an illus-trative program defined and appraised for 1996–98. A majorreview toward the end of the second year of the programreviewed physical and institutional progress and set out a moreexplicit program for the following three years. The project included (a) a civil works program; (b) engineering ser-vices such as detailed feasibility studies, design studies, andsupervision of civil works in support of the project; and (c) continuation of the ROCS-1 Institution Building Program.

EvaluationThis credit, by far the largest single credit extended for invest-ment purposes, is part of an $815 million sector investmentprogram benefiting from other financiers/donors to the tuneof $415 million. The Bank has been the leader in helping theGOM to develop and maintain a sound sector program.Progress under this program has been remarkably positive,not least because of continued and strong management in thetwo main executing entities taking advantage of the TA andtraining support from the First Road and Coastal ShippingProject.

The sheer size and complexity of the program has raisedsome important implementation issues. Two are worth flag-ging here. First, since 1996 when the investment program gotinto high gear, the Ministry of Finance considered the largeclaims of this program on budget resources to be excessive(although with the agreed levies channeled into the Road Fundthe reliance on other fiscal resources has been small). ThusGOM has insisted on reducing the pace of implementation ofthis project against what had been agreed under the CA. Sec-ond, with the very large parallel financing of different sectionsof the road program by many other donors, different pacesamong these have become evident. In particular, the time-consuming procedures under the EU-financed sections havegiven rise to concerns from GOM, not least because these sec-tions are located in the central provinces of the country and thedelays that have taken place—two years or more—have, in theview of some Mozambican observers, tainted the success so farachieved under the whole program.

The careful Bank supervision and its close interactionswith GOM and the many donors under this (and the first)project merit special mention.

BASIC DATA

Approval . . . . . . . . . . . . . . . . 4/7/94

Effectiveness. . . . . . . . . . . . . 7/11/94

Closing . . . . . . . . . . . . . . . . 6/30/01

Approved . . . . . . . . . . . . . . . $188m

Disbursed . . . . . . . . . . . . . . $76.7m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . $114.7m


Supervision—Form 590 Ratings6/30/94 6/28/95 6/24/96 6/16/97

Development objectives S S SImplementation progress S S S S

76


ObjectivesThe Financial Sector Capacity Building project developed andstrengthened the institutions charged with implementing thepolicy and institutional reforms agreed under the Second Eco-nomic Recovery Credit (SERC). The main objectives of theproject were to (a) train central bank staff so that they canundertake better macromonetary management, and prudentialsupervision of the financial sector, and manage a more effec-tive system of foreign exchange allocation; (b) train staff in thecommercial banks so that they can more effectively providetrade finance to importers, appraise credit applications and,for higher-level staff in the banks, provide more effective over-all management; (c) train a core of legal professionals in thecentral bank and the Ministry of Finance to review and re-draft financial and other related legislation for its applicabilityin a deregulated financial environment, and strengthen legalsystems which may beneficially affect the overall operation ofthe financial system; (d) support institution-building within thefinancial sector, through the recruitment of technical assistanceexperts who can, in large part, train local staff and helpdevelop local competencies; and (e) study aspects of the finan-cial sector in greater depth, to provide a better understandingof possible policy alternatives.

DescriptionThe project was divided into five major components:

(a) Central Bank Training(b) Commercial Bank Training(c) Strengthening Legal Financial Capacities(d) Institutional Development(e) Studies/Project Support.

EvaluationAlthough still under implementation, the project has beensuccessful in achieving its objectives. Among its outstandingaccomplishments are privatization of BCM and BPD, and thestrengthening of the central bank’s supervision capabilitiesthrough a twinning arrangement with the South AfricanReserve Bank supervisors. These achievements were importantin stopping the uncontrolled expansion of credit, and facili-tated the country’s macroeconomic stabilization. Furthermore,the financial reform has had a positive effect on corporategovernance in the banking sector. As a result of the Bank’stechnical assistance to the central bank, the bank supervisorystandards in Mozambique are now at par with some of theneighboring countries at a much more advanced stage ofdevelopment.

PROJECT SUMMARY SHEET 25 AND PRELIMINARY EVALUATIONFINANCIAL SECTOR CAPACITY (PROJECT ID 1811, CREDIT C2607), AS OF 11/97


Canceled (0%)

Undisbursed (64%)

Disbursed (36%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . . 4/14/94

Effectiveness. . . . . . . . . . . . . 8/17/94

Closing . . . . . . . . . . . . . . . . 6/30/00

Approved . . . . . . . . . . . . . . . . . $9m

Disbursed . . . . . . . . . . . . . . . $3.4 m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . . $5.9m


1

2

3

4

5

6

7

8

9

Dis

burs

emen

ts (

US$

mill

ions

) estimated

actual

4/30/94

12/31/94

8/31/95

4/30/96

12/31/96

8/31/97

4/30/98

12/31/98

8/31/99

Date



Development objectives S S U SImplementation progress S S S S

77

A n n e x e s

ObjectivesThe SERC was designed to be an important element of thegovernment strategy to take advantage of the new era of peacein Mozambique and to create an environment for rapid recov-ery and sustained growth. The government, and its post-elec-tion successor, needed to strengthen its capacity for macromanagement of an economy with large internal and externalimbalances. It needed, at the same time, to continue structuraladjustment. The SERC supported actions in four main areas,while providing needed balance of payments financing: (a)Management of Public Expenditures and External Aid; (b)Monetary Policy and Strengthening the Central Bank; (c) TheFinancial Sector; (d) Enterprise Reform.

DescriptionThe credit continued to provide support for the government’sEconomic and Social Rehabilitation Program (ESRP). Theobjectives of the credit were to support macroeconomic stabi-lization through strengthening key elements of fiscal and mon-etary policy while supporting an interlinked program ofenterprise and financial sector reform. The credit has fourcomponents. First, it supported the development of integratedsectoral programs in the three key areas of agriculture, healthand education. Second, the program supported the centralbank in its key central banking functions of monetary policymanagement, banking supervision, legal development, and

accounting while continuing the strengthening and stream-lining of the foreign exchange management and allocationprocess. Third, the program supported the development of acompetitive, efficiently functioning, and truly commercialbanking system. New banking entry is being encouraged, andthe existing state-owned banks are being “commercialized”and prepared for privatization. Fourth, the program acceler-ated the privatization program with particular attention to thelarger state-owned enterprises within the economy. In additionto privatization, the program supported a review of businessenvironment issues which adversely affect the development ofenterprises, with a view to ameliorating constraints identified.

EvaluationThe project was closed on schedule on August 30, 1997.Although the Implementation Completion Report is yetincomplete, it appears that the loan has been successful inachieving the stated policy conditionalities for the enterpriseand financial sectors. The project accelerated privatization ofstate-owned banks (BCM and BPD) and large state-ownedenterprises, and it succeeded in introducing the new system ofcredit ceilings, and in completing the conversion of CFM—thenational railways—into a public company. The loan helped toabolish the system of conditioned prices—effectively, a systemof government price controls—on eight basic goods.

PROJECT SUMMARY SHEET 26 AND PRELIMINARY EVALUATIONSECOND ECONOMIC RECOVERY CREDIT: SERC (PROJECT ID 1777, CREDIT C2628), AS OF 11/97


Canceled (0%)

Disbursed (100%)

Undisbursed (0%)

●

BASIC DATA

Approval . . . . . . . . . . . . . . . 6/16/94

Effectiveness. . . . . . . . . . . . . 7/19/94

Closing . . . . . . . . . . . . . . . . 8/30/97

Approved . . . . . . . . . . . . . . . $200m

Disbursed. . . . . . . . . . . . . . $208.3m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed. . . . . . . . . . . . . . . . . . 0


50

100

150

200

250

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

6/30/94

9/30/94

12/31/94

3/31/95

6/30/95

9/30/95

12/31/95

3/31/96

6/30/96

9/30/96

12/31/96

11/30/97

Date



Development objectives S S S HSImplementation progress S S S HS

78


ObjectivesThe primary objective was to undertake all work necessary toenable the government, ENH, and the private sector investorsto decide to develop the Pandhe gas reserves for export and foruse in Mozambique. Secondary objectives included a minorenvironmental clean up relating to previous operations, prepar-ing for gas supplies to suitably located Mozambican towns, andthe consequent opportunity for power supplies, training, andinstitutional strengthening to prepare for a substantial Mozam-bican role in future gas operations.

DescriptionThe engineering project was to be undertaken in two phases.Phase I was to ensure sufficient gas reserves and clear awaysome project uncertainties. Some of the Phase I work—seismicshooting and intrepretation—was already substantially com-plete, having been financed with a US$1.5 million advancefrom the Project Preparation Facility (PPF). The objective wasto take the project to a stage in which the private sector willinvest in the pre-development costs. Phase II covered theremaining pre-development work and included those tasks inwhich a joint venture partner would wish to have an input tothe work, and where ENH’s costs were to be shared with theprivate sector partner. There were several conditions to be

achieved before Phase II could proceed, including the signingof suitable joint venture agreements, the approval of the Coun-cil of Ministers of a satisfactory legal and regulatory frame-work, and the proving of sufficient reserves for the project tobe able to succeed.

EvaluationThe first phase of this project was successfully completedwhen well drilling and seismic work confirmed the provedrecoverable reserves to at least the projected levels. Duringthis period, TA was used well for strengthening the GOM’sHydrocarbon Directorate, for helping ENH to study thefinancing options for the eventual gas development, and forpreparing the ground for ENH’s proposed role as a futurejoint venture partner.

The critical phase of GOM developing an agreement witha foreign joint venture partner is still ongoing. This is a highlycomplex agreement and because of its size, it has found muchattention both in Mozambique and abroad. Although it is tooearly to reach any conclusion on the final outcome of the pro-ject, it is already evident that the Bank has helped GOM andin particular ENH to establish a strong basis for negotiatingthe economic use of a major energy resource that had beenwaiting for exploitation for almost three decades.

PROJECT SUMMARY SHEET 27 AND PRELIMINARY EVALUATIONGAS ENGINEERING (PROJECT ID 1780, CREDIT C2629), AS OF 11/97


Canceled (0%)

Undisbursed (43%)

Disbursed (57%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . . 6/16/94

Effectiveness . . . . . . . . . . . . 12/30/94

Closing . . . . . . . . . . . . . . . . 6/30/00

Approved . . . . . . . . . . . . . . . . $30m

Disbursed. . . . . . . . . . . . . . . $17.1m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . $13.1m


5

10

15

20

25

30

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

6/30/94

1/31/95

8/31/95

3/31/96

10/31/96

5/31/97

12/31/97

7/31/98

2/28/99

9/30/99

Date


Supervision—Form 590 Ratings6/30/94 6/28/95 7/3/97

Development objectives S SImplementation progress S S HS

79

A n n e x e s

ObjectivesThe objectives set for the health sector were: (a) to reduce mor-tality, morbidity, and suffering, especially among high-riskgroups such as women, children, and all those displaced by thewar and natural disasters; (b) to keep primary health care asthe basis for the provision of good-quality and sustainablehealth care and make it accessible to the majority of the pop-ulation; and (c) to develop the technical and managerial capac-ity of the Ministry of Health (MOH) for planning,implementing, and evaluating health care and support services.

DescriptionThrough the coordination of all major donors and the govern-ment, the program, which encompassed all activities of theMOH, financed a five-year time slice of the National HealthStrategy. Teams from the MOH defined objectives and identi-fied and prepared the various components, under the overallcoordination of the MOH’s Planning Directorate. The pro-

gram addressed the following areas: (a) resumption of animprovement in the quality of health services provided to yielda higher level of services as the sector recovers; (b) improve-ment of sector institutions, support services and subnationalhealth management systems; and (c) development of humanresources capacity.

EvaluationThe loan is 5 percent disbursed, from its effectiveness in April1996. Project activities in 1997 included signing contracts fortraining courses. A national guiding policy and planning instru-ments for identifying and deciding on priority location of facil-ities were developed, but the management structure needed forhandling construction and rehabilitation of rural hospitals wasnot yet in place at the provincial level. Forms of complement-ing recurrent costs at the provincial level were being studiedwith other donors.

PROJECT SUMMARY SHEET 28 AND PRELIMINARY EVALUATIONHEALTH SECTOR RECOVERY (PROJECT ID 1792, CREDIT C2788), AS OF 11/97


Canceled (0%)

Undisbursed (95%)

Disbursed (5%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . 11/30/95

Effectiveness. . . . . . . . . . . . . 4/30/96

Closing . . . . . . . . . . . . . . . . 6/30/01

Approved . . . . . . . . . . . . . . . $98.7m

Disbursed. . . . . . . . . . . . . . . . $4.9m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . $86.7m


102030405060708090

100

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

11/30/95

6/30/96

1/31/97

8/31/97

3/31/98

10/31/98

5/31/99

12/31/99

7/31/2000

Date


Supervision—Form 590 Ratings6/28/96 6/19/97

Development objectives S SImplementation progress S S

80


ObjectivesThe macroeconomic objectives for 1996–98 were to (i) achievean average annual growth of nonenergy GDP of 5 percent; (ii)reduce inflation to below 10 percent by end-1998; and (iii)increase gross international reserves to the equivalent of fourmonths of imports and nonfactor services.

DescriptionThis adjustment credit continued to support Mozambique’smedium-term economic reform program aimed at achievingsustained growth with poverty reduction and diminishingdependency on external aid. The credit supported measures to

improve macroeconomic management through financial andfiscal reform and to remove impediments to a sustained supplyresponse. Measures to improve macroeconomic managementincluded the privatizing of state banks, improving budget man-agement, and limiting indirect subsidies to enterprises. Supply-side measures included: rationalization of the tariff andindirect tax regime; cashew liberalization; and private conces-sioning of CFM’s port and railway operations.

EvaluationThe loan was approved on February 4, 1997; an EvaluationSummary is not yet available.

PROJECT SUMMARY SHEET 29 AND PRELIMINARY EVALUATIONECONOMIC RECOVERY CREDIT III (PROJECT ID 35922, CREDIT CN010), AS OF 11/97


Canceled (0%)

Undisbursed (50%)

Disbursed (50%)●

●

BASIC DATA

Approval . . . . . . . . . . . . . . . . 2/4/97

Effectiveness . . . . . . . . . . . . 5/21/97

Closing . . . . . . . . . . . . . . . 12/31/98

Approved . . . . . . . . . . . . . . . $100m

Disbursed. . . . . . . . . . . . . . . $47.8m

Canceled . . . . . . . . . . . . . . . . . . . . 0

Undisbursed . . . . . . . . . . . . . $47.6m


0

10

20

30

40

50

60

70

80

90

Dis

burs

emen

ts (

US$

mill

ions

)

estimated

actual

10/31/96

12/31/96

2/28/97

4/30/97

6/30/97

8/31/97

Date


Supervision—Form 590 Ratings6/13/97

Development objectives SImplementation progress S

81

1. Mozambique is a country with a gross domestic product (GDP) below USD 785, and for that matter, within the contextof World Bank Group relations, it can benefit from loans granted by the International Development Association (IDA).

2. All countries whose gross domestic product (GDP) is below the above-mentioned figure are entitled to financial assistance from IDA. The advantage of this type of financing is in the terms of reimbursement–40 years.

3. Mozambique, since 1987, has been contracting credits from IDA up to now. The amount of credit granted in total is SDR 1,207,30 million. The funds granted have been applied in two areas:

• Development projects, which account for SDR 696.3 million• Credit for economic structural adjustments, which account for SDR 510.8 million.

4. The projects initially implemented were directed to Energy, Education, Health, and the Beira Corridor, at the same time thefirst credit was granted for Economic Structural Adjustment.

5. Due to the social state of the country and the economic conditions of the time, it can be said that the funds granted were directed to respond to emergency situations.

6. The first financing (as earlier mentioned) was granted at the end of the 1980s. This was the first contract the country undertook with Bretton Woods. The principles, policies, and procedures of Bretton Woods were not known at the time.

7. For that reason, the implementation of the first projects encountered some difficulties due to a lack of knowledge ofpolicies and procedures, and lack of experience of the parties involved (Government, Implementation Agencies and the Central Bank of Mozambique) during the phase of execution met with some difficulties on the ground.

8. The establishment of the Resident Mission significantly contributed to the introduction of changes in matters such as the useof World Bank finances or funds. Consequently, matters that were previously dealt with in Washington are now dealt withlocally.

9. Taking a look at the country’s problems prior to our relationship with the IDA and the actual phase, it can be said that, despite not having achieved the desired goals in real development terms, the credit afforded by the institution was useful.

10. Today, there are visible investments undertaken in the areas of education; rehabilitation of infrastructure; in the area of health; assistance granted to the energy sector; encouraging results in the road sector; the dynamic undertakings in the rehabilitation of Beira Corridor; and, despite the slow pace, the perspective which is awaited in capacity building.In the area of balance of payments, a major emphasis is on the stabilization of exchange rates.

11. It is not intended to say that the policies and strategies surrounding the institution of Bretton Woods in the use of financialresources are not exempt from observation. It is current opinion that in the process of designing projects financed by theseinstitutions, various interested parties or societal segments should be heard.

COMMENTS ON MANAGEMENT PORTFOLIO

82


12. In general terms, it is fair to recognize that IDA plays an important role in the development process of the country. How-ever, there is a need for greater interaction between major actors (government and IDA). The government institutions that take part in this process must improve their methods of operation. From the IDA side, there is a need to act in relation to the country’s needs, and not simply to dwell on their philosophies.

CONCLUSIONS AND RECOMMENDATIONS

• The country’s affiliation with Bretton Woods institution contributed significantly to changing the economy’s downward trend.

• The use of IDA funds for preestablished objectives has begun to show initial results. However, it is imperative to note that in this process, the results are of a long-term nature.

• The process of implementation of projects funded by the World Bank, in order to yield significant success, we recommend the continuing joint work (MPF, Banco de Moçambique, World Bank, and implementation agencies) under the implementation of management portfolio.

• In general we agree with the points of view of the World Bank expressed in the document–Country Assistance Review.

Maputo, 4th August 1998

International Relations Department

COMMENTS ON MANAGEMENT PORTFOLIO (CONTINUED)

83

Exmo SenhorRepresentante Residente do Banco MundialMaputo

N/Refa105/GAB-DNT/98 Maputo, 27 de Agosto de 1998

Assunto: “Country Assistance Review”

Na sequência da solicitação de V.Excias junto enviamos a carta sobre o assunto acima epigrafado, apesar deconsiderarmos que o documento sendo da autoria e propriedade do Banco Mundial, não necessite de autor-ização do Governo para a sua publicação.

O documento é bastante extensivo na análise detalhada da assistência do Banco Mundial a Moçambique, sis-tematiza e retém as principais constatações e lições acmuladas e projecta algumas recomendações nesta base.

Em nosso entender o documento deveria também concentrar-se não só no historial como também na colocaçãodas questões chaves para as quais o Governo deve ter um posicionamento, decorrente da experiência do pas-sado recente.

Duma forma geral a estratégia do Banco Mundial para o futuro - CAS (Estratégia da Assistência ao País) apre-sentada no documento é bastante compreensiva e está em linha com a priorização dos objectivos da reformaque o País está implementando, nomeadamente na implantação duma economia de mercado, ponderando tam-bém os problemas sociais e ambientais.

Parece perfeitamente pacifico o conjunto de sugestôes feitas para a mudança no estilo de intervenção do BancoMundial. Entendemos que o Governo no quadro destas sugestôes deverá potenciar-se para:

– O estabelecimento de rotinas para revisão e acompanhamento periódico da carteira de crédito; e

– A definição de soluções de caracter institucional e sustentável para a gestão da carteira de crédito doBanco Mundial (nomeadamente ao nível sectorial)

Consideramos que ao se colocar o combate a corrupção na agenda da cooperação com o Banco Mundial sig-nificia que esta instituição deverá ter um papel mais activo neste processo, podendo ser indicado qual poderiaser o papel da instituição neste âmbito.

MINISTÉRIO DO PLANO E FINANÇAS DIRECÇÃO NACIONAL DO TESOURO

84


Finalmente, consideramos que a aceitação como condição do crédito, dos êxitos da reforma salarial e da mel-horia da mobilização de receitas, é uma questão que deve ser ponderada, muito embora ambas as condiçõesconstituam sob o ponto de vista técnico condições coerentes do crédito, na medida em que só desta forma sepoderão assegurar as comparticipações (financeiramente) e se poderão reter os quadros para a gestão e sus-tentabilidade futuro (capacidade de gestão).

Sem mais assunto, os nossos melhores cumprimentos.

Manuel ChangDirector Nacional

85

Recommendations

46. Mozambique Country Assistance Review12/02/97

1. Introduction

(i) Effective absorption of the lessons of experience wouldgo a long way in enhancing the impact of Bank assis-tance. Looking to the future, the Bank should take theopportunity of the new country assistance strategyprocess to reposition its programs so as to achieve greaterstrategic selectivity and more effective management of itslending and non-lending services.

2. Recommendations(i) Use the country dialogue and available aid coordina-tion mechanisms to nurture policy reform and capacitybuilding.

Management Response

(i) The CAS builds directly on the lessons of past experi-ence. The main lesson from the experience in Mozam-bique is the critical importance of strengtheningpartnerships. This is one of the three strategic priorities ofthe CAS. Partnership with the Government is essential tobuild ownership of policy change and capacity for imple-mentation; partnership with donors is critical for effectiveaid coordination at the sectoral level; and partnershipwith civil society provides the underpinnings for sustain-able change. While the process of strengthening partner-ships entails broad-based involvement, there is fullagreement that the Bank must be selective with respect toits sector involvement and use of particular instruments.

(i) This is consistent with the Bank’s CAS. As both theCAR and CAS recognize, however, increasingly it is theGovernment itself, with strong Bank support, that is exer-cising the principal leadership role on economic policymatters and conducting the dialogue with other develop-ment partners. The Bank will continue to nurture policyreform and capacity building through joint economicwork (e.g., the ongoing Growth Prospects Study and Fis-cal Management Review); the Economic ManagementReform operation; the Policy Framework Paper; supportto the Government’s development of a public sectorreform strategy; and enhanced economic policy discussionwithin the aid partnership-both at the local level andthrough the Consultative Group mechanism, which in1998 will take place in Mozambique.

REBUILDING THE MOZAMBIQUE ECONOMY: ASSESSMENT OF A DEVELOPMENT PARTNERSHIP/MANAGEMENTRESPONSE

A n n e x e s

86


(ii) Raise the focus of Bank assistance to a higher planethan the traditional investment project by encouragingbusinesslike partnerships among donors. This process isalready underway but it must be accelerated. Given lim-ited domestic capacities, the World Bank and its develop-ment assistance partners are financing too many projects,each governed by different modalities. The time has cometo construct management coalitions to improve thecoherence and the impact of external assistance by havingthe Bank, other multilateral/bilateral donors and the civilsociety join forces and seek results at the national levelfor high priority sector programs, managed for results.

(iii) Put Mozambique authorities in the “driver’s seat” incapacity building activities and external assistance coordi-nation while giving it suitable support through advisoryand fiduciary services. Large numbers of expatriate con-sultants, project implementation units and salary supple-ments are undercutting civil service reform andinstitutional development. Public expenditures manage-ment needs to be upgraded and the aggregate transactioncosts of external assistance reduced through more effec-tive coordination of assistance by Mozambique authori-ties. The Bank should give priority to enhancing theeffectiveness of the overall aid system by assisting theGovernment in improving the coherence of aid programsin the pursuit of priority development objectives.

(ii) Agreed and fully consistent with the CAS. Strengthen-ing development partnerships is a principal strategicobjective of the CAS. The Bank has led the way inMozambique in advocating the development of sectorinvestment programs (SIPs) and in emphasizing the needfor greater coordination at the sectoral level. Sector pro-grams are ongoing in roads and health, and under prepa-ration in education and agriculture. Mechanisms tostrengthen common donor implementation proceduresand to enhance private sector and NGO participation inthe SIPs are under discussion. Concrete benchmarks tomeasure results are included in all operations.

The Resident Mission’s “NGO Outreach” Programwill continue, with efforts to draw the Government moreactively into this activity.

The pace of developing “management coalitions,”particularly those involving civil society, will depend, inlarge part, on the Government’s capacity and the priorityit attaches to nurturing these coalitions.

(iii) Agreed and consistent with the CAS. This is a majorfocus of ongoing Bank work. The joint Fiscal Manage-ment Review, and the development of a medium-term fis-cal framework that it is supporting, specifically aim tohelp the Government develop the capacity and processesto better determine priorities and ensure consistencybetween those priorities and the way the budget is formu-lated and implemented, including the donor-financed por-tion of the budget. This is also the driving force behindthe Bank’s support for SIPs in key sectors, the Bank’savoidance of long-term expatriate technical assistancewhere possible, and the Bank’s view that PIUs should notbe supported under new operations and should be phasedout where they still exist.

Also, following a Government request, the Bank is pro-viding its assistance and advice on public sector and civilservice reform. We are working closely with other part-ners on this.

87

A n n e x e s

(iv) Defer to other donors where they have a comparativeadvantage in taking the lead. The Bank is currentlystretched too thin. It needs to concentrate efforts onfewer activities and play a supporting role where otherdevelopment agencies have a comparative advantage intaking the lead. With respect to the environment, therural sector and the social sectors, the Bank has animportant intellectual contribution to make but otherdonors have a major presence and the Bank’s lending rolemay be reduced.

(v) Adapt the structure and modalities of Bank assistanceto the revised objectives of the country assistance strat-egy. To help Mozambique deal with unusually complexdevelopment challenges (crushing poverty; burdensomedebt; weak institutions; lack of human resources; socialdysfunctions; etc.) the Bank should be responsive andnimble. Greater decentralization of authority to the fieldand imaginative use of adaptable lending instrumentswould facilitate aid coordination and make Bank assis-tance more effective.

(iv) Further focusing Bank activities is an explicit objec-tive in the CAS. The CAS’s strategic priority of strength-ening development partnerships is an explicit recognitionof the need for more effective coordination of donors’country assistance strategies, with a focus on their respec-tive comparative advantages. A donor strategy retreat, todiscuss country assistance strategies and donors’ compar-ative advantage took place in Maputo in August 1998.

The CAR’s recommendation that the Bank’s lendingrole in the rural sector and social sectors can be reducedshould be approached with some caution. The CAS’sprincipal objective is poverty reduction. This calls for aspecial emphasis on rural areas, where the majority of thepoor reside and the opportunities of poverty-reducingdynamic growth are greatest. Capacity building andhuman resource development is also a CAS priority. Thedesign of the SIPs in roads, agriculture, health, and educa-tion attempt to maximize other donors’ financial andintellectual participation. Their success hinges on strongBank 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) Management concurs with the recommendations andthey are consistent with the CAS. Enhancing the role ofthe Resident Mission, using the new lending instruments,and emphasizing “just in time” advice and assistance areunderway and featured in the CAS. Staffing in the Resi-dent Mission has been significantly strengthened, and fur-ther strengthening-mostly through local hiring-isenvisioned over the next year and beyond. Portfolio man-agement has become the responsibility of the ResidentRepresentative, and the Resident Mission’s activities havebeen increased in the areas of local aid coordination,“civil society” outreach, and policy dialogue with theGovernment. Excellent instant communications, includingteleconferencing facilities, between Maputo and Head-quarters now facilitate integration between Headquartersand the Resident Mission, and reduce the Bank’s responsetime in general. Adaptable lending instruments areactively being explored in agriculture, roads, and ruraldevelopment.

88


On December 17, 1997, the Committee on DevelopmentEffectiveness (CODE) considered a report prepared by theOperations Evaluation Department (OED), entitled Mozam-bique: Country Assistance Review (CAR) (IDA/SecM97-537),together with a management response prepared by the AfricaRegion. CODE welcomed the main conclusion that the Bank’sassistance to Mozambique in support of its economic transfor-mation has been responsive to a unique set of circumstances.Highlights of the discussion which are pertinent to the Board’sreview of the Country Assistance Strategy (CAS) for Mozam-bique follow.

Timing of the CAR and the CASThe Committee acknowledged with appreciation that OEDhad accelerated the completion of the CAR so that it could bereviewed before the Board consideration of the CAS. Concernwas expressed that because of the timing, the CAR had notbeen discussed with the Government or donors, and theRegion had not been able to take full account of OED’s rec-ommendations during the preparation of the CAS. Manage-ment’s response that there had been considerable interactionwith OED was noted. It was suggested that the Board discus-sion of the CAS should have been postponed. In view of theGovernment’s desire not to postpone the Board review of theCAS, the Committee agreed to proceed on the current CASschedule and suggested that an implementation workshopshould be organized after the CAS was reviewed by the Board.The workshop would be an opportunity for the recommenda-tions of the CAR to be fully discussed and incorporated intothe CAS.

Donor Coordination and the Resident MissionThe Committee noted OED’s finding that the proliferation ofdonors in Mozambique carries costs in terms of excessiveadministrative burdens on the Government, wasteful duplica-tion of efforts, initiation of projects in excess of the country’sabsorptive capacity or with questionable economic priority.CODE stressed that the Bank should take its comparativeadvantages 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 anover-ambitious lending program resulting in poor portfolioperformance. The Committee believes, and managementagrees, that the Mozambique authorities should be encouragedto take the lead in coordinating external assistance. The Bankshould give priority to enhancing the effectiveness of the over-all aid system by assisting the Government in improving thecoherence of aid programs in the pursuit of priority develop-ment programs. In this regard, the Committee emphasized the

importance of strengthening the resident mission in Mozam-bique to provide a strong supportive presence. The Committeewelcomed management’s response that a strategic priority ofthe CAS will be to help the country strengthen its developmentpartnerships.

Capacity-buildingCapacity-building was identified by OED as one of the five pri-ority areas for Government and Bank attention. The Commit-tee welcomed management’s response to the CAR thatpromoting capacity-building and human resources develop-ment is one of the Bank’s three strategic priorities in the CAS.The Committee stressed that as with aid coordination, theGovernment should be in the “driver’s seat” in capacity build-ing activities. The view was expressed that the CAR could havebeen more explicit in its recommendations about measures tobe taken to address weaknesses in institutional capacity.

Generic Issues Related to CARsSome speakers indicated that the CAR did not provide suffi-cient historical background information on the fundamentaldevelopment challenges which Mozambique faces. It was sug-gested that since the CAR is a relatively new product, thereneeds to be further discussion on the extent to which criticaldevelopment issues and the context from which they emergeshould be included. The nature of the consultation betweenOED and management during the preparation of CARs alsowarrants further consideration in the view of some speakers.

REPORT FROM CODE/COMMITTEE ON DEVELOPMENT EFFECTIVENESS

89

The Operations Evaluation Department (OED), an inde-pendent evaluation unit reporting to the World Bank’sexecutive directors, rates the development impact andperformance of all the Bank’s completed lending opera-tions. Results and recommendations are reported to theexecutive directors and fed back into the design andimplementation of new policies and projects. In additionto the individual operations and country assistance pro-grams, OED evaluates the Bank’s policies and processes.

Operations evaluation studies, World Bank discus-sion papers and all other documents are available fromthe World Bank InfoShop.

Summaries of studies and the full text of the Précisand Lessons & Practices can be read on the Internet athttp://www.worldbank.org/html/oed/index.htm

How To Order OED PublicationsDocuments listed with a stock number and price codemay be obtained through the World Bank’s mail orderservice or from its InfoShop in downtown Washington,DC. For information on all other documents contact theWorld Bank InfoShop.

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The OED Working Paper Series is produced byOEDPK (Partnerships and Knowledge). Copies orinquiries about these or other publications in our seriescan be obtained by calling 202-473-5365 or email:[email protected]

OPERATIONS EVALUATION DEPARTMENT PUBLICATIONS

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)


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)


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)


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 French, 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)

OED Study Series