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Competitiveness of Mozambican Agriculture October 2008.

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Presentation on theme: "Competitiveness of Mozambican Agriculture October 2008."— Presentation transcript:

1 Competitiveness of Mozambican Agriculture October 2008

2 Executive Summary 1

3 CONTENTS 2 Review economic indicators Discuss enabling environment Examine trends in investment landscape Present priorities and recommendations

4 Agriculture comprises a substantial component of the national economy, with small holders as the primary driver of production 3 Source: Instituto Nacional de Estatística, FAO Mozambique Factsheet, 2007, SACD Trade Industry and Investment Review (2007/2008) **Note: Agriculture includes livestock, hunting and forestry GDP (MM of MT) Agricultural production highly dependent upon the estimated 3.2 million small farmers, which account for 95% of total production The remaining 5% of production is attributable to roughly 400 commercial farmers, which tend to focus on cash crops and export products

5 Agriculture production has grown at a health rate, however growth rates in the sector have been comparable to growth within the economy as a whole 4 Source: Instituto Nacional de Estatística Note: Agriculture includes animal production, hunting and forestry Compound Annual Growth rate of 8.1% between 2000 and 2007 Agricultures share of GDP has remained largely constant in recent years

6 5 Add slide on number of different stake holders – commercial farmers, traders, small holders, agro-processors, financiers, etc.

7 6 Zambezia and Nampula account for the largest contributions to agricultural production, with nearly a half of total output derived from the two provinces 1.1 Population, Millions, 2007 1.7 3.9 1.6 1.4 1.7 1.4 1.1 1.3 20.4 Share of agriculture production by province Percentage, 2006 Source: INE; Team analysis 45% High agricultural potential Large current production Niassa, Manica and Sofala: high potential due to fertile soil, adequate rainfall and good water balance Production is well correlated with the distribution of population

8 Despite the fact that agriculture is the largest sector of the economy in terms of output, it comprises only a small component of total exports 7 Merchandise exports Break-down by main commodity group 2006 Evolution of agricultural exports Vs agricultural imports from Mozambique Indexed Agricultural exports comprise only 16% of total exports, which pales in comparison to the contribution by fuels and mining products Source: WTO; FAO; Team analysis Despite the considerable growth in agricultural production in recent years, the country continues to be a net importer of agricultural products 66% of total exports due to aluminum

9 The vast majority of the population depends on agriculture as the primary source of livelihood, overwhelming the case in rural areas Urban Rural Agriculture Non- Agriculture Primary Economic Activity Population distribution Primary Economic Activity by Setting Source: Instituto Nacional de Estatística Note : Economic Activity Chart refers to Distribuição Percentual da População de 15 e mais anos Empregada Por Conta Própria na Actividade Económica Principal, por Sector de Actividade - 2004/05

10 Lack of training and education among non-commercial producers negatively impacts opportunities for productivity gains within the agricultural sector 9 Adult literacy rate Percentage, 2005 Mozambique has the lowest literacy relative to neighboring countries… Combined elementary, secondary and tertiary gross enrollment rate Percentage, 2005 … and its work force is likely to remain the most unskilled in the forthcoming years Source: Human Development Report (UNDP); Team analysis

11 Mozambique contains ample land suitable for agricultural production, yet sub-optimal utilization of land has resulted in untapped potential for increased output 10 Totals (MM hect.) 42.328.25.52.378.3 Less than half of the arable land is currently utilized for crop production However, much of the arable land not in use may lie in inaccessible or economically nonviable areas Irrigation systems are underdeveloped, negatively impacting crop yields Lack of sufficient irrigation systems also accentuates the negative impact of droughts and floods, which afflict much of the country** The extensive river network provides conditions suitable for considerable expansion of irrigation systems Opportunities exist to increase agricultural output through increased utilization of land as well as expanded irrigation systems ** Of the 128 districts, 30are highly prone to floods, 20 to droughts, and 7 to both floods and droughts (SACD Review) Source: FAO Mozambique Factsheet July 2007, SACD Trade Industry and Investment Review (2007/2008)

12 Commercial lending to agriculture lags behind nearly all sectors in terms of levels of credit relative to contribution to GDP 11 Decreasing access to credit Source: Bank of Mozambique (credit figures for Dec. 2007), Instituto Nacional de Estatística *Note: Agriculture includes livestock, hunting and forestry **Note: Construction includes public works Insufficient access to credit in agriculture has negatively impacted levels of investment aimed at increasing output

13 Foreign investment in agriculture has been inconsistent, inhibiting efforts to encourage development and fully tap into the potential within the sector 12 Source: Bank of Mozambique *Note: Figures include Equity Investment plus Supplemental Capital **Note: Extractive industries include coal, petroleum, gas and minerals ***Note: Figures shown include Agriculture, Livestock and Forestry Manufacturing accounted for the majority of FDI in 2001 and 2002, but extractive industries have emerged as the primary target of FDI in recent years Much of the investment in agriculture in 2007 is likely directed towards bio-fuels

14 Productivity in agriculture The low productivity in the agricultural sector is caused by a wide variety of factors 13 Low Productivity Traditional crops – use of modern seeds, inorganic fertilizers, pesticides and herbicides is uncommon Low technology methods – sparse use of mechanical traction and irrigation systems largely not used by small farmers Lack of education Underfunded infrastructure – geographically dispersed population, making provision of services and transport links difficult Minimal access to markets for supplies and products Underinvestment – difficulties in accessing capital Causes of low productivity Source: Nathan Associates, USAID/Mozambique Trade and Investment Project (TIP), Private Investment in the Agriculture Sector in Mozambique, June 2008, Draft / INE

15 CONTENTS 14 Review economic indicators Discuss enabling environment Examine trends in investment landscape Present priorities and recommendations

16 Uncertainty surrounding foreign investment is attributable to some degree to challenges that exist within the business environment 15 World Bank Ease of Doing Business Ranking: Selected Metrics Source: Doing Business 2009 Report, World Bank, covers the period from April 2007 – June 2008 Countries are ranked from 1-181 according to ten factors, with first place being the best ranking. A high ranking corresponds to an environment that is conducive to doing business SACD Country (plus Kenya) Ease of Doing Business Rank Protecting Investors Getting Credit Paying Taxes Trading Across Borders Employing Workers Dealing with Construction Permits Mauritius24118411206436 South Africa32922314710248 Botswana38 431714973119 Namibia517012961503438 Kenya82885158148689 Zambia100706838153135146 Tanzania1278884109103140172 Malawi13470845816796156 Mozambique1413812388140161153 Madagascar1445317292109153102 Zimbabwe15811384157162127174 Angola1685384130172174125 Congo, Dem. Rep.181150163153160175141 Nearly all SACD countries rank poorly in cross- border transactions Accessing credit is difficult in Mozambique relative to neighboring countries Relative to South Africa, Mozambican businesses are considerably disadvantaged in nearly all metrics of the business environment

17 Current strengths lie in investor confidence and property protection while constraints include accessing capital and employment issues Strengths Investor protection – strong rankings for transparency and shareholders rights Paying taxes – total tax rate low relative to region Opening a business – time to open a business is fairly short (26 days vs. 48 for Africa as a whole) Enforcing contracts Challenges x Access to capital – difficulties for mid-size farmers in gaining capital (loans between $100k and $1MM) x Employing workers – low productivity, rising minimum wage, high costs to reduce workforce x Obtaining construction permits - may take upwards of 381 days x Cross border trade 16 Business environment evaluation Sources: Doing Business 2009 Report, World Bank, covers the period from April 2007 – June 2008, Team Analysis Source: USAID/Mozambique Trade and Investment Project (TIP), Private Investment in the Agriculture Sector in Mozambique, June 2008

18 CONTENTS 17 Review economic indicators Discuss enabling environment Examine trends in investment landscape Present priorities and recommendations

19 Source: Source: (World Bank (2005b:9). World Bank staff estimates

20 Mandioca, milho e cana-de-ãçúcar são as culturas mais importantes em termos de produção 19 Cultura Produção ('000 tons) Área ('000 hás) Rendimento Agrícola (ton/há) % Familiares Cultivando Mandioca8.4631.1737,279% Milho1.6781.5561,172% Mapira3665750,64- Feijões2404810,5050% Arroz2062070,9720% Amendoim1443270,44- Meixoeira461040,42- Produção das Principais Culturas Alimentares, 2007/08 Source: CEPAGRI Report, AGRONEGÓCIOS EM MOÇAMBIQUE:OPORTUNIDADES E DESAFIOS, 22 Septembro 2008 Produção das Principais Culturas de Rendimento, 2007/08 CulturaProdução ('000 tons) Cana-de-Açúcar 2.028 Castanha de Caju95 Algodão74 Tabaco64 Change slide to compare current production to production potential – use Technoserve crop reports as basis for potential estimates

21 There are a number of growth opportunities for agro-business, a number of which have are competing in international markets 20 ProductNotes Existing exports Arroz Domestic production meets 38% of domestic demand (2007) - Cana-de-Açúcar Main export markets include EUA, UE and SADC, with opportunities for future expansion - Biodiesel e Óleos Vegetais (soja, girassol, jatropha curcas, coco) Proposals for foreign investment in jatropha One processing plant currently operating Lethal yellowing disease has negatively impacted coconut production Hortícolas e Frutas Tropicais Strong growth in banana production and export predicted for 2008/2009 - Algodão Only 5% of production derived from commerical producers, which likely impacts productivity - Madeira Studies underway to evaluate opportunities for additional domestic contributions to the value chain - Avicultura Domestic production meets 58% of domestic demand Not viable for export due to sanitary regulations Gado Bovino Not viable for export due to sanitary regulations Source: CEPAGRI Report, AGRONEGÓCIOS EM MOÇAMBIQUE:OPORTUNIDADES E DESAFIOS, 22 Septembro 2008 Opportunities for agrobusiness growth Castanha de cajú and mandioca not included in opportunities?

22 Total amount of credit has remained largely constant over the past three years 21 Source: Bank of Mozambique Among agricultural crops, cotton and sugar have had the greatest access to capital

23 Foreign direct investment (FDI) in agriculture does not exhibit any clear trends and does not constitute a large component of total FDI 22 Source: Bank of Mozambique *Note: Figures include Equity Investment plus Supplemental Capital Note: Figures shown include Agriculture, Animal Husbandry and Forestry

24 CONTENTS 23 Review economic indicators Discuss enabling environment Examine trends in investment landscape Present priorities and recommendations

25 CONTENTS 24 Back-up slides

26 There are a number of challenges that currently face the private agro- business sector Fracas infraestruturas nas áreas rurais (transporte, electricidade, etc.) Produção instável e, geralmente com standards de qualidade baixos para a exportação Níveis baixos de produtividade agrícola Problemas na fase pós-colheita: manuseamento, embalagens e altos custos de transacção Accesso limitado ao crédito para farmeiros – Juros muito altos nos Bancos Comerciais (23% por ano em MT) – Agricultura visto como sector de alto risco por os bancos Falta de experiência anterior em lidar com o mercado externo e procedimentos de exportações Necessidade de formação do pessoal não qualificado Falta de sistema de informação sobre os mercados nas áreas rurais 25 Key Challenges Source: CEPAGRI Report, AGRONEGÓCIOS EM MOÇAMBIQUE:OPORTUNIDADES E DESAFIOS, 22 Septembro 2008 Source:KPMG/Mozambique, Índice de Ambiente de Negócios em Moçambique/Business Confidence Index, No.19, 2008. Discuss key issues and highlight them here Change section

27 The largest provincial producers of agriculture are found within the northern provinces Mozambique 26 Note: GDP figures shown refer to Precos Correntes Source: Instituto Nacional de Estatística Among the largest agricultural producing provinces, agriculture comprises approximately a third of the total local economies …

28 27 REGIONAL ECONOMIC INFORMATION IN MOZAMBIQUE (1/2) Area Thousand Km 2 Source: INE; Team analysis Population Millions, 2007 Per Capita GDP Thousands MT, 2006

29 28 REGIONAL ECONOMIC INFORMATION FOR MOZAMBIQUE (2/2) Adult literacy Percentage, 2006 *Mozambique ranks 172 out of 177 countries Source: INE; Team analysis Life Expectancy 2006 Human Development Index*, 2006 Education enrollment rate Percentage, 2006 0,67 RSA 77% 82%51


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