“The solution in times of crisis is to set priorities” – José Chichava

Professor José Chichava

Economist and former minister of State Administration, Professor José Chichava, argues that the monetarist measures taken by the Banco de Moçambique alone will be unable to solve the country’s crisis, because the crisis is not a matter of Mozambique alone. He also maintains that the government should instead take measures to increase domestic agricultural production, through a selective effort which does not put at risk the basic levels of well-being of the population.

O País: Mozambique is experiencing difficult times, both economically and politically. In the economic context, there are several voices that argue that the way out resides in the national production. What can we do to leverage or rebuild the country through national production?

José Chichava (JC): In crisis situations we should always look within. The economy we inherited is dependent on imports – the country imports everything, including consumer goods. It is also dependent on exports because it is not we who set the price. But we are dependent, and the main products we export – coal, aluminium and gas – decreased in value by nearly 50%. So we should be converging on the priorities of the moment. There are many things we can do, but they cannot all be done at the same time. The first thing is to end the war – it is necessary for Renamo to stop the attacks – because no economic policy can be successful when there is political tension.

O País: You mentioned the civil war period and the policies that were implemented but which failed because of the context. During peacetime, PARPA 1, PARPA 2 and PART were implemented but did not achieve their expected objectives civ– more than half the Mozambican population still lives in absolute poverty. How do you look at the challenges of putting these ideas into practice and getting results in the light of past experiences?

JC: First we must look at the economic policies: how realistic are they? In times of crisis like this we must have the courage to be selective, to define in which areas to invest, stop one sector to support another. Support agriculture, the private sector, even if individually. For example, we have farmers in Chokwe, Angonia and Niassa who produce large quantities, but have trouble placing the products in the market, do not have quality seeds, good quality irrigation … The government has identified four priority areas and has defined agriculture, which is very good, but if we look at the investment component, it is less than 10% of what was set at the level of Africa overall. If we look at the products from Angonia, Niassa and Chokwe, among them there are some that can replace imports such as onions, potatoes, tomatoes and vegetables. But these producers need to be nurtured. It is much more cost-effective to support a national producer placing his goods in the domestic market and reduce imports. This means we
must look within the country. We must take this crisis as an opportunity to produce.

O País: How can we best take advantage of this phase given that the central bank has implemented policies that, in a way, contradict this perspective, by making money more expensive and, in some ways, inhibit the private sector acting in the market flexibly? In this context, how is this nurturing of the private sector being carried out?

JC: The commercial banks will not nurture the private sector. The government’s policies are the ones that should do this. The central bank is doing its job, which is to try to control the sharp rise in inflation. But for the central bank’s policies to succeed, we need to be in a normal situation, and we are not. If the political and military instability continues, what the central bank is doing will not succeed. Even if the dollar is set at MT500, MT200 or MT100, we would still have problems, and still not stimulate domestic production. It’s a little controversial to tell people that they need to look to internal provision, but as the economy has always been dependent on exports, the raw material comes from outside. Even a simple industry imports raw material, and with the rise in interest rates, importing raw material becomes prohibitive – so it is not worth counting on it.

Therefore, the government needs to give direct assistance to some producers, because, at the stage we are in, this measure can minimise this. The monetary authorities are doing their part, but if the monetary policy is not combined with fiscal policies, they will not succeed. The experience of Third World countries shows that these policies, when combined in the medium-term, compound crisis situations. The implementation of monetary policy alone will come to nothing, because the problems are not only in the money market, they are also in the local market – we are talking about producers, demand and supply. Today, the solution is the combination of what is a priority in a crisis. All together, we must decide what is the priority.

But the government should take into account the social cost – the measures taken cannot put the vulnerable population in a critical situation. [Ensure] that those products that have an impact on the lives of these people do not get expensive, do not match the pace of inflation. To avoid a social upheaval, we must look at the general population and not those in a more favourable situation. The State should serve as a cushion for these people to turn to, people who hope for a government that looks after them.

O País: The slowing of the national economy is a fact – the government announced that our economy grew 4% in the first half of this year compared to 6% last year. Growth forecasts globally this year were already negative, pointing to a slowing economy. What short-term measures can be taken to relieve this pressure?

JC: It is necessary to mobilise the private sector to produce, and give selective assistance to sectors that produce. And at this stage, it is agriculture. The follow-up should go along a value chain, from production to processing or the delivery of the product to the consumer.

I will give the examples of Angoche, Milange and Niassa Province itself, where we have farmers who, at the stage we are in, are taking the little product they could use for food and selling it in Malawi. They will sell there because the purchase price is good. With good monitoring, we can prevent this little corn that we have – which can be consumed internally – from being redirected to another country; we do not have a production surplus, so this corn is needed. We need to encourage farmers to leave the corn here. And give production support, deliver seeds and fertiliser. I know the country doesn’t live on agriculture alone but I am looking at the potential we have. Even if it is to plant in urban areas like Zimpeto. In the short-term, I say that we need to solve the food problem.

O País: And in the medium-to-long-term, what steps do we need to take to exit from the crisis?

JC: I repeat: there is no immediate measure that can work while the political tension continues. It must be ended. The Council of Ministers (Cabinet) may decide to take action, but if at the end of next week, Renamo still attacks and destroys, the State must stop and divert resources to resolving the immediate situation. It is difficult to plan in a time of war. We must change the economic environment – we need to make it more conducive to investment, so that any national investor feels the need to invest here. Second measure: we invest in public private partnerships (PPP). They have been beneficial in other countries because they close the gap due to lack of state funds. In well-organised PPPs, the State enters merely as a partner and the private comes with the features. In many areas they [PPPs] can work. For example, the government talks a lot about cabotage: it is an opportunity for private investment.

O País: During the CASP conference [Annual Conference of the Private Sector], the private sector asked the government to suspend the IRPS and VAT on agriculture for a period of 10 years. To what extent could this stimulate this sector?

JC: The country still lacks the ability to see this problem in general. I’d rather have the government being invited to act selectively, looking at sectors. Let us look, for example, at corn, soy, or cereal yield crops; I select and give support to those sectors which would generate exports and the State would have to cover the expenditure made. The proposal was made, it is now up to the government to study and respond. What has been requested can be granted, but for selected sectors.

O País: The government took the initiative to eliminate the customs duty on products such as soap and cooking oil. How do you see the effectiveness of this measure?

JC: When the government takes these measures it is to boost domestic production. This measure was taken earlier with the sugar industry as a way of reviving it. The government has taken a measure which we call “protection to the domestic industry”. This type of measure cannot be taken in isolation. The government should meet with the CTA for it to indicate potential producers in the three regions of the country, and give direct support to relaunching national production.

O País: How can we nurture the private sector if the government does not express its willingness to meet the CTA? During CASP the President only attended the event’s opening ceremony. Can we make any inference from the head of state’s attendance and the importance he gives to the event and the private sector?

JC: The head of state’s attendance at the opening ceremony shows the political will that the government has to support the sector. The President was at the opening and the first discussion session. But it was decided that the interlocutor between the government and the CTA is the Prime Minister, and he followed the debates. We are in the middle of a conflict and having the head of state in this event shows a lot of concern; we have to be content. I think the private sector has been a bit hard in its criticism. The government has reported on how it acted, and there are cases where the actions did not happen by failure of the executive, as is the case of laws – even today, they are languishing in parliament. [The government] created proposals, but it is the legislature who has to approve. The CTA must learn to lobby the various committees of parliament to create a convergence and stimulate the economy. The private sector and society must be happy with the head of state’s attendance at the event.

O País: One of the factors that pushed the country to the crisis is the current level of external debt. Was this scenario predictable, looking at the evolution of the debt?

JC: No, it was not predictable. But I think that, on this subject, we have more than enough information coming from the government itself and also from parliament. Remember that parliament formed a Commission of Inquiry to investigate what really happened. We have obligations as a country and as a member of the International Monetary Fund (IMF), which functions as a club with rules. The level we had reached, the top one of the IMF – in which the IMF did not need to do policing because it relied on the country – trusted the information that the country produces. But, unfortunately, from 2013 to now, we incurred a lot of debts and the omission thereof caused this environment we are in, which has worsened the economic environment we were already in, exacerbated by droughts and international difficulties. It is not only the debt burden, but the loss of trust with someone who worked with you.

O País: How is that confidence going to be restored, given that the IMF and other lenders require a forensic audit and our government says it trusts domestic institutions? Is this tug-of-war not harmful to the recovery of trust?

JC: I think not. The government has shown that it wants to redeem that confidence. The fact that it sent the Prime Minister to Washington is a very clear indication for restoring confidence. But it is true that it will not be just the talking, but above all the development of the process of clarifying these debts itself.

O País: Do we have the capacity to rise again and exit this short-term crisis without support from creditors?

JC: I would not say without support, because even international partners have realised that Mozambique needs this support. What will happen is an improvement in conditions until they feel comfortable with who they are supporting. We must understand this as a suspension of support.

O País: What is important to satisfy the requirements imposed by international creditors?

JC: It is important to show that, heads held high, we want to solve the country’s problems, first showing a firm stance against waste, corruption, bureaucracy, penalising offenders and working for the business environment to become increasingly promising – not only for international partners but also for the private investor. I feel that we can do this, but we all have to support the government and accept that the country can only prosper with hard work.

O País: What can we expect from this new stage of political dialogue?

JC: I hope that the mediators help us achieve peace, because without it nothing can succeed. It is peace that will bring success to all Mozambicans. A lasting peace – any agreement between Renamo and the government should aim to demilitarise Renamo, because it cannot have guns.

Source: O País

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