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Subsidies won't keep bread on Mozambican tables

Street market in Maputo, Mozambique
(Lilian Liang/PlusNews)

In response to food price riots in early September, the Mozambican government has laid on a range of price cuts and subsidies to make life easier for the poor, and has promised to do some belt tightening of its own, but observers say the measures are unaffordable and will not address the deeper issues.

"When you have riots you need to do some damage control," Fernando Lima, a prominent Mozambican publisher and journalist, told IRIN. "This is a short-term solution as an emergency measure."

Mozambicans in the capital, Maputo, and the nearby town of Matola, took to the streets after the government announced on 1 September that the price of bread and other basic goods would rise.

In defence of its decision, the government pointed to external factors like drought and wildfires in Russia - one of the world's major wheat suppliers - to justify the higher prices and quell violent protests and looting that left hundreds injured and at least 10 dead.

Antonio Fernando, Minister of Trade and Industry, noted on state-run television that global oil prices had increased, while climate change and "other factors" had brought about a worldwide slump in wheat production. "We have to understand that the financial crisis has still not passed and will take time ... we are still suffering the impact [of it]."

A day later president Armando Guebuza told Mozambicans that his government understood the hardship of the poor, "which is aggravated by external factors, such as the financial crisis and the rising price of food and fuel". Security forces cracked down hard on what they called a group of raiding "bandits".

Lima suggested that while external factors might have added to the growing discontent in the capital, other issues closer to home – like poverty and unemployment - were also to blame. "The very poor are very angry, and they have the sympathy of most of the country," he said.

Cheap bread back on menu

The unrest subsided only when, on 7 September, the government announced a u-turn on measures it had previously called "irreversible". Fernando told Mozambique's official news agency, AIM, that the bread subsidy would require "a major financial effort from the government", but no exact figures were given.

On 21 September, two weeks after the first riots, AIM reported that registered bakers would receive a subsidy of 200 meticais (US$5.6) for every 50 kg bag of wheat flour - costing 1,050 meticais (US$28) - they purchased.

Other relief measures include halving water connection fees for low-consumption households, considerably reducing the cost of piped water to the poor, and giving free electricity to households consuming 100 kwh or less; prepaid electricity consumers will no longer pay for trash collection.

Generalized fuel price subsidies will be converted into a direct subsidy for urban public transport, which will avoid giving subsidies to the rich who have their own vehicles.

The price of low-grade rice will be reduced by 7.5 percent, the surtax on imported sugar will be temporarily removed, and customs duties will be lower on vegetables like potatoes, tomatoes and onions imported from South Africa.

The government would also do its bit: the wages and allowances of all senior officials, board members of parastatals, and companies in which the state is the major shareholder would be frozen pending the outcome of an assessment of the wages policy. Wages would also have to be paid in local rather than foreign currency to bolster the national monetary unit.

State air travel would also be restricted; Guebuza promptly cancelled a scheduled trip to New York to attend the recent gathering at the UN to discuss the Millennium Development Goals (MDGs).

Richard Cornwell, Director of Current Affairs at the Africa Public Policy and Research Institute in South Africa, a think-tank, said the gestures were nice but not enough, and described them as "just a stopgap".  "The pro-poor attention embodied in every measure announced by the government is a significant change," Young Kim, the World Bank's acting representative in Mozambique, told IRIN.


"The protests seem to have been a manifestation of underlying frustration ... depreciation of the metical since the beginning of the year led to rapidly rising inflation and accentuated the frustration over joblessness and poverty," Kim said.

International Monetary Fund (IMF) figures show that the metical depreciated by more than 30 percent in nominal terms against the currencies of Mozambique's major trading partners - up to 50 percent against a strengthening South African rand, and 30 percent against a recovering US dollar - and by August 2010 year-on-year inflation had reached 17 percent.

Victor Lledó, Resident Representative of the IMF in Mozambique, said the cost of living for most ordinary Mozambicans had risen sharply since the beginning of 2010, and although "food prices played a very important role in the riots", the increase in the price of bread, along with the announced increases in the water and electricity tariffs, were only "the triggers".

"Because of the depreciation [of the metical], and because Mozambique imports quite a significant amount of its consumption goods [mainly from South Africa], there was a marked increase in living costs," Lledó told IRIN. "High and accelerated inflation has a significant impact, particularly on the poorest segments of society ... High inflation is a high tax on the poor."

Economic growth without jobs

Kim said the country had come a long way, but at the heart of the recent problems there was a growing feeling among Mozambicans that years of high growth in the gross domestic product had not significantly benefited the poor or translated into desperately needed jobs.


Map pf Mozambique
Tuesday, February 24, 2009
Subsidies won't keep bread on Mozambican tables...

Photo: ReliefWeb
Map pf Mozambique

Economic growth hit double digits after a brutal civil war came to an end in 1992, and since 1996 the economy has grown by an average of 8 percent a year; government figures project growth in 2011 at 7.2 percent, but most experts agree that the type of growth Mozambique has experienced has not really been "pro-poor". 

Foreign aid inflows and capital-intensive "mega-projects" - like the state-owned HCB power-station on the Cahora Bassa Dam, one of Africa's most powerful hydroelectric plants, and the Mozal aluminium smelter, which contributes almost three-quarters of the country's exports - add significantly to GDP figures but do not do much for jobs.

"Unemployment is a serious problem but it's not really measured," Kim said. Joblessness is officially estimated at just over 25 percent but is generally believed to be higher.

"It's about cost of living, and food is a core component of that," said Joseph Hanlon, Senior lecturer at the Development Policy and Practice department of Britain's Open University. "Half of Mozambique's population is poorer than it was 10 years ago, and all indications are that poverty in Maputo city is increasing sharply."

A widely quoted figure by government as well as donors is that the number of people living below the poverty line fell dramatically from 69 percent in 1997 to 54.1 percent in 2003, but the figure in the government's September Report on Millennium Development Goals 2010 was 54.7 percent.

Opportunity in agriculture

After almost three decades of peace Mozambique still depends heavily on aid and the domestic economy has failed to develop or diversify. "It's classic Dutch disease," Kim noted, referring to an economic term that describes how an increase in revenues from natural resources (or inflows of foreign aid) can lead to an immediate currency appreciation, making domestically produced goods less competitive internationally.

"Mozambique has got to start taking seriously the business of agricultural development. Aluminium smelters are all very well and good, but the linkages with the rest of the economy are too poor for it to be sustainable as a national development strategy," Cornwell noted.

"The [mega-projects] are essential ... because they create a cash cow for governments, but they do little to uplift the peasant in the countryside." Hanlon agreed, calling for urgent state intervention to help create the necessary domestic markets to help boost small- and medium-scale farmers.

"An area that the government itself is very aware of is the need to increase agricultural production; Mozambique has large areas of arable land that are not well used," the IMF's Lledó commented.

"If this dynamic could be changed, the food supply would be improved and Mozambique would need to import less, and that would shield it from movements in the volatile international markets," he said.

"The crisis has provided the government with a very good opportunity to show the donors how committed they are to improving the targeting of their expenditures, and making those expenditures more pro-poor," Lledó noted. 

"With the World Bank, we [IMF] have been strongly advocating for the government to look at the possibility of introducing new social safety-net systems, or to scale up existing ones. One strong candidate would be conditional cash transfers."


This article was produced by IRIN News while it was part of the United Nations Office for the Coordination of Humanitarian Affairs. Please send queries on copyright or liability to the UN. For more information: https://shop.un.org/rights-permissions

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