World Bank urged to pay for its "mistake"

The organisation representing members of Mozambique's ailing cashew nut processing industry wants the World Bank to help it out of difficulties it claims were caused by the Bank's liberalisation policy. On the advice of the Bank, in 1995 Mozambique liberalised its cashew processing industry and lifted a ban on the export of unprocessed cashew nuts. Removing the hard outer shell of the nut had been one of Mozambiques specialities, and a major revenue earner for the country. "At the time Mozambique needed over US $400 million in support from the World Bank for our economy and the Bank would only release the funds if trade in cashew nuts was liberalised," Kekobad Patel, head of the Mozambican Cashew Industry Association told IRIN. A recent study by the National Bureau of Economic Research (NBER) in Cambridge, Massachusetts, said that at the time, the Bank concluded that the industry, as structured in 1994, was unviable. It assumed that liberalisation would increase cashew production, the value of exports, and farmers' incomes. It therefore focused on eliminating the export tax on raw cashews. The report said that the bank hoped that there would be sufficient competition at the marketing level to ensure that reducing the export tax would increase the export price, and therefore the producer price. But the report found that by moving away from the export of processed cashew and more heavily into the market for raw cashew, Mozambique had placed itself in the weakest possible bargaining position. According to the Mozambique news agency AIM, last year virtually no kernels were exported, and the value of exported raw nuts was just US $11.5 million. In 1971, cashew experts - both processed and unprocessed - amounted to US $151 million. The NBER report said that according to the Bank's former Mozambique country director, Phyllis Pomerantz, there was no specific "conditionality" linking aid to liberalisation. According to Pomerantz, the government did not follow the recommendation to liberalise the industry before privatising it, opting instead to privatise first. Patel said that after liberalisation, "the very small gains the farmers made were well below the losses suffered by workers in factories. The major benefactors have been the traders - the buyers and sellers." He said that in the last three years, at least 10,000 breadwinners thoughout Mozambique had lost their jobs as cashew processing plants closed, affecting up to 60,000 dependents. Businesses and factories which relied on their salaries suffered and the government was forced to replace their company education and health benefits. "At the moment 12 major [processing] factories with US $50 to US $60 million invested have been standing idle over the last three years and will soon be scrapped and poverty has increased substantially in the regions near the factories." The NBER report noted that Mozambique's cashew producers had to deal with the monopoly India has as the main buyer and a worldwide drop in demand for the nuts. In addition, India has a cheap cottage processing industry. Patel said cashew nut production was stagnant and Mozambique was "at the mercy of India where they are commanding the prices." "We are asking, who is paying this bill? Someone has to pay and we are forcing the government and specifically the World Bank to take responsibility," he commented. Patel said the industry desperately needed funds for the industry to be restarted, and needed the clearance of accumulated debts and losses. He claimed that that when the industry was privatised, buyers were only informed of the policy change after they had bought the factories. "Neither government, nor the World Bank want to hold the hot potato, so private industry is holding the hot potato," he added. In the controversy that surrounds liberalisation, the Bank has commissioned at least three studies on the complex subject. More details