11:46 AM Mar 14, 1997

WORLD BANK BACKS OFF OVER CASHEW BATTLE

Maputo, Mar 14 (Jo Hanlon/IPS-PANOS) --The World Bank has put on hold a controversial proposal to phase out a protective tax on the export of raw cashews from Mozambique for processing in third countries after criticism from the cashew-processing industry.

Four years after the end of a war fuelled by apartheid South Africa, cashew nuts are the kernel of a new battle between Mozambique's emerging private sector and the Bank, with the processing industry claiming it is being destroyed by Bank policies.The Bank has pushed privatisation hard in Mozambique.

The biggest companies, producing beer and cement, and the main bank, have all been bought by South African and Portuguese firms.

The largest local sale was in 1994 and 1995 when six Mozambican trading companies snapped up virtually the entire cashew-processing industry for 9.1 million dollars.

Hardly was the ink dry on the sale when the Bank demanded that protection for the newly-privatised industry be withdrawn.

Buyers now say they have been conned -- a World Bank study calling for the removal of export tax, they say, means the effective closure of the processing industry. They claim the study -- 'Cashew Pricing and Marketing in Mozambique' -- was completed before privatisation but shown to the industry only afterwards.

In order to get the kernel of the cashew fruit, a hard and acidic outer shell must be broken. In India, this is done by hand with wooden mallets, which keeps more of the kernels whole (unbroken kernels are more valued in the West.)

But the problem is that the acid burns the hands of the workers, making conditions so terrible that most countries, including Mozambique, use less efficient mechanised processing involving saws or hammers.

The Bank study argues that Mozambique will earn valuable foreign exchange by exporting raw nuts to India for hand-processing. Mozambique has cut its export tax on unprocessed cashew from 26 percent in 1994-95 to 14 percent this year with plans to phase it out by the year 2000.

Cashew export liberalisation is one of seven "necessary conditions" for loans set by the Bank in its 1995 Country Assistance Strategy for Mozambique. Cashew-processing is virtually the only industry in Mozambique to attract significant local investment and create new jobs (up from 6,700 to 9,000 since privatisation), thanks to entrepreneurs like Kakobad Patel, head of Mozambique's Cashew Industry Association.

A successful businessmen, Patel's interests include Angocaju, a cashew-processing plant he owns. But he has threatened to hand back the keys to his factory saying Bank policies make the factory unprofitable.

Patel says he bought Angocaju believing the export tariff would be reduced only slowly. Having invested $500,000 in rehabilitation with plans to spend $3.5 million dollars more, he now fears Angocaju can never be profitable.

As it is, businesses face immense problems with infrastructure.

Mozambique has been devastated by a decade-long war; four years after its end, many roads and electricity lines are in disarray. Still-closed roads mean that lorries from Angocaju, in the northern Nampula province, must travel twice the normal distance to reach the port of Nacala. The government and industry say that with a tree crop that requires five years to be productive, cashew growers prefer a stable price and guaranteed buyer.

The Indian state of Kerala is the only large buyer of unprocessed cashew. But its industry, prefers local suppliers. The price of Mozambican cashew fell from over $900 a tonne in early 1996 to less than $700 by September 1996 due to a good crop in India.

After sustained criticism, World Bank President James D. Wolfensohn announced in February that the Bank will no longer push for a rigid timetable for removing the protection.

"We will leave the tax at 14 percent" while awaiting a Bank study on the impact of liberalisation on the cashew trade, Wolfensohn said. "Then we will wait for the what the government has to say. We will weigh the advantages to the peasant farmers and the need to have a thriving processing industry."

The study, requested by three unnamed cashew processing companies, will be completed in two months.

The World Bank's new vice president for Africa, Callisto Madavo, however says: "But India is planting more trees and increasing production -- what will happen when India no longer needs to buy from Mozambique?"