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Overview Mozambican Sugar Sector: Policy/Strategy, development
Outcomes, Rents and main features of How the Mozambican Industry
was rehabilitated

By Lars Buur, with Carlota Mondlane and Obede Baloi - Early draft - not for quotation or usage
without permission from the author(s)


1. Introduction
This document attempts to consolidate, reorganise and update our knowledge of the sugar sector
based on the two documents produced for the Accra workshop on the development outcome, history
and main features of the rehabilitation of the industry, as well as the outline elaborated for this
workshop on the political settlement and related writing and readings done during 2010 on rents and
rent-seeking. A separate document dealing with why the sugar sector was rehabilitated has been
written up for submission in a special issue of Journal of Development Studies, and a first, very
preliminary draft of an analysis of the overall political settlement related to Mozambique will be
presented separately.


This document has the following sections:
2. The policy/strategy for development of the sugar sector
3. Development outcomes: sweet achievements
4. Notes on rents and rent-seeking
5. How the sector was rehabilitated


2. The Policy/Strategy for Development of the Sugar Sector1
This section provides a brief overview of key policies and strategies for the sugar sector as they
have evolved since 1996. This includes the initial policy/strategy and subsequent policy
developments related to the 2006 EU-funded adoption strategy. The questions related to concrete
implementation arrangements and results will be discussed in subsequent sections for some of the
components/phases of the strategy/policy, as fieldwork is ongoing on implemented more recently.




1
  We will here refer to the 1996 sugar rehabilitation policy and strategy as policy/strategy as the document contains both
aspects – they are not separated in the executive summary but have two separate sections in the formal document which
resemble each other considerably.
                                                                                                                         2



Content of the 1996 policy/strategy
The 1996 Politica e Estratégias para o Desenvolvimento do Sector Açucareiro focused on issues
related to privatisation, ownership structure, attracting new experienced investors, cost efficiency,
human capital development, market creation, the financial viability of rehabilitation, and the
potential impact of the sector for the social and economic rehabilitation of the rural areas (see MAP
and INA 1996). Within this context the overall objective of the sugar policy was to:
                “Produce sugar in order to satisfy the domestic market and the preferential quotas for
                export in a manner that is economically and socially efficient and sustainable thereby
                in the long run contributing to a better food security and sustainable economic
                growth” (MAP and INA 1996: 2; 29)2

In hindsight the policy had two clearly defined and explicit phases that each involved a whole range
of partly overlapping strategic interventions:3
        Restructuring and privatisation of the existing sugar companies; and
        Creation and protection of an internal market relative to international market prices, which
         were considered distorted and volatile (INA 2000:8; INA 2001: 7).

Besides these two initial phases we could, based on the most recent developments in the industry,
suggest that three further phases can be identified:4
        Adaptation to the EU market changes after 2006;
        Investment in bio-fuel and ethanol production and subsequent feeble formulation of a
         national strategy after 2008 (most investments were stuck in limbo between approval of
         investments and a lack of policy formulation that would make ethanol production feasible,
         i.e. creation of internal market(s) (nationally/regionally) and/or access to lucrative and stable
         international markets like the EU; and
        Emergency measures after the 2010 riots in Maputo which, surprisingly, suspended the 1996
         policy/strategy protection of an internal market based on a variable surcharge (sobretaxa) in

2
  The sugar policy/strategy argues on the first page that its objectives and implications are firmly embedded in the
agrarian policy of the time which, it suggests, aims at “develop the agrarian activities in order to attain food security
based on a diversified production of consumer products and furnishing of a national industry and exportation” (MAP
and INA 1996: 1).
3
  The strategy/policy doesn’t mention this as two explicit phases but subsequent INA documents do. In reality one can
identify four or five phases based on the most recent developments. For example the issue of diversification of
participation in the industry, which relates directly to out-grower schemes and the important issue of ethanol production
based on molasses (in the strategy but not the later bio-fuel/ethanol strategy), were already at least mentioned, if not
dealt with, in the 1996 strategy. Strategic development of these aspects took place after 2004, when the industry seemed
to have come to life as a result of EU sugar regime changes.
4
  We will not really deal with the three new phases here as they are recent, so fieldwork is ongoing and the material is
still very raw. But Carlota Mondlane is working on small cane producers and their associations trying to trace the socio-
economic impact of small cane production. Bio-fuel/ethanol production we have just monitored so far, as everybody is
waiting for the government to release the “regulation” giving direction to the feeble 2008 strategy. For the emergency
measures we include the issue as part of the work Lars Buur is doing on the strategy itself and the creation of an internal
market.
                                                                                                         3



       the same week as a report evaluating the pricing policy recommended strategic continuation
       of it.

We will not go into detail here with all aspects of the first two phases, as their implications are
discussed in greater detail in a later section, as well as in the document Why the Sugar Sector Was
Rehabilitated. The 1996 policy/strategy comprised seven subsections, each with numerous
objectives and action-plans to fulfil them. We will very briefly, as a background, run through the
most important aspects of these seven sub-strategies, as well as the objectives related to the initial
two phases. The first sub-strategy was the (1) “investment strategy” which has as its main
objectives to “rehabilitate and develop the productive capacity” and “increase the economic and
social efficiency of the sector”. Most importantly the investment strategy explicitly makes
“prioritisation” among the available sugar estates the very first “action” (and directly mentions the
four estates that will be rehabilitated) of the policy/strategy (see MAP and INA 1996: 8). With this
as the basis, the sub-strategy for (2) “restructuring and privatisation” of the four selected estates
and industrial plants aimed at preparing the ground for private participation by “clarify[ing] the
ownership structure of the sugar estates and industrial plants” (transferring rights, in Khan’s
vocabulary), “attract[ing] new capital”, “creat[ing] management and technological capacity”
(related to learning and/or Schumpeterian rents), “diminish[ing] the financial burden for the state”
and, what turned out to be elusive for the first 15 years, “the formation of national impresarios”
(MAP and INA 1996: 9) until the EU compensation fund increased the rate at which the formation
of small and medium cane growers took place. In general, the first phase ran parallel to broader
national processes of privatisation and restructuring of the economy from a predominantly
centralised to a more liberalised/private economy.


In a circumscribed manner the second phase of the sub-strategy for (3) “creation and protection of
an internal market” also connected to the wider history of liberalising the economy when the
creation of an internal market was contested by the IMF/World Bank. The IFIs feared the return of
state protection and price-setting, which could be detrimental to growth, trade and poverty reduction
since it cost more to produce key consumer goods like sugar nationally than to import them, as it
would later be argued when poverty became the main organising principle. The “strategy for market
prices” was based on a variable surcharge (sobretaxa) above the domestic market price in order to
influence and mitigate, firstly, the investment risk in Mozambique after the end of the civil war in
1994, and secondly, the world market for sugar that was characterised by dumping prices (the free
                                                                                                            4



market prices would be below production costs in most countries from the mid-1990s until the mid-
2000s).


As creation and protection of the internal market became the single most controversial aspect of the
policy/strategy it is worth stating the objectives of that part of the strategy. The first was to “create
an environment that is favourable for new investments in the sugar industry” and the second, to
“minimise the obstacles for development of the sugar sector provoked by the nature of the world
market, the fiscal policy and high risks investors confronted”. But, as the surcharge protecting the
internal market would be flexible and adjusted according to world market prices and costs such as
transport, the third objective was to “promote efficient production” (MAP and INA 1996:10). The
policy/strategy created rent opportunities but also, at least at a general level, provided some
indications of boundaries for when rents were tolerable as they had to attract investment and make
the industry productive.


The issue of boundaries for rent opportunities could have been linked to the (4) “Technology
strategy”, which sought to “develop the links between the sugar sector and certain national
industries” (MAP and INA 1996:11). They were not linked and this was later acknowledged by a
key technical advisor in the CEPAGRI (former sugar institute) as the single biggest failure of the
rehabilitation process. However, acknowledging that the limited industrial capacity of Mozambique
and the vicinity of a high-tech specialised sugar industry and research environment was the missing
link between rent opportunities and downstream industrial spinoffs was too little and too late; it was
a lost opportunity.


Even though not directly linked to the issue of rents, the objectives for the (5) strategy for
“development of sugar cane production” in many ways became the key legitimising aspect of the
policy/strategy. The main objective was to “establish work in the sugar sector” followed by a
confusing mixture of sub-strategy components. These included “creation of work in small
companies”, “promote the basis for high independent and efficient income opportunities”, “increase
food security and reduce the risks associated with commercial production” and what, besides
creation of formal work, was at the core: To “promote the organisation of cane producers (first of
all small producers) in associations or groups in order to increase efficiency, gain access to credit
and mobilisation of investment resources (local, public and external), “increasing the power to
                                                                                                        5



negotiate and break monopolies of traders” and finally “organise the educational formation and
professional training”. Finally, this was linked to the “reduction of administrative costs for the sugar
estates” as an objective (MAP and INA 1996:12-13). The issue of small-scale cane production
continued to be highlighted in INA’s and CEPAGRI’s yearly reports, but with limited progress
beyond Xinavane. However, it became a major feature of the EU Accompanying Measures fund
initiated after 2006 [fieldwork has been initiated on the issue but we will not present any of the
material here]. But the very few associations created at Xinavane have been used intensively over
the years as illustrations of where the industry could benefit more broadly.


Job creation and income opportunities, including provision of ‘cheap’ loans to employees at the
estates/industrial plants, have been highlighted as some of the main successes of the sector since
1996, and for good reasons. But there also seems to be a whole range of tacit issues circulating
around the issue of job creation, including very limited use of mechanical cane cutters (discussed as
an informal agreement but mentioned in an official evaluation) and questions related to the link
between efficiency/productivity and usage of Mozambican manual labour instead of mechanisation
more generally. As very limited trained staff was available from 1996 onwards, the question of
training Mozambican technicians and managers became an important indicator for industry
commitment and, indirectly, for being eligible to benefit from the rent opportunities offered by the
internal market creation. The specific (6) strategy for “formation (training) of the industry” had as
its first objective to “promote the internal capacity of (Mozambican) nationals to lead efficiently the
investment in the sugar industry”. The way to achieve this, according to the second objective, was
to “promote the technological capacity” of the industry and thirdly to “strengthen the base for the
future economic development” of the country (MAP and INA 1996:13-14).


The last aspect of the 1996 policy/strategy, (7) “Strategy for Institutional Reorganisation”,
involved not only a change in direction for the National Institute for Sugar at that time but also
reorganisation of the industry actors and cane producers. The first objective was to “obtain
representation from the different sector interests: government (economy), industrialists and
agriculturalists”. The second objective was to “coordinate the industry interests” and the third “to
manage conflicts between different interests” (MAP and INA 1996:14). This was to be done by
promoting the organisation of the three identified interest groups and developing their institutional
capacity. In important ways the division into three interest groups turned out to be too simple.
                                                                                                        6



Firstly, the issue of agriculturalists, which was aimed at the small and medium cane producers, did
not become important until 2008, when a substantial number of producers emerged with the EU
Accompanying Measures fund. Instead organised labour emerged as an important interest group,
which was formally institutionalised in an ILO-stipulated tri-party organisation of interests. Also,
industrialists related not only to sugar producers and manufacturers, but later also to upstream sugar
industry consumers/users in the beverage industry as well as sugar importers (formal and informal).
But importantly, any new developments in the industry, including the need to organise marketing
and distribution of sugar internally and externally after 2002, when sugar production rose, was
coordinated, mediated and regulated by the state through the sugar institute and later on the
Cepagri.


What is remarkable about the policy/strategy is that nearly all specific, as well as overall
developments in the rehabilitation of the sugar industry were in some way (directly mentioned or
indirectly as hints or possible scenarios) catered for in the 1996 strategy – and yet the
policy/strategy itself is seldom mentioned. In fact, we are not even sure that all the investors and
key interests like labour and family sector agriculturalists (subsistence farmers) are actually aware
of its existence. It is therefore worth briefly outlining some of the assumptions and aspirations the
policy/strategy is built on because they inform and give legitimacy to actions taken until around
2006 where after most of the people involved in the process from the side of the state and
government during the formative years are not any longer involved in the sector directly. Only on
the side of the industry will there be people who have in one way or another have participated from
the outset of the rehabilitation process or before – some of which started as state/government
representatives where after they became leaders of companies or branch organisations.


Assumptions and aspirations
It is emphasised that the GoM and the Agricultural Policy and Implementation Strategy (of the
time) saw sugar as a “priority product for income generation” (INA 2001: 5) in the rural areas for
the following reasons:
   Comparative advantages: Production costs in Mozambique are considered low once the sector
    is modernised and rehabilitated; in fact about the fifth or sixth lowest worldwide and with good
    regional comparisons to Malawi, Zambia and Zimbabwe. Furthermore, high yields per hectare
    with high levels of sucrose give consistently high quality sugar. Add to this the good access to
                                                                                                         7



    abundant land (70% of arable land is considered available) and water resources for irrigation,
    just as access to a dormant labour force in the rural areas favours Mozambique compared to
    other countries (INA 2001: 5);
   A long production history: Tradition of production; access to semi-skilled labour; production
    apparatus installed but in need of upgrading; government with knowledge and experience of the
    requirements for the functioning of agro-industry; government with will to facilitate, elaborate
    and implement policies necessary for the development of the sector (ibid.);
   Huge potential for Foreign Private Investment: As establishment of new sugarcane
    production fields and plants are cost-intensive, used equipment and expansion and rehabilitation
    was by 1999/2000 more favourable than establishing new production units (Harrison, Tylor and
    Young 1999; INA 2000:5). Other sugar producing southern African countries (South Africa,
    Malawi, Swaziland, Zambia and Mauritius) showed few possibilities for expansion.


Furthermore, the various INA documents, like the actual sugar rehabilitation policy, emphasise the
following key reasons for focusing on the sugar sector:
   The potential to focus as an economic growth trigger by “stimulating other economic
    activities” such as consumption of Mozambican products; repair and manufacturing of
    equipment; reducing import of sugar and equipment, training and service, etc. so the sugar
    sector/industry contributes to “the expansion of other economic sectors” (INA 2000:6). It was
    expected that the sector would create incentives for local investment by providing crucial
    technological inputs and training of labour and management besides assisting in infrastructural
    reconstruction (roads, rails, port and storage) of productive facilities. Furthermore,
    “intermediary production” such as alcohol, food for animals and so forth could allow for the
    creation of new industries and output “diversification” that would make economic growth
    sustainable and “in a forceful form stimulate the local economy and promote monetization of
    the rural areas” (ibid.);
   Job creation was anticipated to reach around 30.000 (permanent and seasonal work) by the
    time the first four factories were partly privatised (the state continued to have up to 50% of the
    shares in some of them) but with the possibility of reaching around 40.000 jobs over time (INA
    2006:6-7). Add to this between 8000 to 10.000 indirectly created jobs “through development of
    economic activities stimulated” by consumption (transport, distribution, packing, sale etc.), but
                                                                                                        8



    as constantly emphasised, “the most important issue is that these jobs (primarily) are created in
    rural areas where few other opportunities exist” (ibid. 7);
   Rectify Export-Import imbalances as Mozambique imported between 80.000 to 100.000 tons
    of sugar yearly at the start of the 1990s. At an average real price of 310-320 USD/ton this
    created a trade deficit of around 25-30 million USD yearly which, with the country already
    under foreign currency stress, it could hardly finance. With population increases, higher real
    income, increased consumption and industrial use, the deficit and pressure on the foreign
    reserves would increase considerably during the 1990s without the national sugar industry
    changing the scenario. One way of mitigating this scenario would be to stipulate the creation of
    a national industry (see MAP and INA 1996: 4) which during the first phase would “primarily
    substitute importation of sugar” and, as the internal production increased and became more
    efficient, a part of the production could be “channelled to the international market” (INA
    2006:7). It was estimated that during the first part of the new millennium export could rise to
    100.000 tons/year, bringing in foreign exchange close to 20 million USD;
   Assist in creating local entrepreneurs/businessmen as the post-independence and post-civil
    war Mozambique was characterised by central planning of governance, economy and politics,
    the industry was seen as crucial to stimulate “an open market economy” as “Mozambique
    [needed] to create a dynamic private sector with the aim to initiate capital accumulation and
    reduce the relative dependence on foreign capital” (INA 2000: 7; see also MAP and INA 1996:
    5). The sugar industry was expected to provide such business opportunities, both within service
    industries and related to cane production over time.


Clarifying the assumptions and aspirations of the policy/strategy is important because the only
academic account of the policy/strategy argues that “Under the coordinated pressure of investors,
three large international sugar corporations, the government approved a sugar industrial policy”
(Castel-Branco 2002: 179). To suggest that the 1996 document was driven solely by “the
coordinated pressure of investors [and] three large international sugar corporations” is probably an
overstatement. There are still many unknown factors, but it seems clear that it was not just due to
“the coordinated pressure of investors” that the policy/strategy came about or that solely gave the
policy strategic direction. The Mozambican government, as well as state bureaucratic elites, took
active part in making this possible and did so based on deep-felt and personal industry experiences
from before independence and particularly after independence in 1975 and the hardship of the
                                                                                                                        9



1980s, where it seems the government did try to rectify the situation. Even though we have not yet
visited Mafambisse, and have so far not managed to meet Arnaldo Ribeiro, who was director of
Mafambisse before taking over the INA, we have met several times with Rosario Cumbi (former
INA director when the policy/strategy was formulated and presently General Director for Tongaat-
Hulett in Mozambique, and therefore in charge of Xinavane (and Mafambisse)). Based on these
interviews and the 1996 strategy and INA documents, one can point at the following general
experiences from the 1980s which drove the SRP from 1996 toward international investments:
        One could not rely on the free world market for export income as the price level was up to
         three times lower than protected markets (USA, EU and so forth);
        Making the individual companies and estates economically feasible based on the free world
         market was impossible; isn’t this making the same point as the one above it?
        Making the individual companies and estates economically feasible based on the preferential
         trade quotas provided – while well paid – was limited (from 12.000 to 26.000 tons a year for
         the USA and later on with ABA, EPA etc. for the EU was initially also very restricted);
        The industry had a limited capacity, and upgrading and developing it further required
         considerable financial resources;
        The industry had all in all very limited human resources available at all levels, meaning that
         management- and work-force wise, the productivity levels were very low compared to
         competing industries in Zimbabwe, Swaziland and Malawi/Zambia, not to mention South
         Africa;
        Technically, both at sugar company level (mills) and estate level (cane fields) the industry
         encountered numerous problems, which differed considerably from the dryer south to the
         central and northern regions, where the climate is wetter and more humid. These required
         core competences Mozambique did not have, making it considerably reliant on South
         Africa, with its extensive, sophisticated service industry to back it up;
        While South Africa is geographically close, red tape and the general regulative environment
         made import-export an administrative nightmare, even during the one-party state era;
        In order to meet export standards the industry relied on its South African neighbours for
         access to laboratory and testing facilities.

Who wrote the policy/strategy?
Who drafted the 1996 policy/strategy? According to the then Director of INA, Rosario Cumbi, he
was personally in charge of drafting the new strategy from 1991, which resulted in the 1996 policy.
Cumbi thereafter changed roles and became a government-appointed member on all the
administrative boards, but soon left the Maragra/Illovo board as he disagreed with the management
on strategy (interview 2008; 2010).5 Exactly who elaborated the policy and how this took place is

5
  It is not totally clear what they disagreed about but Mr. Cumbi seems to have had a good working relationship with
Tongaat due to the earlier attempt at rehabilitating Mafambisse. Another issue was Illovo’s agricultural strategy where
they tried at first to use South African farmers to produce cane for the industrial plant which Mr. Cumbi did not seem to
favour. Over time the use of South African commercial farmers has failed and the estate today produces most of the
cane combined with a new outgrower strategy after 2006 related to the EU compensation fund.
                                                                                                                    10



therefore unclear, but the Mafambisse experience from the 1980s and 1990s, when the state
attempted to rehabilitate it, seems increasingly important to capture as it informed the 1996 strategy
in important ways. It is nonetheless doubtful that the INA at this point (or for subsequent policy
changes) directly or solely formulated the full policy. Technical assistance was asked for and
provided by the ODI, which has since had analytical staff placed in first INA and later CEPAGRI
on a regular basis.


But in reality we know little about who made up the team that drafted the document, besides the
fact that Rosario Cumbi was in charge, and that Techserve wrote up earlier plans during the 1980s
and participated in the rehabilitation of the Mafambisse sugar factory, as well as later assisting with
the rehabilitation and modernisation of the Xinavane sugar mill and agricultural estate (cane fields)
in 1999/2000 (http://www.techserve.co.za/projects.htm).6 Besides the work of Techserve, a range
of feasibility studies for different aspects of rehabilitation and expansion for the different companies
and estates is listed in the 1996 policy (MAP and INA 1996: 83-84) that involves a diverse group of
consultancy groups including:
       DNR Institutional Group, USA and F.C Schaffer and Associates Inc. USA (1995 Xinavane);
       ALCANTARA, Sociedade de Emprendmentos Acucareiros, SA (1994 Marromeo and Luabo);
       SOMDIIA (1991 Luabo)
       SABAS-Approtech projects Ltd, Consulting Engineer and Project Manager (1995 Buzi)
       Booker-Tate (Maragra)
       MBB Consulting Engineer, Nelspruit and ACER Africa, Nelspruit (1996 Xinavane)7


Luisa Diogo, the former finance minister and later prime minister, has indicated that MF provided
some funds for studies and planning so INA could operate, but also that contributions were made
from the outside. The list of studies suggests that companies who later decided to invest, and/or
who explored the feasibility of investing, carried out some of the background studies. We don’t
have any of the reports and have not yet met any of these actors and will probably not be able to do
so, and neither have we come across their names again. But what this list of consultancy companies
for the different sugar companies suggests is that before 1996 the industry must have been more
scattered and less well organised than later on during the rehabilitation process, when evaluations of
the 1996 strategy were done on behalf of INA and later CEPAGRI. Importantly, after 1999 most if

6
  Furthermore “The Senior Technical Personnel of Techserve were personally involved in the following Sugar Refinery
projects prior to joining the Corporation: MC & S Refinery at Maragra Sugar Factory, Mozambique; MC & S Refinery
at Mafambisse Sugar Factory, Mozambique” (http://www.techserve.co.za/projects.htm).
7
  Along with these feasibility studies, the 1988 Appraisal Report for the Mafambisse sugar rehabilitation project made
by The African Development Bank is also listed (MAP and INA 1996: 83).
                                                                                                                   11



not all official studies except an FAO study and a later EU evaluation of the 2006 Accompanying
Measures fund were done for the industry by either the LMC International Ltd, Oxford, UK and
New York, USA alone, or together with the Global Sugar Consulting, Cheltenham, UK on behalf of
the Mozambican state.8


3. Development Outcomes: sweet achievements
Sugar cane has been produced in Mozambique since the end of the 19th century. The Sena Sugar
Estates Ltd, comprising two facilities, namely Luabo and Marromeo9, became particularly
important and in many ways the company was the crown jewel of the sugar industry until about
1975, operating among other projects a rail spur connecting the sugar refineries to the Beira
Railway and a shipping company (following the Zambeze River) linking the two plants to Beira’s
port. Until the 1950s expansion of the sugar sector was based on British investments, after which
Portuguese capital interests became prominent. Cane and sugar production expanded massively at
the end of the 1950s and during the 1960s. In 1954, the Xinavane plant on the Incomati River was
further enlarged as land concessions were increased, approaching 19.000 hectares with 7000 for
cane and the rest for cattle (Gode 1997: 16-17). Two new factories followed, first in 1969 with the
Maragra plant in southern Mozambique, downriver from the older Xinavane estate on the Incomati
River (see Cardoso 1993), and in 1970 the Mafambisse plant in the Beira corridor in central
Mozambique along the Pungue River.10


With these industrial plants the total sugarcane production capacity was brought up to 360.000 tons
with a production record reached in 1972 of 325.051 tons, which was close to maximum
production, with 60% for export. The expansion of the sugar sector - culminating in 1972 - saw it
become the third biggest export sector and the biggest formal labour employer, with the Sena Sugar
Estates Ltd in the mid-1960s – the largest private firm in Mozambique – employing more than


8
  The only exception is the 2000 FAO review of the pricing policy which was requested by Minister of Planning and
Finance Luisa Diogo in order to fight World Bank critique of government protection of the sugar industry. That FAO
was requested to write the report suggests that besides generally using highly competent consultants for specific
analysis there was also an astute recognition of how to create alliances.
9
  The Sena Sugar Estates Ltd was then a British-owned company and was granted a large land sub-concession from the
Zambezia Company in the river delta. The Sena Sugar Estates also operated a copra plantation near Chinde, a forestry
concession and a cattle ranch near Luabo, and owned – just as it still does today – substantial property interests in
different parts of Mozambique even though most of the real estate is depleted and run down after years of inactivity.
10
   Mafambisse ruled over no less than 48.000 hectares with 8.500 hectares for cane around the plant, 2500 hectares
further away and 25.000 hectares more than 20km away from the plant (Gode 1997: 17). The last 5000 hectares
basically made up the town of Dondo where the plant is situated.
                                                                                                                        12



10.000 people. But already before independence in 1975, sugar production had begun to decline due
to the rapidly intensifying independence war in northern and central Mozambique, and from 1974
the emergence of the Frelimo-dominated transitional government, which came to power under the
leadership of Joaquin Chissano. These two events left investors feeling insecure, and were a direct
cause of the “disinvestment strategies” adopted by, for example, sugar plantations in the transition
to independence (see Castel-Branco 2002: 83).


Furthermore, up to and after independence in 1975, the flight of skilled labour of all types
(government employees, state administrators, technicians, engineers, managers etc.) and capital
added to the decline, just as global market prices made the sector less profitable.11 From 1972, the
peak year with 325.051 tons of sugar, production declined to just over 200.000 tons in 1975 and
thereafter fell slowly to about 175.000 tons in 1980. A steep decline after this saw production fall to
well below 50.000 tons from 1982/3 onwards (INA 2001:4; Cardoso 1993). The average production
output between 1990 and 1997 was only 23.000 tons, less than 10% of total potential capacity.12
Concomitantly, export declined rapidly from about 200.000 tons in 1972-73 to around 50.000 tons
in 1975. With a few exceptions export stayed under 50.000 tons until after the rehabilitation of the
industry brought production levels up (ibid.).13 The result was a steep increase in import of sugar,
making different regions of Mozambique dependent on official and contraband imports (from
Swaziland, South Africa, Zimbabwe, Malawi, Zambia and Tanzania). For the labour force the
decline in the sugar sector was a tragedy. At the beginning of the 1970s around 45.000 workers
were formally employed at the various plants and sugarcane production sites – roughly one third of
the standing labour force employed in South African mines at the same time (First 1983). As the
civil war intensified after 1980, it affected the six sugar producing zones so badly that by 1982 four
were closed and two were operating at low capacity. By 1999, only 17.000 workers were still




11
   Over time many estates and plants were without industry-specific, experienced leadership despite many attempts at
covering the gaps in technical expertise. Sometimes these included expats taking up positions at better salaries than
generally paid in Mozambique after independence. At a later stage technical assistance from east bloc countries was
introduced and became involved at estates/industrial plants that over time became intervened in or came under state
administration, just as the former Yugoslavia supported the trade union OTM. Interestingly enough, there is no
reference to these developments in the various, quite well-researched papers arguing the sugar case.
12
   Officially set at 360.000 tons in the INA 2000 study. In 1992, at its lowest, the production was only 13.224 tons.
13
   A preferential trade arrangement with the US – amounting to 1.3% of total US imports - allowed Mozambique to
export between 14.000 and 26.000 tons during the 1990s, stimulating a small increase in production (INA 2001: 4).
                                                                                                                          13



formally employed by the six estates, but most of the workers were redundant and employed only
on paper as production was so low. 14


Since the mid-1990s the Mozambican sugar sector has been undergoing a steady process of
rehabilitation, involving both partial privatisation and large scale foreign direct investments (FDI),
in both production and processing capacities. This has seen four out of six sugar estates with sugar
producing factories becoming productive between 1998 and 2002.15 The areas under cultivation
rose from 7.266 hectares in 1998 to just under 31.000 hectares by 2008 and 35.000 hectares in 2009
with a scheduled increase to 50.000 hectares after 2011 (CEPAGRI 2009: 12; LMC 2006). From
coming close to a total standstill with only around 16.000 tons produced in 1986 and around 13.224
tons during the 1991/2 campaign, (INA 2001: 4), the sector had by 2004 managed to increase
production to just over 200.000 tons of sugar, with close to half of this being exported (INA 2004:4;
18).16 While by 2008 the productive gains were modest, with an increase to just around 250.000
tons peaking in 2005 at 265.000 tons, this was caused by drought, poor rain distribution, delays in
the start of the season and work stoppages caused by installing two new machines in the expansion
process, as well as a concerted drive toward doubling production by 2010 to just around 500.000
tons that saw productive fields being used to produce seedlings for the expansion (CEPAGRI 2009;
interview management, Marromeo 2009). By 2003 export had exceeded local consumption, with
total export figures reaching 134.796 tons in 2008, even though the industry-owned Distribuidora
Nacional de Açúcar (DNA) had managed to double national consumption. The DNA runs an
expanded distribution network that now covers the whole of Mozambique, with sugar sold at more
or less equal prices all over the country, and provides products for the now considerable local
beverage industry, including fruit juice, beer and soft drinks (see CEPAGRI 2009).


Economically, the rehabilitation of the sugar industry has been important for several reasons (see
particularly INA 2005, Capítulo 6, 7). From providing hardly any revenue during the mid-1990s,
14
   The relatively high formal employment figures were partly due to strict or rigid labour laws making it difficult to fire
formal employees (post-independence communist/socialist labour protection).
15
   The Maragra plant and estate, situated 80km outside the capital of Maputo and the last facility to get production up
and running, was completely wiped out by the severe 2000 and 2001 floods. It should be mentioned that the larger
Marromeo estate and plant in the central province of Sofala on the Zambezi river bank has been subdued for periods
since 2002 due to transport and energy constraints.
16
   We will here just refer to sugar in general except when otherwise stated, but in reality it refers to at least three
products: refined white sugar, brown bulk sugar and syrup (molasses). Molasses, while a surplus product, can be a
product in itself, as it can easily be turned into alcohol for bio-fuel for instance. There are two facilities in Mozambique
doing this: one outside Maputo in Matola and one in Sofala at the former Buzi sugar estate – one of the two sugar
estates that were not rehabilitated after the mid-1990s.
                                                                                                                      14



the sector had by 2004 gained so much strength that 100 million USD was generated, 26 million
USD of which was in foreign exchange (INA 2004:4; 18). By 2009 a revenue of US$58.3 million
was achieved, now using the EU market as part of the Anything but Arms initiative and
complementary quotas solely, thus avoiding the free market and its dumping prices. It is estimated
that around 30.000 direct jobs (combining permanent and temporary jobs) have been created at the
four rehabilitated sugar estates (CEPAGRI 2009: 15). Add to this jobs created in outsourced service
functions in land preparation, planting, maintenance and transport, as well as jobs created by
independent producers, as well as down- and upstream jobs created along the value chain, and the
total number of jobs created is probably close to 40.000 posts, making the industry once again the
biggest non-state employer in Mozambique. This was before the third wave of investments in cane-
based ethanol production was initiated in 2008, when two projects were approved with a total
investment of close to 710 million USD. More have followed since, and are expected to create
between 7-10.000 permanent jobs in the rural areas depending on the level of mechanisation of cane
cutting that becomes institutionalised over time.17


Social services such as health, education and housing are directly catered for or strongly subsidised
by all four factories, where districts and municipal administrations benefit from generous Corporate
Social Responsibility budgets. As has been argued in a recent assessment of the industry, the
decade-long and continued investment in the sugar sector is furthermore “creating an income
multiplier effect, with sugar workers having money to spend on other goods and services [and] the
sector also creates the opportunities for other industries to develop, supplying goods and services to
the sugar mills” (LMC 2006: 7, see also INA 2005, Capítulo 7).18 The question of social services
was generally a taken-for-granted support issue until 2006, when the Adoption Strategy for the
Mozambican Sugar Industry (adoption to the new EU market competitive regime) made poverty
reduction social services eligible for receiving support from the EU 6 million Euro QAccompanying
Measures Fund (see CEPAGRI 2006). As part of the activities stipulated by the fund, previously

17
   But already one of the ethanol projects, the 510 million USD PROCANA at Massangir, which was approved by the
Council Of Ministers in 2007, seems to have fallen apart and lost political support (see Savanna December 25, 2009: 2).
It is interesting that none of the four rehabilitated estates/mills experienced a similar loss of faith considering the
considerable obstacles encountered by the industry over the years: flooding, contraband sugar, very difficult regulative
environment, feeble state system, government leadership change, access to finance and so forth.
18
   But it is also clear that the re-emergence of the sugar industry in the rural areas has exposed the shallowness of the
specialised service and supply industries as the backward linkages between the sugar industry and local Mozambican
suppliers of services and goods have been problematic, just as it is for all other FDI mega-investments. For example,
only about 23% of purchases by Maragra sugar estate in 2004 were locally produced, with the rest provided by foreign
companies or their subsidiaries (LMC 2006:8).
                                                                                                       15



limited outsourcing of cane production has been given a new and so far successful drive. Where
only 0.4% of cane was produced by independent Mozambican producers in 2005 (INA 2005
Capítulo 1: 21), this figure had increased to 4% by 2008 (CEPAGRI 2009:24). The Compensation
Fund also signals the first direct access to ‘donor’ money as part of the rehabilitation process, which
in itself is remarkable considering the levels of aid dependence experienced by Mozambique over
the past two decades.


A relatively strong National Sugar Distributor (DNA) owned by the industry has been set up and an
association for the sugar industry – APAMO - has been formed. Besides organising exports to
European and US markets, the DNA has created a countrywide sugar distribution network made
economically possible by the formation of a protected internal market. It also allocates
import/export and internally generated revenues according to a distribution formula to the four
sugar estates, based mainly on productivity and costs. The DNA and APAMO now largely drive
policy and its implementation, as their members are the four rehabilitated estates/industrial plants
and their owners who, after various mergers, all belong to the world’s top producers of cane and
sugar (from South Africa/UK, France/Brazil and South Africa/US) and have extensive analytical
capacity and established lobby representations at the EU, Washington etc. Aware of the national
dimension of the sugar rehabilitation process, they keep a low profile as far as possible (when there
is need for action then they can be “made aware by friends of the industry” as it was explained by a
representative from the sugar industry), thus allowing the Mozambican state and government to
indicate the need for or directly ask for position papers, strategic inputs and so forth for WTO and
EU negotiations.


4. Notes on rents and rent-seeking
This section comprises preliminary notes on rents and rent-seeking as we try to relate a first reading
of Khan (2000a; 2000b; as well as Khan and Jomo 2000) on rents and rent-seeking as a process to
developments within the sugar industry. The section is therefore still sketchy, but will probably
form the foundation for an analysis of rehabilitation of the sector from a rent perspective. For the
sugar sector the issue of rents and rent-seeking is complex as it seems to involve various types of
rents operating simultaneously. Apparently both state (bureaucracy) and political (government)
actors engage in rent-seeking activities on behalf of the industry, as well as more conventional
private actors (corporate international capital and small- and medium-scale cane growers) who seek
                                                                                                        16



to create, maintain and change rent allocation over time. In other words, various private-public
actors are involved in rent-seeking behaviour in one way or another.


In economics rents are conventionally defined as an excess earning in a production process when
compared to the second best investment option. Rents are therefore considered a kind of ‘excess
return’ that are above ‘normal levels’ of profit made in a free market or enterprise competition, and
usually become associated with a lack of competition in markets caused mainly by monopoly
creation and maintenance. But there are, as Khan and Jomo point out (2000; see also Khan 2000a;
2000b), many types of rents and they can be absolutely necessary for economic growth and
industrial development to take off, and for the productive sector to become consolidated and
profitable in developing countries in particular. The reason is that “institutional change almost
always involves the creation or destruction of rents” (Khan and Jomo 2000: 3). Rents can therefore
be both necessary and problematic – something that cannot be asserted a priori – various logic
constellations can be presented but positive/negative implications will be context specific related to
a variety of internal/external factors.


Creating the conditions for profitable industry development can be a long, risky business and
involve financial losses during the initial phases. For private investors in the sugar industry in
Mozambique after the civil war in 1992, the risks and costs of investing in the post-conflict
environment – where infrastructures were either destroyed or dilapidated, the state was in
transformation and the economy was undergoing fundamental changes – were high. Without
state/politically created conditions mitigating the risks, it was hardly worth investing, given safer
and shorter-term alternative investment opportunities and considering a five to 10-year
rehabilitation process. These are the conditions that the literature suggests can create a “learning
trap” (Lall 1996; Khan 2010a; Whitfield 2010), which can be mitigated by the creation of “rents for
learning” (Khan 2000a).


States can play a critical role – promoting investments, upgrading technology, acquiring skills,
providing cheap loans, creating protected internal markets, signing up for international high-
yielding trade quotas and so on – in compensating for initially uncompetitive cost structures while
the industry gets off the ground and generally “learns” to operate. Rents can therefore be defined as
incomes created by political interventions that aim to assist the creation or rehabilitation of a
                                                                                                                     17



productive sector. For the rehabilitation of the sugar sector in Mozambique we can identify the
following broad types of rents:19


Rents based on transfers
                * Land rights to four estates/ industrial plants mediated by state intervention;
                * Land and/or user rights to smallholders participating in outgrower schemes;
                * Facilitation of ‘soft’ loans guaranteed by the state/government from international
                finance sources;
                * With the creation of The National Sugar Distributor (DNA) after 2002 a privileged
                national distributor of sugar was created and protected;
                * Upstream industrial users of white sugar like Coca-Cola, mediated by government,
                got special access to cheap white sugar, which in reality was subsidised not by the
                state but the DNA, which in turn was owned by the four estates/ industrial plants with
                the state as co-owner.

Rents based on transfer are “rent-like incomes […] created by transfers organized through the
political mechanism” (Khan 2000a:35). Such transfers are often the basis for asset accumulation,
for example primitive accumulation that caters for the emergence of new capitalist and middle class
groups, producers etc. Transfer mechanisms can include taxes, subsidies, conversion of public
property into private property and so on. These can be engineered legally or illegally, usually by the
state but, as we will suggest, not solely.


The change in Mozambique from a one-party, state-centralised system to, at least formally, a multi-
party, market-based system, was fertile ground for such rent-generating transfers. The privatisation
of the four estates, for example, engineered by the state/government, included provisions for certain
time-bound tax breaks, while land user rights transferred to small and medium farmers by national,
province and local governments seems to be a straightforward case.


But in contrast to the literature’s focus on political transfers done mainly through the state, a closer
look at the sugar rehabilitation expands our understanding of the source of the transfers. Firstly, the
EU’s “accompanying measures”, which released 6 million euros for the sugar industry as “budget
support” through CEPAGRI in 2006, subsidised small and medium farmers’ involvement in cane
production. They also subsidised training of employees at the four estates/ industrial plans and


19
  We will not deal here with Schumpeterian rents as growth in the sugar industry was not based on innovation but
mainly learning. Also there are so many similarities between Schumpeterian rents and learning rents that no ground
seems lost by not considering this here.
                                                                                                       18



social services provision by the sugar companies, which enlarged their corporate social capital
spending. Secondly, struggles over the creation of the internal market favouring the rehabilitated
sugar industrial plants triggered a struggle with upstream industry users of white sugar like Coca-
Cola, which ended up getting white sugar at very favourable prices. This amounts to de facto
subsidisation of upstream industries by the sugar industry through the DNA which again, through
the price mechanism, organised transfers from consumers. As the industry/DNA was partly
corporate industry and partly state-owned, the providers of the subsidies were mixed but clearly
they involved political pressure from a variety of sources like national elite groups, international
corporate capital, and IFIs, which for different reasons argued for special treatment of upstream
industries (shareholding protection, protection of parallel investments, etc.) while simultaneously
and quite contradictory lambasted the surcharge and thereby the fact that consumers had to pay the
cost obviously based on a narrow understanding of rents as monopoly rents.


Rents based on transfers cannot be totally separated from monopoly rents, and where Khan
(2000a:37), for example, would argue that monopoly rents are primarily “transfer from consumers
and factory owners to firms” based on the “price mechanism”, whereas rents based on transfers are
“transfers through the political mechanism” and implicitly organised by state/governments, it seems
the dividing line can be more difficult to find/define.


As Khan (2000a: 39) argues, the growth implications of rents based on transfers can be both
positive and negative depending on “how much of the transfers goes to individuals or groups who
have the incentive and opportunity to make the transition to productive capitalism”. This largely
depends on the configuration of political forces and how the structure of transfers is organised vis-
à-vis industry and political intermediaries and factions.


Monopoly rents
              *Four estates/ industrial plants were allowed to produce cane and sugar;
              *Four estates/ industrial plants were allowed to service a protected internal market,
              creating over time a National Sugar Distributor (DNA) to take care of marketing and
              distribution of rents;
              *Privileged access to export and preferential trade agreements, with the DNA taking
              care of marketing and distribution of rents; and
              *The state could negotiate a fee for finance provision that was unavailable to
              companies.
                                                                                                       19



Generally, restricted market entry and exit, which allowed certain firms or industries exclusive
rights to produce certain products and make decisions on quantity, created rent opportunities. Prices
for products would usually be higher than if there were no exclusive rights and entry barriers, which
was the case for the sugar industry until around 2008, when speculation, the bio-fuel craze and the
fire in Russia drove world food prices up. But entry barriers can also be based on economies of
scale, where a single large producer (a natural monopoly) can undercut newcomers and therefore
does not have to be created by political intervention (Khan 2000a:29).


Lack of competition can stifle technological improvement, efficiency and cost reduction as there are
no incentives for improvement, but this can be mitigated by state monitoring and setting of certain
benchmarks for output, productivity and so forth. As Khan (2000a:32) suggests, growth
implications of monopolies are “less clear-cut”, as accumulation of large profits by monopolistic
companies or industries can encourage more investments and can mitigate the effects of
deficiencies in capital markets. Investments in new technology that would reduce costs over time
may need such trigger rewards, or rents, for those investing. There are therefore important links to
learning/ Schumpeterian rents, which indeed can be “indistinguishable from monopoly rents” (Khan
2000a:32) and the effects need to be analysed from case to case, as it cannot be taken for granted
that they are either negative or positive.


So where monopoly rents in conventional economic analyses are opposed to a free market situation,
this is clearly more complicated. Actually, free markets seldom exist, except as an idea/ideal – and
definitely not in the international sugar market, where all main sugar producers worked from the
basis of protected markets and special trade agreements. The free-world-market on the other hand
was based on dumping prices until around 2008 when world market prices due to speculation in
prices, bio-fuel drive, Russian uncontrolled fires etc. outperformed protected market price setting.
The entry-barriers set up by government after 1996, which allowed only four estates/ industrial
plants to be rehabilitated and created an internal market, has been criticised by academic
commentators as enforced by the industry (for entry-barriers) and by IFIs, upstream industries and
certain elite groups benefiting from unregulated or illegal sugar trade as “unfair” and “costly”, and
for “passing the cost of rehabilitation onto consumers through the price mechanism” (comment
from a USAid representative at an investment conference in Niassa, 2008) etc. One thing that the
literature on rents and rent-seeking doesn’t seem to consider is the follow-on benefits monopolies
                                                                                                        20



can have for customs authorities, tax payment, VAT enforcement etc. as the creation of internal
protected markets for monopolies requires considerable investment in and upgrading of those
governance structures.


Natural resource rents
              *Small and medium scale farmers and elite actors controlling large tracts of land
              attracted possible investors, as the companies needed more land for cane production,
              which made the rights they had valuable; and
              * Smallholders as leasers of land for outgrower schemes.

According to the World Bank, 46% of Mozambique’s land area is cultivable, providing on average
12-13 hectares for each of the country’s three million farming families. Much of this land is not yet
used, with an estimated 70% of the arable land unused. In addition, Mozambique has ample water
resources from rainfall and river systems in the south and, particularly, in the central and northern
areas of the country. These and other rivers hold the promise of developing intensive irrigated
agriculture some time in the future. The agricultural sector consists of a large number of dispersed
smallholders cultivating 95% of all farmland, with the remainder being cultivated by a limited
number of large plantations (Tarp et al. 2002) where over 90% of all irrigated land today is
controlled by the sugar industry (xxxxx). All land formally belong to the state but one can get user
rights through either the national state or local municipalities (the last authority is important mainly
for Maragra and Marromeo) or through different types of legislation like the progressive 1997 land
law or Decree 15/2000, which gave community authorities some powers of land distribution. Most
arable land, while idle, has been formally grabbed over the last ten years by top and local political
and administrative elites, who are waiting for investors to come so they can extract rents from
formally controlling the land. This is land that can also be ‘used’ by family-based peasantry who,
according to the land law and the decree, have some rights over the land but this is often overruled
by formal title deeds taken by elite groups, often without the knowledge of local extensive users.


Initially, the estates/ industrial plants had enough land to operate commercially, but as the EU
market opened up after 2006 and the EU accompanying measures targeted cane production by small
and medium producers, natural resource rents emerged as a possibility.


Rents for learning
                                                                                                       21



              * Four estates/ industrial plants got monopoly rents/rents based on transfer that were
              implicitly conditional on technological upgrading, training of workforce, involvement
              of small and medium cane producers, servicing local market, etc. where efficiency and
              competitiveness were benchmarks;
              * Smallholders’ mentality was transformed and technology upgraded based on EU
              accompanying measures (subsidies); and
              * Industry effectiveness increased based on training of employees funded by EU
              accompanying measures (subsidies).

According to Khan (2000a: 47), in developing countries “productivity growth is usually led not by
innovation but by learning”. Learning implies adopting, adapting to and using existing technologies
where “rents may have an important role to play in facilitating the process of learning”. This
perspective, we suggest, applies to the rehabilitation of the sugar industry as the investing
companies and the state bureaucracy/government had to upgrade workers’ skills, adopt new
bureaucratic systems, adapt to local conditions and so forth. The point is that learning “takes effort
and can be risky” (ibid.). Mozambique after the civil war in 1994 was a risky investment
environment, with limited and expensive capital and insurance markets to mitigate learning and
risk-taking. As such learning rents, like the other types of rents, can mitigate market imperfections
(capital, insurance, price and marketing), which were abundant for the global sugar market but
exacerbated by the post-conflict environment in Mozambique. Here rents clearly compensated for
lower productivity caused by lack of appropriate infrastructure (transport, communication,
electricity etc. which was more the case for Marromeo than for the other estates after 2004) and low
capacity of the labour force.


Rents can provide important incentives for engaging in such learning exercises. Initially, rents for
learning subsidised ineffective production where the actual cost of production for the sugar
companies/DNA was higher than the price it could be sold for (this is still the case for Marromeo
and probably also Mafambisse, whereas Xinavane and particularly Maragra have become
productive and effective). But rents for learning “can provide incentives for cost reduction over
time” making the fear of supporting ineffectiveness less prominent, particularly when supported by
“conditional policy-induced subsidies”, or what Khan calls “rents for learning”. The key difference
between rents based on transfers and learning rents is that the latter is conditional on the
“achievement of learning over a specified timeframe” whereas the former “may have any of a
number of other motivations” (Kahn 2000a: 48).
                                                                                                       22



For Khan, subsidies that allow for learning can be justified if they are conditional on learning and
performance. Learning usually has to be “restricted to a specified timeframe or [be]conditional on
export growth” (2000a: 50). The enforcer of such conditions is the state which, firstly, has to
formulate with clarity its expectations for providing subsidies; and secondly it has to be clear about
enforcing a timeframe that will always be contested, as retraction of favourable conditions
invariably creates tensions. The play between deciding on support to a sector or industry before one
can see the results (ex ante) and the need to respond (ex post withdrawal or changed support) if
decisions have been mistaken or performance is below expectations is complicated and requires a
functional state bureaucracy, as the literature on business-state relations has pointed out (xxxxxxx;
xxxxx; xxxx).


For Mozambique and the sugar industry the performance criteria seem broader than the export
criteria suggested by Khan. This could be because weaker criteria were established, or rather, as
explained in the paper Why the Sugar Sector Was Rehabilitated, because the state bureaucracy had
to balance delicate economic, political, pragmatic and ideological attributions of support to the
sector. Some of the performance criteria were formal, as hinted at in the Strategy/Policy from 1996
and the later EU Accompanying Measures fund, while others were informal and based on the
ongoing interaction among politicians and government, state and industry personnel. From the
1990s until 2006 there was stability in these relations under the Chissano governments between
1994 until 2006, but changes in the institutional setup (from INA to CEPAGRI) under the Guebuza
governments after 2006 slowly undermined capacity and longstanding relationships between the
different interest groups.


The timeframe set by the state was not specified, but flexible and linked to a specific world market
price threshold, which meant that for considerable periods the surcharge (learning rent) would be
triggered but fluctuating according to costs, while after 2008 there would also be longer stretches
when the surcharge would be there but with no rents (but still important as an attraction for new
investments). In 2010, in a panic reaction by government after what were called food riots, the
surcharge was surprisingly suspended, flying in the face of recommendations based on a new
monitoring report on the impact of the surcharge made by independent consultancy firms on behalf
of the state. This clearly points to the need to keep in mind the broader political context (including
                                                                                                        23



ideological inclinations, pragmatic concerns, political horse-trading and panic reactions) in which
learning rents are institutionalised, as Khan has argued (2000a:51).


In both cases the ‘performance’ would be monitored by the state. For the surchargeit would be on a
monthly basis and for other indicators quarterly and collected in the annual Balanço do Industria
(or after 2006, when its name changed, the Balanço do Plano Económico e Social). Monitoring was
initially taken care of by the National Sugar Institute (INA) until this institution was subsumed in
the Agricultural Promotion of Investment institute CEPAGRI. Information had to be submitted by
the industry to INA/Cepagri for monitoring, but its capacity to follow up was limited and categories
for monitoring increased yearly, especially after 2003 as poverty indicators for the PRSP and the
EU Accompanying measures formed part of the Balanço. The most important independent
monitoring is therefore found in the three or four annual independent evaluations of the surcharge
conducted so far, which also deal with efficiency, productivity, market access and so forth, and the
EU’s monitoring of the Accompanying Measures 6 million euro fund.

It was not only ‘private’ actors (individuals and international corporations) but also the state as co-
owner that ‘benefited’ from the creation and maintenance of certain rents in the rehabilitation of the
sugar sector. Commercial stakeholders benefited economically as costs were suppressed and
initially low productivity was subsidised, while the state/government benefited politically as much-
needed jobs and income opportunities were created and social services were brought to remote rural
areas. The state/government also benefited economically; its credit rating rose as state-guaranteed
loans were serviced on time and space was made for it to take new loans for other purposes. This
link between state and industry is not unusual as institutional change commonly involves the
creation or preservation of rents where the state has an important role to play, just as distribution
and distributive conflicts over rents commonly involve the state in one way or another (legal or
political mediation, favouritism, etc.).

It is also important to acknowledge that during the rehabilitation of the sugar industry in
Mozambique there were attempts – some overt, others more tacit, to convert one type of rent into
another type of rent. For example, land and/or user rights for smallholders participating in out-
grower schemes gained access to resource rents as the EU Accompanying Measures created
possibilities for participation in cane growing. These were expected to simultaneously become
learning rents, as the EU was to upgrade smallholder farming technology with fertilizer, pesticides,
                                                                                                       24



irrigation etc., which would in turn transform peasant mentality and increase productivity and
efficiency, and farmers could begin to operate commercially instead of in a food security/survival
mode of production.

Similarly, there were attempts to convert the monopoly rents – both land rights and internal market
privileges – that were created for the four estates/ industrial plants into learning rents where
efficiency, smallholder inclusion, technology upgrading, etc. were benchmarks monitored by the
INA and later CEPAGRI. Yet another example is the access to funds within the EU accompanying
measures, which initially included the union (SINTIA) and peasant organisation (UNAC) but over
time became a form of rent (subsidy) for the four estates/ industrial plants and small and medium
scale farmers. Here the monitoring by CEPAGRI and assessments by EU could be used as tools in
attempts to convert one type of rent (subsidies) into another type (learning) based on monitoring
and phasing of funding.

While there were many different rents at stake, the principal rent became the tariff-based rents
founded on a flexible surcharge on imported sugar (both refined white and brown sugar) as all other
rents were directly or indirectly based on or influenced by it. Here there was a certain overlap, as
argued above, between the interests of state/government and private industry actors. In the business-
state literature this is usually termed “collusion” (xxxxx) between firms and the government
agencies assigned to regulate them. The concept of collusion suggests that the relationship between
state/government and industry interests had negative or detrimental consequences in the form of
enabling rent-seeking behaviour. This would especially be the case when government agencies had
to rely on the firms for knowledge about the market they were trying to regulate.


Rent-seeking
In the conventional economic literature the association of rents as detrimental to economic growth
and performance is intimately related to the concept of rent-seeking. Along the same line of
thinking, in economics rent-seeking occurs when an individual, organisation or firm seeks income
through manipulation or exploitation of the economic or political environment, rather than by
earning profits through economic transactions and production of added value. Rent-seeking
behaviour, in the conventional economic literature, is the effort to capture special privileges like
monopolies, which need government regulations or decisions that change the rules for free
competition, or impose burdensome regulations (red tape) allowing for extraction of fees/licenses
                                                                                                      25



etc. Rent-seeking behaviour is conventionally considered unproductive and detrimental to economic
growth, as potential surplus is not used on new technology, upgrades or learning but on making sure
that a rent is up for grabs, for example by lobbying politicians or state bureaucracies or as payment,
i.e. corruption.


As Khan (2000 a; 2000b; see also Khan and Jomo 2000) has argued, in practice, it is indeed
difficult to distinguish clearly between profit-seeking and rent-seeking, as both can be beneficial
and detrimental – particularly for developing countries when there is an attempt to create economic
growth and productive sector development. Whether the effects are positive or negative depends on
other factors than rent-seeking, or rent-seeking in combination with the distribution of power in
society, the characteristics of the political institutions, state capacity and will to monitor rent
development and seeking. In the same vein, it is not enough to make a distinction between rents
obtained legally through political power and illegally as proceeds of fraud, embezzlement and theft
as in private common law, as illegal forms of rent seeking can be productive. This has been
illustrated well by the various Asian cases described in the business-state literature and Khan
(2000a; 2000b). Nor is the usual economic distinction between profits obtained consensually
(through a mutually agreeable transaction between buyer and seller) and non-consensually (by force
or fraud inflicted on one party by another) particularly helpful, as force can be necessary to
discipline profit/rent-seekers so that rents are used productively (Khan 2000a).


Khan’s broader point is that while the moral hazard of rent-seeking can be both considerable and
destructive, this cannot be decided in advance. Creating a favourable regulatory environment that
creates rents can indeed be necessary for developing countries to transform their economies, and the
question is what the relationship is between building more efficient production, on the one hand,
and the type of rent-seeking where a firm may reap incomes entirely unrelated to any contribution
to total wealth or the wellbeing of the nation, on the other.


The broader point is that while rent-seeking can create suboptimal allocation of resources and
growth when the wrong industries or firms are supported and money is spent on lobbyists and
counter-lobbyists rather than on production, research, development of technology, proved business
practices, training of employees and new capital goods investment – all of which can retard
economic performance and growth – this cannot be decided in advance. And as rent-seeking occurs
                                                                                                        26



in the form of lobbying for economic regulations such as tariffs or surcharges - lobbying as rent-
seeking can be ‘productive’ and indeed, can be stipulated by the government. In Mozambique it was
the government that asked for branch/interest group organisations to be created so they could
negotiate and lobby as groups instead of as individuals.


Much the same can be said for the need for information while monitoring, for example, learning
rents, where the relationship (in the business-state literature called collusion) between sugar firms
and the government agency assigned to regulate them indeed is intimate. This could in the literature
be seen as enabling extensive rent-seeking behaviour, especially when the government agency must
rely on the firms for knowledge about the market it has to regulate. Rent-seeking, then, may be
initiated by government agents, which can be in the form of soliciting bribes or other favours from
the individuals or firms that stand to gain from having special economic privileges, but it can also
comprise common practices like creating enabling environments for industry development in the
form of business organisations or protected markets based on surcharges. While it can exploit the
consumer, who pays for the rent in the price of sugar, it benefits the broader society with foreign
currency inflow, better credit ratings, job creation, income opportunities and social services, and
sugar gets distributed nationwide at a regulated price.


5. How the Industry was rehabilitated
In this section we will engage in some detail with four aspects of the state’s role in dovetailing and
coordinating the diverse political and commercial purposes and interests at play as the foreign
corporate sugar sector bought into the national rehabilitation policy. The four aspects are: financing
rehabilitation; limiting opportunities; creating rent opportunities; and institutionalising rent-
seeking.


The four aspects resemble in many ways what Peter Evans tried to capture with the terms
“midwifery” and “husbandry” (1995: 12; 1997: 75). Midwifery emphasised the nurturing role of the
state when prioritising between production units had to be catered for and the conditions for a
protected internal market through state intervention argued for and implemented. This was
important so that the industry could in the short to medium term operate in a manner where export
earnings and internal revenues could be generated, allowing for payment of loans taken in order to
pay for the rehabilitation. These loans were facilitated by the state, as we describe in the following
                                                                                                                          27



subsection. As the midwifery role succeeded, the role of the state changed and became more of a
husbanding role. While the state and government continued to promote the industry, largely with
the same people that initiated the process, it also became more protective of the gains. For example
the state continuously evaluated the progress of efficiency and competiveness in order to ward off
critiques of its protected internal market. This, in turn, presented many possibilities to spur on
expansion of cane production, as initially suggested by the policy/strategy of 1996, although this
did not become economically important until the EU market became available and the
compensation fund provided some funds for expansion through small producers organised in
associations. Capturing both moments and roles, the state and government actively promoted the
sector’s institutionalisation and organisation within the diverse constraints that international capital
poses, while capitalist, international and corporate industry actors over time also started to pursue
different interests and strategies.


Financing rehabilitation (or rent creation)
Initially, one of the enigmas was why the state continued to have such a large shareholding in the
industry after it became privatised. This, we suggest, was related primarily to how the rehabilitation
of the four estates/industrial plants was initially financed and not, as one could expect, solely a
question of Frelimo ideology as it evolved after independence. As Castel-Branco (2002: 201-202)
has correctly noted, “multilateral and commercial credit was made available” to the four companies
that were rehabilitated. How exactly this was done is a rather complicated issue but it holds the key
to understanding the substantial participation of the state in the industry until recently.20 As
Kaplinsky (2005: 77-78) argues, access to finance on good terms is important for understanding
investment patterns in general. In Mozambique, the quality of the financial system was and still is
poor, and interest rates, which today hover around 15-20%, were even higher before – if any capital
at all was available immediately after the civil war for such long-term and intensive investments as
the sugar industry demanded.21

20
   State shareholding in the sugar industry was partly related to the “debt swap initiatives” that formed part of the initial
restructuring of ownership that took place before actual privatisation was effected and partly to accessing favourable
loans for the actual process of rehabilitation. Debt swap dealt with old debt accumulated before and escalating after
1975 or new loans/credits necessary for paying out workers, pensions etc. which was swapped for shares by the Banco
de Moçambique, which became a main owner of the sugar industry by swapping shares before foreign investments were
made.
21
   We will not argue that this was the only reason for FDI involvement. For example, the sugar rehabilitation policy
stipulated the promotion of investments that were managed by various state entities in charge of the actual privatisation
process, such as the technical unit for enterprise restructuring (UTRE) that belonged to the Ministry of Planning and
Finance and the Centre for Investment Promotion (CPI) belonging to the Ministry of Industry and Trade. For a period of
                                                                                                                      28




An illustrative example of how financing changed the formal composition of the sector is the
shifting ownership structure of the Xinavane estate and industrial plant, the original name of which
was Sociedade Agricola do Incomati, or SARL. Xinavane was never nationalised or intervened in
like the other companies were after independence, but stayed in the hands of the South African
sugar company Tongaat-Hulett Ltd., the owner of which was the even larger multinational, Anglo
American.22 The company was formally operational after the civil war but at a very low level –
close to 8% of its capacity at the time of rehabilitation. Interestingly, Xinavane was not rehabilitated
before the state took up substantial shares in the estate. In 1990 SARL was dismantled and a new
company was set up, Acucareira de Xinavana, with the state as majority shareholder (51%) and
Tongaat-Hulett at 49% with the right to acquire more shares at a later stage. The Mozambican
state’s involvement was financed by loans from the Banco Árabe de Desenvolvimento (Arabic
Development Bank, BADEA), the Kuwait Fund and the OPEC Fund to the total value of 45 million
USD (Gobe 1997: 6). These were the loans used to rehabilitate the estate and industrial plant.


The reason for the shareholding change is that the rehabilitation was to a considerable extent
financed through the Mozambican state, which took “cheap loans” at various multilateral and
commercial credit facilities like development banks, special funds and facilities providing such
loans primarily to states at that time (this, according to present actors, has partly changed). As
explained by a director of one of the rehabilitated companies:
                Getting access to normal loans for the rehabilitation was not possible. This was a high
                risk business in a high risk environment. If one could get a loan then the interest rate
                would be so high it would not be financially feasible. Remember that this was a risky
                business environment, Mozambique was ending a civil war, a peace agreement had
                just been negotiated, there was a threat of social unrest and an infrastructure that had
                broken down. Transport, communication, electricity… all very complicated. Just think
                about the problems we had getting things through the custom authorities so spare parts
                and machinery could get through – it was like…very difficult. You have to understand
                Mozambique’s credit and risk rating then was very difficult. The government
                understood this and we found solutions. (Interview 2008, Maputo)

five years, starting in October 1999, the sugar industry benefited from a special regime that gave full exemption from
customs duties and other applicable taxes on equipment to carry out the project feasibility study and investment project
implementation. Also, building material and equipment necessary to carry out an approved investment project,
passenger cars for the companies provided that the value did not exceed 1% of the total value of the project as well as
raw materials, intermediate products and packaging materials used for production were exempted, though only for the
first production cycle. The regime also involved an exemption from customs duties on foreign investors’ and expatriate
technical staff’s personal belongings aimed at attracting qualified personnel.
22
   Anglo American had the majority shareholding in Tongaat-Hulett until 2008, when it sold off its sugar interests.
                                                                                                                   29




In such a situation, as former Finance and Prime Minister Luisa Diogo pointed out, the loans
negotiated for Mafambisse, for example, with the African Development Bank and the African Fund
had a double function. They aimed at rehabilitating Mafambisse, but they also sent a strong
message to the international sugar industry: “We want to rebuild the industry; we are serious and
are ready to take chances and assist” (Interview June 2010).


As the sugar companies got export revenues in - initially from the few limited preferential trade
agreements with the US and EU and less so from free market sales characterised by “dumping price
setting” (LMC 2004; 2006) - they paid off the ‘state debt’, so to speak. Here export revenues, due to
foreign currency constraints, were crucial for external debt payment and paid for the actual loan-
servicing besides also catering for the payment of a smaller fee to the state for the provision of
access to finance (interview Luisa Diogo 2009; 2010). As debt was paid off, state shares diminished
but its overall credit rating improved as it had been ‘punctual’ in servicing debt. The state’s
intervention in providing cheap finance was crucial for attracting foreign investments.


The point is that the Mozambican state (through Banco Mozambique) was still a main player in the
sugar sector after the first two waves of privatisation, with heavyweight South African and
Mauritian capital interests (capital, management and knowledge which was later taken over by large
French-Brazilian capital interests) increasingly becoming directly involved.23 Besides big corporate
international sugar interests, a few private investors, some of which were former sugar company
owners like the Petiz family from Portugal (who, after a court case, managed to get control over the
Maragra estate after the civil war), became involved after the restructuring and privatisation.




23
  Interestingly, the continued co-ownership by the Mozambican state has not been included in any of the discussions of
the privatisation of the sugar industry (the rather few studies include Gobe 1997; Castel-Branco et. al. 2001; 2002;
2008) or privatisation in general (Pitcher 2002).
                                                                                                                          30



Table 1: Ownership composition by 200024
Company                                Ownership                               Shares
Maragra Acucar, SARL                   Maragra SARL25                          50%
                                       Illovo Sugar Ltd.                       50%
Maragra Comercial, SARL                Maragra SARL                            75%
                                       Others                                  25%
                                                   26
Xinavane                               The State                               51%
                                       Tongaat-Hulett Ltd.                     49%
Mafambisse                             Tongaat-Hulett Ltd.                     75%
                                       The State                               25%
Buzi                                   Banco Mozambique                        67%
                                       The State                               33%
Marromeo                               Sena Holding Co.27                      75%
                                       The State                               25%
Luabo                                  Sena Holding Co.                        75%
                                       The State                               25%
(Source: Drawn from INA 2000: 11)


The particular way in which access to finance was provided created further links between the FDI-
driven sugar companies, the state bureaucracy and government. For each company the
state/government appointed one or two representatives consisting of highly ranked personnel from
either the party-state or state-business sector; for example the former director of the National Sugar
Institute (INA), previously in charge of producing the rehabilitation strategy, was deployed to the
administrative boards. Others were high-level Frelimo or state officials such as the former INA
director, who at one time served on all the four boards, while the new director of INA later served
on the board of Marromeo until 2009. For the FDI interests the board linkages were important, even
though there were clear differences between the three main conglomerates that de facto took over

24
   This ownership structure has since changed in various ways but primarily for the Sena Company (Marromeo /Luabo)
as new French-Brazilian capital has taken over. State shares have generally declined which is related primarily to debt
payment swaps as we have found no information related to any payments for state shares.
25
   The Maragra SARL had by 1999 an ownership structure that included: the Petiz Family (60%), Banco Mozambique
(17%), the State (17%) and Others (6%). The plant initiated production in 1999 after 15 years of closure. But what role
the state played after Illovo invested in 1996 is not easy to figure out as Illovo seems not to have funded the
rehabilitation through state-facilitated loans. As this was its first venture “into Africa” as it was described by a director
in 2008, it wanted to do it its own way and generally feared state involvement.
26
   Tongaat-Hulett Ltd. had the right to buy 11% of the shares from the state, which it did later in the process.
27
   The company was privatised in 1998 and Sena Sugar Estate was owned primarily by Mauritian capital. This has since
changed so Tereos, a French company, the world’s fourth largest sugar producer, took a 50% share in the Sena
Holdings Ltd. In 2007 Tereos’s sugar interests were concentrated in the Brazilian subsidiary Acucar Guarani SA, the
third biggest Brazilian sugar cane producer (Sena 2009: 1-2).
                                                                                                        31



the industry: first it was taken as a sign of government and state commitment to the industry; and
second, it provided privileged access points to the government and state when lobbying and
mediation became necessary, not only at central level but at provincial and district level.


For the state/government the linkages allowed it to follow the rehabilitation process closely,
monitor that the politically important aspects of the rehabilitation plan were followed and assist
when needed. In particular, it could make sure that the social dimension and gains anticipated by the
strategy were catered for as the economy at the different estates allowed, and that defection was
avoided and the companies honoured the finance deal, which ultimately had credit implications for
the government. But despite these mutual institutional safeguards, finance and credit is not given for
free, and revenue does not come by itself. There is a need for guarantees and for defining
investment priorities to ensure that revenue is generated and state-organised loans are paid back,
thus limiting the risk for all parties. In Mozambique the state/government did this by establishing a
pricing policy that created a protected internal market, by enforcing the policy, and by making sure
that not all available sugar producing facilities were rehabilitated, thereby limiting internal
competition. This leads us to the second aspect of how rehabilitation was facilitated by the state and
government related to prioritising among the available estate/ industrial plants, which was
concerned with exclusion and inclusion.


Prioritising among estates (or selecting rent seekers)
That only four out of six estates were rehabilitated can partly be explained by the limits to the
liabilities the state could expose itself to as the institution that de jure took out the loans. No doubt
the government and state personnel initially wanted to rehabilitate all six facilities and investors had
indeed been identified for five of them. But, as described above, the policy/strategy identified only
four estates for rehabilitation: Maragra and Xinavane in the south, Mafambisse in central
Mozambique and Marromeo to the centre/north.


For state-industry people there were important strategic issues that needed to be addressed,
considering how the regional and world markets for sugar were organised. One of them was how to
define the priorities for privatisation and rehabilitation so that excess productive capacity could be
avoided in the short to medium term while the industry was given a chance to become productive
and feasible. But they also knew that this had to be aligned with diverse political concerns related to
                                                                                                        32



the priorities of the Frelimo political fraternity, particularly the issue of territorial control in
Renamo areas (see the paper Why the Sugar Sector Was Rehabilitated).


There were five estates and industrial plants that were not operating and/or were severely
dilapidated besides Mafambisse, which by then was already under rehabilitation but encountering
serious management problems. Was it economically feasible to maintain all the companies? Was it
politically desirable to rehabilitate all the estates and mills? If politically desirable but economically
unfeasible, then based on what criteria should a mill and/or estate be closed or reopened? The issue
was, at its core, deeply political and related in interesting ways to a set of issues connected to
sharing of rents generated by political intervention and, later, marketing coordination strategies
(elimination of competition).


By selecting only four estates/industrial plants, the state and government made it a limited contest
among a closed group of selected companies, who could in the future exploit the rent opportunities
the Mozambican state offered in order to facilitate the industry formation/ rehabilitation.
Importantly, there would be no ‘excluded’ competitors as such, as none of the estates/industrial
plants deselected was operational. They could in the future become rehabilitated, but the time
horizon would be rather long and require substantial investments. Here it is nonetheless easy to
forget that while the 1996 rehabilitation policy/strategy anticipated the creation of a protected
internal market with sufficient profit margins to pay for the rehabilitation, this was all policy and
not a concrete reality or something easily done, with around 90% of all sugar consumed (private
and industry) unaccounted for. Considerable state intervention would be needed in areas where its
capacity was notoriously weak, and where it would be confronted with long-established trade
groups connected to Frelimo and the military and security establishment, as well as the state and
fiscal system and the political domain more broadly. The creation of an internal market, then, while
easily stated on paper, was circumscribed by considerable risks.


The total cost of rehabilitating the six sugar facilities was estimated at around 395 million USD for
the first phase, with the two facilities along the remote Zambezi River - Marromeo in Sofala
province and Luabo in Zambeze province – the most expensive at over 200 million USD.
                                                                                                                      33



Table 2: Estimated rehabilitation and upgrading costs (1996)
Xinavane        Maragra         Buzi            Mafambisse      Marromeo        Luabo           Total
                                                                28




49.5            50              35              50              100             110             394,5
                                                                                                million USD
Source: extracted from INA 2000: 8.


The four that were “prioritised for the implementation of the rehabilitation” were Mafambisse,
Xinavane, Maragra and Marromeo (INA 1996: 8). This meant that two companies were in the south
(Xinavane and Maragra), with easy access to the industrial and technical expertise in South Africa
and two (Mafambisse and Marromeo) were situated in the politically contested areas of Sofala
province (generally considered opposition territory), with one of these on the border with the
Zambeze province.


The Luabo industrial plant had been totally destroyed, was surrounded by a relatively limited
population and could be accessed only by boat along the Zambezi River. It was in the end not
considered feasible to rehabilitate due to the massive financial input needed (interview DNA 2008).
Buzi, on the other hand, would have been the cheapest to rehabilitate and had an easy access to the
port of Beira, but it also had the best other options available with rice, prawns, livestock and cotton
as alternatives and natural gas for exploitation, as it turned out. Although the Buzi River bed was
changing – a threat to the industrial plant (interview former director October 2010) – the plains
around the plant and the irrigation system were more or less intact and it would have made a
favourable place to invest. 29


But it seems prioritising was also intimately linked to making the future pricing policy effective, as
capacity had first to be incrementally increased for the protected internal market before access to
more lucrative export markets could be negotiated on a larger scale. Luabo, if reconstructed, would
have been the largest estate and industrial sugar plant in Mozambique, as it was during the colonial


28
   For the Marromeo/Luabo sugar plant the costs did not include the rehabilitation of the Sena railway line, on which the
plant depended before, nor the installation of electricity from the Cahorra Bassa Dam.
29
   At present the Petiz family, which now owns the Buzi, is negotiating with investors interested in rehabilitating the
estate and industrial plant, or rather building it in a new and more secure place. Initially, it seemed Illovo would have
been the investor but they bailed out and a new third party unknown to us may be interested, conditional on the
continuation of the surcharge.
                                                                                                      34



era, and Buzi the smallest. Therefore considering the combined weight and balancing out of
political and economic gains, the rehabilitation of the four estates/plants seems to balance fairly
well the diverse political, pragmatic and economic needs of the involved stakeholders – see also the
Why the Sugar Sector Was Rehabilitated paper. What is clear is that Castel-Branco’s argument that
prioritising was done solely in order “to avoid excess capacity” under pressure from “the three large
international sugar corporations” that ended up running the four sugar estates and mills (Castel-
Branco 2002: 179) does not capture the intricate considerations that made the diverse attributes of
support converge. For the Mozambican state and government there were good reasons that merged
both political, state administrative and economic considerations. The relationship between these
attributes of support is easy to overlook.


Creating rent opportunities
Much the same can be said about the issue of the pricing policy that created a protected internal
market. The policy was provided for in the Sugar Rehabilitation Strategy of 1996 and further work
would be done over the following years by administrative staff, consultants, the industry and
researchers fine-tuning, defending and legitimising its existence (see for example Gode 1997; FAO
2000; INA 2000; LMC and Global Sugar Consulting 2000; INA 2001; CEPAGRI 2006; LMC and
xxxx 2010). From the outset the strategy gave nominal policy guarantees for investors even before
the state had taken up all the loans on behalf of the industry. It came into effect in November 1997,
long before the industry was up and running. The actual implementation of the price policy, with its
flexible levy on sugar imports that catered for the creation and protection of an internal market, had
to wait until the new millennium. When it was approved it had little effect because there was not
enough sugar produced in Mozambique to protect – not even enough to honour the few and limited
preferential trade opportunities on offer to Mozambique from US and EU. But, as the industry
picked up after the 2000 floods, and as the estates/industrial plants became operational (with
Marromeo the first in 2002), and cane production rose and productivity increased, it became an
important political issue and created substantial public discussion.


The objective for creating a protected internal market was formally to:
              Create a favourable milieu in order to stimulate new investments in the sugar industry,
              promote efficient production and minimise the obstacles for developing the sugar
              sector caused by the nature of the world market (extremely volatile and based on
              dumping prices), the fiscal policy (lack of stability) and high risk confronting
              investors. (INA 1996: 10)
                                                                                                                     35




This was necessary first because of the residual nature of the world market, where 70% of sugar is
traded in closed and protected markets and only 30% is marketed openly – and this usually only
surplus production, which most of the time is sold at price levels below actual production costs
(INA 1996: 20-26; FAO 2000: 8). Secondly, more implicit but still traceable in the policy is what is
known as “the infant industry argument”, which suggests that in order to reach high levels of
productivity based on an economy of scale, market protection was a sine qua non. The 1996
strategy presented the principles for calculating the flexible sobre taxa or surcharge that would
follow international price developments (INA 1996: 76-77). When the price falls below a certain
historically determined reference price calculated over a three-year period and based on various
sources, a levy or import tax comes into effect (INA 2000: 14; LMC 2000: 1-3).30 The surcharge
would be calculated month by month and made public in the press.


In important ways the surcharge would become the single most controversial aspect of the whole
rehabilitation strategy, and in fact it became the litmus test for state and government commitment to
the sector as it involved a number of ministries and regional coordination of state and government
entities for enforcement. Furthermore it came to embrace reforms of complex state institutions like
border controls, customs and tax/VAT and immigration authorities, as well as impacting on
investment policies already in effect. The first serious issue that emerged was that the surcharge
included only raw cane sugar and not differential charges for raw and refined (white) sugar as all
other surcharges worldwide did. When the INA, on behalf of the industry and the government,
added a special charge for refined sugar, the upstream industries like Coca-Cola reacted as it
impacted on their investments.


The development of a differentiated surcharge tax that protected the upcoming industry also thereby
hindered free price-setting and made the market imperfect – responding to already imperfect market
conditions as sugar from Swaziland and South Africa, while cheaper, continued to benefit from
protection measures. The surcharge met severe resistance from: 1) downstream industries like
Coca-Cola and the South African Breweries-owned local beer companies that had come in with


30
   It follows the formulae: Sobretaxa= Preco de Referencia – Preco CIF (calculated price) (INA 2000:14). It is INA that
“calculates and publishes indicative c.i.f. prices for both raw and white sugar, based on prevailing […] world market
prices (including transport costs locally) […] and a margin of USD80/tonne for freight and insurance…” (LMC 2000:
2)
                                                                                                       36



substantial investments after 1990, as they were the biggest formal users of refined sugar and
paying the surcharge would substantially increase the cost; 2) the IMF and World Bank, which
became nervous as the surcharge imposed at the end of 1999 raised the ghost of the state-imposed
price setting system of the 1970s and 80s. However, the pricing system was implemented after a
compromise was brokered with the sugar user industries and after a long and fierce battle with the
IMF/World Bank, led by then deputy minister for finance and planning Luisa Diogo that included
all the top Mozambican journalists, the political government nomenclature including President
Chissano and Frelimo general secretary Manuel Tome, as well as many other bank and emerging
business dignitaries (see for example AIM No.170, 1st December 1999; interview Luisa Diogo
2009; 2010). Diogo made no secret of using the sugar debacle to castigate the IMF and World Bank
over the treatment of other productive sectors like the cashew industry, where state protection had
been withdrawn too sharply with dire consequences for the industry (see Cramer 2006: 266-268;
Hanlon 2000, Hanlon and Smart 2008; Macuane 2010 ). The then vice-minister wanted to show that
Mozambique could provide support to productive sectors without them becoming ineffective: It
would be done “like in the past, with central planning and a command economy but … in a
sensitive, effective and competent manner” (interview DNA 2008).


The controversy surrounding the establishment of the pricing policy and the internal market
epitomised one of the most important comparative entry points vis-à-vis other productive
agricultural sectors like cashew, cotton and tobacco and so forth. Comparatively the support for the
pricing policy may also be important when relating it to the more recent bio-fuel investments as the
sugar sector got able and coordinated support from the intellectual critical left, the political and
administrative nomenclature, the newly constructed private sector and the union movement
(Interview OTM 2008). This contrast sharply with how other sectors have developed. While the
struggle over the pricing policy has been used to argue that corporate “investors’ pressure forced the
IMF to withdraw its demand for the liberalisation of the industry” (Castel-Branco 2002: 201) it
seems clear that the state and government indeed were key players and coordinated actions were
taken. To see investment priorities and pricing policy as driven unilaterally by the interests of large
international sugar corporations neglects the active role of government and state as well as the
diverse motivations underpinning their interests. But to benefit fully from the pricing policy it
required substantial and coordinated work by a broad group of industry, state and societal groups
and political actors.
                                                                                                                       37




Institutionalising and monitoring rent-seeking
An interesting implication of the rehabilitation policy and the creation and protection of an internal
market is related to the institutional organisation of participants in the sugar sector. This can be
related to Khan’s discussion of the role of the state in monitoring and enforcing the benchmarks and
performance criteria that form part of politically creating rent opportunities. As such, it touches on
the broader “problem of coordination [that] arises from the asymmetric distribution of information
about price, product quality, and the possible opportunism of exchange partners in the light of
incomplete contracts” (Beckert 2009: 48). In particular the issue of opportunism by exchange
partners in the form of international corporate sugar conglomerates caused some problems for the
state and government, as they all invested based on their own corporate strategies and tactics and
over time became subsumed in even larger corporate strategic partnerships. This made
state/government intervention complicated as everybody required special treatment (Interview
Luisa Diogo, June 2010).


So although, as Beckert suggests, “exchange relations are inherently risky undertakings” (ibid.) as
they are premised on different strategies and tactics, it is important to find institutionalised
safeguards against possible defection. The institutional strategy, implemented almost perfectly over
the years, aimed to ensure that “the different sector interests – government (economy), industrialists
(producers and users) and agriculturalists (cane producers) coordinated their industry interests and
managed conflicts emerging from different interests” (INA 1996: 14). It is therefore suggested by
the initial strategy/policy that the three types of interests were reorganised so that they developed
their capacity to respond both together and individually (ibid. 79). In the concrete programme for
the creation of the internal market it was suggested that each company could market and sell sugar
individually within a “domestic quota system”, as the sector became liberalised (it was at this point
still formally under control of the INA) and when production levels allowed for it. Another avenue
was also mooted, namely: The option of defining one single export agency for national sugar in
order to reduce transaction costs, which could be a sugar producing association or a commercial
company contracted by the association after a public tender (INA 1996: 77)31

31
  The industry tried at first to run the National Sugar Distributor (DNA) with each of the four companies nominating a
person. But later on a public tender gave the managing contract to an internationally recognised company with a solid
managerial track record, capacity to mediate between different business interests and the state, as well as international
networks spanning Europe, Asia, Latin America and USA, bringing substantial organisational, marketing, and business
knowledge to the sector.
                                                                                                                      38




Along the same lines it was further suggested that “a division of revenues provided by the
preferential quotas, between the sugar companies in relation to annual production” should be
implemented that also included “non-preferential export by each sugar company” so they got
“remuneration proportional to exports channelled through the export agency” (ibid.). In the sugar
sector the state and government actively pressured sugar producers and users to organise themselves
in branch organisations, or what we positively could call ‘rent sharing organisations’. In important
ways this crystallised around the sharing of rents that the rehabilitation of the industry and
protection catered for:
a) The sharing of domestic rents generated by the protected market pricing policy (both revenues
and taxes);
b) The sharing of international rents generated from first preferential export quotas and later on
export access to the European and other markets; and
c) Rents created by preferential treatment of upstream industries, primarily in the beverage sector.


Importantly, institutionalisation evolved over the years as needs emerged, and as Luisa Diogo
argued:
                 We had to tell the owners of the four industrial plants to come to us when they could
                speak with one voice and had settled differences between themselves and had a
                solution they all agreed on. Before, they would come one by one and we used
                considerable time sorting out what the consequences would be for other actors if we
                assisted with this and that perdido (request). In the end we had to say ‘enough is
                enough: we want to assist but only when you have a common voice and have settled
                your internal conflict’. (Interview June 2010)

Here a special pact evolved with a sharing deal between producers and the state that by and large
eliminated, or at least limited, the shares/rents usually claimed by, for example, domestic traders
and/or the international free market industries characterised by dumping prices and industries
speculating in such dumping prices (for example Coca-Cola).32 In stark contrast to other industries,
the sugar industry managed to develop mechanisms of coordinating marketing strategies that
allowed the different companies to take advantage of international “preferential quotas and avoid
having to dump sugar into world markets” (Castel-Branco 2002: 179).


32
  For example by requiring a certain refinement level for the sugar used in beer and soft drink production - white sugar
of a certain grade and so forth – which was not available at that time in Mozambique, or if it was available it was
produced up-country in Sofala, making its use around the downstream companies in Maputo excessively costly.
                                       39



Conclusion
Outstanding
Literature
Beckert 2009
Cardoso 1993
Castel-Branco et. al. 2001;
Castel-Branco 2002:
Castel-Branco 2008
CEPAGRI 2006
CEPAGRI 2009: 12;
Cramer 2006:
Evans, Peter 1995
Evans, Peter 1997
FAO 2000
First 1983
Gode 1997
Hanlon 2000,
Hanlon and Smart 2008
Harrison, Tylor and Young 1999
INA 1996
INA 2000
INA 2001
INA 2004
INA 2005 Capítulo 1
INA 2005, Capítulo 6
INA 2005, Capítulo 7
INA 2006
Kaplinsky (2005
Khan and Jomo 2000
Khan (2000a;
Khan 2000b;
Khan 2010a;
Lall 1996;
LMC and Global Sugar Consulting 2000
LMC 2004
LMC 2006
LMC and xxxx 2010
Macuane 2010
MAP and INA 1996
Pitcher 2002
Sena 2009:
Tarp et al. 2002
Whitfield 2010

Savanna 2009December 25,

				
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