Competition Policy In Mozambique

1. General backgroundThe Republic of Mozambique became independent from Portugal in June 1975, after 10 years of freedom fighting headed by FRELIMO, a national freedom party. Initially Mozambique adopted a communism-oriented government with a centralised economy. The country suffered 16 years of civil war, which caused severe damage to human life as well as economic and social structures. One million people died, 1.7 million people sought refuge in neighboring countries, and about 3 million people were displaced from their home. Sixty percent of the countries primary schools, about 40 percent of its hospitals, and about 3,000 shops in the rural areas were destroyed. The war, coupled with the long-term drought that affected southern Africa in the 1980s, was primarily responsible for poverty in Mozambique.

In October 1995 a cease-fire agreement with the rebels was signed in Rome. Consequently, political and socio-economic stability began to emerge in the country. In October 1994, there was a general election supervised by the UN, establishing a democratically elected government.

The political and socio-economic situation in Mozambique in the last 7 to 10 years has been characterised by profound and rapid changes. These transformations are related to:

i. transition from war to peace, including rehabilitation of displaced populations and the rebuilding of destroyed infrastructure;ii. transition from a one party and one parliament government to a multi-party system and the establishment of democratic institutions;iii. transition from a centralised economy to a market economy ; andiv. transition from a centralised to a decentralised administrative system.

Mozambique is situated on the eastern coast of southern Africa, between 1027’ S and 2652’ S latitudes and 3012’ E and 4051’ E longitudes. The total land area is 784,090 sq. km. The country is divided into 10 provinces. About 70 percent of the country is covered by savannah and secondary forests. Approximately 45 percent of the land is classified as domestic land, including crop and permanent pasturelands

The total area of the exclusive economic zone (EEZ) is about 562 sq. km. The Mozambique coastline is about 2,700 km. in length and is characterised by a wide diversity of habitats, including sandy beaches, sand dunes, coral reefs, estuarine systems, bays, mangroves, and sea grass beds. Mozambique possesses over 100 rivers, and they annually drain about 208 cubic km. of water rich in nutrients into the coastal waters.

DemographyThe current population of Mozambique is estimated at more than 16.5 million. It is expected to grow at an annual rate of 2.5 percent, and by the year 2025 to reach about 35 million. About 40 to 45 percent of the population comprises of young people less than

15 years old. The working or active population (between ages 15 and 65) constitutes about 50 percent of the total population.

About two thirds of the Mozambican population live in the coastal zone, for easy access to food and employment facilities. Most of the large cities, tourist areas, industry and commerce are also located in this area.

Economy

The Mozambique economy is essentially dependent on agriculture (more than two fifths of GDP and the bulk of merchandise exports). Traditional export crops include seafood, sugar cane, cashew nuts, tobacco and cotton. The manufacturing sector is small, accounting (together with the mining sector) for some 19 per cent of the GDP; the major manufacturing branches include food processing, tobacco, beverages, textiles, and footwear. The mining sector has potential but remains underdeveloped. Mozambique is a net importer of service. The service sector is dominated by construction, tourism, transport, and communication.

Mozambique is among the eight poorest countries in the world. The country’s debt was around US$1 billion at the beginning of the 1990s. And had risen to US $5 billion by 1996. Several causes have contributed to the current critical economic situation in Mozambique:

i. The country inherited a destroyed infrastructures from the Portuguese at independence in 1975;

ii. Soon after, South Africa reduced the use of Mozambique’s harbours and a number of Mozambican workers migrated to work in the mines of South Africa;

iii. Production and export levels collapsed substantially;iv. The social and economic infrastructures were largely destroyed by the civil war;v. Planning and management of the economy was over-centralised; and vi. A long-term drought severely affected southern Africa in the 1980s.

As a result of these factors the GDP fell dramatically, the trade account deficit worsened, and public expenditures rose alarmingly.

Mozambique’s geographical position and resource potential offer ample scope for the country’s rapid social and economic development. Located on the seaside; it offers harbour and transportation facilities to neighbouring countries. Moreover, it also boasts of a variety of natural resources, including forests with diverse wildlife, minerals, water resources (and large potential for hydroelectric power production), and other marine and coastal resources.

In order to reverse the negative economic development, the Mozambican government initiated the Structural Adjustment Program in 1987, aimed at reducing state control over the economy, promoting the ‘family sector’ in agriculture, improving the marketing of agricultural products, adjusting internal and external trade imbalances, improving

resource distribution, and expanding the responsibility of the private sector in economic activities. In the process, most of the industries owned by the government were privatised.

The new government policy, coupled with the political and social stability, rendered positive results. From 1986 to 1989 GDP growth, increased from 0.9 percent to 5.3 percent, accompanied with an increase in consumption per capita. The government worked hard to bring down inflation and stabilise the national currency. From 1987 to 1990 inflation fell from 170 percent to 40 percent.

In spite of these economic achievements, the foreign debt was still high (and continues to be so even now) compared with the Gross Domestic Product and foreign earnings.

Presently, nearly seventy per cent of the population lives at or below the absolute poverty level. Sixty per cent of adults are illiterate. Approximately 16.6 per cent of Mozambican adults are HIV positive. Despite increased vaccination rates and improving access to basic health service, over 60 per cent of the population remain without access to health care, and life expectancy fairly low.

In 2003, the economy maintained its single digit inflation and attained a high growth rate, in spite of the floods and the banking crises in 2000/2001. The Mozal II aluminium smeltering plants and the SASOL gas pipeline were completed. Good rains in the north of the country produced a bumper crop of maize.

Progress has been remarkable in some areas with emergence of functioning national institutions, three peaceful elections, and the evolution of new political voices. However, significant barriers to good governance still remain. Opposition parties lack the requisite skills and resources to compete affectively and serve the interest of the people. Citizens’ participation in government decision-making is extremely limited. Corruption and poor service delivery continue to erode public confidence in government.

Mozambique ranks very highly in terms of agriculture development potential. Only a quarter of 36 million hectares of arable lands is currently being farmed on. Mozambique’s soil conditions are suitable for growing a wide variety of cash crops, including tobacco, maize, cotton, sugar cashew nuts, tea, copra, rice and tropical fruits. Mozambique would become one of the major food suppliers in whole of Africa, if its true agricultural output could be realized.

Mozambique’s industrial sector is not developed and mainly comprise of food processing, petroleum refinery, and other goods for export. Most of these industries (about 80 percent) are located in the two major cities Maputo and Beira - the capital and the second largest city, respectively.

Important industries include cement, oil refining, dairy, glass, textiles, pulp and paper products, wood processing, beer and soft drinks, tyre, sugar, salt and food processing (including cashew nut processing). Most of these industry plants are old and use obsolete

technology. Mozambican industry suffered the effects of the civil war. There was a steep decline in production at independence, after which there has been a gradual recovery.

Currently the industrial sector is working at about 35 percent of its capacity. The government is making efforts to develop the industrial sector to its full operational capacity, at the same time encouraging foreign investment in new and diverse industries.

Thus viewed today, Mozambique’s manufacturing sector appears small with production highly concentrated in a few sectors. It also exhibits a low degree of intra-sectoral linkages: most producers, with the exception of agro-processors, source their raw materials from abroad rather than from the local economy. In addition, manufacturing firms are overwhelmingly inward-oriented. Very few firms export a substantial portion of their output.

Together, these indicators establish that the country still has an early-stage, undeveloped manufacturing sector - hardly a surprising outcome given Mozambique’s recent histories. What has changed significantly in recent years is the ownership structure of manufacturing. The radical changes in ownership towards state control, which took place at independence, has been reversed. Privatisation of more than 850 entities has shifted ownership and control of most manufacturing enterprises into private hands, although the government continues to hold shares in some of them.

2. Social and Economic policies affecting competitionThere have been large variations in the ability of countries to benefit from globalisation of economic relations. With a few exceptions, most notably Mauritius, sub-Saharan Africa has so far “missed the boat”. However, there are encouraging signs in a number of countries that a decade of deregulation and of trade and investment liberalisation is beginning to pay off in the form of increased exports and global competitiveness in a variety of manufacturing sectors.

Domestic policies are the key to effective economic participation in the global economy (Flatters 2001b). First and foremost are trade policies – that are broadly neutral with respect to both imports and exports, and which in particular leave potential exports free of unnecessary regulatory burdens on investment, imports, employment, and production. However, in addition to ‘open’ trade policies, sound regulatory environment with telecommunications, transport infrastructure, education, law enforcement and a host of other factors are necessary in providing an enabling environment to promote trade, investment (foreign and domestic) and employment.

2(a) Trade PolicyMozambique has shown signs for ushering in domestic reform, aimed at improving the enabling environment for investment and promoting competition. There might be many things wrong with the global trading environment and the policies of some of the world’s most important trading countries. Mozambique can do little about that. Mozambicans, are starting to realise that the domestic policy environment needs improvement to give the

country an opportunity to participate in global trade, and benefit from the privatization process.

Mozambique has made great progress in tariff reform in recent years. However, there is still some room for improvement. Adoption of a much more uniform tariff structure would reduce the large and arbitrary different sectors. Lower tariff rates would reduce corruption and smuggling. They would reduce the anti-export bias of the current tariff structure. The effects on revenues could be positive or negative, but would not be important in budget that depends on trade taxes for only about 15 percent of total revenue. Strict disciplines should be imposed on any contingent protection measures introduced for ‘antidumping’ and ‘safeguard’ purposes defined by WTO. As international experience has show, there is very real danger that, even with WTO disciplines, such measures will be captured and used for arbitrary protection.

The biggest burden of barriers to international trade is borne by exports. The freeing of exports from these costs cannot always await slow paces of reform in import tariffs, customs and trade facilitation. Reform of FIAS facilities and removal of all other unnecessary barriers that burden exporters with the costs of the domestic regulatory environment must be one of the highest priorities in trade policy reform in Mozambique

2(b) Investment PolicyThe FIAS report (FIAS 2005) clearly documents many of the basic problems in what best might be termed Mozambique’s ‘’disabling investment environment’’. While Mozambique has attracted several large capital-intensive investments based on natural resource availability, it has had far less success in attracting investments that capitalize on abundant labor resources, and that would contribute in more direct way to employment growth and poverty reduction. Problems in labor laws, land procedures, tax systems, the financial sector, company laws and regulations, telecommunications, transport, law enforcement, corruption, etc. all beg reform. Removal of these administrative, legal and systemic barriers has been a slow process. And yet these reforms are a critical complement to effective trade policies.

A vigorous privatisation program, combined with strong foreign investment is having its impact on the manufacturing sector. The low cost electricity, combined with highly competitive wage ranges should act as a major catalyst for industrialization. To support this process generous investment incentives exist and the Government has introduced legislation allowing the establishment of free zones for exports oriented investments. Mozambique's preferential access to major markets in the U.S. and EU should act as a powerful magnate for many labor-intensive industries. Manufacturing currently accounts for some 10% of the total, but with the Mozal Aluminium Smelter Project, the contribution of the manufacturing sector will rise significantly and should lay the platform for a massive downstream industry completely altering the structure of the Mozambican economy.

2(c) Industrial Policy

The Mozambican industrial policy and strategies was approved by the council of ministers in 1997. This document claims that the priority of the government of Mozambique (GOM) for industry are (Small and Medium Enterprises) SMEs, national entrepreneurship and diversification of productive capabilities output and exports. Only a couple of very vague paragraphs mention foreign direct investment (FDI) and the regional and international context of industrial development in Mozambique. This document does not establish any instruments that would allow the government to implement its policies and mobilise the cooperation of the private sector, and the policies and strategies written have very little relevance given the general context under which industrial development takes place in Mozambique.

As a result, between 1998 and 2000 some 40 per cent of SMEs owned by national entrepreneurs closed down. Foreign owned or foreign associated firms almost exclusively make industrial investments. Production and exports have become significantly more narrowly specialised, and dynamic sectors of industry with rare exception, are found almost exclusively amongst large, FDI driven firms. More generally, there is no strategy to address and provide a strategic framework to the development of SMEs with the context of dynamics large scale FDI.

For example, Mozambican firms have consistently failed to take advantage of opportunities for industrial linkages to develop with large FDI based projects not only because they lack crucial capabilities but also because there is no clear strategy to a such weakness. In very rare individual cases more Mozambican firms have managed to establish and benefit from such linkages, mostly because they either have associated them selves with the foreign partners, or they are only affiliates of foreign firms.

Private enterprise support programs directed towards SMEs, usually lack clear strategies and sets of priorities for capacity building. Apart from providing training and some institutional facilitation to those firms that are interested, these programs have generally done little. In most cases, it is not known what the real impact of training and institutional facilitation is, as most SMEs find it difficulties to translate the training and knowledge acquired into real business practices. There are obviously some exception, such as the case of the cashew processing plants in the province of Nampula, which have not only received training but have also benefited from highly subsidised business services that include the making of business and financial plants, medium term technical assistance, technical support in the choice of, and even design, of technology and layout of the plants, access to equipment, etc. Nevertheless, there is no set of policies adequately addresses the SME issues. It may be noted in this context that SMEs often play an important role in the competition process. Moreover, as competitors are likely to enter as an SME first, this is an important aspect of entry barriers or contestability in the market.

2(e) Development Policy Macroeconomic Policy ReformsTo counteract the disastrous economic situation described above, the government of Mozambique introduced a comprehensive market-oriented “Economic Rehabilitation

Program” (ERP) in 1987, with assistance of the International Monetary Fund (IMF) and the World Bank. Subsequently, the reform effort was renamed “Economic and Social Rehabilitation Program” (ESRP) in 1989 to put focus on the social dimension of the adjustment effort.

The objectives of the reforms were initially to raise production levels, reduce financial imbalances, eliminate parallel markets and create a basis for future economic growth. In particular, the plan was to increase marketed agricultural production by the family sector by an average growth rate of 29 per cent per year between 1987 and 1990 and boost industrial output and transport activity by average annual growth rates of 12 per cent and 23 per cent, respectively (Economist Intelligence Unit 1996).

The ERP as originally conceived included a series of stabilization measures such as fiscal adjustments, monetary restraint and devaluation of the currency. In the line with the market-oriented nature of the program, substantial price and trade liberalization has also been pursued with a view to promote a more efficient allocation of resources.

On the fiscal side, the government tried to enforce more rigorously the fixed limits on expenditures by state owned companies after the adoption of the ERP.

Financial sector reforms were speeded up in 1992 with the separation of commercial and central bank functions of the “Banco Comercial de Moçambique”, has not performed well despite tightened lending criteria and credits to public enterprises since 1993. private bank activities have expanded since the introduction of financial reforms, and interest rates were fully deregulated in June 1994. Indeed, real interest rates on loans became positive in the late 1991 for the first time since independence in order to promote savings and make credit allocation more efficient.

The official exchange rate was brought to more realistic levels after the introduction of the ERP, and an official market for foreign exchange was introduced in 1990. As pointed out above, the government gradually controlled fewer prices, and subsidies were progressively lifted from food and other items. Consequently, consumer prices of imports and domestic goods and marketed crops rose considerably towards commercial market clearing rates during the early reform period, and the annual inflation rate and the liberalization of foreign exchange markets.

Macroeconomic Performance after ERPStatistical data in Mozambique is particularly weak, even compared to other African countries. However, at the end of the civil war in 1992, Mozambique ranked among the poorest countries in the world. It still ranks among the least developed nations. The last decade, however, has experienced a notable economic recovery for the country. Mozambique was the first African country to receive debt relief under the initial HIPC (Heavily Indebted Poor Country) initiative. In April 2000, Mozambique qualified for the Enhanced HIPC program as well and attained its completion in September 2001.

2(f) Government Procurement PolicyTendering – prevention of competition? Government procurement policy is an important component of competition policy as government is the single largest buyer in the economy and hence plays a significant role in the market. In Mozambique, it is necessary for companies to be registered in Mozambique if they aim to work as independent entities (i.e. not as part of another Mozambique-registered company or consortium). If a company is not registered in Mozambique, it is usually disqualified from working on its own at all in Mozambique, and the government departments will not accept a tender from such a company.

The bulk of the tenders published are governed by two main systems of procurement, overseen by two different government departments. If this was not confusing enough, the 2 systems operate under completely separate legislation, and require registration on separate databases.

The situation is so complex that under one ministry (the Ministry of Education) there are (at present) 4 different procurement policies, which apply. But with support from external donors the Mozambique government has started a review of the procurement policies.

Apart from the legislated or practical procurement policies being implemented in the various government departments, there is a general tendering practice that is governed by ordinary Mozambican law. This means that in a case of an unfairly adjudicated tender, an aggrieved ‘tenderer’ would appeal directly to the law courts for redress, rather than to a Central Tender Board.

The Mozambique authorities insist that they do not have any preferential procurement policies. Experience shows, however, that government departments and municipalities generally have a few local Mozambique companies that tender successfully for all their contracts. In other countries, such a tendency would be seen to be encouraging corruption, elitism and nepotism. Such practices discourage competition from new entrants.

Government tenders are published in the daily government newspaper, Noticias, which comes out every day from Monday to Saturday. Some of the larger tenders are advertised in the South African and other international media as well.

As the Mozambique government is financially quite cash-strapped, many of the new contracts put out for tender, are mostly funded by the World Bank or other external funders. Such contracts are usually open to international competitive bidding, but sometimes these tenders favor companies from the funding agency’s home country.

3. Nature of Market CompetitionMozambique is characterized by a small economy and an equally small domestic demand. Across most industries, Mozambique’s domestic demand is small compared to

that required for minimum efficient scale. Minimum efficient scale is the scale of the production corresponding to lowest possible costs. Thus, industry concentration in Mozambique is relatively high because demand is sufficient for only very few firms in each sector of economic activity. High concentration need not imply market power: after all, free entry of products into Mozambique ensures competition on price and quality. In addition, a weak judicial system acts as a barrier to entry, limiting investments that could increase productivity. Mozambique’s legal system is fragmented and its practitioners are under-trained, poorly paid and ineffective. The private sector has little confidence in the system. Corruption is tainting Mozambique’s legal and judicial sector.

Consider Mozambique’s thriving informal sector. It plays a formidable role in disciplining prices in many tradable goods. It has few and low barriers to entry and numerous participants. Its continued presence prevents the emergence of a successful pricing cartel. Its vigour is related directly to the taxation and tariff structure as well as to other elements of the trade regime. In other words, the informal market is prima facie evidence of the distortionary effects of tariff and taxes as well as lax law enforcement. Thus, it is not surprising that curtailing the agility and vigour of the informal sector is a prime goal of private business lobbies.

The government regards legislative and regulatory reform, together with enhanced institutional capacity as a strategic plan for developing the judicial system. The government is prioritizing the adoption of legislation that would foster private sector activity and develoment. The state is also committed to intensifying its efforts to simplify regulations and reduce ‘red tape’. In this regard, an Inter-ministerial Commission for Removal of Administrative Barriers has been set up to oversee the implementation of priority measures for reducing ‘red tapism’.

4. Competition Policy in MozambiqueThe adoption of a competition policy in many countries has been as a result of conditionality or the quid-pro-quo to bilateral financial assistance or other similar initiatives. Hardly ever has adoption of competition policy been preceded by national introspection, debate, and the deliberation of the policy’s advantage and disadvantages or a candid assessment of institutional capacity to administer a policy programme. Mozambique is among the few nations to consider competition policy adoption preceded by an elaborate process of national debate on the subject.

A recent (March 2004) study supported by the USAID recommended adoption of a staged approach for developing a competition law in Mozambique. It further prescribed the law to focus exclusively on prohibiting price-fixing behaviour, and suggested the newly established competition agency to take up competition advocacy as a priority activity.

Further, a ‘working group’ within the Ministry of Trade and Industry was required to be established to serve as the focal point for garnering support, funding, assistance, training,

education, and constituency building. The following tasks were recommended for this ‘working group’: Develop a competition law proscribing naked cartels, prohibiting price-fixing, and

empowering a competition agency to review proposed bill or statute within the government.

Begin developing a competition policy for the country. Examine alternatives to competition law enforcement. Plan for a Competition Agency (Authority), which is independent; gradually extends

its scope of enforcement; embrace competition advocacy functions.

The Ministry of Trade and Industry in Mozambique has started preparing the ground for a competition policy to become a reality by 2006, and has plans to subsequently draft the competition law for the country. The Ministry has appointed two officials of the designation of Directors to oversee all activities pertaining to competition policy and law in the country. A ‘working group’, comprising of various stakeholders (including civil society organisations) with basic orientation of competition policy and law has also been constituted. This working group has been meeting regularly and discussing plans of action.

Mozambique has many institutional constraints that might render a wide-spectrum approach for competition administration difficult: little tradition in competition; limited jurisprudence in the subject; limited capacity to administer laws; little or no confidence in the legal system; no natural constituency for a competition agency; constrained budgets and scarce human capital. Given the above, implementing a focused competition legislation seems more realistic and inexpensive than managing the full instrument of a comprehensive competition system in the country.

Mozambique’s present state of economic transition stands to gain considerably from encouraging market entry and investment.

5. Interface between Competition and Economic Regulation

Telecom SectorThe telecommunication sector in Mozambique is in the process of being liberalised. Since 1992, the government has embarked on a disengagement strategy that actively encourages private sector participation in the production and delivery of goods and services that formerly were furnished or assured by the state. The Telecommunications law sets forth the following objectives: Promotion of the availability of high quality telecommunications services; Promotion of private investment in the telecommunications sector; Promotion of fair competition and consumer protection; and Increased telecommunication access and advanced information services nation-wide.

Article 18 of the Telecommunications Law (Law 22/92) prescribes the following for the protection of competition:

“…1. The public telecommunications operator must ensure that all telecommunications operators use the public telecommunications network under equal conditions of competition. 2. When the public telecommunications operator provides complementary telecommunications services or value added services, any unfair competition or abuse of its predominant position is forbidden. 3. The use of circuits rented from the public telecommunications operator is limited to the user himself or to the provision of complementary services and value added services. Their re-sale is forbidden…”

Telecomunicações de Moçambique (TDM) is an independent State owned firm responsible for the provision of public telecommunications services. TDM was transformed into a publicly owned business firm by Decree No. 23/92 on September 10, 1992, as a part of the larger economic reform in the country. TDM was restructured to function as a commercial entity with financial autonomy, and it has responsibility for planning, installation and operation of the national and international network.

In addition to establishing TDM as an independent company, the Instituto Nacional das Comunicacoes de Mocambique (INCM) was established as an independent regulatory body under the umbrella of the Ministry of Transport and Communication (MTC). INCM undertakes several responsibilities, including licensing, spectrum management, formulation and interpretation of sectoral policies, international relations, and defining and monitoring compliance.

Mozambique remains one of the least developed markets in Africa, but peace in recent years is slowly transforming it into on of the fastest-growing economies on the continent. The mobile sub-sector has experienced triple-digit growth rates almost every year since 1997. In a bid to encourage competition, the state owned telecom company TDM was converted into a limited company in 2003, and its mobile subsidiary ‘MCel’ was spun off into a standalone company. The sale of a majority stake in TDM to a strategic investor is in the pipeline, and a second fixed-line operator is to be licensed by 2007.

Mozambique’s state-run fixed line provider Telecomunicações de Moçambique (TDM) is planning to invest USD50 million over the next two years to expand its infrastructure backbone, anticipating competition in the wireline market. Mozambique was one of the first African countries to reform its telecommunications sector, having partially liberalised the domestic long-distance (DLD) and international long-distance (ILD) segments in 1999, but TDM still enjoys a de facto monopoly on the provision of local, DLD and ILD voice services. This is expected to run for five years after the incumbent is privatised, although the exact duration of its exclusivity remains at the discretion of the government. The sale of part or all of TDM was originally slated for 2004, but has yet to materialise.

Financial servicesMozambique has implemented various financial sector reform, including creation of an independent central bank and liberalization of the financial sector, however, the financial

system remains quite small and extremely dominated by banking. The banking sector in Mozambique is comprised of eight commercial banks, all of which are majority – owned by foreign firms. The sector is highly concentrated with the Portuguese – owned Banco Internacional de Moçambique (BIM) holding over 50 per cent of all banking assets. The baking sectors reach remains limited to large companies and the capital Maputo. In general, the banking system is characterized by a high level of non performing loans and increasing dollarization.

The banking sector is regulated and supervised by Banco de Mozambique, the central bank. The microfinance industry in Mozambique is growing. Capital markets in Mozambique are very small and centered around the Bolsas de Valores de Moçambique (BVM), which opened in 1999. Trading, however, is limited to government bonds and a few corporate bonds. The insurance and pension sectors are also small. Despite recent privatization efforts, the insurance market remains dominated by the state-owned insurer, which provides all types of insurance services. The ministry of finance regulates the insurance sector. The International Finance Corporation (IFC), United States Agency for International Development (USAID) and FMO (Netherlands) have provided assistance in developing micro-finance institutions that extend lending service to rural areas (2003).

Energy Use of modern energy is a strong factor in economic growth and in human development. Modern healthcare, a vibrant private business sector and education all entail the use of energy. Mozambique is endowed with huge energy resource. The Cahora Bassa dam, is one the largest hydropower installations in Africa with the capacity of 2,074 Mw. Mozambique has potential to build capacity equivalent to six times of Cahora Bassa. Moreover, reserves of natural gas are being exploited and gas is exported via a new pipeline to South Africa. The chances of locating oil appear to be promising. Mozambique also just started exploring reserves of coal, which are estimated at 10 billions tones.

In its national strategy to combat poverty, the government of Mozambique has identified the energy sector as one the main areas for investment. Already electricity is being exported to neighbouring countries and it is also the foundation for the major foreign direct investment. Provided the infrastructure can be upgraded Mozambique has the energy to sustain a considerable rate of growth.

The Energy Fund (FUNAE) funds energy project in rural areas, which are otherwise difficult to reach with investment. FUNAE seeks to promote projects that ensure economically and environmentally via energy provision to be the poor in rural areas. As part of the program FUNAE receives foreign assistance to support the national power utility, Electricidade de Mozambique (EDM) in its reorganization into a commercial competitive organization well equipped to expand and operate the national grid to new parts of the country. Furthermore, a number of investment project, that expand strengthen the national grid, are being carried out as part of the program. In August 1997 a new Electricity Act was approved by the Parliament to define:

• general policy for the organisation of the electrical energy sector and the administration of the supply of electrical energy; and

• general legal framework for electrical energy generation, transmission, distribution and sale within the country, as well as its exportation to and importation from outside of the national territory, and granting concessions for such activities.

New municipal legislation was enacted in 1997, giving municipalities certain functions in investment planning and the operation of electricity services in local authorities. The objectives were to follow up the intentions of the Electricity Act reforms through the granting of concessions, including proposals for tariff regulation.

The National Directorate of Energy (DNE) is a central organ of the Ministry of Minerals Resources & Energy, responsible for study, conception and development of energy policies. The organisational structure of DNE, was approved 16th of April 1997 by ministerial decree and the main tasks of DNE are as follows:• to study, to propose and to administer the energy policy in the country; • to promote the diversification of energy use and optimise the use of various energy

sources; • based on the development of the economic perspectives of the Country, to determine

environmental issues, to provide the plans and the programmes for the development of the sector;

• to promote and to maximise the rational use of the national energy sources with relevance to the installed capacity, namely, through the encouragement of investors;

• to promote the co-operation with public and private institutions, national or foreign, in achieving the maximum potential in the technical development and sector regulation.

Water SupplyUnder National Water Policy approved in 1995, the government is undertaking a broad reform of water supply provision aimed at moving toward delegated management, and improving its regulation and financial planning. In December 1998, the legal framework for private sector participation, a regulatory board for water, and a water tariff policy were all approved. With respect to urban provision, the government completes the contracting out to full private sector management the water supply services in five major cities (Maputo, Beira, Quelimane, Nampula and Pemba) in 1999.

The government has introduced tariff adjustments to ensure the improvement and the sustainability of water provision. An integrated water sanitation and hygiene strategy is completed by 2002. with regard to rural water supply, the government has begun implementation of a Rural Water Transition Plan. The plan, which is to be extended to all provinces, aims at transforming the planning and delivery of rural water and sanitation services from a supply-driven model to a sustained demand responsive approach, characterized by community management, cost recovery, and the involvement of the private sector.

6. Regional Integration

There is enormous room for improvement in the prevailing international arrangements and institutions, especially from the perspective of the development needs of poor countries. However, small countries such as Mozambique have very little leverage in the evolution of these institutions. Limited domestic resources, together with the inherently weak influence of small countries over international agreements are key factors in deciding how to allocate scarce policy resources between domestic and international policy reform. Regional trading arrangements thus play a key role.

Within this domestic and international context, we now go on to examine some important trade policies issues facing Mozambique. These key issues arising from participation in regional agreements.

The SADC Trade Protocol The Trade Protocol suffers from several key and possibly even fatal weakness. Without improvement in some of these key areas, the Trade Protocol is likely to be of very little value in increasing regional integration or the development of its Members States. The major reason for this is back loading and differentiation of tariff reduction schedules. Mozambique’s preferential tariff reductions are heavily backloaded, especially on trade with South Africa.

- the gains from tariff reductions will come only when Mozambique reduces its import duties;

- the greatest gains are likely to come on imports from South Africa rather than other Member States, from whom Mozambique imports very little.

SADC protocol on trade deals with competition policy as well and exhorts member states ‘to implement measures within the community and prohibit unfair business practices and promote competition. Thus there is sufficient ground for SADC to go for a regional competition policy and/or harmonised national competition rules. It is however not clear if it has made any progress in this regard in recent times.

7. Consumer Protection

8. Conclusion Competition in markets, reinforced by sound competition policy and law as part of a range sound public policies, does appears to contribute to growth, with growth leading to poverty reduction. This is a view that appears to have broad endorsement from Mozambique. Mozambique does not have a competition law. The reasons are:

- Some activities are felt to have greater priority in the use of scarce financial and human resources;

- Policy makers remain to be convinced that introducing a competition regime would be worthwhile;

- Some time Mozambique is undecided, particularly on the relationship with the effect of competition law on development and poverty reduction.

There are strong links between competition policy and numerous basic pillars of economic development. There is persuasive evidence from all over the world confirming that raising levels of competition have been associated with increased economic growth, productivity, investment and increased average living standards. Markets are powerful mechanisms that, within the right framework, work to society’s advantage.

However, markets sometimes fail to work effectively. The causes of market failure include anti-competitive practices and the misuse of market power. Competition law is an important strand of competition policy. When used appropriately, it provides the means for anti-competitive practices to be identified, for their effects to be analysed, and for any necessary remedial action to be taken. The existence of competitive markets can reduce the scope for corruption, because impersonal market forces replace other types of decision-making.

Having a competition law extends this benefit, because of the increased transparency that is provided for examining competition problems. Success within the law depends on an understanding of and an ability to deal with the domestic constraints to competitiveness in the Mozambican economy. Achieving sustainable economic growth and poverty reduction depends on overcoming domestic constraints to effective participation in the global economy. The challenge is large. But the potential returns are also large.

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