- At independence in 1975 Mozambique was the world's leading cashew producer, and processed cashew kernels were the country's most important export.
But by the end of the war in 1992, production had tumbled, the national cashew orchard had a high proportion of old or diseased trees, and state-owned processing plants badly needed new investment. So the state cashew company was broken up and sold off in 1994-95.
Mozambican companies bought the processing plants on the assumption that the industry would continue to enjoy government protection from foreign competition.
But in late 1995, as a condition for over US$ 400 million in loans, the World Bank demanded the liberalization of the raw cashew trade. This meant reducing the export surtax on raw nuts, even though all those involved - the industry, the traders in raw nuts, and the government - had agreed on a 26 per cent surtax, designed to encourage domestic processing.
Under World Bank pressure, the surtax came down to 20 and then to 14 per cent, a level which the cashew industry described as "ruinous," making it impossible to compete with traders selling raw nuts to India.
By late 1998, the industry was fighting for its life. Ten of the 15 sizeable processing factories had closed, with over 5,000 workers laid off. The reason for the crisis was summarized by Mr. Kekobad Patel, chairman of the Cashew Industry Association. "There is currently a processing potential for 50-60,000 tonnes of nuts," he said, "but only 40,000 tonnes are being marketed and half of those are exported."
The World Bank argued repeatedly that liberalization would improve the prices paid to farmers for their nuts. However, an independent study by the international consultancy firm Deloitte and Touche, commissioned by the Ministry of Industry, Trade and Tourism and funded by the World Bank, found that the benefits of liberalization mainly went to the traders, not the farmers.
It rejected as inaccurate World Bank claims that the industry was so inefficient that Mozambique would earn more money by exporting raw nuts rather than processed kernels. On the contrary, the Deloitte study found that, on average, Mozambique would gain an extra US$ 150 per tonne by exporting processed nuts.
Parliamentary members of the ruling Frelimo Party reacted to the World Bank pressure by calling for a total ban on the export of raw nuts for the next 10 years, a proposal backed by the remnants of the processing industry. In September 1999, parliament passed a compromise bill raising the surtax to 18-22 per cent, with the exact level to be determined each year, based on prevailing conditions. World Bank officials were reported to have tacitly agreed to the compromise.
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