Mozambique. 1. Trade structure and patterns. 1.1 Aggregate trade

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1 Mozambique 1. Trade structure and patterns 1.1 Aggregate trade Mozambique s trade balance with the RoW has become increasingly negative in the five years to 2002, as Table 1 shows, with notable drops in 2000 and 2002 due to surges in domestic demand for imports, accompanied by a lesser increase in export production. As Table 1 illustrates, the value of imports doubled in 2000, and continued to increase up to These were partially offset by a near trebling of exports in 2001, which also continued to grow, although at a slower rate than imports. A consistently negative trade balance may be considered normal for an aid-dependent, poor country such as Mozambique, reflecting demand for high-value manufactured goods which outstrips the income from exports of low-value primary goods. However, as this report will show, fluctuations in the overall trade balance with the RoW also reflects Mozal, the US$1.4-billion mega-project whose size relative to Mozambique s economy as a whole was very significant. The Mozal aluminium smelter, under construction from 1998 to September 2000, increased the value of goods imported in those years, particularly in the final stages of Since all production is exported, the start of production at full potential in 2001 was reflected in a surge in the value of world exports in that year, and a marginal increase in As well as exporting all production, all major production inputs to Mozal are imported, which explains the continued high level of post-construction imports. Additionally, construction of a second phase of Mozal, which was set to double aluminium production capacity, further increased imports from The second phase was completed in April 2003 and reached full production capacity later that year. Despite Mozal s importance, it is likely that import demand will continue to be far greater than the country s export performance, even when aluminium production is excluded. Although Mozal has also had a sizeable impact on Mozambique s trade balance with SADC and SA in particular, Table 1 shows that both exports to and imports from SA grew at a lower rate than with the RoW over the period 1998 to SA imports increased in 1999, 2000 and 2001, largely due to Mozal-related imports of construction materials and subsequently of some raw inputs to the aluminium process, in particular electricity and pitch. In addition, implementation of the SADC Trade Protocol from 2000 may also have had an impact on the trade Mozambique 87

2 Table 1: Mozambique s trade balance with the world, SA and the RoSADC, (MT-trillion) Growth (%) Exports Imports Trade balance Exports to SA Imports from SA Trade balance with SA Exports to RoSADC Imports from RoSADC Trade balance with RoSADC balance with SA, gradually reducing the tariff rate on products imported from SADC countries and potentially inducing more demand for SA imports in particular. Implementation of the SADC Trade Protocol may also account for the fact that demand for RoSADC imports grew faster than RoSADC exports. Although it represents only a small absolute amount of imports, growth is notably higher than for imports from any other region, implying a marginal concentration of imports from the region. In contrast, the fact that growth in exports to the RoW has been faster than growth in exports to SA and the RoSADC implies a slight diversification of exports away from the region, contrary to what one might expect from the SADC Trade Protocol, implying either a lack of RoSADC demand for exports from Mozambique, due perhaps to the similarity of export goods with those of RoSADC countries, or supplyside constraints which limit exports to the region. Given the small size of RoSADC trade and despite the high growth in exports to the RoW and SA over the period 1998 to 2002 and gas exports to SA from 2004, Mozambique s import dependency suggests that import growth in the medium term will continue to result in a trade deficit for the foreseeable future. Exchange rate movements appear to have had only a marginal role in the trade balance in terms of the elasticity of demand for imports, with the trade balance continuing to decline despite continued depreciation of the Mozambican metical against the US dollar by 24% in 2000, 32% in 2001, 14.8% in 2002 and 0.5% in The exchange rate with the SA rand has been more erratic, with a depreciation of 11.6% in 2000, 9.6% in 2001 and 34.4% in 2003, and a small appreciation of 0.6% in 2002, the year in which the Rand appreciated considerably against the US dollar. 88 Trade Performance Review

3 1.2 Top 10 import sources and export destinations The importance of SA trade with Mozambique is illustrated in Table 2, which shows the top 10 sources of imports and destinations for exports in SA supplied 25.1% of Mozambique s total imports and absorbed 18.8% of its exports in that year. This is related to Mozal, but more fundamentally to the two countries proximity and the good infrastructure linking Maputo and the south of Mozambique to SA, in particular to the industrial province of Gauteng. As a result, many of Mozambique s manufactured goods and machinery imports originate from SA, while SA receives a certain share of exports, mostly raw unprocessed goods, for processing, with some goods also being transported to SA through the port of Maputo. Table 2: Top 10 sources of imports and destinations for exports (2002) Imports Exports Country Value (MT-million) Share of total (%) Country Value (MT-million) Share of total (%) 1 South Africa 7,426, Belgium 6,548, Portugal 1,786,, South Africa 2,968, US 1,291, Sweden 1,351, India 1,243, Not specified 923, Japan 986, Zimbabwe 860, Saudi Arabia 580, Japan 676, France 519, Portugal 651, China 392, Spain 623, Namibia 326, Malawi 238, United Arab Emirates 325, US 154, The dominance of SA imports is further underlined by the relatively small share of imports supplied by Portugal, the second-largest source of imports to Mozambique in 2002, and a country with which Mozambique clearly has historical and linguistic ties. As can be seen, most of the countries in the list of top 10 importers are those with comparative advantage in supplying manufactured goods of one type or another. Interestingly, Mozambique s exports are more highly concentrated than imports. As Table 2 shows, 41.4% of all Mozambique s exports go to Belgium, mostly due to aluminium exports. Other countries which feature in the top 10, other than SA, are Sweden, with 8.5% of the country s exports, Japan with 4.3%, Portugal with 4.1% and Spain with 3.9%, illustrating the importance of developed countries in purchasing Mozambique s exports, mostly primary commodities such as fruit and vegetables and shellfish, where Mozambique s comparative advantage is most likely to lie. Mozambique 89

4 Focusing on the country s imports and exports from the RoSADC, Table 2 shows that Namibia is the only other SADC import source in the top 10, although it only provides 1.1% of all imports. The role of other SADC countries in supplying imports to Mozambique is thus marginal. This is explained by the fact that, in common with these countries, Mozambique s imports are dominated by manufactured goods and its exports by primary goods (excluding aluminium), providing few complementarities with other SADC countries and perhaps also reflecting poor infrastructure links between these countries. Exports to the RoSADC are higher than imports, with 5.4% and 1.5% of exports going to the neighbouring countries of Zimbabwe and Malawi, respectively. Most of this is exports of raw agricultural produce for processing and consumption, although it also includes electricity and petroleum products. Significantly, both Zimbabwe and Malawi are landlocked countries, so Mozambique provides their most direct route to ports. Clearly, impediments to intra-sadc trade remain fairly high for Mozambique due to factors relating to geography and infrastructure even trade within Mozambique is costly. Therefore most Mozambique-SADC trade are restricted to the neighbouring countries of SA, Zimbabwe and Malawi Exports and imports by region As might be expected, Mozambique s imports and exports by region show that imports are dominated by SADC, representing 27.9% of all imports. However, the importance of SA in Mozambique s imports implies that only 2.8% of Mozambique s imports are sourced from other SADC countries. The EU also represents a relatively large share of Mozambique s imports, closely followed by Asia due to imports from Japan, India and China, all of which feature in the top 10 list of import countries. Similar to imports and exports by country, in regional terms, exports are also more concentrated than imports, dominated by exports going to the EU due to large aluminium exports to Belgium, although Sweden, Portugal and Spain also contribute to the share of EU exports from Mozambique, as discussed in section 1.2. The importance of the EU in Mozambique s exports is related to the EBA and Cotonou agreements, which allow duty-free access to European markets for most goods from Mozambique. Table 3 shows a large share of imports to Mozambique under the category Other, which implies imports from unspecified locations another indication of the need to improve the quality of data. 18.8% of exports to the SADC region were destined for SA, with 7.2% going to other SADC countries, mainly Zimbabwe and Malawi. 1 However, one should note that the high proportion of exports that is unclassified signals that the quality of the data needs to be improved. 90 Trade Performance Review

5 1.4 Fastest growing import and export partners Mozambique has experienced growth in both its imports and exports over recent years, indicating potentially important future trade partners and signalling increases in SADC trade, albeit from a low base. Two caveats are worth noting, however. First, as discussed earlier, the metical has broadly depreciated against the main trading currencies of the rand and the US dollar an analysis of growth in Mozambique s trade figures in terms of meticais may therefore reflect different rates of depreciation and an increase in trade. In addition, it is worth highlighting that over the period 1999 to 2003, Mozambique experienced severe flooding in the south (2000) and in the centre of the country (2001), with major impacts on infrastructure and therefore on national and regional trade patterns. These events have the potential to distort an analysis of Mozambique s trade partner growth, as well as other economic analyses over the period. Keeping this in mind, one can see from Table 4 that the two fastest growing import sources between 1999 and 2003 were the Middle East countries of Iran (196.4%) and Lebanon (178.3%), whilst Egypt and the UAE were fifth and ninth on the list, with growth rates of 143.8% and 89%, respectively. Given that only the UAE featured in the top 10 import sources in Table 2 (with 1.1% of total imports), the Middle East is still quite far from being a region of major trade partners for Mozambique, despite these high growth rates over the period. Nonetheless, it is an interesting development since no trade agreements exist with these countries, and serves to indicate their increasing prominence in supplying particular goods such as petroleum (Iran), and chemical products, plastic and rubber (Iran and Lebanon). Table 3: Exports and imports by region (2002) Region Exports (MT-million) Exports (%) Imports (MT-million) Imports (%) SADC 4,105, ,251, NAFTA 179, ,420, EU 9,409, ,698, MERCOSUR 51, , Japan 676, , China 29, , Africa (excluding SADC) 39, , Oceania 2, , (Other) Americas 1, , (Other) Asia 371, ,945, (Other) Europe 7, , Other 936, ,212, Mozambique 91

6 The appearance of Argentina as one of the fastest growing import sources is related to cereals and minerals, especially iron, although again, its absolute share continues to be relatively small. Sweden showed the greatest growth in exports between 1999 and 2003 (637.5%), followed by Belgium (245.1%) and Denmark (209.7%). Growth in exports to Scandinavian countries may be the result of trade agreements such as the Nordic-SADC accord (see section 5); however, as Table 4 shows, East Asia is clearly also growing as a destination for Mozambique s exports, with China, Singapore, Taiwan and Japan all on the list of 10 fastest growing export destinations over the period. In these cases, Mozambique exports products of a more traditional nature, including wood, seafood products and cotton. Again, one should note that, at this stage, these countries play only a minor role in purchasing Mozambique s exports, as Table 2 shows. Although not the fastest growing import countries, the SADC countries of Zambia and Namibia also feature in the top 10, implying some increase in regional trade, particularly in the case of Namibia, since the country is also ninth on the list of top 10 import partners. Fast-growing exports to SA also represent a positive development in terms of intra-sadc trade, potentially indicating the positive effects of declining SA tariffs against Mozambique s exports and increasing export capacity on the part of Mozambique over the period 1999 to No other SADC country features in the top 10 fastest growing export destinations, however. Table 4: Fastest growing trade partners ( ) Imports Exports Country Value, 2002 (MT-million) Average growth (%) Country Value, 2002 (MT-million) Average growth (%) Iran (Islamic Rep. of) 46, Sweden 1,351, Lebanon Belgium 6,548, Argentina 208, Denmark 6, Norway 49, China 29, Egypt 13, Singapore 27, Ireland 220, Taiwan 29, Zambia 1, Australia Bulgaria 1, Canada 24, United Arab Emirates 272, Japan 676, Namibia 57, South Africa 2,968, Trade Performance Review

7 Table 5: Commodity composition of imports (2002) Product Share of total imports from world (%) Share of total imports from South Africa (%) Share of total imports from RoSADC (%) Ch 1: Live Animals Ch 2: Vegetables Ch 3: Animal or Vegetable Fats Ch 4: Prepared Foods Ch 5: Mineral Products Ch 6: Chemicals Ch 7: Plastics Ch 8: Leather Ch 9: Wood Products Ch 10: Wood Pulp & Paper Ch 11: Textiles Ch 12: Footwear Ch 13: Stone & Glass Ch 14: Precious Metals Ch 15: Base Metals Ch 16: Machinery Ch 17: Vehicles Ch 18: Scientific Equipment Ch 19: Arms & Ammunition Ch 20: Misc. Manufactures Ch 21: Art & Antiques Ch 22: Unclassified Commodity composition of trade Some of this chapter s earlier findings on trade with individual countries are confirmed by Table 5 s data on the commodity composition of imports to Mozambique. Due to classification difficulties, 33.7% of total imports are categorised as unclassified goods. Excluding this category, the most important import commodity is mineral products (with a share of 12.6% of total imports from the world), probably due to the country s need to import the raw materials alumina and pitch for aluminium production. The categories of machinery & electrical equipment and vehicles, which both represent 10.6% of total imports from the world, are third on the list of import commodities, highlighting Mozambique s dependence on imports of higher value-added goods. In keeping with the importance of aluminium production, the main import commodity from SA is also mineral products (with a share of 25.7% of total imports from SA), again most probably made up of pitch used for the aluminium smelting process. Vehicles (15.9%) and machinery (15.1%) also represent a high proportion of imports from Mozambique 93

8 SA, reflecting the country s comparative advantage in these goods. However, it should be noted that many of these vehicles are in fact second-hand Japanese vehicles, imported to SA (Durban in particular) expressly for the purpose of re-export to non-sacu countries. Commodities imported from the RoSADC also illustrate the varying comparative advantages in the region. Live animals and animal products represent 41.6% of such imports, potentially reflecting Mozambique s efforts to rebuild its livestock population after the 2000 and 2001 floods. This is followed by prepared foodstuffs, beverages and tobacco, which represent 10.5% of imports from SADC countries excluding SA. Imports from SA and the world therefore follow roughly the same pattern in terms of commodity type, whilst the small share originating from the RoSADC countries have, rather unsurprisingly, a different commodity structure. Turning to commodity exports, as expected due to its aluminium production activities, Mozambique s exports are highly concentrated in base metals and articles of base metal (53.9% of all exports to the Table 6: Commodity composition of exports (2002) Product Share of total exports to world (%) Share of total exports to South Africa (%) Share of total exports to RoSADC (%) Ch 1: Live Animals Ch 2: Vegetables Ch 3: Animal or Vegetable Fats Ch 4: Prepared Foods Ch 5: Mineral Products Ch 6: Chemicals Ch 7: Plastics Ch 8: Leather Ch 9: Wood Products Ch 10: Wood Pulp & Paper Ch 11: Textiles Ch 12: Footwear Ch 13: Stone & Glass Ch 14: Precious Metals Ch 15: Base Metals Ch 16: Machinery Ch 17: Vehicles Ch 18: Scientific Equipment Ch 19: Arms & Ammunition Ch 20: Misc. Manufactures Ch 21: Art & Antiques Ch 22: Unclassified Trade Performance Review

9 world). This is followed by live animals and animal products (14.6%), presumably including shellfish, and mineral products (10.1%) due to exports of mined heavy sands. Export patterns to SA are broadly similar in structure, with the exception of textiles and textile articles which represent 14.4% of all exports to this country. 1.6 Fastest growing import and export commodities Fastest growing export commodities In terms of growth in exports of individual products to the world, over the period 1998 to 2002 aluminium has clearly grown the fastest, as shown in Table 7. Although this is followed by pharmaceutical products, suggesting that exports of Mozambique s manufactured goods are growing fastest of all product groups, this probably relates to the investment in a factory producing plasma that opened in 2001 and subsequently closed at the end of 2002, hence its appearance as a high-growth commodity in the period under analysis. As the list shows, there has also been relatively strong growth in primary commodities such as agricultural goods, animal products and stones and minerals between 1998 and The appearance in the table of chemical Product Table 7: Fastest growing exports to the world (average growth rate ) Value, 2002 (MT-million) % growth H76: Aluminium and articles thereof 8,380,755 1,485.6 H30: Pharmaceutical products 14, H41: Raw hides and skins (other than furskins) and leather H20: Vegetables, fruit, nuts, etc, food preparations 1, H71: Pearls, precious stones, metals, coins, etc 26, H57: Carpets and other textile floor coverings H38: Miscellaneous chemical products 6, H89: Ships, boats and other floating structures 54, H68: Stone, plaster, cement, asbestos, mica, etc articles 3, H34: Soaps, lubricants, waxes, candles, modelling pastes 1, H69: Ceramic products 1, H93: Arms and ammunition, parts and accessories thereof H19: Cereal, flour, starch, milk preparations and products H23: Residues, wastes of food industry, animal fodder 373, H73: Articles of iron or steel 87, H04: Dairy products, eggs, honey, edible animal products, nes H21: Miscellaneous edible preparations 3, H61: Articles of apparel, accessories, knit or crochet 178, H11: Milling products, malt, starches, inulin, wheat gluten 10, H02: Meat and edible meat offal Mozambique 95

10 products and soaps suggests that manufacturing exports are increasing, although the value of such exports is still relatively small. The fastest growing commodity export to SA falls within the miscellaneous manufactured articles category, as shown in Table 8, followed by aircraft parts and plastics. Again this suggests that manufactured exports are gaining prominence and growing faster than traditional primary exports to SA. However, some of this may be related to what might be considered re-exports of manufactured goods, with anecdotal evidence suggesting that parts from decommissioned military and commercial aircraft may be exported, registering as exports of aircraft parts. Capacity also exists for the production of basic manufactured goods such as plastic water tanks and tubes using imported plastic, indicating an increasing use of market access to SA in some sectors. In terms of size, the high growth of exports in the category mineral fuels, oils and distillation products is very important. This category includes electrical energy and may reflect increasing demand from SA for hydroelectric energy produced at the Cahora Bassa dam in central Mozambique. Table 8: Fastest growing exports to South Africa (average growth rate ) Product Value, 2002 (MT-million) % growth H96: Miscellaneous manufactured articles H88: Aircraft, spacecraft, and parts thereof 9, H39: Plastics and articles thereof 12, H27: Mineral fuels, oils, distillation products, etc 583, H73: Articles of iron or steel 83, H34: Soaps, lubricants, waxes, candles, modelling pastes 1, H17: Sugars and sugar confectionery H23: Residues, wastes of food industry, animal fodder 372, H07: Edible vegetables and certain roots and tubers 2, H61: Articles of apparel, accessories, knit or crochet 159, H20: Vegetable, fruit, nut, etc food preparations H08: Edible fruit, nuts, peel of citrus fruit, melons 133, H74: Copper and articles thereof 4, H05: Products of animal origin, nes H44: Wood and articles of wood, wood charcoal 58, H01: Live animals H62: Articles of apparel, accessories, not knit or crochet 155, H25: Salt, sulphur, earth, stone, plaster, lime and cement 14, H40: Rubber and articles thereof 96, H03: Fish, crustaceans, molluscs, aquatic invertebrates nes 421, Trade Performance Review

11 Fastest growing exports to the rest of SADC, as Table 9 shows, are in printed materials, followed by oil seed and oleagic fruits. The latter indicates growth in agricultural exports, consistent with increased investments in agriculture and irrigation that have taken place in recent years, although most of the fastest growing exports to the RoSADC remain relatively small in absolute terms. Perhaps most noteworthy is the larger tobacco sector which has increased its exports to RoSADC countries by 56.9%, reflecting increases in tobacco production and its export to Malawi for processing. Table 9: Fastest growing exports to the rest of SADC (average growth rate ) Product Value, 2002 (MT-million) % growth H49: Printed books, newspapers, pictures, etc H12: Oil seed, oleagic fruits, grain, seed, fruit, etc, nes 2, H09: Coffee, tea, mate and spices H11: Milling products, malt, starches, inulin, wheat gluten 9, H25: Salt, sulphur, earth, stone, plaster, lime and cement 14, H24: Tobacco and manufactured tobacco substitutes 210, H15: Animal, vegetable fats and oils, cleavage products, etc 40, H68: Stone, plaster, cement, asbestos, mica, etc articles H94: Furniture, lighting, signs, prefabricated buildings 2, H27: Mineral fuels, oils, distillation products, etc 787, Fastest growing import commodities Fastest growing imports from the rest of the world, as Table 10 shows, are mostly made up of manufactured goods, consistent with previous interpretations in this chapter and what might be considered inputs into production, with consumer products seeing relatively low growth rates. The appearance of aircraft at the top of the list is probably related to the renewal of Mozambique s national airline (LAM 2 ) fleet and the aircrafts relatively large cost in relation to other imports, as well as their increased maintenance requirements. High growth in plastics imports is consistent with the significant growth in plastics exports described in section 1.6.1, given the country s need for imported raw materials. Compared to world imports, as Table 11 illustrates, the fastest growing imports from SA are concentrated in consumer products. Consistent with the earlier analysis, imports from SA are growing at a slower rate than world imports. The largest sector on our list of fastest growing imports from SA is mineral fuels. While some of this may be related to increases in fuel prices, as discussed previously this sector includes electrical en- 2 Linhas Aereas de Mocambique Mozambique 97

12 ergy. These imports are therefore most likely to represent the large amounts of energy consumed by the Mozal aluminium plant, which is (re)imported from SA as no domestic transmission lines exist to transport energy from Cahora Bassa to the south of the country. Finally, the fastest growing import goods from the RoSADC fall within the categories of more simply produced goods, as Table 12 shows. Interestingly, seafood is the largest of these fast growing import sectors. In fact, although Mozambique has a long coastline and exports great quantities of seafood, imports from the RoSADC represent a significant amount, with high growth most probably due to imports of carapau frozen fish from Namibia, a staple of the Mozambican diet (it appears in the basket of goods used for the consumer price index). In agreement with earlier analyses, and despite their small share compared to total imports, the growth rates of imported commodities from the RoSADC are generally higher than those of the fastest growing imports from SA, again suggesting that trade liberalisation may be having an impact on Mozambique s trade with the RoSADC, although this has yet to reach high absolute levels. Table 10: Fastest growing imports from the world (Average growth rate ) Product Value, 2002 (MT-million) % growth H88: Aircraft, spacecraft, and parts thereof 844, H46: Manufactures of plaiting material, basketwork, etc H39: Plastics and articles thereof 1,223, H45: Cork and articles of cork 1, H93: Arms and ammunition, parts and accessories thereof 2, H58: Special woven or tufted fabric, lace, tapestry etc 6, H30: Pharmaceutical products 573, H05: Products of animal origin, nes H27: Mineral fuels, oils, distillation products, etc 3,470, H96: Miscellaneous manufactured articles 41, H59: Impregnated, coated or laminated textile fabric 37, H49: Printed books, newspapers, pictures etc 201, H36: Explosives, pyrotechnics, matches, pyrophorics, etc 15, H97: Works of art, collectors pieces and antiques H66: Umbrellas, walking-sticks, seat-sticks, whips, etc 4, H24: Tobacco and manufactured tobacco substitutes 99, H35: Aluminoids, modified starches, glues, enzymes 10, H03: Fish, crustaceans, molluscs, aquatic invertebrates nes 374, H34: Soaps, lubricants, waxes, candles, modelling pastes 164, H76: Aluminium and articles thereof 58, Trade Performance Review

13 Table 11: Fastest growing imports from South Africa (average growth rate ) Product Value, 2002 (MT-million) % growth H46: Manufactures of plaiting material, basketwork, etc H81: Other base metals, cermets, articles thereof H59: Impregnated, coated or laminated textile fabric 28, H66: Umbrellas, walking-sticks, seat-sticks, whips, etc 3, H93: Arms and ammunition, parts and accessories thereof 1, H96: Miscellaneous manufactured articles 25, H27: Mineral fuels, oils, distillation products, etc 1,738, H58: Special woven or tufted fabric, lace, tapestry etc 4, H65: Headgear and parts thereof 2, H49: Printed books, newspapers, pictures etc 43, H53: Vegetable textile fibres nes, paper yarn, woven fabric H06: Live trees, plants, bulbs, roots, cut flowers etc 1, H26: Ores, slag and ash H55: Manmade staple fibres 8, H95: Toys, games, sports requisites 6, H35: Albuminoids, modified starches, glues, enzymes 6, H76: Aluminium and articles thereof 41, H33: Essential oils, perfumes, cosmetics, toileteries 67, H34: Soaps, lubricants, waxes, candles, modelling pastes 147, H82: Tools, implements, cutlery, etc of base metal 25, Table 12: Fastest growing imports from the RoSADC (average growth rate ) Product Value, 2002 (MT-million) % growth H56: Wadding, felt, nonwovens, yarns, twine, cordage, etc 49, H85: Electrical, electronic equipment 14, H45: Cork and articles of cork 1, H74: Copper and articles thereof 1, H68: Stone, plaster, cement, asbestos, mica, etc articles 43, H02: Meat and edible meat offal 10, H29: Organic chemicals 1, H31: Fertilisers 10, H63: Other made textile articles, sets, worn clothing etc 5, H03: Fish, crustaceans, molluscs, aquatic invertebrates, nes 324, H48: Paper & paperboard, articles of pulp, paper and board 11, H28: Inorganic chemicals, precious metal compound, isotopes H20: Vegetable, fruit, nut, etc food preparations 5, H87: Vehicles other than railway, tramway 50, H82: Tools, implements, cutlery, etc of base metal 1, H73: Articles of iron or steel 14, H70: Glass and glassware H08: Edible fruit, nuts, peel of citrus fruit, melons 1, H35: Albuminoids, modified starches, glues, enzymes H24: Tobacco and manufactured tobacco substitutes 72, Mozambique 99

14 2. Trade intensity with the SADC region This chapter s analysis has already referred to the fact that Mozambique s exports are considerably more concentrated than its imports in terms of trading partners, despite the high level of import dependency on SA and rapid growth in RoSADC imports. Table 13 s high export intensity index confirms this, suggesting that either Mozambique s exporters prefer trading with SADC countries, or that SADC consumers prefer Mozambique s exports to exports from the RoW. If accurate, this potentially suggests positive effects of the SADC Trade Protocol on regional trade for Mozambique s exporters, although earlier analyses suggest that these are concentrated in SA, since the value and growth of exports to the RoW and to SA was far higher than for the RoSADC. SADC countries import intensity index is lower than the index for export intensity but still relatively high, again mainly due to the high import dependence on SA. Table 13: Trade intensities for exports and imports in 2002 Exports Imports Intra-industry trade, ITC COMTRADE and own calculations As might be expected, and is shown in Table 14, intra-industry trade (IIT) between Mozambique and the RoW is very high in only a small number of commodities, and includes instances of what is not strictly IIT. The presence of pneumatic rubber tyres as one of these commodities is consistent with Mozambique s tyre production, which is only for industrial use, whereas the domestic demand for rubber tyres for commercial vehicles must be satisfied with imported tyres. As discussed earlier, much of the electricity produced by Mozambique s Cahora Bassa hydroelectric dam in the central west of the country is purchased by Eskom and exported to SA. However, electricity is then re-imported to the southern parts of Mozambique, in particular for the Mozal aluminium smelter (electricity being one of its main inputs). Here, a lack of infrastructure actually accounts for the high level of the Grubel-Lloyd index. Other Grubel-Lloyd indices are lower but potentially reflect similar situations. In particular, poor transport infrastructure within Mozambique can mean that goods are attained more cheaply by importing them than by purchasing and transporting the same goods from another part of the country. This is most vividly illustrated by past drought periods when 100 Trade Performance Review

15 grain has been shipped from abroad to the centre of the country rather than transporting surplus grain overland from the northern parts of the country. Notably, the weighted average of total IIT with the RoW is very low at just 0.08, reflecting the trade patterns one would expect from a low-income country such as Mozambique that exports mostly primary commodities and imports mostly manufactured goods. Table 14: Intra-industry trade with the world: top 15 commodities (HS4) in 2002 HS code Commodity Grubel-Lloyd index Exports (MT-million) Imports (MT-million) H4407 Wood sawn, chipped lengthwise, sliced or peeled ,882 43,494 H4011 New pneumatic tyres, of rubber , ,388 H2716 Electrical energy ,329, ,002 H2701 Coal, briquettes, ovoids etc, made from coal ,466 12,993 H1701 Solid cane or beet sugar and chemically pure sucrose ,255 83,673 H2401 Tobacco unmanufactured, tobacco refuse ,919 82,414 H7208 Hot-rolled products, iron/steel, width>600mm, not clad , H1005 Maize (corn) , ,110 H3923 Containers, bobbins and packages, of plastics ,746 49,447 H7310 Tank, cask, box, container, iron/steel, capacity <300l ,613 60,813 H8703 Motor vehicles for transport of persons (except buses) , ,062 H9403 Other furniture and parts thereof , ,164 H8428 Lifting, handling, loading machinery nes ,249 41,966 H8708 Parts and accessories for motor vehicles ,822 43,494 H8501 Electric motors and generators, except generating sets , ,388 Weighted average of total intra-industry trade 0.08 As Table 15 illustrates, the commodities with the highest Grubel- Lloyd indices with respect to SA are broadly the same as those for the RoW, with electricity, tyres and wood products exhibiting the highest IIT. This reflects the fact that SA is the main recipient of these exports from Mozambique, particularly in the case of tyres and electrical energy. Although the weighted average of total IIT is still low, it is considerably higher than for the RoW, possibly due to the importance of the abovementioned commodities in trade with SA. As has been true for many aspects of our analysis, the pattern of IIT with the RoSADC is different to that with the RoW and with SA. As Table 16 shows, wood products again feature high on the list but are closely followed by milk and cream, and furniture parts, with all other products having a relatively low Grubel-Lloyd index. Again the weighted average of total IIT is low, only marginally higher than for the RoW, highlighting the importance of a small number of products in which there is a high level of IIT with the RoSADC. Mozambique 101

16 Table 15: Intra-industry trade with South Africa: top 15 commodities (HS4) in 2002 HS code Commodity Grubel-Lloyd index Exports (MT-million) Imports (MT-million) H4011 New pneumatic tyres, of rubber ,635 94,679 H2716 Electrical energy , ,480 H4407 Wood sawn, chipped lengthwise, sliced or peeled ,841 41,823 H2701 Coal, briquettes, ovoids etc, made from coal ,375 12,493 H3923 Containers, bobbins and packages, of plastics ,746 37,008 H8501 Electric motors and generators, except generating sets ,362 21,276 H8705 Special purpose motor vehicles ,204 19,867 H8428 Lifting, handling, loading machinery nes ,956 28,422 H7310 Tank, cask, box, container, iron/steel, capacity <300l ,613 57,745 H8426 Derricks, cranes, straddle carriers, crane trucks ,238 27,055 H8429 Self-propelled earth moving, road making, etc machines , ,136 H8422 Machinery for dish washing, bottle washing, filling ,605 17,626 H8711 Motorcycles, bicycles etc with auxiliary motor ,121 31,610 H7311 Containers for compressed, liquefied gas, iron, steel ,057 6,459 H8502 Electric generating sets and rotary converters ,917 25,584 Weighted average of total intra-industry trade 0.17 Table 16: Intra-industry trade with the RoSADC: top 15 commodities (HS4) in 2002 HS code Commodity Grubel-Lloyd index Exports (MT-million) Imports (MT-million) H4407 Wood sawn, chipped lengthwise, sliced or peeled ,477 1,594 H0402 Milk and cream, concentrated or sweetened H9403 Other furniture and parts thereof , H8544 Insulated wire and cable, optical fibre cable H2401 Tobacco unmanufactured, tobacco refuse ,919 71,076 H9406 Prefabricated buildings H8704 Motor vehicles for the transport of goods ,477 8,087 H8716 Trailers and non-mechanically propelled vehicle nes ,497 H8703 Motor vehicles for transport of persons (except buses) ,930 13,229 H1207 Oil seeds and oleaginous fruits nes H8414 Air, vacuum pumps, compressors, ventilating fans, etc ,004 H1102 Cereal flours other than of wheat or meslin , H8702 Public-transport type passenger motor vehicles ,156 H2711 Petroleum gases and other gaseous hydrocarbons , H1005 Maize (corn) , Weighted average of total intra-industry trade Trade Performance Review

17 4. Tariff analysis Almost one-third of SADC products (as a proportion of HS6 lines) enter Mozambique tariff free, as indicated in Table 17. A larger number are subject to tariffs of between 5% and 9%, while only marginally less than one-third face tariffs of between 30% and 39%. With a substantial proportion of goods continuing to face high tariff levels, Mozambique s market can be said to be fairly highly protected. The second and third columns of Table 17 give the tariff incidence in terms of imported volumes. Under the terms of the SADC Trade Protocol, the reduction of Mozambique s tariffs on imports from SADC has been scheduled in such a way that they remain relatively high compared to the front-loading and mid-loading countries that were scheduled to liberalise at a quicker pace. Thus only 15% of imports from SADC are tariff free and only 25.6% are subject to a tariff of between 5% and 9%, whilst a far larger 58% of SADC imports continue to face tariffs of 30% to 39%, indicating a relatively high level of protection against SADC imports despite five years of the SADC Trade Protocol. Most of the liberalisation will take place in the period 2007 to 2012, except on imports from SA for which trade is scheduled to be tariff free by Due to the relatively small weight of SADC trade in total trade, world imports face overall lower tariff barriers than imports from SADC, with the proportion of imports subject to zero tariff (29.8%) being close to the number of tariff lines also subject to zero tariff (30.0%). In world trade terms, the greatest proportion of goods face tariffs of between 5% and 9%, with only 15.3% subject to tariffs of between 30% and 39%. The reason for this difference can be ascribed to the policy of providing protection for the country s industries, such as sugar production and beer, against particularly SA goods, but also to the revenues generated from imports. Approximately 16% of Mozambique s tax revenues in 2002 came from tariff revenues, rising to 40% when VAT and the consumption tax on imports are included, the loss of which would clearly have a detrimental effect on government revenue. A graphical representation of Table 17 is provided in Figure 1, again highlighting the higher level of tariffs faced by imports from SADC countries compared to world imports and in terms of product lines. However, the backloading of Mozambique s tariff reduction means that these tariffs will be reduced over the next three years, leaving a substantially altered tariff structure for SADC imports. Mozambique 103

18 Table 17: Tariff analysis: SADC (2002) Tariff % of total HS 6 lines Imports from SADC (%) Total imports (%) 0% % - 4% % - 9% % - 14% % - 19% % - 29% % - 39% % Figure 1: Tariff analysis: SADC (2002) 70% 60% 50% 40% 30% 20% 10% 0% 0% 1%-4% 5%-9% 10%-14% 15%-19% 20%-29% 30%-39% 40% % of total HS 6 lines Imports from SADC Total imports To allow for comparison, Table 18 and Figure 2 provide the same tariff analysis for SACU as Table 17 and Figure 1 did for SADC, thus excluding several SADC countries. They show that, in terms of product lines, SACU trade is marginally more liberalised than SADC trade in general. With broadly similar numbers of product lines facing zero tariff and tariffs of between 5% and 9%, the main difference is that no product faces tariffs of between 30% and 39%. Products instead face lower levels of tariffs between 20% and 29%. In terms of the proportion of Mozambique s imports from SACU, more of these face lower tariffs than imports from SADC, with 62.2% of SACU imports facing tariffs of between 5% and 9%. 104 Trade Performance Review

19 Table 18: Tariff analysis: SACU (2002) Tariff % of total HS 6 lines Imports from SACU (%) Total imports (%) 0% % - 4% % - 9% % - 14% % - 19% % - 29% % - 39% % Figure 2: Tariff analysis: SACU (2002) 70% 60% 50% 40% 30% 20% 10% 0% 0% 1%-4% 5%-9% 10%-14% 15%-19% 20%-29% 30%-39% 40% % of total HS 6 lines Imports from SADC Total imports, 5. Trade agreements planned and in force Mozambique is party to the SADC Trade Protocol and a beneficiary of the African Growth and Opportunity Act (AGOA), Everything But Arms (EBA) and the Cotonou Partnership Agreement (CPA). In addition, under the Generalised System of Preferences (GSP), Mozambique benefits from preferential tariff treatment from Australia, Canada, Japan and New Zealand, while India grants preferential access under the Global System of Trade Preferences (GSTP). In 1986, Denmark, Finland, Norway and Sweden signed the Nordic-SADC accord, which provides market opportunities for SADC-made products on highly favourable terms. As of 2005, Mozambique also has a bilateral trade agreement with Zimbabwe and is in negotiations with Malawi to improve trade relations between the two countries. Mozambique is currently also taking part in discussions regarding future participation in an Economic Partnership Agreement (EPA) as Mozambique 105

20 part of a SADC negotiating group, which would replace the soon-toexpire Cotonou Partnership Agreement. Mozambique s membership of SACU is another potential trade agreement under consideration. Despite several years of implementation of the SADC Trade Protocol, the data analysed in this chapter suggests that Mozambique has yet to take full advantage of the agreement in terms of exports to other SADC countries, while a relatively high level of protection against SADC imports is still in place. Although Mozambique is already implementing the SADC Trade Protocol, which aims to establish a free trade area by 2012 (2015 between SA and Mozambique), it is likely that the EPAs will accelerate this process, leading to increased competition in the domestic market and potentially some trade diversion, although this may be limited, since SA is a fairly competitive producer that already has preferential access to the Mozambican market. Regarding SACU membership, Mozambique already enjoys mostly duty- and quota-free access to the SACU market, which means SACU membership would potentially make little difference in terms of Mozambique s exports. Additionally, phasing out of tariffs against SACU goods, will, if anything, simply accelerate the SADC Trade Protocol. Perhaps the main threat from joining SACU would be the adoption of SACU s Most-Favoured Nation (MFN) tariff structure, which has a higher average tariff and a much more complicated tariff structure than currently the case in Mozambique. Adoption of this tariff structure, which reflects SA s industrial interests, would not necessarily reflect Mozambique s interests and may lead to a more complex institutional setting for Mozambique s private sector and authorities, potentially reducing the country s competitiveness. 106 Trade Performance Review 6. Revealed comparative advantage According to the calculations reported in Table 19, and broadly in line with the analyses provided in previous sections of this chapter, Mozambique s comparative advantage lies in aluminium production, something of an anomaly for a poor country such as Mozambique under normal circumstances. As shown in the table, this is far greater than the revealed comparative advantage index of the second product on the list fish and crustaceans although this might be considered more in line with traditional Mozambican exports. Beyond these two categories, the low index of all other products indicates the very narrow range of sectors in which Mozambique has a revealed comparative advantage. According to Table 20, the products in which Mozambique has least comparative advantage are in manufactured goods but also some primary commodities in which Mozambique is not a major producer, for example, tin and nickel, as might be expected.

21 Table 19: Revealed comparative advantage with respect to the world: top 20 commodities (HS2) in 2002 HS code Product Index value Exports (MT-million) 76 Aluminium and articles thereof ,380, Fish & crustacean, mollusc & other ,305, Residues & waste from the food industry , Sugars and sugar confectionery , Cotton , Tobacco and manufactured tobacco , Edible fruit and nuts; peel of citrus , Animal/veg fats & oils & their cleavage products , Knitted or crocheted fabrics , Other vegetable textile fibres , Wood and articles of wood; wood chips , Prod. mill. indust; malt; starches , Mineral fuels, oils & product of these ,548, Ships, boats and floating structures , Salt; sulphur; earth & stone; plaster , Oil seed, oleagic fruits; miscell grains , Rubber and articles thereof , Art of apparel & clothing accessories , Cereals , Art. of apparel & clothing accessories ,296, ITC COMTRADE and own calculations Table 20: Revealed comparative advantage with respect to the world: Bottom 20 commodities (HS2) in 2002 HS code Product Index value Exports (MT-million 06 Live tree & other plant; bulb, root 0 13 Lac; gums, resins & other vegetable 0 18 Cocoa and cocoa preparations 0 31 Fertilisers 0 35 Albuminoidal subs; modified starches 0 36 Explosives; pyrotechnic prod; matches 0 43 Furskins and artificial fur; manuf 0 50 Silk 0 51 Wool, fine/coarse animal hair, horse hair 0 54 Man-made filaments 0 55 Man-made staple fibres 0 58 Special woven fab; tufted tex fab 0 59 Impregnated, coated, cover/laminate 0 65 Headgear and parts thereof 0 66 Umbrellas, walking-sticks, seat-sticks 0 67 Prepr feathers & down; arti flowers 0 75 Nickel and articles thereof 0 80 Tin and articles thereof 0 81 Other base metals; cermets; article 0 92 Musical instruments; parts and acce 0, ITC COMTRADE and own calculations Mozambique 107

22 7. Revealed trade barriers As Table 21 illustrates, a wide selection of goods appears to have a similar low level of protection with respect to SADC countries. These are fish presumably related to the afore-mentioned importance of carapau from Namibia and live animals, due to efforts to rebuild animal stocks after the floods, as well as other basic food products and basic industry inputs. Contrary to what might be expected, Table 22 shows that highest protection relates in the main to certain more advanced industrial inputs, but also to some consumer goods, perhaps reflecting their importance in providing government revenue, although, as a comparison with Table 21 illustrates, the difference between the 20 least protected and the 20 most protected commodities is, for the most part, very small. Table21: Revealed trade barriers with SADC: top 20 commodities (HS2) in 2002 HS code Product Index value Imports from SADC (MT-million) 26 Ores, slag and ash Fish & crustacean, mollusc & other , Live animals , Vegetable plaiting materials Tobacco and manufactured tobacco , Lead and articles thereof Live tree and other plant; bulb, root 2.9 1, Pulp of wood/of other fibrous cellulose Other vegetable textile fibres 2.8 3, Iron and steel , Edible fruit and nuts; peel of citrus 2.7 7, Meat and edible offal , Cocoa and cocoa preparations 2.6 4, Wood and articles of wood; wood chips , Residues and waste from the food industry , Edible vegetables and certain roots , Sugars and sugar confectionary , Miscellaneous edible preparations , Soap, organic surface-active agents , Art of stone, plaster, cement, asbestos ,065, ITC COMTRADE and own calculations 108 Trade Performance Review

23 Table22: Revealed trade barriers with SADC: bottom 20 commodities (HS2) in 2002 HS code Product Index value Imports from SADC (MT-million 99 Commodities not elsewhere specified Aircraft, spacecraft, and parts thereof Natural/cultured pearls, prec. stones Wool, fine/coarse animal hair, horse hair Cereals Furskins and artificial fur; manuf Cotton Pharmaceutical products Plastics and articles thereof 0.4 3, Other made-up textile articles 0.5 5, Footwear, gaiters and the like 0.5 2, Man-made filaments 0.6 3, Silk Animal/veg fats & oils and their cleavage products Ceramic products Prep. of meat, fish or crustaceans Ships, boats and floating strucutres Articles of leather; saddlery/harnessing Man-made staple fibres Optical, photo, cine, meas, checking 0.8 4,009, ITC COMTRADE and own calculations Mozambique 109