Exports from Mozambique to China increase by almost a third
O País / Fernando Couto
In an interview with ‘O Pais Económico’, Fernando Couto, chairman of the Portos do Norte Executive Board, said that there was hasty activity in the economy, and that he did not agree with deregulation.
O Pais Económico (OPE): 2016 was marked by a severe economic crisis. Gross domestic product fell 3 percent, accompanying the decline in foreign direct investment, rising inflation and metical depreciation, among other factors. One of the main entry points of the crisis is the ports, because our exports and imports pass through them. How was this crisis reflected in the transit of goods, especially considering the strategic importance of the Port of Nacala in the north of the country, specifically?
Fernando Couto (FC): It was reflected deeply. We had about a 40 percent fall in the movement of goods over the year. This figure refers to imports as well as exports. The Port of Nacala serves not only the northern region of Mozambique, but also hinterland countries like Malawi. Malawi is also affected by economic crisis, but mainly influenced by the effects of El Niño and the drought significantly affecting agricultural production.
OPE: How did the company handle this 40 percent decrease in traffic volume?
FC: During my long business life, I have learned that there are cycles. There are what we call ‘fat cows’ times, but so are there ‘skinny cows’ times. I have had experience managing in ‘skinny cows’ times, so I know how to make the necessary recipes. Which we managed to do, when we discovered that the crisis was coming to stay. Since June, we have been what we call ‘closing the taps’, getting the expense structure as under control as possible. I have learned that for this to work, you should not merely do this in the form of a demand, but by making the workers understand that we are going through a crisis and that we all have to make sacrifices. And we all did. I am very proud to say that we have reached the end of 2016 in a non-negative situation, although not a very positive one. Nevertheless, we are holding on and this is the essential thing, because anyone who can stand tall at this juncture will certainly be able to continue to endure.
OPE: Forecasts from both the international institutions and the Bank of Mozambique suggest that the recovery will begin in the second half of 2017, because it is believed that by then there will be the beginning of investments in the gas sector, as well as reconciliation with the International Monetary Fund. What lessons should the country take out of this crisis? Do you think that we will really see recovery in the second half of 2017?
FC: I think institutions like the central bank have more information than me. However, I’m not so optimistic about the international market. To give you a concrete example, there will be changes in the world paradigm. A new American president not yet in office is already making his hand felt, and it is a very strong hand. It is enough to note that the dollar recently reached its highest level for the last 14 years. The country has this issue of the dollar having been weak, the price of oil having gone down. Now what is happening is that the dollar is rising in value, and so is the price of a barrel of oil, something that Mozambique imports a lot of. And it’s priced in dollars. And interest rates have risen more in 15 days with Mr. Donald Trump still in Trump Tower and not even in the White House yet, than they have with Mr. Obama president for 10 years.
So I think we will see a strengthening of the dollar and an increase in interest rates, and this is not a positive data for a country like Mozambique, which needs to import things and pay for them in dollar. And pay debts in dollars, with the dollar more expensive.
I do not expect good news, but I believe the recovery may happen. If it doesn’t, we will see a meltdown, with many bankruptcies among small and medium-sized enterprises.
OPE: What lessons can we draw from this crisis, with the dollar hitting almost unimaginable high?
FC: If you are in Nacala – but even here, in Maputo, you can see this – there are buildings that were started and abandoned mid-works. In Nacala we have five to seven hotels left un-finished – and which, in my opinion, will never be finished. I am not much in favour of administrative controls, but I believe they need to be there for the good of all. I disagree with this completely deregulated economy, that the market is what makes the economy. There must be some guidance. For example, a certain number of beds are needed, and only according to this need should hotels be built.
OPE: But, would that not restrict business freedom?
FC: I do not think it would limit freedom. On the contrary, it would direct the economic capacity of investors into sectors where it would be profitable. At this point, they have contracted loans from banks that they are unable to pay at low interest rates, let alone at higher interest rate. The ventures they have started are not finished and cannot yield any return. This is a complex situation and is leading to bankruptcy. So one of the lessons is that there must be better planning of the economy itself in this sense.
OPE: And should this be the role of the state?
FC: Yes, it must be done by the state. A second lesson, which I think is important, is that we must make people aware that we are living and we are going to continue doing so, and this is something we all have to be aware of.
OPE: Did this message not go out? Recently, the Government decided to the 13th month salary by 50 percent.
FC: In my opinion, it took too long to kick in. These things should happen right at the beginning and not when things are already going on, with cuts here and cuts there. People must be aware that cuts are going to happen. We have people who have made plans and got their lives organized a certain way, and if they had known, they would have planned otherwise. They would not, for example, plan to get married this year, because they were waiting for some funds which then didn’t appear, to give you a common example. There was a problem of communication here, or, more precisely, of lack of communication.
OPE: You were awarded the Industrial Personality Award in 2016. When you received this award on December 14, regarding the crisis that the world and in particular Mozambique is going through, you said: “There must be courage from political leaders, elites and the business class to meet this challenge or we will be see the return of the African continent to a simple reservoir of low-cost raw materials with no respect for environmental conservation”. How can political leaders, elites and the business class prevent the African continent from being such a reservoir of low-cost raw materials?
FC: First, by applying good governance and basic respect for the basic rules of political behaviour. If you look at what is happening in the Congo, you will see a stark example of a lack of respect for any kind of law. What happened just now in the elections in Gabon and Gambia is also not a good example. Losers never like to lose, that’s a fact of life, but in the rules of politics and democracy there must be respect for the voters, for the wealth that is produced and spent in the country for the nationals of the country and not for other purposes. Which is a general behaviour in the African continent – especially black Africa, because North Africa has a very specific reality in this sense. The elites must be less predatory, in the sense of liking a lot of luxury, and become more thinking elites, more active, with a role more that of teachers, because we need to train people not in quantity, but in quality. Elites must think more of their own country, and have a constructive mind-set. I often say that criticizing is the easiest thing to do, and the hardest is to do something and do it well, because whoever never does anything can never be criticized.
OPE: You raise two points here: making better use of the wealth that is produced in the country and having less predatory elites. These points draw us to the theme of 2016: hidden debts. These were a signal of some lack of transparency, because it is common ground that there was a violation of the Constitution of the Republic. Is it this the type of decision, made without respect for the institutions of a country, that you are criticizing?
FC: Certainly I disagree with decisions that do not respect the laws of the country itself. The ends do not justify the means, but this is an issue that arises not only to Mozambique. South Africa has experienced several problems like these, problems that were raised by the courts. The Attorney General’s Office played an important and independent role regarding the misuse of public funds, so I think there is a political aspect. This is the example of some people’s taste for nine or ten luxury cars, and we must have more control in relation to our expenses at all levels, when we have people living and dying in precarious circumstances.
OPE: Let us return to the explanation you gave regarding the effects of the crisis in the Port of Nacala, where there was a 40 percent fall in goods handled. Which were the lowest performing raw materials and the most affected destinations? You cited the Malawi case, but structurally which raw materials saw the sharpest fall?
FC: Essentially they were the raw materials current consumption by the populations: bicycles, motorbikes, products used in agrarian commercialization. There was a decrease in container volumes, but also a decrease in normal levels, which is logical for reasons such as the level of consumption of cement. So cement consumption decreased, but levels of wheat imports were maintained and even increased. And there was also something positive – we can’t be negatives all the time. What we saw on the positive side was a large increase of Mozambican agricultural exports via Nacala, especially in the last five months.
OPE: What was exported?
FC: Mainly what we call ‘boer beans’. A businessman from India came and said he wanted 50,000 tons of boer beans. We only managed to get 25,000, but he was just one businessman. If we produced 100,000 tons of boer beans at the right time – it has to be in December to March, when India doesn’t have this product, which is fundamental to the country’s diet – if we had that amount we’d have exported everything. The strong dollar actually boosts exports. Cotton is the same, so is sesame. The question that hangs in the balance, sometimes more and sometimes less, is the export of wood. I’d rather there was no wood exported, if I’m honest.
OPE: But why?
FC: Because these are forests that are being felled without replanting. If there was replanting, all well and good. They are being slaughtered like animals, and there is no replanting. And this has effects. I am not in any way assuming the role of nature conservationists, although we must all in a way be conservationists. Then there is erosion, the lack of anything and everything. Ecosystems are being destroyed this way.
OPE: But do you propose not exporting any wood, or just improving inspection mechanisms and only exporting what is legally allowed?
FC: Certainly I defend the idea that woods exports should be legal. But there have to be plans; you cut and you plant. And only when the replanting is finished can we export native wood. This type of wood has little market in Europe or the US; it mainly goes to Asia – China and other countries. China has great purchasing power, so all the trees could be felled, and we have experience of that. Go to Gabon and see that they have deforested everything. The ports were full of tree trunks. When they finished the wood they [China] closed the door and left, leaving the land completely desertified.
One very positive thing that is happening in timber is the PORTOCEL eucalyptus plantations, which are already big. And that eucalyptus is already being exported via Nacala, which is very welcome, because it is replanted and gives the same yield. It is better than watching – my heart aches to see it – black-ironwood logs sailing off over the horizon.
In 2016, we have been implementing several government and other institutions’ initiatives – either appeals or seizures, shall we say radical measures – and more than 1,000 containers have been seized.
OPE: What is the role of ports in controlling the illegal exported of wood?
FC: Ports can be included in this, as long as they are linked to inspection institutions such as customs and the Ministry of Agriculture which issues licenses, because when goods are exported in containers, we cannot open the containers after they have passed through customs. We are limited to taking the containers off the ship. But there is smuggling. Recently we had a case of wood coming from Madagascar, which was landed in Quelimane, hauled to Malawi and from there came by rail, because in Malawi the containers are not scanned. It was declared cotton and when the machines tried to lift the containers they were unable to, because it was ‘very heavy cotton’. So we called customs and opened them up and saw that it was wood being smuggled, and had come via Madagascar in a very well organized manner.
OPE: Do you think that, from a political perspective, the country is doing enough to control the situation?
FC: I think so. There were improvements in that direction in 2016, and I welcome the efforts made by the government. Not only the measures, but above all their implementation by customs and those who issue logging permit – all the mechanisms surrounding the export of wood. Alternatively, exporting can be done through replanting, or an added economic value such as increased employment, which is fundamental. The city of Nacala, for example, lost six thousand jobs in a year and has to create jobs, because these people will not go back to farming – they will stay, and that may have implications for crime.
OPE: You must have been following this debate about production. My question is, what is missing to make the leap to self-sufficiency, perhaps not in all products, but in those that are essential to the survival of the population?
FC: The country is big. So what happens in the north is different from what is happening in the south. Especially in the south, there is the issue that it is much easier to get a bundle of Rands, cross the border and buy potatoes, than to be there in the sun planting and watering the things. I mention potatoes, but it could be any other product. It is much less work, a mere commercial transaction in that sense. Obviously the South African exporters are the ones who win, and the ones who lose are us, because this is foreign currency that leaves the country.
However, the food circuit is what is produced. I do not know when or why this myth arose that South Africans never cross the Zambezi and so have little influence, although there is a South African supermarket in Nampula. Historians might investigate. But what happens is that certain mechanisms that you might decide upon are quite undermined.
So it’s important to look at what the farmer in the northern part of the country, who farms for export, grows. When he sows cotton, it’s for export, because cotton is not eaten. So there is an economic decision made, and the person expects to get at least the same price as he got the previous year. One of the things that leads to this economic decision is the price of cotton the previous year. And then when it comes to selling, you notice that cotton is associated with the price of a barrel of oil. In the international market, the barrel of oil rose and the price of cotton fell. What does he think? I was robbed, so I will not produce anything, because it’s not worth it, I’ll produce anything but this.
It is therefore necessary to back the farmer, perhaps by setting a minimum price. I know this is completely against the rules of the World Bank, which likes the market to determine the price, and says the seed, which is the basis of product quality, must be supported and improved in the same sowing, so that we have products that are not only good for nationals but are also to international standard for export.
OPE: Are you talking about giving the economic agent some measure of predictability?
FC: To give predictability to the economic agent, and also the state playing a role in helping these farmers, both in price stabilization and in monitoring production itself. I can not understand how the Mozambican farmer has less productivity per hectare than the farmer in Malawi, if they are neighbours. They cross the road and maybe even the same people. They use the same type of hoe. The Malawian farmer already knows how to use fertilizers and we do not know how to use them. Maybe we do not even need fertilizers, because the land is so fertile and with so many nutrients and such a clean soil that we can even grow – a fundamental question that more and more people want – organic products.
Another issue that arises in this area is logistics and infrastructure. More than 80 percent of the transportation of passengers and goods is by road, at a time when we have railroads that are not even used, the most recurrent case being the Ressano Garcia line.
Let us separate two things. You do not have to be an economist or have much experience in the field of transportation to realize you don’t want to transport iron, aluminum, or whatever, by road. Rail is more suitable and cheaper. The lines are there: the Ressano Garcia line is there, so it must be used again. So when we allow the creation of empires of road fleets, it is very difficult to fight against these same empires, because afterwards they can do what is called dumping, to reduce costs in this sense.
On the other hand, it must be remembered that the EN4 is tolled, so the more trucks there are, the better for them.
So this is what we have to do as a whole. We have to make an investment. We are talking about 80 kilometers of line here. It is not Nampula-Cuamba, which is 360 km, or Nacala-Cuamba which is almost 600. To Malawi it is 900 kilometers – we are talking about considerable distances.
So it is necessary to invest here for all kinds of reasons. For human security, because of the danger on the roads; for the conservation of the road itself and for economic costs. As for passengers, that is a bit complicated, because in fact, and worldwide, passengers prefer to use roads to go where they want, do what they want, rest here and there. While on the train, they are subject to a fixed schedule and stops.
Interview by Boaventura MucipoSource: O País