CONDITIONALITIES Question: What “conditionality” means, and what is the World Bank’s position on the issue? Answer: In international development, the term conditionality means a set of conditions attached to a loan or any other operation such as a debt relief. For the World Bank, conditionalities are meant to enhance aid effectiveness. In the 1980s, conditionalities were grouped under the label structural adjustment, which aimed at stabilizing and transforming the economy into a market based economy. Since 2004, the World Bank has a new policy known as Development Policy Operations (DPOs), through which the Poverty Reduction Support Credits are developed. The DPOs are being used to support the transition from structural adjustment lending to budget support lending in countries where it is appropriate. The Bank has also adopted "Five Good Practice Principles" for conditionality, namely: ownership, harmonization, customization, criticality, transparency and predictability. Ownership, for example, means that any conditionality must be based on the Government's own policy document, such as the PARPA, the Government Action Plan for Poverty Reduction. For more on conditionality and the World Bank policy review on the issue, please visit: COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT (CPIA) Question:What is the rationale for the World Bank’s CPIA, and why the World Bank uses the CPIA to monitor the country’s performance in addition to the monitoring tools embedded in the Government’s own program (PARPA)? Answers: The 80 eligible borrowers of the International Development Association (IDA) have very significant needs for concessional funds. But the amount of funds available for lending, which is fixed once contributions are pledged by donor Governments, tends to be well below the countries' needs. IDA therefore must allocate scarce resources among eligible borrowing countries. This is done on the basis of borrowers' policy performance and institutional capacity in order to concentrate resources where they are likely to be most helpful in reducing poverty. The main factor that determines the allocation of IDA resources among eligible countries is each country's performance in implementing policies that promote economic growth and poverty reduction. This is assessed by the Country Policy and Institutional Assessment (CPIA). To fully underscore the role of the CPIA in the IDA performance based allocations, the overall country score is referred to as the IDA Resource Allocation Index (IRAI). In addition to the IRAI, portfolio performance and governance also feature in the allocation process. Together, the IRAI, portfolio performance and governance constitute the IDA Country Performance Rating (CPR). In addition to the CPR, population and per capita income also determine IDA allocations. Apart from being a guide to allocate IDA resources across countries, it also provides useful information to each country on how they are doing relative to others and on areas for strengthening. For more about CPIA and the scores per country, please visit: IDA Resource Allocation Index (IRAI) MEGA INVESTMENTS Question: Why does the World Bank Group support large investment projects (mega projects), and how does the World Bank views the impact of mega projects on the country’s economy? Answers: Mega projects have made an important contribution to Mozambique’s economic success over the past decade. Aside from their direct contribution to economic growth, they have put Mozambique on the map as an attractive destination for international investors. Since the first mega project -- the Mozal aluminum smelter -- an increasing number of investors are implementing or planning large scale investments, mostly in mineral resources and energy. When Mozambique was still recovering from civil war, the Government instituted favorable tax incentives to attract investors and establish itself as a credible investment destination. Now that Mozambique has put itself on the global investment map, the Government has been, with World Bank technical advice, improving its fiscal regimes for mining and oil investments to bring them more in line with current international best practice, and is committed to improving the impact of all mega projects on employment and revenues. In addition, the International Finance Corporation has been supporting efforts to create greater linkages between mega projects and smaller companies (see www.mozlink.co.mz ). The World Bank is also supporting the Government in its commitment to the Extractive Industry Transparency Initiative (EITI), which supports improved transparency and accountability in the oil, gas and minerals sectors. EITI sets a global standard for companies to publish what they pay, and for governments to disclose what they receive (for more on EITI see www.eitransparency.org ) ACCESS TO FINANCE FOR SMALL AND MEDIUM ENTERPRISES Question: What are the World Bank Group policies and initiatives to improve access to finance for Small and Medium Enterprise and the development of a thriving business sector in Mozambique? Answer: In Mozambique, like almost every country in the world, limited access to finance is considered a key constraint to private sector growth. This is especially true of smaller firms that have minimal influence on policy reform, limited access to public and private financial services. Through its Financial Sector Capacity Building Project, the World Bank is supporting key policy, regulatory and institutional reforms that aim to support the development of a financial sector capable of delivering more appropriate, affordable and sustainable package of the services needed by small and medium scale enterprises. The World Bank works closely with the International Finance Corporation (IFC), which focuses on direct investments and technical assistance to specific institutions, in supporting the development of the private sector in Mozambique. Currently, the IFC is implementing a US$12 million Mozambique SME Initiative (MSI) program supported by the Swiss and Finnish Governments. MSI provides financing and technical assistance to Small and Medium Enterprises and aims to build the Mozambican economy's "missing middle" targeting local firms with pre-investment net worth of US$ 50,000 to US$ 500,000 equivalent and annual revenues between US$ 100,000 and US$ 2 million equivalent. It provides them with long-term funding of up to US$1 million, hands-on partnership, and support in key business functions, including marketing, management, human resources, and information technology. SUPPORT FOR THE AGRICULTURE SECTOR Question: How the World Bank envisions the development of the agriculture sector in Mozambique, and how it is supporting it? Answer: The World Bank considers agriculture a key factor in Mozambique’s sustained growth and poverty reduction. To that end, the World Bank Group has been supporting agriculture directly through loans from both the International Development Association (IDA) and the International Finance Corporation (IFC), as well as through general budget support, thus, joining other development partners and stakeholders in their support to the sector. The World Bank also considers that significant investments in infrastructure, including roads, railways, bridges, ports (large and smaller), as well as human capital are the building blocks of a sustainable and long term rural development, including, particularly the development of the agriculture sector. To that end, as attested by the World Bank lending portfolio to Mozambique, the development of infrastructure represents the largest share of the World Bank support to the country, which includes roads, ports and railways, water and sanitation, besides its support to the educations and health, including HIV/AIDS and decentralization and finance. THE CASHEW SECTOR Question:How the World Bank sees its involvement in the cashew sector and what are the World Bank’s views going forward? Answer: At the independence in 1975, Mozambique was the world's leading cashew producer and exporter of processed cashew kernels. But by the end of the war in 1992, the industry had significantly eroded and the state cashew company was sold. In late 1995, the World Bank advised the Government to liberalize the cashew trade. This was done, but a more competitive market, coupled with low productivity and antiquated machinery, led to the closure of most processing factories. The processing industry is slowly recovering with new factories using simple labor-intensive techniques. The World Bank has evolved over the past 20 years in its dialogue with its clients. In terms of this particular issue, two key lessons were learnt. First, the World Bank has a better appreciation of the challenges of implementing such difficult reforms. It was probably unrealistic to expect that a successful restructuring of the sector could be accomplished quickly. The World Bank is encouraged, however, that the processing industry is recovering. The second key lesson is the need to interact more closely with the client. In this respect, the World Bank has significantly decentralized its operations over the past decade, including placing the country management in Mozambique. GOVERNANCE Question: How the World Bank sees the challenges facing the governance sector?
Answer: While the Government has made progress in improving transparency and accountability, this has been primarily related to reforms in public financial management. A challenge is to broaden and deepen these reforms to decentralization and the justice system in particular. Another challenge is to stimulate the demand for good governance, by increasing citizen participation in the monitoring of public services and the effective use of public resources. In this respect, it could be noted that one of the priority areas of the new World Bank Group Partnership Strategy is to increase accountability and public voice.
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