06 June 2006

06 June 2006 Minutes

Minutes of Private Sector Working Group Meeting, June 6, 2006:

Terms of Reference for the Private Sector Group for Final Approval

These were approved and are attached.

Aquapesca Presentation -- Doing Business in Zambezia

Aquapesca is a private company with a $35 million investment in Mozambique and 700 workers. It plans to export 1,000 tons of shrimp to Europe next year.

Hervé Ohresser-Journard presented four “big issues" -- Value added tax (VAT) reimbursement; transport and logistics; energy costs; and administration of exports.

VAT: Aquapesca has been owed 24 billion MTs (nearly $1 million) for over six months. Between the depreciation of the metical and banking fees, the cost will be to the company will end up at 30 to 40% of the initial value. One of the most expensive parts of the process is the requirement to post a bank guarantee when submitting claims. For example, to request a reimbursement of MT 9 billion, Aquapesca paid 250 million for a three-month guarantee, half of which was in non-recuperable impostos de selo.

Hervé cited several specific problems that are out of the private sector’s control: 1) Finance makes many mistakes, particularly of data entry, delaying the process without compensation; 2) the central bank taxpayer records are out of date – LAM, for example, doesn’t exist; 3) Documentos Únicos issued by Customs are routinely rejected by the tax collectors.

Transport and logistics: Although Quelimane harbor was put under Cornhelder’s private management 18 months ago, shortly after a tripling of prices, it still doesn’t work. A container (reefer) from Quelimane to Marseilles costs €5,000 compared with €3,000 for competitors from Madagascar. This is a result of low volumes and a Maersk monopoly.

Energy costs: Hervé pointed out that most countries have special energy prices for industrial users and for off-peak use, but Mozambique has a single tariff. He cited Brazil’s (another hydro-based system) 90% discount for night industrial users favorably.

Administration of exports: The government has recently failed an EU inspection to determine its capacity to meet EU health standards for shrimp. These standards are very specific, and include 30 tests of the water used in the preparation of shrimp. They have also proved to be beyond the Government’s capacity to implement, despite a successful certification by the EU in 2001 (before any of the shrimp farms was operational). Hervé encouraged the donors to do what is necessary to ensure that the EU doesn’t cut off shrimp exports, closing down Aquapesca and Indian Ocean Aquaculture, and costing as much as $100 million a year in exports and over a thousand jobs. Hervé said the industry had formed an association to work with the Ministry of Fisheries to resolve the issue, and that this Association had helped convince the Ministry of the gravity of the situation. But neither the association nor the Ministry has the technical and human resources to resolve the problem without donor assistance. Ramón said that the EU standards benefited Mozambican consumers as well as those of the EU.

Labor Law (CTA)

The technical negotiations of the labor law were completed (by CCTs technical commission, CTRLT) in late April, and presented, after a month of public debate, to the plenary and minister-level CCT on May 24th and 25th.

Sergio Chitará said that Minister Taipo changed several points of agreement reached by the CTRLT in the final CCT meeting, without allowing CTA or others an opportunity to reopen a debate. The attached summarizes all the changes; but Sergio highlighted vacation time and severance pay. Vacation time was increased from 12/24/30 (first year/second to fifth/sixth and on) to 12/24/30 (first/second/third and on). Severance pay for those losing jobs to restructuring was increased from 15 days in the first and 7 days in subsequent years to 30 days for all years.

Also important are the new rules for foreign workers. The agreement before the final CCT meeting was 12% including owners and delegates, but the 12% has now been reduced to 10% for small, 8% for medium and 5% for big firms. If this percentage includes owners and delegates (mandatários), than it could be worse than the current law for small firms. Chitará said that CTA would argue for the exclusion of owners if the new percentages held.

There was also concern over the original overtime cap of 100 hours per year. Chitará said it had been raised to 144 hours a quarter.

The chair concluded that a consensus position had been reached on four points: (a) that the labor law process had broken down, and that the donors, CTA and government all have an interest in fixing it;
(b) that there is little time to do so, as there may be a Conselho de Ministros meeting as early as June 20;
(c) which gives a small window for interested parties to influence the process;
(d) that we should make a demarche to the Prime Minister.

It was agreed that the PSWG would engage the Prime Minister on the issues of most concern – severance and foreign workers. MIC, a co-chair was to find out whether they would join the PSWG in any such engagement (MIC has since indicated that they would not join the demarche on the working group side, but would seek to be present with Government).

The chair will prepare a letter to the Prime Minister for circulation to the PSWG members, and also request a meeting.

IPEX Restructuring

A USAID-funded consultant for IPEX gave his preliminary results on a study requested by the new IPEX chairman, João Macaringue. In short:

No more than ten firms need the current IPEX package of trade fairs and general advice on exporting; focus needs to be more on a combination of value chain and individual counseling (the “Technoserve" model) and breaking up the barriers to export competitiveness (what CTA and the PSWG try to do). Most exporters (shrimp, cotton) don’t need help.

AOB

Sergio Macamo, the new National Director for Industry, has decided not to seek approval of a formal “Industrial Policy" until there has been further discussion. He will present the plan and issues at our next meeting.

The next meeting is scheduled for July 6 at 10 am.

Links

Evolucao da Lei de Trabalho

PSWG Letter to Prime Minister on Labor Law

Presentation to IPEX

PSWG ToR Final Version 2006 June 6

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