Transcript Welcome! [www.sadc

southern african
development community
development finance
resource center
IDRC Private Sector Development Task Force
Conference – 7 & 8 April 2005
Ottawa Canada
“FDI & SME Linkages – the case of
Mozal I and II”
Dr. Rosalind H. Thomas
CEO: SADC-DFRC
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Structure of Presentation
Introduction: FDI in Southern Africa
The rationale for SDIs
Prioritizing SMEs
Why are DFIs interested in SMEs?
FDI & Linkages: The Maputo Development Corridor & the case of
Mozal
Mozal I and II
Linkages with the Local Economy
What lessons can be learnt from Mozal I and II
The MDC – PPI and SMEs
Concluding Remarks
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Introduction
FDI in Southern Africa
Project related
Resource based
Benefits seldom spill over to rest of economy
Rationale for SDIs
RSA leading strategy on SDIs
To attract more efficiency seeking/ market related FDI
Address structural problems which inhibit investment & trade
Allow clustering
Develop complementarities & enhance dynamic competitive
advantage & allow exploitation of export opportunities
Nurture private sector development
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Prioritising SMEs
Support for SMEs a critical strategy of NEPAD & RISDP
Significant development impact
Promote backward & forward linkages in economy
Have a high capacity to generate employment
Key to poverty eradication
Contribute to vibrant middle class = essential for generating
domestic savings & therefore increasing domestic
investment in SADC
Why are DFIs interested in SMEs?
DFIs engaged in supporting SMEs across all sectors
Provision of Finance
Business Support Services
NEPAD & RISDP – clear prioritization
Facilitating BSS = stronger SME client base = stronger
DFIs!
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FDI & Linkages?
The Maputo Development Corridor (MDC) & Mozal?
MDC & Mozal an interesting case study because a successful
export-oriented FDI project & allows analysis of lessons of
failure/success
Need to look at MDC from 2 perspectives:
• Fostering links between Big Business and SMEs;
• Fostering links between PPI and SMEs
MDC: through restoration of historic transport routes - regional
trade reviving & new investments
Successes include: N4 Toll Road; Maputo Port upgrade; rail links
RSA to Mozambique under one management (Spoornet);
Nelspruit - regional service centre; expanded use of Maputo Port
by RSA businesses; RSA & Mozambique - electricity & telecoms
upgraded; Tourism; Maputo industrializing and Mozal is lead
development!
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Development
Corridors & SDIs
in SADC
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Linkages with the Local Economy?
Mozal I & II – Development Impact?
First major FDI project in Mozambique (US$2.2 bn)
Project sponsors: Billiton; IDC; Mitsubishi Corp.; Govt. of Moz..
Financiers: IFC; DBSA; Private Banks
Mozal I: completed 6 months ahead of schedule & under budget;
production began earlier than anticipated (June 2000) - set world
record
Contributed:
• US$160 m/an to GDP; Export earnings US$430 m/an; US$ 4 m/an in
tax revenues; dividend for GoM US$ 5 m/an;
• First rate infrastructure: roads; bridges; telecoms networks; water &
sewerage systems; upgraded harbour & electricity supply
Mozal II: doubled capacity of the plant for smaller investment,
also completed ahead of schedule & under budget.
Contributed:
• US$170 m/an to GDP; tax revenues of US$ 4.1 m/an
Mozal is Mozambique’s largest foreign exchange earner
(54%).
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Mozal – Development Impact (ctd) …
Linkages …
Mozal I: 745 direct jobs (88% Moz) & 2,500 indirect; during
construction 9,000 temporary jobs (65% Moz); 5,000 trained during
construction phase;
Mozal II: 376 additional jobs (90% Moz); during construction 6,000
temporary jobs (4,500 to locals);
Smelter contracted SMEs for variety of services (transport, catering,
cleaning, security) – 400 jobs on site – contracts valued at US$35
m/an.
IFC/APDF supported Programs:
• SMEELP for construction – 15 SMEs – contracts worth US$5 m;
• Mozlink for Mozal operations – 2 yr program – SMEs win contracts to
service Mozal – targets supply chains - 25 SMEs - so far contracts worth
US$11 m. Develops SMEs to competitiveness allowing repeat contracting;
• 1 SME developed to point supplying Mozal sister company in Richard’s Bay
(US$2 m contract);
• Capacity Building for 2 local financial institutions;
• Mozal Community Development Trust;
• Mozambique Business Network;
• SECOP – new 3 year program – increase supply chain activities with big
industries.
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Linkages …
What Lessons to learn from Mozal?
Failure of Mozal I to develop effective links for 2 reasons:
• Contracts “bundled” - components too large & complex
• Contracts in English – local SMEs could not understand
Successes emanate mostly from Mozal II mainly because of
SMEELP Specialized program for supply chain support • identified contracts for local sourcing;
• Trained local SMEs on tendering;
• Follow-up training for SMEs which won bids;
• One-on-one mentoring to firms winning contracts; and
• Capacity building of local DFI/ PFI providing technical
assistance grants.
PPI & SMEs: Maputo Port (?)
Maputo Port under development by Consortium (US$70 m);
Linkages program in pipeline (SEPCO) & yet to be developed;
IFC/APDF office in Maputo & Capacity Building Facility will inform
results of current evaluation of programs.
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FDI & SMEs?
Concluding Remarks
Clear need to develop real linkages between FDI & local
economy
MDC experiences & success especially with Mozal is noteworthy
Latter has had substantial development impact on
Mozambique’s economy
Challenge: derive lessons of experience & explore potential to
replicate in other SDIs
Warrants in-depth case-study examination of development
impact & reasons for success
Support for SME activities in SADC a strategic priority for SADC
DFIs & DFRC keen to explore this issue further with support
from donor community
DFRC convinced that this is an important approach to private
sector development & addressing challenges of job creation &
poverty eradication (i.e. Millennium Development Goals)
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