Under colonial rule, poor and uneducated Portuguese controlled the business opportunities in Mozambique, and when independence came, the country was governed by a Marxist dictatorship. Consequently, indigenous entrepreneurship in Mozambique is lacking. The country is attempting to cope with the problems of an uneducated population and insufficient food production. Small business is looked upon as the cure-all, and the World Bank financed a program to promote business of this size. However, because the population is still traumatized from the recent civil war and the resulting extreme poverty, people are lacking the motivation to invest much effort. Furthermore, a poor infrastructure adds to the list of problems. Mozambique is the poorest country in the world, not because of lack of resources, but largely due to historical and psychological factors.

Under colonial rule, poor and uneducated Portuguese controlled the business opportunities in Mozambique, and when independence came, the country was governed by a Marxist dictatorship. Consequently, indigenous entrepreneurship in Mozambique is lacking. The nation is attempting to cope with the problems of an uneducated population and insufficient food production. Small business is looked upon as the cure-all, and the World Bank financed a scheme to promote business of this size. However, because the population is still traumatized from the recent civil war and the resulting extreme poverty, people are lacking the motivation to invest much effort. Furthermore, a poor infrastructure adds to the list of problems. Mozambique is the poorest country in the world (per capita GNP in 1994 was $80 U.S.), not because of lack of resources, but largely due to historical and psychological factors. This international note reports on the state of small business in Mozambique, discussing a ! variety of causal variables. In this discussion, the term "micro-enterprise" is used as defined by the government of Mozambique - a business concern with not more than ten employees.

Historical Background

When the Portuguese arrived in Mozambique during the 1400s, their principal activity was not the colonization of east Africa, but rather the establishment of trading enclaves where gold, ivory, and slaves could be purchased. A protectionist policy was introduced to seal off the territory from potential investments by any non-Portuguese parties, and throughout the colonial years, Portugal kept a tight control over Mozambique.

The slave trade flourished until the twentieth century. Records indicate that by 1912, Mozambique had exported millions of slaves. When slavery was officially abolished, forced labor, known as chibalo, was introduced. Mozambique sent citizens to work in South African gold mines; the South Africans paid for the labor, but Portugal did not allow the miners to keep any of their wages. The Portuguese also introduced forced labor on plantations, on motor ways, and on the railroad.

Portugal developed quite a dependence on its colonies. During the years following World War II, more than half a million peasant families in Mozambique were producing cotton. Cotton producers in Mozambique were forced to grow cotton and sell it to the state below world market prices. This allowed Portugal to rely on its colonies for 96 per cent of its needs. Where cotton could not grow, farmers were made to grow groundnuts and/or rice. Cashew nuts became Mozambique's major export, while the people of Mozambique relied on South Africa for energy and basic foods including fish, maize, onions, potatoes, and other vegetables.

In 1953, the Portuguese ordered people to leave their farms and villages to clear more land for forced cotton growing. Each family was also obliged to grow cassava and sorghum. Asians, however, were exempt from forced labor and were allowed to operate their private small businesses. According to the 1955 census, 65 per cent of the Europeans in Mozambique were illiterate at the time. Illiteracy among Africans was even higher.

In 1962, an independence movement was established. It came to be known as the Frente de Liberando de Mozambique (Front for the Liberation of Mozambique), also referred to as Frelimo. It began a violent revolution in 1964. In April, 1974, the coup in Portugal ended half a century of Fascist rule, but launched what would become civil war in Mozambique. Portugal abandoned its colonies in September, and Fralimo took control of Mozambique. In response to changes in the political environment, 90 per cent of the 200,000 Europeans in Mozambique departed for Portugal

With formal independence on June 25, 1975, the people of Mozambique were relieved to learn that they could grow cotton if and when they wished to, as forced cotton growing had been officially banned. However, less than a month later, education, funerals, health, and law were nationalized. In February 1976, all rented property in Mozambique was nationalized by the post-independence government. The same day, the capital city, Laurenco Marques, was renamed Maputo. Later that month, the Central Committee established policy for the transition to socialism. With private ownership of land abolished, only state farms and cooperatives remained. Food producers on cooperatives were reluctant to sell food in exchange for worthless money, and the result was a food shortage.

The following year, Frelimo officially became the Marxist Leninist Party. The anti-communist counterpart was known as Renamo, backed by the white government of Rhodesia (until it became Zimbabwe) and that of South Africa. Civil war ensued.

In August 1979, the Council of Ministers announced that the upcoming decade would be characterized by victory over underdevelopment. No such thing would happen. April 1983 marked the introduction of public floggings. That winter, "Operation Production" expelled the unemployed from urban areas. In the countryside, the people were disillusioned with the failure of cooperatives; in the towns, long queues waited outside virtually empty shops. For Mozambique, the 1980s could best be described not by development, but by bankruptcy, brutality, famine, flood, underdevelopment, and violence.

In 1989, the government abandoned its adherence to Marxist-Leninism, and in 1990 the Party Congress decreed the return to a market-driven economy. Hungry soldiers sold their Kalashnikov rifles for $10 U.S., a great deal of money in a country where few people ever used cash. A new constitution was finally adopted in November 1990. During fifteen years of civil war, 750,000 people had been killed by fighting and related famine and disease, while 10 per cent of the population was displaced, and approximately one million fled the country. With about half the rural population blocked from economic advancement, seven million Mozambicans depended on foreign aid for food.

Mozambique - An Ethnographic Account

Visa procedures to conduct research in Mozambique are complex; this is a remnant of the inefficient bureaucracy of Portuguese colonialism. Even more challenging is physical access into the country. Traffic along the road between Mbabane (Swaziland) and Maputo is often interrupted by heavily-armed bandits, while travel by train from South Africa is hazardous due to pirates coming aboard to rob passengers. The safest way to enter Mozambique is by airplane. Upon arrival at Maputo Airport, one is greeted by a sign reading "Republic Popular de Moaambique" on which the word "Popular" has been crossed out. Electric blackouts are frequent across the country, and at times the terminal is in the dark.

Although the civil war has been offically over for several years, anarchy is still the general state of affairs. At night, streets are deserted as people are scared of violent crime. Even during the day, many streets are deserted. About 3,000 mercenaries have been trained by Defense Systems Limited to protect entrepreneurs and their projects. Near Chokwe, in the south, Lonrho (a British company) uses a private army to protect its cotton and tomatoes. Pilferage rate at the port of Maputo is commonly said to be 10 per cent. Many homes are guarded 24 hours a day, as are some vehicles.

Car theft is among the most lucrative occupations in Mozambique. When a vehicle is stolen, its registration plates are immediately exchanged with those of a similar car which actually belongs to the thief. A buyer may actually verify that the automobile he or she thinks is considering has not been stolen; however, a stolen car is actually delivered. The buyer is eventually in trouble, being in possession of a stolen vehicle. The seller, meanwhile, reregisters the "sold" car with a new number.

The Xipamanine market is perhaps more fascinating. It is said to be so dangerous that many local people are too frightened to shop there. Yet it is a bastion of small enterprise, where traditional remedies and potions are sold alongside animal tails, shells, and snake heads, as well as crystal, live sheep, mangoes, and wood. Among countless dealers is one selling cooking oil in bottles from Canada Dry beverages. Others sell gasoline in Russian Coca-Cola bottles with the Spencerianstyle script in Cyrillic. A glass bottle of Coke actually containing Coca-Cola sells for 1,500 meticals (the postwar currency; in 1995, one U.S. dollar was worth about 7,000 meticals) for the contents, plus a deposit of 1,000 meticals for the bottle. For those who prefer to drink from coconuts, green ones sell for 1,000 meticals while a mature coconut goes for 500.

Hotel prices are often quoted in foreign currency and vary widely. In 1995, a room at the Hotel Polana cost $210 U.S., while the same at The Burger Inn was quoted at 75 South African rands (about 90 per cent less in U.S. dollars). Meanwhile, a room at Hotel Central went for 115,800 meticals (about $17). In a more dangerous neighborhood, Pensao Taj Mahal was charging 50,000 meticals (about $7). Tickets on the train to South Africa were payable in rands.

Travel within Mozambique is especially stressful. Public transport is very overcrowded, as vehicles are few. Taxis charge exaggerated prices. Many railroad tracks and rail cars were destroyed in the war and need replacement. Buses are in bad shape, and schedules unreliable. In Maputo, yellow buses known as chapa chem have set routes but no set stops; a ride costs 500 meticals. The buses have no seats and are typically overcrowded. Many roads are not usable by private automobile. There are still landmines in rural areas. In urban areas, streets often have no names; others have names but no street signs. In many cases, street names have been changed, with no consensus as to the current name. Maps are scarce and usually inaccurate.

In the capital city, Maputo, major roads include Karl Marx, Vladimir Lenine, and Ho Chi Minh. Stop signs are handpainted. The Mercado Estrela, also known as the "Thieves Market," is said to be the place where most stolen goods are sold and where food aid is resold at black market prices.

Communication links are also poor. Although Telecomunicacoes de Mocambique has theoretically linked eighteen towns with direct dialing, a functioning telephone may be hard to find. In the northem town of Beira, $670 million of foreign aid has enabled the modernization of the port. There are also new cranes and quays at the harbor of Nacala. Yet power shortages and crime plague them both.

Banking infrastructure is also the source of problems in Mozambique. Entrepreneurs complain that for years it has been nearly impossible to obtain a loan without bribes and/or connections and influence. A business plan is not as important as knowing the right person and having the right amount to pay him.

Government intervention in Mozambique is also an issue for concern. Profits of all formal (legally registered) firms are taxed at 50 per cent, regardless of firm size. This causes informal entrepreneurs to refrain purposely from entering the formal sector. To counteract this, new legislation requires all business activities to be withdrawn from residential premises, effectively prohibiting home-based business, however contrary to the national interest this may appear. Also frustrating for enterprising individuals is the bureaucracy inherited from the Portuguese. The civil service in Mozambique remains a refuge for the incompetent. Starting up a new venture requires threading a maze of formal petitions, rubber stamps, and signatures, often from individuals who seem to be nowhere available. Common words are "somebody else is responsible."

Another major problem in Mozambique is the shortage of jobs. Unpublished sources at the United Nations reckon that only one million Mozambicans have formal jobs (out of a national population of 16 million in 1995). There are several causal variables for this, including: (1) up to the time of Germany's reunification in 1990, about 40,000 Mozambicans had migrated to former East Germany for employment opportunities, but once Eastern Germany was absorbed into the federal republic, 16,000 Mozambicans returned to Africa;

(2) fifteen years of official civil war seriously disrupted the educational system to the point that many Mozambicans have no skills;

(3) the official termination of the civil war allowed both the Frelimo and Renamo armies to wind down operations and release personnel;

(4) although the former white govern ment in South Africa gave work permits to 65,000 Mozambicans who were gainfully employed in South African mines, the new government of South Africa prefers to employ its own people, and thousands of Mozambicans have been sent home;

(5) during apartheid, about 100,000 Mozambicans worked on large farms in South Africa owned by whites, many of whom left the country while others downsized their operations, resulting in the guest-workers returning to Mozambique;

(6) the current reorganization of state corporations in Mozambique is further contributing to underemployment and unemployment; and

(7) the psychological trauma of the war lingers on.

Small Business as a Remedy

In contrast to the British Empire, which had been settled by educated and often wealthy Europeans, Mozambique had been colonized predominantly by poor Portuguese peasant farmers. Whereas the colonial elite in Kenya, for example, were capitalist entrepreneurs, the colonial elite in Mozambique were less entrepreneurial. Leaving Kenya, the British left behind an emerging entrepreneurial class; in contrast, the exodus of European capital and skilled labor from Mozambique left behind a confused society of serfs.

Public policy by the government of Mozambique has, until recently, focused on large-scale production. However, in its 1991-1993 economic strategy paper, the government emphasized the informal micro-enterprise sector and family-based rural development as both being important elements.

Over 100 foreign charities brought seeds and fertilizer to peasants. Agpacks were made available, each providing the seeds and tools deemed necessary for a first season of subsistence on a plot with a minimum size of half a hectare. Furthermore, the state-owned Banco Popular de Desenvolvimento of Mozambique formed a joint venture with the Frederich Ebert Foundation, its purpose being to assist small-scale enterprise. The venture is known as the Small Investment Promotion Corporation.

The Trust Fund for the Development of Small Industry was also established with the intent of helping entrepreneurs. A problem, however, is that many of the individuals who most need assistance are not aware that the trust fund exists. Furthermore, the paperwork necessary to qualify for assistance is daunting enough to discourage all but the most ambitious.

A more effective effort was made by the World Bank. Swayed by the belief that micro-enterprise would be the solution to the labor crisis in Mozambique, the World Bank financed the Urban Micro-Enterprise Support Project which indirectly created jobs by enhancing the capacity of small-scale employers. This plan involves providing a line of credit with the stateowned Banco Popular de Desenvolvimento to allow the import of capital goods to help existing micro-enterprises expand. An amount in excess of $2 million was disbursed in the form of loans to almost 300 micro-enterprises, enabling the creation of approximately 2,000 jobs.

Among the early applicants were 145 fishermen, 22 confectioners, 21 construction firms, 20 carpentries, and 18 shops. Successful candidates were existing small enterprises with up to ten employees, with the exception of construction firms, which were allowed more. The average loan was $8,600 plus $2,400 for domestic expenses such as customs, storage, and delivery. Loans were to be paid back within 36 months. There were, however, numerous difficulties associated with the project. Most evident is the fact that without pre-loan training, many small businesses lacked the experience and capability to apply efficiently for credit. As is the case elsewhere in Africa, there is a lack of training in business planning, budget accounting, bookkeeping, and day-to-day management.

There were also problems arising from the regulatory environment. Goods took months to arrive and by the time they did, duty rates had increased. Furthermore, a bewildering set of procedures involved storage fees and a variety of customs charges. Import agreements were found to have considerable opportunity for abuse, adding to already complex import procedures. As expected, several employees of the project also attempted to make personal gains from the credit scheme, and some were caught. This conduct is not surprising, as such programs have considerable opportunities for bribes, extortion, and other abuse. Another problem is that in the absence of post-loan monitoring, many Mozambicans lack the incentive to work hard and repay their loans.

A lesson to be learned from the Mozambican experience is that supplying credit is simply not enough. Borrowers should be taught how to manage any money they receive. Also important, borrowers should be made to pay for services, as people have less appreciation for something given away free (and therefore perceived to have less worth).

Finally, it is noteworthy that despite the government's official policy to support small business, some misguided economic policies have caused a hindrance to micro-enterprise. In contrast to Johannesburg, where the market has been deregulated to promote informal enterprise, police in the municipalities of Beira and Maputo persecute street vendors, who are performing an important economic function.

Towards Future Research

Only 10 per cent of the applicants for the Urban Microeconomic Support Project loans were women. Future research should investigate why Mozambican women are so under-represented, especially considering the significant efforts by the Women's Bureau of the Institute for the Development of Local Industry, organized precisely to encourage more participation by women. Another topic worthy of research is the solidarity group approach to lending. In Bangladesh, the Grameen Bank has been successful with such a model. It is the opinion of the author that this could be adapted for the administration of funds in rural areas of Mozambique.

Conclusion

During the long civil war, Mozambique produced little and blamed its problems on external factors, including President Ian Smith of Rhodesia, apartheid in South Africa, President Hastings Banda of Malawi (who permitted the flow of supplies to Renamo), and Renamo, who demanded multi-party democracy with equal rights for Moslems. Now that Rhodesia has become Zimbabwe, apartheid has been eliminated, and the war is over, foreign aid is attempting to bring prosperity to Mozambique, but this will not be enough. Given that the nation was ravaged by war and misery, it is not easy to instill in people the discipline to defer gratification and work hard for future benefit. The future of Mozambique will be a function of its own new government, its skills, policies, and perhaps most importantly, its willingness to recognize constraints. Not only are market forces a factor, but so are supply-side influences which are to be determined by the government.