Coping with uncertainty - Petty producers in postwar Mozambique

CDR Working Paper 98.4, April 1998
Jørgen Billetoft 
Email your order for a paper copy to DIIS order form

Abstract

Since the early 1990s, the Mozambican society has undergone significant changes. The Peace Accord in 1992 enabled demobilisation of most former soldiers and repatriation of almost two million refugees from the neighbouring countries, and the Government has launched an extensive programme of market-oriented reform and political reconciliation.

Focusing on the business environment of petty producers, this paper examines the effects of these reforms. Special attention is paid to the response or coping strategies of business-operators to circumstances characterised by strong market fluctuation and weak state institutions.

The hypothesis is that the business strategy of micro entrepreneurs can be understood as responses to instability in the business environment caused by a combination of three factors: a) Dysfunction of state institutions such as harassment or petty corruption; b) Individual events like theft and sickness, and c) Fluctuations in supply of raw materials and swings in demand -resulting from for instance drought.

Introduction

Focusing on the business environment of petty producers, this paper examines the effects of the introduction of market-oriented reforms and recent years’ political changes in Mozambique. Special attention is paid to coping strategies, i.e. the business-operators’ response to circum stances characterised by strong market fluctuation and weak state institutions.

Although the government embarked on an economic reform programme before the political changes really took off, the democratisation and macro economic reform agendas today form an integrated whole. Western development organisations have taken a strong interest in the changes, occasionally being instrumental in their implementation. It is assumed that democratisation and good governance facilitate economic growth and social equity. Correspondingly, in the view of mainstream or neo-classical thinking, the deteriorating state-society relation and the concurrent parallelisation/informalisation of economic activity which characterise many sub-Saharan societies indicate bad governance and erroneous economic policies. Democracy and multipar tyism are the ingredients believed to prevent the political elite from treating economic policy decision-making as a means to favouring selected interest groups by allowing the population to articulate its interests and control the rulers (Gibbon 1992).

It is the principal assertion of this paper that the connection between governance reform and social progress is more complex than usually assumed, as illustrated by the case of petty producers in Mozambique. The petty producers are caught in a contradiction. On the one hand, the Mozambican government as well as foreign development organisations wish to stimulate growth of micro activities which are seen as a seedbed of entrepreneurship and a vital source of earnings for low-income households. On the other hand, there are indications that loss of the state’s administrative and service delivery capacity has - at least in the short run - created a vacuum of authority and social instability that seriously impedes the functioning of normal business relations and distorts the individual business-operator’s potential to cope with uncertainty related to the household.

It is assumed in the study that an uncertain business environment may derive from a combination of three factors: a) Uncertainty related to dysfunction of state institutions like excessive bureaucracy and harassment or petty corruption; b) Insecurity resulting from individual events like theft and sickness, and c) Instability caused by fluctuations in supply of raw materials and swings in demand - resulting from for instance natural calamities such as drought. The hypothesis is that the business strategy of micro entrepreneurs - occasionally denoted risk management - widely can be understood as responses to these factors.

The study was undertaken in close co-operation with PAPIR, Projecto de Apoio , in Beira. PAPIR is funded by Danida though sub-contracted to Ibis, a major Danish NGO. This co-operation allowed creation of contacts with resource persons and informants otherwise difficult to reach. Furthermore, it facilitated the practical aspects of the field work. A Portuguese version of the present working paper will be published by PAPIR.

Structural adjustments and political reform

Redefining the role of the state: Towards a market-oriented economy

During the first years of independence, the Mozambican government was able to present quite comfortable growth rates and significant achievements in the fields of social welfare and education. The termination of the struggle against the Portuguese gave way to a period of relative stability during which Frelimo managed to mobilise considerable groups of the population in its strive to reconstruct the country. Frelimo’s political project was not least popular within the urban middle class.

However, from the early 1980s the effects of the escalating conflict with Renamo and the failure of the forced modernisation of industry and agriculture prompted by the exodus of the Portuguese began to be felt. A severe drought further deteriorated the situation and gradually brought the growth to a standstill. By the mid-1980s, the industrial output was only half of that in the late 1970s, export crop production was steadily declining, the food deficit widening and huge parts of the social infrastructure destroyed in provinces affected by armed conflict. Between 1985-92, gross national product per head declined, in real terms, at an average rate of around 1.3% per year (Smith-Morris 1995). Moreover, the ordinary economic activity was paralysed in many parts of the country and large numbers of the rural inhabitants fled the countryside in order to seek security around major urban centres or in the neighbouring countries. These circumstances compelled the Frelimo leadership to reconsider the prevailing socialist development model (Graham 1993) [1 It should be kept in mind that although Mozambique practised a planned economy, it never became a solid monolistic state like those in other parts of the world, e.g. eastern Europe or China.] .

Frelimo’s 4th Congress in 1983 marks the principal turning point. It was concluded that the private sector should be allowed more room. Especially small-scale agriculture should be encouraged in order to diminish the huge food deficit. It was also decided to intensify links with the western countries, including to seek membership of the IMF and the World Bank.

In order to meet the preconditions for qualifying for loans from the IMF, the government in 1985 gradually began to liberalise prices and diminish public employment. The reform process was thus already underway when Mozambique in 1987 signed its first accord with the IMF and the World Bank and launched an economic rehabilitation programme. The reform programme, in Mozambique known as Programa de Reabilita is designed in consonance with the well-known standards for structural adjustment programmes.

The goal of PRE, which has remained essentially unchanged throughout the process, is to restore macro economic balance by increasing economic efficiency and reducing internal and external deficits. Main ingredients were economic liberalisation, devaluation of the metical, reduction of government wage costs and subsidies, stringent control of credit growth and linkage of wages to productivity, deregulation of prices, and stimulation of the private sector in general and exports in particular. Other major components of the PRE include establishment of a secondary foreign exchange market aimed at facilitating access to imports and supplies ofindustrial inputs, introduction of incentives to promote foreign investments, adjustment of basic commodity prices to those of the market, increase of income and corporate taxes, dismantling of state farms, and stringent control of credit growth.

In the early 1990s a social dimension aimed at particularly vulnerable groups of the population was added to PRE as a means to offset the negative social effects of the reforms. Thus, rehabilitation of the education and health systems which were seriously affected by the sharp cuts in public expenditure has been given special attention by the donors in recent years. Also, public administration reform has been set high on the agenda. Retrenchment of the civil service, restructuring of public institutions in order to render them more efficient and decentralisation of the central administration are major ingredient in the latter.

Economic effects

There are conflicting views on how the effects of PRE should be assessed. While western donors and the IMF tend to emphasize the economic achievements, Mozambican politicians and scholars express concern about the social effects of the reforms. For instance, in a recent account of the situation IMF writes that ‘Mozambique has made good progress towards reversing economic decline, reducing macro economic imbalances, and liberalising its economy. Despite civil war, a decline in the terms of trade, and natural disasters, the economy grew at an average annual rate of 6.7% in the period 1987-95... However, the remaining macro economic imbalances are substantial and the objective of attaining stabilisation in the late 1990s was not fully achieved’ (IMF 1996:2). The IMF highlights the liberalisation of the exchange rate, prices, interest rates and the trade policies as major achievements. Moreover, Mozambique is credited for its successful election in 1994 and fulfilment of the demobilisation of former combatants. On the negative side counts factors such as slow recovery of the export sectors, less than anticipated reduction of inflation (it was down at 55% by end-1995), continuously high dependence on foreign aid for investment purposes, and poor collection of government revenues from especially customs and petroleum tax receipts (ibid). As for the external debt situation, the IMF admits it is ‘unsustain able’ and that even with a good export performance and continuous influx of foreign aid, the debt burden exceeds the county’s repayment capacity.

Carlos Nuno Castel-Branco (1995), a prominent Mozambican economists, is one of those who have voiced what can best be described as a balanced criticism of PRE. He blames the reform policy for ignoring the real problems of the economy. Apart from being concerned about the social consequences ensuing PRE, i.e. the spread of poverty and the accelerating social inequality, he argues that economic recovery of the productive sectors requires profound institutional and structural innovations. Simple macro economic adjustments are insufficient measures to bring the production back on the track, according to him. Castel-Branco quotes bureaucracy, centralism and excessive interventionism as factors impeding efficient use of the scarce resources available. Another major constraint concerns the feeble physical infrastructure which thwarts exchange of goods not only between the countryside and the towns but also between different parts of the country. Finally, he mentions low technological capacity of the productive sectors and fragile inter-sectoral linkages as crucial problems that need to be addressed as an effort to rehabilitatethe production (ibid). Failure to confront these hindrances are the major reasons why the economy makes progress much more slowly than anticipated.

Irrespectively of how the wider effects of the reforms are assessed - and all observers seem to agree that the impact on the productive sectors of the recovery has been tardier than anticipated - evidently the reforms have had tangible consequences.

Most significantly, the access to imported goods has improved. Consumer goods and production inputs now find their way into Mozambique from the neighbouring countries in large quantity. Even in remote rural towns, manufactured goods such as cigarettes, soap, biscuits and second hand clothes can be bought. However, due to high import duties and mismanagement in alfandegas, the customs administration, a substantial part of these goods enters the country illegally [2 For example, it is estimated that as much as one-third of all goods passing through the Port of Maputo is imported illegally (EIU 1/95).] . Smart, mainly non-black business people taking advantage of the weak Mozambican state and the prevalent laissez-faire atmosphere are yielding huge profits from this semi-illicit import-export trade which has had a not insignificant trickle-down effect on those working in alfandegas. Yet, in recognition of the problem with smuggling and slack border controls, the British company Crown Agents have been assigned the task to reorganise alfandegas in order to curb mismanagement and improve efficiency. This has already had a marked effect on both efficiency and revenue collection.

Preliminary assessments of the privatisation programme suggest that although the great majority of enterprises have been bought by Mozambican investors, foreign companies dominate in terms of equity amount. There is thus a tendency that Mozambicans acquire smaller firms while foreign capital takes over larger ones. Due to the credit ceiling, Mozambican investors have had difficulties in raising the necessary capital. On the whole, it seems as if employment levels have remained unchanged and wages have increased modestly following the privatisation. Although the sale of public enterprises undeniably has caused layoffs, these have typically occurred prior to sale to private investors. Regarding the size of production, the effects of the privatisation have been modest so far. Only industries based on exploitation of Mozambique’s natural resources, mainly hardwood and prawns, and the food industry have until now witnessed market increase.

Social polarisation

As a consequence of the removal of price controls on most products, minimum producer prices are maintained for a handful of agricultural products solely, the cost of staple food has gone up dramatically, far outstripping wage increases although recent year's bumper harvest has reduced the cost of food somewhat. One of the most heated issues thus concerns the social impact of this change. There are only few studies on the extent and nature of poverty and even fewer which deal with the distribution of income and wealth. Evidently, in terms of GDP Mozambique ranks among the poorest countries in the world. For instance, in its economic report for the 1994 Paris Donor Consortium meeting the Mozambican government stresses poverty reduction andrehabilitation of social and economic infrastructure are the most urgent challenges it faces today (Government of Mozambique 1994).

The pattern of poverty is complex, though. Clearly, rural areas which have not yet benefited from the post-war rehabilitation programmes are still very bad off and in many instances unaffected by recent years improved access to production inputs and consumer goods. In districts with strong presence of foreign organisations and in urban areas, the picture is considerably more varied. Here, programmes aimed at particularly vulnerable groups and post-war resettlement have probably taken the top off the most extreme poverty. It is probably correct as usually held that poverty is more widespread in the rural areas, mainly because so few people have access to a money income allowing them to acquire basic consumer goods. Yet, at the same time, except for years with detrimental climatic conditions, overt malnutrition is rare.

The structure of urban poverty is more delicate issue. It is commonly assumed that especially low-income town dwellers strongly feel the removal of fixed prices on food and consumer goods. However, there are indications that urban informal sector activities have enabled some segments of the population to compensate the price hikes or even improve their conditions (de Vletter 1996). Especially people with small savings which they can use for venturing into petty trade or petty services, such as demobilised soldiers and retrenched migrant workers returning from South Africa, benefit from the steady growth of the informal sector. Those without access to such additional resources are those really affected. Deemed from the increased of petty crime, child exploitation, low hygiene, humble habitation and miserable clothing, the latter group seems to be increasing.

Although the extent of poverty appears to be more moderate, especially in urban areas, the common perception is that the number of low-income households is on the rise. There appear to be strong agreement, too, that income disparity is widening, particularly in the major cities. First and foremost, this notion is provoked by the emergence of relatively small but very conspicuous new middle class which has emerged following the economic liberalisations. Os novos ricos [ Adams (1996) talks about the 'CCCC bourgeoisie' as a new type of class which has an economic strategy based on three legs: cunha (political and friendship networks), candonga (comercial racketeering without any respect for costs, taxes, investment) and chapa cem (transportation) (p.287).] derive from a multitude of circumstances. A not insignificant part of them can attribute their fortune to the presence of foreign development organisations working as national staff or short-term consultants. Most of these belong to the small group of well-educated Mozambicans. Another major group is the political elite, i.e. the senior civil servants and politicians who became powerful in the wake of the Portuguese exodus. Many of these have taken advantage of their position to acquire formerly public assets at very favourable conditions or are outright involved in racketeering. Others are people who simply were in the right place at the right time and started a lucrative business on the ruins of a collapsed state enterprise or secured real estate which they now rent out for hard currency. Asian families traditionally involved in commerce and Portuguese remnants (usually nationalised Mozambicans) figure prominently within the latter group.

Creation of a national bourgeoisie is a deliberate element of the PRE strategy. It is based on the assumption that an affluent class in command of assets for investment in the productive ventures and for private consumption will spur the economic recovery. So far, this trickle down strategy has not been very successful. Os novos ricos are almost as reluctant as foreign investors to put their fortunes at stake in productive ventures, but as of recent particularly political veterans have demonstrated considerable interest in the financial sector and other services.

In between these two extremes, the poor and os novos ricos, one finds the ‘old’ middle-class and workers in the modern sector. Both categories are the real losers in the transition process. Although the government frequently adjusts the salary of public employees, the intent is that real wages should be kept behind the price hikes in order to cut the wage bill. Especially groups such as teachers, health personnel and technicians have experienced marked erosion of their living standard. So have workers in state enterprises. Especially among these groups, loyalty to Frelimo’s project has been strong. Not surprisingly, one encounters most frustration and disappointment here.

Democracy and governance reform

With the general election in 1994, Mozambique took a major step towards the introduction of multipartyism as agreed in the Peace Accord of 1992. Apart from introduction of parliamentarism, still in an early stage, other elements of the national reconciliation process comprise reintegration of ex-combatants, resettlement of the thousands of people displaced during the war and rehabilitation of physical and social infrastructure. Although the political debate leaves much to be desired, the mere existence of an opposition has given room for criticism of the government and particular individual cabinet members' dispositions which, in turn, is an important step towards a more transparent public administration.

Western donor influence has been vital in spurring the political transformations. Not only have they been very actively involved in the post-war recovery endeavours [4 The UNOMOZ operation was the most costly UN peace-keeping intervention so far.] , they have also taken a strong interest in creation of a pluralist civil society and attempts at streamlining the public administration. Decentralisation of the state administration, support to national NGOs and related civil society associations, strengthening of the juridical system and stimulation of critical mass media are fields where foreign development organisations have taken a stake.

Not surprisingly, several of these initiatives have been met with a certain reservation by the Frelimo government. Not least the decentralisation drive is causing a dilemma. On the one hand, there is an acknowledged need to enable sub-national authorities, i.e. governors and local administrators, to respond more flexibly to unmet local development needs. On the other hand, decentralisation may undercut the present endeavours to strengthen the capacity of the central government to implement economic and social policy (Graham 1993) with a view to reduce regional imbalances. The government thus fears that delegation of authority and resources to sub-national levels may loosen its grip over national politics and atomise the already divided country even further. In spite of this dilemma, it has been agreed that local elections will take place in1997 [ By early 1998, the election had yet taken place.] . It remains unclear to what degree the new locally elected bodies will be granted the right to dispose of government funds and generate their own resources.

As mentioned, the most conspicuous change in the state-society relationship is the widened room for political debate and criticism of the government. Not only has the parliament become the forum of genuine political discussions, the media frequently call attention to mismanagement and corruption within government and state.

The more independent position of the media vis-à-vis the government has contributed to taking the screen away for the irregularities in public administration, but establishment of an influential public sphere exerting political control is still not on the immediate agenda. It is characteristic for the current situation that although several high-ranking government officials are accused of abusing public funds and otherwise abusing their position, there are very few cases until now where this has had serious repercussions.

Civil society associations thus continue to be weak players in the political debate. During the heydays of socialism, independent interest organisations were met with scepticism or outright outlawed. This deprived the population experience in defending their interests. Although such organisations are still met with considerable scepticism, their number has augmented in the last years. Encouraged by the prospects of foreign aid, national NGOs have mushroomed all over the country. However, most of these are still very fragile.

Small size businesses typically form informal groups and associations for regulating their internal affairs and representing their grievances vis-à-vis the local administration. Particularly petty traders have demonstrated considerable ability to create interest organisations. For instance, there are examples of informal groups of traders who have been strong enough to petition the local administration to establish physical marketplaces (Little and de Coloane 1992). Also, the traditional organisations representing commerce and small-scale industry, the Camaras de are quite good at articulating their interests. For instance, in late 1994 disgruntled businessmen representing several associations complained to the President over the conditions of small businesses (de Vletter 1995).

However, in the Province of Sofala, efforts by PAPIR, Projecto de Apoio to create an association for craftsmen are making slow progress only. The main barrier is to make the artisans understand the advantage of having a channel for articulating their interests. They simply have difficulties in imagining how a dialogue with the authorities can come about. Moreover, fear exists that overt criticism of the authorities may bear serious negative repercussions for the artisans.

A main objective of the PRE is to enhance the efficiency of the administration and curb government expenditures. The effect of these interventions varies. Most significant have the results been in the field of public sector employment and salary expenditures. Real income for public employees has decreased by 25-33% over the last years forcing many to look for additional earnings, for instance from self-employment or corruption.

Reduction in government employment has primarily materialised through the sale of state enterprises to private investors and the reduction of jobs in parastatals. In general, ministries and local administrations are so poorly staffed that the room for further cuts in this field is limited. Hence, interviews with representatives of district and provincial administrations indicate that dearth of qualified staff is a major constraint. Among the institutions we spoke to, solely Conselho Municipal da Beira had more staff than the absolute minimum required. Indeed, the conselho has been instructed not to lay off a large number of excessive workers and replace them with others whose qualifications better match the requirements of the city administration.

As for public investment and recurrent budgets, reductions have reached a point where lack of resources severely hampers normal operation. In the Province of Sofala, for instance, central government allocations for investments as well as running costs are steadily shrinking in real terms. Provision for basic equipment and transportation only covers a fraction of the actual needs. At the district level, which traditionally has been the loser in allocation of resources, resource scarcity is even more rampant. However, although central government allocations have diminished, many provincial bodies have been able to maintain previous levels of operation. This is because the efforts of the numerous development organisations involved in rehabilitation of the social and physical infrastructure would be widely vain without a functioning local administration. Therefore, they increasingly take on the responsibility of meeting not only investment needs but also running costs. Foreign donors are thus not merely providing funding for the extensive post-war rehabilitation, they also more and more assume financial responsibility for the administrations in order to secure their participation in the activities. Judged from our observations, the effect of the budget reductions has primarily been stronger donor dependency.

In order to enhance the efficiency of the public administration, senior staff in the ministries and province administrations are being replaced by younger, more development-minded technocrats. It is presumed that this new generation of civil servants is less politicised and more resistant to clientelism. Its major deficiency is limited political experience, since many of the young technocrats lack authority to manoeuvre within the rather complicated power structure characterising many government institutions. Moreover, the top-down command structure in the state apparatus widely endures unabated, leaving little room for the younger generation to demonstrate their capability.

Not being part of the old Frelimo elite, the younger technocrats have usually met the political and economic reforms with considerable expectation. Today, many of them feel frustrated and disappointed over the slow progress of change. Indeed, the failure to curb misappropriation of public funds and corruption [6 Corruption is a diffuse term that may designate as different phenomena as direct theft of public funds to abuse of government vehicles for private purpose.] coupled with the steady decline of the real income for civil servants have tempted many of them to join the unsound habit of their predecessors. Moreover, many feel insecure about the political future of Mozambique. In defiance of these plausible reasons for getting involved in shady transactions, foreign observers we met felt there are only scattered signs of improvements of the state administration’s efficiency, mainly due to a gradual heightening ofthe education level. It should be emphasised though that one frequently comes across reformers who try to keep the morale high and shun the usual rent-seeking behaviour.

In conclusion, the political transformations have - at least in the short run - intensified the crisis of the Mozambican state. First, introduction of democracy and multipartyism, still in its early stages, has created a vacuum of authority. Frelimo has experienced difficulties in adjusting to a style of governance based on multipartysim and still clings on to habits from the time when it enjoyed political monopoly. Creation of democratic institutions at sub-national level, including a pluralist civil society, has not come far enough to enable these institutions to counterbalance central government dominance. In the process of alteration, Frelimo has lost much of its former coherence and authority, reducing its ability to steer a complicated transformation process and leaving more room for the individual politicians to pursue personal interests. Secondly, fear of radical political shifts makes civil servants, especially at top level, prepare themselves for the future. Often, high-ranking political appointees perceive their power an once-in-lifetime opportunity to safeguard their and their family’s future. Thirdly, the constantly shrinking real wage of government employees has provoked a marked spread of petty corruption. Whoever has the opportunity utilises his influence to obtain additional informal income. Particularly the ‘old’ urban middle-class, which for the greater part are civil servants, has experienced undermining of its living standard. It has few additional income sources and is strongly dependent on the urban money economy. Lastly, and perhaps most importantly, the political and economic changes have produced a strong atmosphere of laissez-faire and disengagement. People primarily care for themselves, paying little attention to the commonality of society. Against this background, the situation of petty producers will be discussed in the following sections.

Sampling and methodology

The sample was drawn among petty producers, i.e. artisans, involved in production and repairing. Carpenters, tinsmiths/welders, tailors/dressmakers, and bicycle and shoe-repairers make up the majority of interviewees. Also, a smaller population of merchants (marketplace vendors and street traders) and quiosque-owners (a quiosque is a stall for sale of beverages and food) was interviewed in order to investigate how these compare with petty producers. Questions concentrated especially on four issues: a) General background of the business-operators; b) Effects of the market reforms; c) Effects of the changes on the institutional environment; and d) Responses to the new situation, if any.

In order to examine the connection between recent years’ reforms and the business environment of small-scale economic activity involves substantial methodological problems. First, it is associated with considerable difficulty to obtain relevant data such as specified local budgets (for instance for the provinces), payrolls of public institutions, revenues etc, intelligence needed for assessing the effects of the PRE. Secondly, the interpretation of whatever information is available is a highly subjective matter. Just think of the morale and coherence of local and central government institutions. Without an insider’s insight, one has to resort to secondarysources to make such evaluations. And even so they are necessarily quite subjective. We had neither the time nor the sources required for making this kind of profound analysis. Therefore, we mostly have based the judgements on circumstantial evidence. Three types of information are available for that aim: Testimony by the craftsmen; interviews with key persons, for instance Mozambican scholars, civil servants and representatives of foreign organisations; and written evidence (reports, newspaper articles etc.). Finally, it is of course a delicate methodological issue to distinguish the impact of PRE from socio-economic changes caused by other factors.

The study was carried out in close co-operation with PAPIR, Projecto de Apoio a project for support of petty producers in the Sofala Province. PAPIR also trains demobilised soldiers from the districts as part of the effort to reintegrate them. In late 1995, 450 craftsmen from all of the province were registered at PAPIR.

Surveys were conducted in Beira, the capital of Sofala Province, and Nhamatanda, a district town 110 km from Beira. With an estimated population of 400.000, Beira is the second biggest city in the country. Nhamatanda is situated on the Beira-Zimbabwe trunk road. Benefiting from the presence of Zimbabwean soldiers, who guarded the pipeline to Zimbabwe, the population of Nhamatanda District swelled from a population of 70.000 to an estimated 190.000 inhabitants during the war. Only a small part of these refugees has demonstrated an interest in returning to their district of origin so far.

While more than 90% of the interviewed craftsmen are registered at PAPIR, i.e. have expressed interest in some sort of assistance therefrom, none of the traders were so (though most of them knew about the existence of PAPIR). In order to enable assessment of the changes over time, mainly business-operators with more than three years in business were selected. However, far from all traders had that much experience.

Petty producers in Sofala Province. A profile

The development of petty traders and producers in Sofala province

Similar to other provinces, Sofala has experienced a marked upsurge of micro activities, particularly of petty trading, in recent years. ‘The urban response to declining real wages and job cuts has led an astonishing growth of a commercial culture hardly known a few years ago. Principal markets in major rural towns and provincial capitals are considerably more active than observed just two years ago, with much greater participation of peripheral activities such as tinsmithing, tailoring, bicycle repairs etc.’ (de Vletter 1995).

Until the mid-1980s domestic trade and production activities were in principle the state’s domain. But its inability to secure sufficient supply of goods and raw materials and control their distribution gave gradually birth to parallel channels of distribution and production. In acknowledgement of its administrative weakness and the waste caused by a marketing system which operates at the fringe of legality, the state began relaxing its formal command in these fields after the 4th congress in 1983. Harassment of street traders continued (and continuous today) also after the government embarked upon the reform process. Thus, the boom of small-scale economic activity only really began to take off by the late 1980s. It is estimated that as much as one-third of the urban population today relies on some sort of small-scale business for their subsistence.

Although at a lower level, rural non-agricultural activities too have undergone dramatic recovery. Petty commerce at market centres and small towns has developed quite rapidly, especially retailing in elementary (widely imported) manufactured goods as for example cigarettes, soap, sugar and second hand clothing, rural artisans are now commonplace at all market places. Demobilised ex-combatant, repatriated refugees, unemployed workers and professional traders are typically undertaking these activities.

Traditional artisanal activities are in a more difficult situation. The picture varies from district to district, depending on the degree to restoration of the money economy in the agricultural sector. In small urban centres such as Nhamatanda, one of the surveyed localities, the situation is almost normalised, and several craftsmen operate within each trade. Here, even a certain competition prevails, causing occasionally idle capacity and slack demand.

At smaller marketplaces and in the bush, things are usually quite different. For instance, a recent PAPIR report on training needs in the artisan sector mentions that many skilled rural craftsmen are unable to resume their previous occupation due to shortage of funds for materials and tools. According to the report, the problem is twofold. A fragile marketing system resulting from inadequate access roads (many districts remain without any kind of link to the outer world) and absence of merchants who can connect the urban and rural economies prevent the small holders from generating cash income. But the craftsmen also contend that they have difficulties in obtaining the inputs they need. There are no saw mills for cutting timber, the nearest hardware store may be several hundred kilometres away, and cloth is something to be bought even further away. Under these circumstances, many craftsmen operate below their capacity and base business transactions on exchange with agricultural products. Of course, as the post-war rehabilitationefforts proceed the situation will gradually normalise, but this seems to be a long-term process. In Sofala, one of the more accessible provinces, several of the 10 districts are still almost entirely unaffected by the rehabilitation activities and remain difficult to reach by road.

Categorisation of micro enterprises

Micro enterprises can be divided into four distinct categories: a) small-scale commerce, by far the most common activity, covers a highly varied spectrum of operations from street traders selling vegetables and manufactured goods to market vendors retailing kitchen utensils, clothing, food, etc; b) traditional rural non-agricultural production including charcoal, firewood, beverages, handicrafts, dried fish, etc; c) petty services such as bicycle repairers, barbers and quiosques; and d) self-employed artisans and petty producers. Most work on their own, but it is not unusual to employ 3-5 workers and ajudantes. A small group has as many as 8-10 workers. Tailoring, carpentry, tinsmithing, stone masonry and bread-making are common activities in this group.

Petty trade

In response to contracting real income and reduction of formal sector employment, petty trade (or has literally exploded all over Mozambique. Along roadsides, in slum areas and at rural market centres vendors have organised their stalls or sales points. A further division can be made between market trading in established bazaars and street trading (in Beira known as chungomoio). Particularly the latter has increased rapidly in recent years, though the authorities have tried to redirect the street vendors into more controlled surroundings by establishing new marketplaces in response to their pressure. Some sell at booths within the formal marketplace, but the great majority sell in the open areas outside or adjoining the market. In Beira, street traders are frequently subject to harassment by municipal police, fiscais, arguably because they hinder movement on public space.

Street traders mainly deal with drinks and foods, agricultural products, manufactured goods, firewood and roupa usada, second hand clothes. Market vendors typically are involved in sale of fruit and vegetables, foods (dried fish for instance) and beverages, and basic consumer goods. While street commerce sometimes is a part-time activity, conducted when the family is short of cash, those having a stall in a bazaar usually run their business on a full-time basis.

The overwhelming majority of street traders are women. When busy doing other activities in the household or related to the business, they are substituted by children and elderly households members. Previously, market vendors, too, were predominantly female, but recent years’ changes whereby the job opportunities in the formal sector are dwindling and real income shrinking means that men increasingly are taking up commerce. Reflecting the men’s dominance in the households, male-operated stalls are usually better stocked than those that are female-operated. Correspondingly, the education level of male merchants tends to be higher. In part, this reflects the dominance of men in the Mozambican society, but it also results from the growing number of persons who opt for informal sector self-employment instead of a salaried formal sector job.

Men typically trade in manufactured goods as for example soap, sugar, cigarettes, biscuits, batteries and soft drinks. But also selling of charcoal, roupa usada, capulanas, cloths worn asskirts, shoes and other clothing items are attractive too. Vendors seldom employ paid workers. Rather, a trusted relative looks after the booth when the owner is away.

Traditional, non-agricultural products

Rural non-agricultural products such as charcoal, dried fish, traditional alcoholic beverages, as well as baskets and mats still play an important role for urban low-income households. Specialised vendors organise the transport and retail the products in the cities. Investments are modest and the producer often conducts the activity alongside with agriculture. Due to scarcity of competing manufactured products, there has been a considerable demand for these products until now. As the economic recovery makes headway and industrial substitutes become more common, demand for most of these products will decline.

Petty services

Petty service is a broad category comprising as diverse activities as open-air hair-cutting, watch repair, food stalls (quiosques) and chapa cens (route minibuses). Returns are high especially in the fast booming private transport sector, but so are risks. Many new transportation companies have been established in the aftermath of the PRE and the peace accord. Some are involved in long-distance transport, benefiting from Beira's position as a regional traffic hub. Others are just persons who have managed to acquire an old truck which they lease out for local transportation. Ensuing this development, garages have mushroomed all over Beira. Repairing of diesel vehicles is presently one of the fastest growing activities in the city.

Craftsmen and petty producers

Craftsmen and petty producers may have acquired their skills through traditional apprenticeship or working in an enterprise in the modern sector. Many are marked by the severe crisis which has ravaged the Mozambican economy. Tools are mostly obsolete and often scarce, just few use electrical equipment. Scarcity of capital preventing them from maintaining a reasonable stock of raw materials is a common constraint. In comparison with Kenya, for instance, which has one of the most dynamic micro enterprise sectors in Africa, specialisation and diversification is modest. On the contrary, the technical capability of many Mozambican artisans is quite high. Thus, many carpenters produce Portuguese-style furniture of considerable sophistication and tinsmiths make buckets and water containers of a finish rarely seen in Kenya. The likely reason for this is that the artisans until recently have been the almost sole suppliers of these items on the market. Differently from Kenya, they have therefore not been forced into a low-income market.

At market centres and smaller towns, just few craftsman have permanent bamboo constructions, the vast majority conducts their activity under a tree near their home. In Beira, too, many have to work in the open air, but abandoned houses (mostly ruins) or simple sheds are frequently used as workshop space. Tailors and dressmakers would usually work on their own, whereas carpenters and tinsmiths may have 2-4 skilled workers and adjutants. Merely a fraction of the artisans employs more than 10 persons.

The principal difference between rural and urban petty producers and artisans is the scale of operation, the level of specialisation and the regularity with which the activity is conducted. Due to the income disparity, the urban market is more segregated. In the countryside, incomes are more equal (modest) and the agricultural cycle strongly felt. By the time of interviewing, the peasants had for the first time in several years just enjoyed a normal harvest. The money generated from selling the little surplus crop was being spend mainly on highly needed requirements such as second hand clothing, footwear and some few luxury items as for instance sugar and cigarettes. Therefore, whereas the urban petty producer emphasises the improved supply of production inputs as the most important change in recent years, his rural colleague would argue that the gradual normalisation of agricultural production after the war has ended which has altered his business’ situation.

The fact that many large-scale industries have had to diminish their staff means that relatively many self-employed craftsmen have a background here. Almost one-third of the interviewed petty producers thus reported that they had only chosen self-employment in response to closure of their previous company. On the other hand, when asked if they would opt for a job in a plant if being offered the opportunity, hardly anybody answered in the positive. They simply didn't like the idea to become wage-earner again.

A certain group of entrepreneurs are those who became owners when the previous Portuguese employer left the country in the mid-1970s. Most of these workshops were relatively well equipped (and large) by that time but are today run down and operating at a modest scale. It is not unusual that they have shrunk from more than 20 workers to merely three to four.

Demobilized soldiers constitute a particular group of self-employed business-operators. Although it seems as if most of them prefer to start something in commerce, a considerable number have attended short-term courses in tailoring, bicycle-repairing, carpentry etc. Unfortunately, most courses offered are of very short duration, leaving them with limited business and technical skills. Moreover, development organisations have a habit of distributing tool kits and working capital for free. Impressionistic evidence indicates that despite a high rate of failure among self-employed ex-combatants, there is a strong feeling among other artisans that they cause a discernible, unfair competition.

A striking feature of the artisans' background is the multitude of activities many of them have been involved in. Frequently, those who recently commenced own business reported that their initial capital was generated through another unrelated activity, for instance commerce or wage-employment. Also elderly craftsmen had many times been undertaking various activities during the last decade in order to sustain the family. During the peak of socialist planning when petty producers were discredited, many have had to search for alternative earnings. Irregular supply of raw materials and fragile purchasing power continue to create problems particularly in the rural areas, although the economic reforms have alleviated the situation somewhat. Compared to petty traders, craftsmen (petty producers) are on the average less educated (typically they have 3-4 years of school attendance); they enjoy lower returns and have in many cases not invested more in the business than the merchants. Moreover, petty producers are less likely to be demobilised soldiers or ex-employees of parastatals than petty traders.

There are only scattered data available on the number of small-scale producers in Beira and Nhamatanda (Table 2).The most reliable estimate (IDIL/PAPIR 1992) sets the number of such in the two districts to 1.418 and 305 respectively. With an average family-size of six, this corresponds to one petty producer per 47 households or 2% of the households that depend on such an activity as their principal source of subsistence in Beira. With an average number of 2.5 persons employed in each enterprise (IDIL/PAPIR’s gauge), the actual share of the urban population involved in petty production comes to about 5%. Were petty commerce and petty service included, the share would be far higher. Recent figures estimate the proportion of the urban households that relies on micro activities for their subsistence in the order of 40-50% (de Vletter 1995).

A petty producer perspective on the changing market conditions

Focusing on petty producers, this and the two following sections will discuss three aspects of the process of change: a) In this section we shall look at the effects of the changing market conditions (i.e. demand and supply effects), b) In section 6 we shall focus on the institutional environment and business climate. Finally in section 7 we shall focus on the response of entrepreneur to risk and social insecurity.

Eased access to input

Generally speaking, the economic reforms mean eased access to raw materials and tools for micro industries. Previously, while the state practised its monopoly over import and sale of such commodities, the supply of materials and essential inputs was highly irregular, creating serious inconveniences for the enterprises. When obtainable at the parallel market, prices were usually exorbitant. Since the liberalisation, basic requirements are normally available. Thus, only very few of the urban craftsmen mentioned that they faced problems with securing inputs. Only special items are not regularly in stock. But there are big contrasts between the conditions of urban and rural petty producers. Almost unambiguously, artisans in Nhamatanda reported difficulties inobtaining the materials they need. Except for very basic things, they can only be obtained in Beira, 110 km each way. Even lumber is in irregular supply due to shortage of local cutting capacity. Apart from imposing a considerable expense on the business-operator, the journeys are quite time consuming. It should be noted that Nhamatanda, in comparison with other districts, is privileged in terms of accessibility and availability of products.

Unlike what might be envisaged, the improved supply has not in all instances led to reduced prices. Due to the industry’s miserable state, inputs are widely imported. This is the case with all tools and production equipment, but also galvanised iron sheets, the principal raw material of tinsmiths, latoeiros, textiles used by tailors, and glue and nails for carpenters are mostly imported. Owing to the high import fees and the malfunction of the customs administration, illegal and irregular import is extensive. The costs caused by these constraints are inflicted on the customers, hereunder petty producers. Massive devaluation of the metical has contributed to the substantial price hikes.

It is not merely imported materials which have experienced strong increases. This is for instance also the case with timber. While hardwood in general is scarce in southern Africa, Mozambique has a considerable stock left because of the war. After the interior of the country has become accessible, hardwood has developed as a major export article, leading to dramatic price rises.

The vast majority of petty producers reported that the elevated prices hamper their business. This is particularly the case for those who cater to low-income customers. Usually, the artisan would respond to the situation either by turning to the parallel market, the chungamoios, where contraband goods are being traded or by shifting to cheaper, lower quality materials. For example, while tinsmiths, latoeiros, nowadays easily can get the raw materials they need, the price increases have driven many of them to substitute used roof sheets for new metal sheets in order to keep prices low.

Neither did small-scale traders report difficulties in acquiring commodities for sale. Especially (imported) manufactured goods and second hand clothing seem to be easily available all over Sofala province. However, urban merchants trading in local products, for instance vegetables, fruits, dried fish, or salt often had to travel quite long distances in order to purchase the goods. Also, they more frequently complained of difficulties in obtaining the goals.

Intensified competition and tendencies of diversification

In the literature, it is usually assumed that petty producers (the informal sector) get their comparative strength from catering for niches in the market which are too small or specialised to be lucrative for large-scale manufacturers. For instance, many studies have concluded that African micro industries tend to concentrate on low-price, low-quality substitutes for the products and services of the modern sector.

This tendency is less significant in Mozambique. Unavailability of industrial products implies that not only low-income households but also middle-income groups used to turn to local petty producers for basic necessities such as food, clothing, and furniture. However, as indicated above, this is gradually changing. Following the eased access to production inputs and the enlargingsocial differentiation, tendencies of diversification and market segmentation among urban micro industries is underway.

Several factors have caused these changes. First, in the cities particularly skilful artisans, mostly involved in construction activities, furniture-making and auto-repairing, have managed to build up a new market among os novos ricos. Secondly, the proportion of low-income households is rising. Although official documents may exaggerate the extent of poverty, most observers agree that absolute impoverishment is growing. One estimate even asserts that the proportion of the population that lives in absolute poverty has reached almost 60%, up more than 20% from pre-PRE (Carlos Nuno Castel-Branco 1995). Albeit this estimate probably is too pessimistic, it is evident that a great share of the population has seen its purchasing power going down - at least until the 1996 bumper crop.

Yet, what really matters for micro enterprises is not so much the extent of impoverishment but the disposal income of the low-income households since this group depend on the informal sector for the great majority of its basic necessities. The issue is thus to what extent they actually have resources for buying these products and services. There is no reliable information available on the extent and nature of urban poverty, nor on the consumption pattern of various social groups. But it is our (subjective) impression that quite many low-income households have managed to maintain or even slightly improve their situation by taking advantage of possibilities for private business created by the reforms. By sending less needed family members out on the streets selling cigarettes, cooked food, or other basic necessities requiring little investment, they manage to generate enough income to keep the household floating or to make a little progress. It should be emphasized that this does not mean these household are no longer ‘poor’, they have just demonstrated upward mobility. Neither does it disprove the existence of a major group of destituted households without capacity to do anything but secure their immediate.

Another factor of vital importance for petty producers is the real income of workers in the formal sector. Not only has their number declined significant in recent years, so has their income. Today, merely 20-25% of the urban labour force and considerable less in the districts work in public or private large and medium-size enterprises. Many of these receive the minimum wage only. Even with the recent adjustments, the minimum pay is so little that it barely allows the family to sustain itself. Many wage-earners compensate through petty commerce, supplementary jobs, or the like.

Thirdly, a new group of clients has emerged in recent years: The development organisations. The extensive rural rehabilitation activities have created a market for construction materials and related items, for instance school furniture. Although all too often the organisations are not prepared to involve local artisans, there are nevertheless examples of small-scale enterprises who have benefited from these works. Some of these have even taken the form of bulk orders.

To summarise: While the purchasing power of the urban middle-class has diminished, the number of households in the borderland between the upper low-income and lower middle-income segments of the population is rising. Also, the foreign-funded rural rehabilitation programmes and the emergence of a group of newly rich have brought about a market for good-quality artisan products. Hence, the market for the products and services of micro enterprises is graduallydiversifying as the social polarisation becomes more manifest. For small businesses unable to target the growing, relatively lucrative market for better quality (high value) goods, the development in the purchasing power of low-income segments of the population becomes a critical variable.

Variations across trades

Two types of indicators were applied for assessing the impact of the economic reforms on individual enterprises: Changes in the workforce [ It is supposed that the development in the number of employees is a good indication of the profitability of the business. Although this of course may not always be the case, it is usually like that.] and the performance. The proprietors were asked about their present labour force and the highest number of workers they had ever employed (the latter were checked with the data available at PAPIR) [ In order to get a time horizon that allows assessment of the impact of PRE, merely enterprises which have been operation for more than 3 years were examined.] . Table 3 displays the result. Also, enterprise-owners were requested to compare the current situation with that at the time the firm was founded. These comparisons can be seen in Table 4.

In Beira, ten out of 44 (23%) interviewed artisans reported that the present number of workers is the highest ever. In 17 cases (39%), the owner employs fewer workers today than he did before. The same number stated that the workforce has neither gone up nor down. Enterprises in Nhamatanda show essentially the same pattern. Cross-checking with PAPIR’s client register disclosed essentially the same tendency.

Although on a limited empirical basis, these findings indicate that as many as three-quarter of the businesses are not larger today than they were by the time they were set up and merely one-quarter have expanded. Yet, several of the businesses which reported ‘no more workers than when founded’ have passed

Table 3. Current number of employees in comparison with the peak of the business.

Artisans only

Table 3. Current number of employees in comparison with the peak of the business.

Artisans only

Note: The figures do not include vendors and quiosques.

through a period of severe recession and are only presently undergoing recovery. Seemingly, for many artisans the toughest time was the years immediately before the economic reforms began to take effect, i.e. the mid-1980s. Several adverse factors coincided by that time: The civil war, drought and the economic crisis. Table 4 sheds further light on this issue.

Business climate

In this section, four elements of the institutional setting in which petty producers operate will be addressed: Rules and regulations, attitude and capacity of the bureaucracy, and the state of physical infrastructure and social insecurity. All four are assumed to have been influenced by the PRE.

Regulatory environment

As part of the general reform thrust, the government has frequently expressed its support to development of a thriving small business sector. Nonetheless, micro entrepreneurs still face substantial hindrances in conducting their work. Criticism has especially concentrated on excessively bureaucratic licensing requirements and high levels of taxation (Matabele 1995) and the invariable associate of excessive bureaucratic rules is corruption. Evidently, micro activities are subject to more regulations and rules in Mozambique than in many other African countries. Furthermore, they are being enforced quite rigidly. This probably reflects the fact that the Portuguese colonies were some of the most thoroughly regulated and segregated in Africa. Many past rules still apply. But it also matters that scepticism against informal economic activities is still widespread within the state administration. Ironically, the Portuguese and Frelimo shared the notion that urban small-scale activities need to be regulated extensively.

Although the principal rules and taxes are laid down by the central government, considerable room exists for local interpretation. Apparently, the reluctance is most persistent within the cities and major towns. Here, the stronger need for regulation of the common space combined with the prolonged communication lines between the population and the administration provide a breeding ground for red tape and inflexibility. In smaller towns, the rules seem to be administered with considerable more elasticity.

Classification and licensing

In spite of the strict control of small-scale activity, considerable confusion prevails as to the exact rules and taxes applicable to them. Our interviews in Beira left a picture of arbitrary classifica tions of enterprises, inconsistent interpretation of regulations and widespread use of bribing. This state of affairs can prevail because only very few have knowledge of the existing rules and regulations. For example, the authorities, including Conselho Municipal da Beira, are not very keen to present anything in writing on taxes and regulations applying to micro and small businesses.

Information provided by the business-operators and key informants, e.g. PAPIR’s staff, gave the following picture of existing regulations and bylaws. All enterprises are divided into three categories, C, B and A. Micro enterprises, whether street traders, petty producers, pull-cart owners or the like are designated grupo C, indicating that they are charged a flat rate (fee) by the local administration. Grupos B and A, medium and large-scale firms, pay tax, i.e. a certain percentage (10-15%) of the turnover, to the central government. Grupo C enterprises may either pay a daily fee (senha) or possess a license which is renewable annually (but which can be paid quarterly). The actual rates vary with the locality (district/city) as well as type of activity.

On top of the license, a not inconsiderable number of artisans are charged an annual tax by the Ministry of Finance (i.e. its provincial representation). To our knowledge, small businesses classified in group C are subject to payment of license or senha only. However, it was not possible to establish the precise taxation rules and their application.

In Beira the senha is 3.000 MT (0,25 USD) per day, in Nhamatanda 1.000 MT. License-holders pay 4-800.000 MT per year in Beira, less in Nhamatanda. On top of these amount, those also charged by the Ministry of Finance pay 745.000 MT/year extra. The latter are primarily petty producers in the higher end of the spectrum, although this is not always so. In these cases, the annual cost of licenses comes to more than 1,1 million MT. For comparison: The official monthly minimum wage is around 250.000 MT, while a self-employed artisan typically earns 4-500.000 MT. The annual expenditure of senha or license thus corresponds to at least 1-1½ month income, for those also paying to the Ministry of Finance significantly more. Considering the highly modest incomes yielded by most small-scale business, this must be characterised as high level of taxation.

To the fury of petty producers, Conselho Municipal da Beira recently introduced a taxa de a garbage fee, at 26.000 MT per month (1996). The fury is provoked by the fact that all industrial enterprises whether a small carpentry or a large factory pay the same. Moreover, the fee is being collected rather arbitrarily and garbage collection only occur on a regular basis in high-income neighbourhoods where hardly any artisan works.

It causes considerable frustration, too, that each activity requires a separate license. For instance, tinsmiths who use itinerant peddlers, something which is quite common, must pay license for the workshop and senha for the peddler. Sometimes, this creates even more absurd situations. Thus, we learned about a bush carpenter who had managed to organise a log he needed to have split into planks at the local saw mill. In order to bring it there, he needs a special license. But such a license is normally issued on an annual basis only - at a cost approaching the value of the timber. A woodturner’s coop in Nhamatanda had three separate licenses: One for the actual production, one for selling the products outside the workshop, and one for gathering and transporting the wood.

Moreover, if the businessman wants to inform the public about his existence by the way of a signboard, an additional license must be issued for that purpose. Thus, we became aware of two artisans who had removed their signboards after fierce struggles with the municipal police, the fiscais, over the issue.

While merchants, whether street traders or market vendors, and petty services usually pay the daily senha, the picture is more complex for petty producers. Out of 44 interviewed petty producers in Beira 25 had got a license. Of the remaining 19, almost half had opted for the senha, while the rest simply escapes all fees and taxes by hiding for the fiscais (municipal police). This can be done in either of two ways: First, petty producers operating out of their homes are not subject to payment of any kind of fees. Secondly, the department responsible for senhas and licenses is short of transportation. Consequently, it pays little attention to inaccessible slum areas and the outskirts of towns. The concentration of workshops is therefore relatively higher there.

In order to get a license one must present a deed to the workshop space or an endorsed lease from the state housing agencies, APIE and DSU. Often, it implies considerable red tape andinformal payment to organise these things. Especially the smallest enterprises consider the bureaucratic obstacles and informal payments associated with becoming licensed too burdensome.

Seemingly, the regulation of micro enterprises is more transparent in Nhamatanda. The smallness of the place renders communication easy, most business people have some sort of personal relationship to the local administration. This also implies, though, that those at strains with the administration are in a more vulnerable position. Moreover, fewer are licensed and pay senha instead [ Seasonality of the business may be another reason why payment of senha is more common in Nhamatan da than Beira.] . As observed in Beira, payment of senha is associated with less irregularity, probably due to the simpler collection procedure.

Direct assistance

Compared with many other countries on the continent, direct government support of small-scale economic activity is in an early stage in Mozambique. A principal policy framework within the field is still pending and direct assistance has primarily taken the form of credit schemes. Most programmes have focused on small and medium-sized enterprises. But as part of the transforma tion from emergency work to reconstruction efforts, several NGOs have recently launched programmes aiming at rural non-agricultural activities. Many of these are applying a group-lending concept.

With few exceptions, the government credit programmes have been troubled by low implementation capacity, resulting in low output and repayment rates. Most NGO initiatives are too fresh to allow systematic assessment of their achievements. However, they have already been criticised for having a tendency to charge interest rates below those of the market and to have lax repayment practices (de Vletter 1995 & 1996).

Thus, PAPIR was one of the first institutions in Mozambique to address the needs of artisans and related petty producers and remains one of the leading institutions in its field.

Administrative capacity and red tape

The general opinion expressed by the petty producers was that although some of the rules and regulations applying to this kind of activity have been dismissed, the effect of this is by and large offset by the more strict enforcement of those remaining. For instance, government officials no longer are concerned with the origin of raw materials (i.e. whether they are legally imported), while the administration of licensing prescriptions is as inflexible and rigid as ever.

Criticism centred around three issues: Licensing procedures, collection practices and harassment. Especially getting the documents of a plot is a cumbersome exercise. In some countries, the city administration has earmarked a particular site for occupation by micro industries. Nothing similar exists in Mozambique. Here, an entrepreneur must have either the title deed or a lease in order to guarantee the right of the site he uses. Hence, the numerous businesses occupying public (or private) land are in principle without legal rights. Before an occupant can begin to legalize his or her business, APIE or Conselho Municipal must verify that this particularplot does not belong to somebody. Officials often abuse this position to secure empty plots to friends and relatives, or to ask bribes from the applicant. Thus, almost all the entrepreneurs we spoke to who have had their worksite legalised recently acknowledged that they had paid some sort of reward in order to facilitate the process. Another criticism concerned prolonged and bureaucratic procedures. Three to six months with an endless number of visits to the City Hall was reported as the typical time needed to secure a license. However, once a license is issued, the annual renewal seems to be quite uncomplicated.

In Maputo and Beira the city councils have established a special urban police for control of micro activities (i.e. the informal sector). These fiscais collect the senhas and license fees. They are responsible for controlling the unrestrained growth of small-scale business too. A major concern of the fiscais is to avoid unauthorised occupation of public space. Particularly street vendors are frequently chased away from downtown Beira, followed by confiscation of their merchandise. This behaviour has provoked bitterness among the petty traders who complain that the authorities rather should be concerned about securing alternative sites for them.

Since most petty producers only can afford to operate with very little cash deposits, many of them have difficulties in raising the amounts required for being licensed. Half of the 44 artisans interviewed in Beira thus admitted that they had been fined within the last two years. The great majority were charged for overdue renewal of the license. Improper workshop construction and unauthorised signposting are other problems that were mentioned. Fines are considerable, from one-quarter to half of the license (over-)due.

Probably, the extent of the taxation problem is bigger than these figures indicate. First, there are reasons to believe that not all those who had been fined were willing to confess so. Secondly, all those who have closed the business because they were unable to pay the fees (and penalties) are not captured here. Based on this, it can be concluded that micro enterprises today are subject to a taxation that seriously hampers their growth potential and income-generating capacity. Moreover, the excessive taxation encourages red tape and irregular appropriation of government revenue.

The government is aware that the regulatory framework has yet to catch up with changes in economic policies. Therefore, a number of initiatives have been taken in order to bring rules and regulations more in harmony with the objective of other initiatives aimed at stimulating private enterprise although the effect of this still has to be seen. Another important issue concerns inadequate training and poor motivation of government officials. Also this is addressed as part of the government's action plan.

Maintenance of physical infrastructure

According to the information we were provided, the Province of Sofala budget for maintenance of physical infrastructures is in real terms steadily shrinking. Information could not be obtained from the Financas (financial department) of Cidade da Beira, but there are signs of continuous decay of roads, public buildings, marketplaces etc. everywhere in the city. The only exception is installations which are benefiting from foreign-sponsored rehabilitation projects. Local administrations receive their budget from the central government to which they are supposed tohand over all locally collected revenue, but as a consequence of insufficient allocations it is commonplace that part of the locally generated revenue is kept for local purposes.

The deterioration of the physical infrastructure was strongly felt by artisans and petty traders. They tend to concentrate in the slum areas and at the outskirts of town where land is more plentiful and the concentration of low-income households higher - and the control less. Particularly during the wet months roads and paths in these areas are in an extremely poor shape and access often difficult. The inconvenience is worse for workshops dependent on heavy materials, for instance carpenters, but we also spoke to petty producers who complained that sale has dropped markedly because the usual bypassers had started to take the hard-surface roads.

The complains not only concerned lack of accessibility. Lack of building maintenance by APIE, difficulties in getting electricity installed and, most important, deficient collection of garbage and absence of proper sewerage facilities were points that were raised by many petty producers.

de Vletter (1996) cites examples where petty traders in response to the appalling state of markets under the administration of municipal councils have set up their own, informal marketplaces with effective management committees capable of providing reasonable facilities. Analogous initiatives have not yet been witnessed among petty producers. Hence, it would be an obvious area of intervention for a NGO to encourage creation of clusters of petty producers analogous to those found for example in most Kenyan cities. Apart from having a synenergy effect, such concentrations of small-scale businesses facilitate service provision and the cost-efficiency of direct assistance.

Theft and social insecurity

It was hypothesised that the retreat of the public social security net might have affected the population and, in turn, petty producers in two ways: By the way of an increased vulnerability to social events such as disease and famine, and through the risk of theft and related petty crime. The questionnaire therefore comprised the questions whether the interviewee and his family in the last year had experienced serious illness hampering the performance of the business, and/or whether he or the business had been subject to critical burglary during that period.

Very few responded in the affirmative to the first question. Even though it was common to have experienced severe sickness in the near family, it had usually not affected the business. Youthfulness of the entrepreneurs means that they themselves rarely had been sick and the inappropriateness of the health system which sets limits for how much can be spent on this purpose (people simply recover quite easily or die) are the likely reasons for that.

As for theft, the picture is quite diverse. As many as 50% of all respondents reported that they recently had experienced robbery related to the enterprise. Several had been robbed two or three times. The losses typically consisted of materials (timber, fabric etc.), tools or cool cash. Usually the suspect was somebody from the neighbourhood or an ex-employee. On the few occasions where the victim had reported the event to the police, it proved futile. Indeed, it is normally associated with considerable expenses to attract the police’s interest in such minor crime.

These findings correspond well with the typical reply given by artisans when asked how the reforms had affected the situation of the family. Most claimed that life had become much more difficult due to the price hikes and the introduction of user fees in the education and, to a lesser extent, health systems. The quick spread of petty crime (and drug abuse) is another element of insecurity that is often mentioned. Today, they said, one had to fight much more to keep the family floating and make ends meet. Nonetheless, only very few indicated that they would like to see a recurrence of previous times’ plan-economy with all its implications. Apparently, what people seem to wish is a re-creation of the past social security net with the current access to consumer goods.

Preliminary summary

The petty producer scenario in Mozambique is gradually approaching that of most other sub-Saharan African countries: Intensified competition caused by an abundance of workshops; a beginning tendency to diversification and specialisation in response to this; and signs that more resourceful entrepreneurs spread their investments to reduce risks. Mozambican micro industries are, however, less diversified than those in other countries on the continent. This is primarily because experience with private enterprise is a relatively recent phenomenon, but also reflects the limited market which does not permit strong specialisation.

It is not only the extent of poverty coupled with the absence (so far) of a sizeable middle-class, that thwarts the dynamic of micro enterprises. As argued above, the state is currently undergoing a transformation that has produced a regulatory and institutional environments which causes considerable uncertainty to petty producers. Excessive taxation, red tape, petty corruption and social insecurity are all factors the small business operator has to cope with. The major reasons for this state of affairs are discussed at length in previous sections. One has, however, to add one crucial aspect: Although the circumstances have forced Frelimo (and the government) to take a more positive stance on micro enterprise self-employment, the party's (and especially the local administrations’) view on such activities is still characterised by considerable ambivalence. So far, very few steps aiming at actively tapping the income-generating and enterprise-development potential of micro and small-scale production have been taken.

In the following section we shall discuss the business-operators’ response to the changes.

Risk estimation and risk management

Risk as a constraint to growth

‘The size of a firm at any given moment is the result of continuous conscious and unconscious decisions. Economies of scale and growth are important, especially when expansion is being actively considered. Yet other factors may be equally crucial in the day-to-day operations that ultimately determine firm size (McCormick 1992:12). One of these factors is the risky business environment.

Even though we in principal share McCormick’s assertion that business owners’ responses to risk and uncertainty may inhibit growth of their firms, we believe that other important cultural factors are at play as well. Inability to cope with the planning, leadership and market problems associated with moving from one size to another are other vital reasons why many firms stay small. Business-operators simply shun venturing into unfamiliar territory because of the ensuing risks. A risky business environment is thus only one of several factors inhibiting growth of small firms. So is lack of access to services like credit and technical advice which may prohibit entrepreneurs’ from following a growth-oriented strategy.

Especially neo-classical theory considers micro entrepreneurs’ hesitance to make long-term investments primarily as an indication of a restrictive business climate and a general dysfunction of the market institutions. Correspondingly, deregulation and market-oriented reforms are the usual prescription recommended to overcome these disturbances, as indicated by the strong elements of liberalisation contained in the structural adjustment policy. In the previous sections, we have tried to demonstrate some of the more complex factors at play: Uncertain market conditions resulting from strong seasonal fluctuations in demand and irregular supply of certain inputs, weak state institutions encouraging bureaucracy and corruption as well as jeopardy related to the life of the individual are evenly important factors. As pointed out by McCormick (1992), under these circumstances a wise entrepreneur may opt for less growth, i.e. pursue a ‘safety-first’ strategy, rather than expanding the business. Three general strategies are open to risk-reluctant entrepreneurs in this connection: They may spread the risk, they can try to avoid it, or they can increase the business’ flexibility. Not rarely, the entrepreneurs combine elements of the three strategies.

Risk spreading

Dozens of small enterprise studies have found that entrepreneurs tend to diversify into different sectors rather than expanding the first business on non-local markets. Apart from spreading the risk and increasing the flexibility, it also enables the business-operator to stay within the local market drawing on well-know business connections. Moreover, staying small diminishes the risk that the firm reaches a size where it exceeds the managerial capability of the owner, a fear that is strongly felt by many (Billetoft 1996). Another common method of risk spread found by small enterprise studies is that the business-operator keeps his or her wage employment in the formal sector as a security against large swings in the local economy (Pedersen 1997). Finally, small-scale manufacturers occasionally form co-operatives to share the risk.

How do these perceived strategies for counterbalancing risk match the Mozambican reality? First of all, diversification of investments is less common here than observed in many other developing countries. In our sample, just a small minority (slightly more than 10%) of the petty producers reported that they had additional sources of income, whether salaried employment or a supplementary business. Interestingly, petty merchants are more likely to be involved in complementary activities. Roughly one-third had some sort of supplementary income, for instance ran several booths on the marketplace simultaneously. With few exceptions, however, thebusinessman possesses a machamba, a plot of land, that provides the family with basic foodstuff but rarely produces a surplus for sale.

The modest tendency of diversification primarily shows that very few petty producers have accumulated enough capital to face the dilemma of complementary investments. The little profit they generate is simply channelled back into the business and the household. It may also matter, though, that people do not think much along these lines. To most business-operators, keeping the business floating in a competitive market is still an unfamiliar challenge which requires all the attention. Diversification of the surplus has not yet appeared on the agenda.

The reply to one of the questions on the questionnaire confirms this assumption. The respondents were asked what they would like to do if they all of a sudden got a huge sum of money. Most turned down options such as, ‘educating the children’, ‘buying more land’ or ‘getting a better house’. More than 75% indicated that they would like to expand the existing enterprise by buying more equipment and materials, regardless of its actual state.

However, the few entrepreneurs operating in a larger scale do seem to spread their investments exactly like it can be observed in most other developing countries. Hence, reluctance to put everything on one board will probably turn out to be as common as elsewhere.

Participation in co-operatives and production associations is another strategy leading to cost-sharing and risk reduction. Indeed, Mozambican has a protracted tradition for this among petty producers. During the heydays of socialist planning, the government encouraged individual artisans to form coops or otherwise join forces. Since the reforms began, the number of such arrangements has continuously gone down, although some remain. Most carry on as some sort of joint entity where the members share a license and certain of the production facilities without producing together. Sale is usually in the hand of the single associate. However, we came upon a few genuine production co-operatives, albeit also they have seen the membership shrinking as people began on their own. Undoubtedly, co-operatives and associations do not stand out today for small businessmen as an alternative to self-employment. Collective modes of production not only runs counter to the prevailing laissez-faire mentality, it also resembles years of political harassment.

These findings suggest that the small business operators are pursuing more defensive strategies for escaping risks and instability, for instance reduction of fixed costs and risk avoidance.

Risk reduction

Four measures are used for reducing and/or avoiding perceived risks: Restrictive granting of credit to customers, reduction of the stock of raw materials and finished products to a minimum, reliance on family labour and, finally, use of inexpensive worksites.

Small enterprise studies from other African countries have found that the possibility to obtain credit with the craftsmen is one of reasons why people choose to deal with these instead of large enterprises (Pedersen 1997; Billetoft 1996). Personal knowledge of and close contact with the clientele allows the producers to take this risk. It was therefore surprising to find that very few of the artisans in our sample accept credit to their customers. The small number that actually doso only gives credit to people whom they know very well. Rather, the tendency was that the petty producers had stopped granting credit due to increasing losses. The small number of tailors and carpenters who were dealing with institutional clients (i.e. enterprises and development organisations) have to accept that some of the payment would appear only after delivery of the product. However, getting the final payment from government institutions and private firms is, according to these, often a rather delicate task. Several have thus stopped catering to this group of customers for that reason. Legal enforcement of one’s claim is a both complicated and cumbersome matter which anyway has a highly uncertain outcome.

Keeping raw materials and finished products in stock is a relatively safe way of securing ones values in times of high inflation (and maintain a steady production). Nevertheless, the great majority of the interviewed artisans were constantly short of materials and only very rarely produced for stock. This reflects the low capitalisation of petty production. Lack of capital for building up a reserve of materials and for producing for stock when the demand becomes slack is one of the most important constraints petty producers face. The small stocks probably also reflects the fact that many business-operators do not dare to have too huge sums tied in goods which cannot easily be converted into liquid capital and that can be stolen and otherwise lost.

Reliance on family labour is a common way of risk reduction. Not only does it cut the wage bill, it is also believed that relatives are less likely to abuse their position in the firm. Our findings verify that there is a strong belief in the advantage associated with employing family labour. Many enterprises relied on trusted relatives for management functions, but often several of the workers were relatives too. Two-third of the interviewed craftsmen used relatives to look after the business when other obligations kept them away. This tendency was even stronger in commerce. Many of the businesses were family undertakings where household members jointly looked after it under supervision of the father or the oldest son. Or they were partnerships between brothers. We only came across one petty trader (a tiny salt-dealer) who had a salaried worker to run the business.

Use of inexpensive workplaces and avoidance of license fees lower the fixed costs and increases the flexibility. Very few of the investigated craftsmen thus have fixed premises of a reasonable standard. Many work in the open air under a tree or they have their workshop in a simple shack. Merely a fraction has permanent premises (i.e. a brick-structure) of their own. There are three reasons for that: A still floating situation of private ownership of real estate, the bureaucratic obstacles and corruption associated with getting the legal acceptance, and the ever overriding problem of resource mobilisation. Finally, operating semi-clandestinely is easier with a simple shed.

Networking

Networks, whether family, kin or production-based, play a crucial role for business operators. Patron-client relations also fall in this category. They help to overcome crisis and time of slack demand, but networks too serve as a source of investment and working capital. Not least, networks may facilitate procurement of inputs and serve as channels of sale in situations of instability and stiff competition. The Asians in eastern and southern Africa is an example of anethnic group where kin-based networks help to reduce transaction costs through secure channels of business relations.

Whereas social networks may help to ease crisis, they at the same time require redistribution of resources which may drain the business operator of important means for investment. Therefore, success in business is often associated with capacity to resist the pressure from relatives and kin. Particularly in economies characterised by scarcity of capital and confined flow of market information, patron-client relations play an important role. Patrons not only help to resolve crises, they also make possible access to important business information and secure a certain patronage against authorities and competitors. Patrons are often big local businesses, either suppliers or distributors. Patrons therefore make up an important part of the small enterprises' business network.

Not least networks play an important role for contract enforcement. In situations where the economic exchange represents small sums of money not worth the cost of legal action or when the functioning of the juridical system leaves much to be desired, mutual trust is a critical parameter of business relations. Kin or ethnic-based networks and similar long standing social relations serve that purpose. Joint cultural values and institutions facilitate the trust required for regulating business transactions under these circumstances. Exceeding the kin or ethnicity-based realm may endanger this security. Access to kin and ethnicity-based networks is thus considered a major reason for the viability of micro enterprises (Fafchamps 1994).

The case of Sofala Province essentially confirms the pattern sketched above. To the ordinary petty producer, networks are particularly used to attract potential customers. Around 90% of the interviewees reported to be actively involved in some sort of religious organisation (church). Many of these hinted that they benefited from this in their business, either by the way of direct orders from the church proper or because they made business with co-believers. Another means of collaboration is to borrow tools and materials from one another when needed, though this form varies considerably across localities and trades. There are even examples of artisans who, when idle, help colleagues or, when busy, refer potential customers to them. However, we only identified very few cases where kin-based networks were used for acquisition of raw materials or organisation of sales. But we learned of instances where relatives working in the same trade assisted with orders or materials in short supply.

Informal connections within the local administration or the party is an indispensable prerequisite for success. Not that one necessarily has to be part of these structures, but a Godfather who can advocate one’s interest and help to overcome obstacles is a critical element of prosperity. Thus, we are not aware of any prosperous small (or large) firm where the owner does not have valuable contacts within the administration, or at least knows a Godfather. So while appropriate networks are a crucial prerequisite for success in contemporary Mozambique, it is not per se a guarantee.

Also for less prosperous entrepreneurs personal contacts are important when dealing with the authorities. We have already mentioned the difficulties associated with legalising the right to the site one uses for workshop and the arbitrary way in which licensing requirements are adminis tered. But also business transactions are widely mediated through personal contacts. Almost allthe business-owners we spoke to who had won contracts with state-owned (and private) enterprises attributed their fortune to proved contacts or assistance provided by close friends.

Networks are increasingly important though their nature is undergoing change too. While political connections gradually weigh less and can no longer safeguard business interests, the current weakness of the state and the corresponding inconsistent enforcement of rules and regulation make transactions more dependent on trust and the possibility of placing social pressure on those who do fulfil their obligations.

Flexibility and specialisation

In recent years, some scholars have paid attention to market adjustments through specialisation and product diversification. It is believed that small, flexible firms more swiftly can respond to changes in the environment. Smallness allows quick adjustment to new conditions.

Hubert Schmitz was one of the first scholars who systematically studied the nature of small industries’ flexible adaptation in developing countries. He is preoccupied with the collective efficiency which has developed within the small enterprise cluster that can be found in some of the more developed third world countries, in casu Brazil, India and Indonesia. In spite of their size-wise disadvantage, the enterprises have through agglomeration based on flexible specialisation and vertical disintegration gained efficiency similar to that of large firms. Strong networks facilitating social trust and exchange of experience, extensive backward and forward linkages between specialised enterprises, spatial proximity and a conducive institutional environment are the typical ingredients of the remarkable collective efficiency which Schmitz found in the industrial cluster he examined (Schmitz 1995).

In an African context, the flexible specialisation paradigm has primarily inspired studies of small enterprise interaction and strategies for flexible adaptation to the market. For instance Pedersen (1997) has, in a somewhat untraditional interpretation of the theory, suggested it used for studying enterprise interaction in small African towns. His key notion is instability. It is instability (i.e. steady market changes) that prompts enterprises in the industrial cluster to be flexible and develop extensive vertical networks. Unstable economic conditions prevail in most small African towns too, though other factors cause the instability here than in the industrial district.

The entrepreneurs respond by trying to create specialised, lucrative niches for their products and services. Market segmentation in small African towns is thus based on product differentiation and product quality by which various categories of micro enterprises use different ways and means for overcoming the difficulties. There may be differences concerning, for instance, use of raw materials (industrial products or waste products), access to channels of credit (informal loans or credit institutions), and use of transport (trucks or pull carts). Evenly important for the segmentation are product adaptability, cost efficiency, networking and distribution services. Market segmentation is often taken as something negative, but in a market characterised by scarce resources, irregular supply and uncertain demand, market segmentation is an expression of collective efficiency based on horizontal specialisation which lead to a better utilisation of scarce resources from a diversified set of sources.

As emphasised by Pedersen, the fact that enterprises operate on segmented markets does not mean, however, that they do not compete. Although the markets of small African towns are characterised by mutual adaptation, the enterprises rarely practice direct collaboration. They compete over the borders of the size and delimitation of the market segment, resulting from changes in the economic environment, technology and individual entrepreneurial capabilities.

Although petty producers in Beira and Nhamatanda demonstrate a considerable innovation and adjustability to novel needs and possibilities, the overall impression is nevertheless that diversification and specialisation is modest and product duplication prevails in most sub-sectors. So while new types of activities surface in response to alteration of the market some already well-known trades carry on surprisingly unaffected by technological innovations and new demand patterns.

In part, this is probably the result of the limited experience with self-employment characteris ing Mozambican entrepreneurs. Technical and managerial skills are quite scarce following the breakdown of the vocational training system and years of predominant socialist planning. The Kenyan experience is interesting in this connection. For years, the modern sector has only been able to absorb a fraction of those leaving secondary school. Many have therefore sought towards the urban informal sector. This above-average educated youth has in some cases fostered remarkably innovative and dynamic small enterprises. Not only have they demonstrated a thrilling talent for spotting untapped potentials, many of the most prosperous entrepreneurs derive from this group. In part, the limited tendency of diversification in Mozambique can be attributed to the market structure which has not yet created lucrative niches where specialised small enterprises can survive.

Nonetheless, there are some clear tendencies of innovative moves, mainly aimed at curbing the costs and attracting new groups of consumers. It is already mentioned that some tinsmiths have begun applying second hand metal sheets in order to keep the prices low (we thus came across one latoeiro who made products of three different qualities: one based on all-new materials for affluent customers, one based on all-used materials for poor households, and a hybrid for those in-between). As mentioned, some tailors acquire roupa usada, turn the reverse side out, and sell it at a low price in the districts. Others use roupa usada for making children’s clothes. Within all trades, a growing number of firms turn to the fast expanding parallel market for contraband and stolen goods. Due to insufficient management and general weakening of the state’s authority, big quantities of merchandise disappear from government warehouses and parastatals every year. This, together with the large volumes of goods that enter Mozambican illegally, are sold at the parallel market.

What occurs is thus a market segmentation whereby some artisans offer poor quality products at very competitive prices - or rather cannot stand the competition and therefore in order to survive have to reduce the labour charge, whereas a small group tries to venture into the small but relatively profitable market for quality products which has developed in recent years. The design of the products of both categories are surprisingly alike. It is rather the quality than the originality which is the parameter of competition. The market is not yet varied enough to allow a specialisation based on design.

Conclusions

Since the early 1990s, the Mozambican society has undergone significant changes. The Peace Accord in 1992 enabled demobilisation of most former soldiers and repatriation of almost two million refugees from the neighbouring countries, and the Government has launched an extensive programme of reform and political reconciliation.

Key elements of the Programa de Reabilita comprise shift from centralised planning and public enterprise to market-driven economy implying reduced control of imports and exports, eased access to foreign exchange, deregulation of prices, control of credit growth and linkage of wage increases to productivity, reduction of government wage costs and subsidies, devaluation of the Metical, and stimulation of the private sector in general (including privatisation) and exports in particular.

Although some of the changes definitely benefit wider social groups, others have been blamed for directly or indirectly benefiting a small group only at the expense of the rest of the population. This is particularly the case for cutbacks in funds for education, health and other social programmes. But also the deregulation of prices and cuts in public sector wages is criticised for having had an adverse effect on the living conditions of large population groups. However, today the World Bank and major donors have realised the negative effects of the cutback of the social programmes and initiated poverty alleviation projects. One of the issues concerns the overall social impact of PRE, balancing the new economic opportunities it has created against the immediate adverse social effects.

From a petty producer's point of view, the political and economic transformations have spurred significant changes:

Market-wise, the supply of raw materials and tools has become more regular and predictable. Fewer materials are in short supply, though occasional scarcity occurs. On the demand side, the state’s partly withdrawal from the economic and social spheres has given rise to a stronger diversification of the market. Low and middle-income households, usually relying on petty producers and petty traders for a majority of the goods they acquire on the market, have probably experienced a reduction of their purchasing power. However, the reforms have also allowed a new stratum of better-off households, os novos ricos, to emerge. It is widely argued that os novos in spite of their rather fast growing numbers, so far have not demonstrated capability to offset the fall in purchasing power by low-income families.

Seemingly, cutbacks in government allocations for recurrent costs and wages have diminished the administrative capacity and made civil servants more vulnerable to kickback and other forms of mismanagement. This tendency is more marked in the cities than in smaller rural towns. Excessive taxation and licensing requirements provide the basis for this kind of behaviour. Generally speaking, petty trade operates within more transparent rules and regulations, for which reason it experiences less mismanagement than artisans and petty producers. Instead, street vendors are frequently disturbed and chased by the local authorities because they illegally occupy public land.

As a consequence of these economic changes, petty production (artisanal activity) has witnessed increasing tendencies of diversification and specialisation in recent years. Albeit still in a modest scale compared to other developing countries, small group of resourceful and skilled entrepreneurs with well-developed networks has gained from the openings caused by the economic liberalisation. Capability to penetrate the markets created by os novos ricos, rural rehabilitation programmes and the expanding private sector is the major reason for these enterprises’ success. Several of these are ‘children’ of the Frelimo era (i.e. relatively young) and therefore familiar with the prevailing business culture, although only few of them, to our knowledge, are actively involved in politics.

To 'middle-performing' artisans, the political and economic reforms have had little discernible effect. They have neither prospered nor failed. To them, access to product inputs has become easier, but the dwindling purchasing power of the ‘old’ urban middle-class, i.e. public employees, has widely offset the advantages of this. Many of these complain that the business environment today is more complex and difficult. One has to struggle harder to stay in business, though there are more possibilities to develop the enterprise too. Enterprise-owners in this category usually lack managerial and technical skills to take advantage of the reforms or they simply are not interested and prefer to maintain the current level of operation. Not rarely, these artisans have previously operated in a larger scale but not managed to adjust to the changes.

Finally, there is a relative large group of petty producers who currently are facing serious problems (roughly estimated, this group is of almost the same size as the middle-performing one). Those who have opted for the defensive informalisation strategy (i.e. those hiding for the authorities) are strongly represented here, though some of the better off artisans conduct their activity under clandestine circumstances too.

Trading seems to have benefited relatively more from the economic reforms than has the productive sectors, at least in the short run. Many types of merchants, especially those operating under more permanent conditions at marketplaces, enjoy returns which in relation to investment are significant higher than small-scale producers. Neither do formal sector salaries compare favourably to small-scale vending. That explains why petty traders on the average are younger and better educated than petty producers (artisans), and many skilled craftsmen prefer self-employment in the commercial sector rather than working for an enterprise-owner or establishing their own workshop.

Small businesses stay small because their owners’ risk management strategy indirectly or directly confines growth. By staying small, the enterprises avoid the risk of major loss and can respond more flexibly to changes in the environment. Many entrepreneurs deliberately keep their business small because they are aware of their managerial and technical limitations. But there are strong indications that harassment, bureaucracy and excessive taxation provoke many business-owners to operate at a sub-optimal level. They hide for the authorities in order to escape licensing requirements and limit investments in fixed premises. Furthermore, many have dropped to legalise their enterprise due to the complicated procedures involved.

More transparent rules and regulations, more consequent and accountable implementation of existing rules, and more consequent government action aimed at stimulating small-scale economic activity would be required if its indisputable potentials shall unfold.

References

Abrahamson, Hans. 1995. The international political economy of structural adjustment: The case of Mozambique. The European Journal of Development Research. 7, 2: 297-319

Adam, Yussuf. 1996. Trick or Treat. The relationship between Destabilisation, Aid and Government Development Policies in Mozambique 1975-1990. International Development Studies, Roskilde University. Mimeo

Billetoft, Jorgen. 1996. Between industrialisation and poverty alleviation: The dilemma of support to micro-. Copenhagen: Centre for Development Research

Business Africa, August-September 1997

Castel-Branco, Carlos Nuno. 1995. Difenciação social agudizou-se e a probreza aumentou apesar do PRE. Not. 29 e 30 de Septembro 1995. Maputo

EIU 1/95. The Economist Intelligence Unit. Country Report 1/1995: Mozambique & Malawi. London: The Economist

Fafchamps, Marcel. 1994. Industrial structure and microenterprises in Africa. The Journal of Developing Areas. 29,1:1-30

Gibbon, Peter. 1992. Understanding social change in contemporary Africa. Mimeo. Uppsala: Scandinavian Institute of African Studies

Government of Mozambique. 1994. Establishing the basis for economic and social development: Key policies. Report prepared for the Annual Consultative Group Meeting. Mimeo. Maputo

Graham, Lawrence S. 1993. The dilemma of managing transitions in weak states: The case of Mozambique. Public Vol. 13.

IMF. 1996. Request for arrangements under the enhanced structural adjustment facility. Mimeo. Washington DC: The IMF

Little, Peter D. & Irae Baptista Lundin de Coloane. Petty trade and household survival strategies: A case study of food and vegetable traders in the peri-urban area of Maputo. IDA Working Paper No. 90. Binghamton: Inst. For Development Anthropology, SUNY

Matabele, A. 1995. Enquadromento legal do pequeno produtor. Mimeo. Beira: PAPIR

McCormick, Dorothy. 1992. Why small firms stay small. Risk and growth in Nairobi’s small-scale manufacturing. IDS Working Paper No. 483. Nairobi: University of Nairobi

Monteiro, José Oscar. 1993. Redefining the role of the state and the market: The case of Mozambique. Redefining Stockholm: SIDA

Nunnenkamp, Peter. 1995. What donors mean by good governance. IDS-Bulletin. Vol. 26, No.2. Brighton: University of Sussex

Pedersen, Poul Ove. 1997. Small African towns - between rural networks and urban hierarchies. Aldershot, UK: Aveburg

Robinson, Mark. 1995. Introduction: Towards democratic governance. IDS-Bulletin. 26, 2:70-80

Schmitz, Hubert. 1995. Small shoemakers or Fordist giants: Tale of a supercluster. World Development 23,1:9-28

Smith-Morris, Miles. 1995. Mozambique. The economy. Africa South of the Sahara 1996. London: Europa Publications

de Vletter, Fion. 1995. Rural small enterprises in Mozambique. Mimeo. Maputo: USAID

de Vletter, Fion. 1996. The informal sector in Maputo and Beira. Mimeo. Maputo: The World Bank