Dr' Rosalind H' Thomas

1
IDRC Private Sector Development Task Force
Conference 7 8 April 2005 Ottawa Canada FDI
SME Linkages the case of Mozal I and II

• Dr. Rosalind H. Thomas
• CEO SADC-DFRC

2

Structure of Presentation

• Introduction FDI in Southern Africa
• The rationale for SDIs
• Prioritizing SMEs
• Why are DFIs interested in SMEs?
• FDI Linkages The Maputo Development Corridor
  the case of Mozal
• Mozal I and II
• Linkages with the Local Economy
• What lessons can be learnt from Mozal I and II
• The MDC PPI and SMEs
• Concluding Remarks

3
Introduction

• FDI in Southern Africa
• Project related
• Resource based
• Benefits seldom spill over to rest of economy
• Rationale for SDIs
• RSA leading strategy on SDIs
• To attract more efficiency seeking/ market
  related FDI
• Address structural problems which inhibit
  investment trade
• Allow clustering
• Develop complementarities enhance dynamic
  competitive advantage allow exploitation of
  export opportunities
• Nurture private sector development

4
Prioritising SMEs

• Support for SMEs a critical strategy of NEPAD
  RISDP
• Significant development impact
• Promote backward forward linkages in economy
• Have a high capacity to generate employment
• Key to poverty eradication
• Contribute to vibrant middle class essential
  for generating domestic savings therefore
  increasing domestic investment in SADC
• Why are DFIs interested in SMEs?
• DFIs engaged in supporting SMEs across all
  sectors
• Provision of Finance
• Business Support Services
• NEPAD RISDP clear prioritization
• Facilitating BSS stronger SME client base
  stronger DFIs!

5
FDI Linkages?

• The Maputo Development Corridor (MDC) Mozal?
• MDC Mozal an interesting case study because a
  successful export-oriented FDI project allows
  analysis of lessons of failure/success
• Need to look at MDC from 2 perspectives
• Fostering links between Big Business and SMEs
• Fostering links between PPI and SMEs
• MDC through restoration of historic transport
  routes - regional trade reviving new
  investments
• Successes include N4 Toll Road Maputo Port
  upgrade rail links RSA to Mozambique under one
  management (Spoornet) Nelspruit - regional
  service centre expanded use of Maputo Port by
  RSA businesses RSA Mozambique - electricity
  telecoms upgraded Tourism Maputo
  industrializing and Mozal is lead development!

6
Development Corridors SDIs in SADC
7
Linkages with the Local Economy?

• Mozal I II Development Impact?
• First major FDI project in Mozambique (US2.2 bn)
• Project sponsors Billiton IDC Mitsubishi
  Corp. Govt. of Moz.. Financiers IFC DBSA
  Private Banks
• Mozal I completed 6 months ahead of schedule
  under budget production began earlier than
  anticipated (June 2000) - set world record
• Contributed
• US160 m/an to GDP Export earnings US430 m/an
  US 4 m/an in tax revenues dividend for GoM US
  5 m/an
• First rate infrastructure roads bridges
  telecoms networks water sewerage systems
  upgraded harbour electricity supply
• Mozal II doubled capacity of the plant for
  smaller investment, also completed ahead of
  schedule under budget.
• Contributed
• US170 m/an to GDP tax revenues of US 4.1 m/an
• Mozal is Mozambiques largest foreign exchange
  earner (54).

8
Linkages

• Mozal Development Impact (ctd)
• Mozal I 745 direct jobs (88 Moz) 2,500
  indirect during construction 9,000 temporary
  jobs (65 Moz) 5,000 trained during construction
  phase
• Mozal II 376 additional jobs (90 Moz) during
  construction 6,000 temporary jobs (4,500 to
  locals)
• Smelter contracted SMEs for variety of services
  (transport, catering, cleaning, security) 400
  jobs on site contracts valued at US35 m/an.
• IFC/APDF supported Programs
• SMEELP for construction 15 SMEs contracts
  worth US5 m
• Mozlink for Mozal operations 2 yr program
  SMEs win contracts to service Mozal targets
  supply chains - 25 SMEs - so far contracts
  worth US11 m. Develops SMEs to competitiveness
  allowing repeat contracting
• 1 SME developed to point supplying Mozal sister
  company in Richards Bay (US2 m contract)
• Capacity Building for 2 local financial
  institutions
• Mozal Community Development Trust
• Mozambique Business Network
• SECOP new 3 year program increase supply
  chain activities with big industries.

9
Linkages

• What Lessons to learn from Mozal?
• Failure of Mozal I to develop effective links for
  2 reasons
• Contracts bundled - components too large
  complex
• Contracts in English local SMEs could not
  understand
• Successes emanate mostly from Mozal II mainly
  because of SMEELP Specialized program for supply
  chain support -
• identified contracts for local sourcing
• Trained local SMEs on tendering
• Follow-up training for SMEs which won bids
• One-on-one mentoring to firms winning contracts
  and
• Capacity building of local DFI/ PFI providing
  technical assistance grants.
• PPI SMEs Maputo Port (?)
• Maputo Port under development by Consortium
  (US70 m)
• Linkages program in pipeline (SEPCO) yet to be
  developed
• IFC/APDF office in Maputo Capacity Building
  Facility will inform results of current
  evaluation of programs.

10
FDI SMEs?

• Concluding Remarks
• Clear need to develop real linkages between FDI
  local economy
• MDC experiences success especially with Mozal
  is noteworthy
• Latter has had substantial development impact on
  Mozambiques economy
• Challenge derive lessons of experience explore
  potential to replicate in other SDIs
• Warrants in-depth case-study examination of
  development impact reasons for success
• Support for SME activities in SADC a strategic
  priority for SADC DFIs DFRC keen to explore
  this issue further with support from donor
  community
• DFRC convinced that this is an important approach
  to private sector development addressing
  challenges of job creation poverty eradication
  (i.e. Millennium Development Goals)