84003 The  Agribusiness  Innovation  Center  of  Mozambique Developing  Value  Adding  Market-­‐led  Post-­‐harvest  Processing   Enterprises  in  Mozambique Prepared by infoDev Contributing Authors: Julia Brethenoux, Carlos Costa, Steven Giddings, Ellen Olafsen, Mulweli Rebello, and Jim Thaller   i Copyright ©2013 Information for Development Program (infoDev)/The World Bank 1818 H Street NW Washington DC 20433 Internet: www.infoDev.org Email: info@infoDev.org All rights reserved Disclaimers infoDev/The World Bank: The findings, interpretations and conclusions expressed herein are entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors of infoDev, the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. To cite this publication: The Agribusiness Innovation Center of Mozambique: Developing Value Adding Market- led Post-harvest Processing Enterprises in Mozambique. 2013. Washington, DC: InfoDev, Finance and Private Sector Development Department, the World Bank. ii About infoDev This report was developed by InfoDev, a global partnership program within the Financial and Private Sector Development Vice Presidency of the World Bank Group. Its mission is to enable innovative entrepreneurship for sustainable, inclusive growth and employment. This study was made possible thanks to the support of the Ministry for Foreign Affairs of Finland. For more information visit www.infodev.org or e-mail infodev@worldbank.org. iii STAKEHOLDER SUPPORT InfoDev would like to acknowledge the following stakeholders for their guidance, support, and input through the conceptualization and development of this business plan. Stakeholder Interviews Name Organization 1 Francois Grosse Aquapesca 2 Jamo Macanze Gestor da Incubadora Tecnologica e de Negocios (ITN) 3 Lusungu Kaunda Banco Oportunidade Mocambique 4 Mavie Salvador Centro de Promocao da Agricultura (CEPAGRI) 5 Carlos Costa Agrifuturo 6 Jonathan Wood Corredor Agro, Ltd. 7 Jake Walter Technoserve 8 Rik Overmars SNV 9 M. Ahmad O Vosso Supermercado 10 Paolo Negrao GAPI, Sociedade de Investimentos, SA 11 Antonio Vasconce Agri-Focus 12 Carla Honwana Promer (Rural Markets Promotion Programme) 13 Douglas Pond Banco Oportunidade de Mozambique 14 Jose Jeje Banco Terra 15 Luis Correia Banco Terra Portucel Mozambique - Sociedade de Desenvolvimento Florestal 16 Pedro Moura Industrial, LDA 17 Laura Torvinen Finland Ministry of Foreign Affairs (Mozambique) 18 Anni Penttinen Embassy of Finland (Mozambique) 19 Antonio Souto GAPI, Sociedade de Investimentos, SA 20 Steven Glover Centro de Promocao da Agricultura (CEPAGRI) 21 Filomena Maiopue Instituto de Fomento do Caju (INCAJU) 22 Mikael Rein National Directorate of Land & Forests 23 Humberto Guibunda Instituto de Fomento do Caju (INCAJU) 24 Lazaro Nhangombe Centro de Promocao da Agricultura (CEPAGRI) 25 Calisto Bias Instituto de Investigacao Agraria de Mozambique (IIAM) 26 Odete Tsamba Institute for the Promotion of Small & Medium Enterprises (IPEME) 27 Rui de Nazare Ribeiro Austral-Cowi, LDA 28 Elsa Mapilele U.S. Agency for International Development (USAID; Mozambique) 29 Theron Theunissen Bali Shop, The 30 Jose Alcobia Frutimel, LDA 31 Yann Groeger Banco ProCredit 32 Ujjwalkanta Senapati Olam Mozambique, LDA 33 Arlito Cuco Green Resources Mozambique, SA 34 Neves Macuacua Olam Mozambique, LDA 35 Indranil Majumdar Olam Mozambique, LDA 36 Charlene McKoin USAID Agrifuturo Project, The 37 Carlos Moamba USAID Agrifuturo Project, The 38 Carlos Henriques Mozfoods, SA 39 Pedro Arlindo World Bank Group, The 40 Patrick Verissimo World Bank Group, The 41 Custodio Mucavele International Fund for Agricultural Development (IFAD) 42 Fernando Sequeira Agrifocus, Ltd. 43 Ivo Lourenco Rio Tinto Coal Mozambique 44 Emmy Bosten Rio Tinto Coal Mozambique 45 Mulweli Rebelo Ologa Sistemas Informaticos, LDA 46 John McMahon USAID (Mozambique) 47 Erik Martin-Laborda Cleanstar Mozambique iv 48 Chibembe Nyalugwe ECI Africa Consulting 49 Myriam Sekkat European Union 50 Manuel de Araujo Quelimane Municipality 51 Jose Matos Italian Embassy (Italian Cooperation) 52 Lucia Bebane Proalice 53 Emerson Zhou Beira Agricultural Growth Corridor 54 Armenio Miranda Sociedade Mel Mozambique, Lda. 55 Philip Ashcroft Mozfoods, SA 56 Graeme White TCT Industrias Florestais, Lda. (Dalmann Furniture) 57 Adelino Novais Instituto Nacional do Emprego e Formacao Profissional (INEFP) 58 Pedro Tomo Agro Servicos, Lda. 59 Sonia Cumbi Ministry of Foreign Affairs of Denmark (DANIDA) 60 Eleuterio Mabjaia Institute for the Promotion of Small & Medium Enterprises (IPEME) 61 Jose Ernesto Mozambique Distribution Services (MDS) 62 Elias Manjate Instituto Nacional do Emprego e Formacao Profissional (INEFP) 63 Stelio Joaquim Essor 64 Emmanuelle Patetsos Essor 65 Claire Zimba Institute for the Promotion of Small & Medium Enterprises (IPEME) 66 Sirpa Sinerva Embassy of Finland (Mozambique) 67 Danilo Abdula Centro de Promocao da Agricultura (CEPAGRI) 68 Helio Neves Centro de Promocao da Agricultura (CEPAGRI) 69 Tracy Wyman Republic of Mozambique Ministry of Science & Technology (MCT) 70 Al-noor Rawjee Pick n' Pay Mozambique (Retail Masters SA) 71 Aurello Chemane Instituto Nacional do Emprego e Formacao Profissional (INEFP) v 1st Workshop March 2012, VIP Hotel, Maputo Name Organization 1 Lucia Bebane PROALICE Produtos Alimentares Dora Alice 2 João Costa Dias NUTRICONSULT 3 Shizu Okuza Technoserve 4 Steven Glover CEPAGRI 5 Tatiana Mata Elim Services FRUTISUL 6 Victorino Xavier MIC-BPA 7 Michel Evéquoz SDC 8 Evaristo Jordão Vilanculos FEM 9 Myrian Sekkat European Union Delegation 10 Arlito Cuco Green Resources 11 Siro Álvaro IPEME 12 Ase D. Ferrão First Natural Choice (MZ), Lda. 13 Chris Isaac Agdevco 14 Marco Machavela Agdevco 15 Jane Grob Technoserve 16 Rama Krishna Rio Tinto 17 Henrique N. Chissano Green Resources 18 Rui Ribeiro Austral Cowi, Lda 19 Pedro Tomo Agro Serviços, Lda 20 Luis Lifanissa Associação dos Industriais de Caju (AICAJU) 21 Regina Paunde AJAM 22 Miguel Cossa Banco Terra 23 Jonathan Wood Corridor Agro 24 Carlos Matos Italian Cooperation 25 Feliciano Mazuze IIAM 26 Teodósio Alfredo Manjate ARPONE/FENAGRI 27 Belmiro Baptista Hortofruticola, SA 28 Ariela Alves Rural Consult 29 Chiwembe Nyahugue INOVAGRO 30 Giancarlo Monteforte EU Delegation 31 Antonio Fagilde TECAP, Lda. 32 Tomás Manhicane Jr. USAID AgriFUTURO 33 Rik Overmars SNV 34 Maria Maposse Bindzu Agribusiness 35 José Matos Italian Cooperation vi 2nd Workshop September 2012, World Bank Country Office, Maputo Name Organization 1 Paulo Sousa Gapi 2 Antonio Souto Gapi 3 Paulo Negrão Gapi 4 David Magalhães IPEME 5 Madima Ismail IPEME 6 Sheila Ibraimo IPEME 7 Madima Ismail IPEME 8 Claire Zimba IPEME 9 Ernesto Ramatane IPEME 10 Adelino Novais INEFP 11 Al-noor Rawjee Pick n' Pay 12 Carlos Moamba Agrifuturo 13 Carlos Henriques MozFoods 14 Jake Walter Technoserve 15 Jane Grob Technoserve 16 Helio Neves CEPAGRI 17 Tatiana Mata Elim Services 18 Teemu Seppälä STIFIMO 19 Tracy Wyman MCT 20 Myrian Sekkat European Union 21 Sonia Cumbi DANIDA 22 Paulino d'Uamba DANIDA vii 3rd Workshop, “Stakeholder Feedback and Agribusiness Policy Workshops,” March 2013, Hotel Avenida, Maputo Name Organization 1 Alberto Manuel Luis Incubadora de Agronegocio Machados 2 Fernando Ketula MCT 3 Pedro Tomo Agro Serviços Lda 4 Manecas Alferes FNI 5 Amalia Ngola IPEME 6 Sergio Ernesto IPEME 7 Adriano Chamussu IPEME 8 Ozi Honwana Mbio, Lda 9 Ameen Hessuyo Delta Trading Lda 10 Michael Jordan USAID 11 Elsa Mapilele USAID 12 James La Fleur Agri Futuro 13 Randy Fleming Agri Futuro 14 Leena Vaaranmaa Finland Embassy 15 Nurdine Salé Swiss Development Cooperation Confederação das Associações Económicas de 16 Joao Jeque Moçambique CTA 17 Luis Lifanissa AICAJU 18 Lirva Sambo Beira Agricultural Growth Corridor (BAGC) 19 Antoine Bossel SNV 20 Myriam Sekkat Delegation of the European Commission 21 Giancarlo Monteforte Delegation of the European Commission 22 Aldo Dekantzov PRODEZA II 23 Aderito Mavie CEPAGRI 24 Arlete Matolq President Advisor 25 Tracy Wyman GAIN 26 Raimundo Matule Ministry of Agriculture (MINAG/DE) viii Second Enterprise Survey carried out in Maputo and Inhambane Provinces (March 2013) 1   Quinta  Irini   2   Octavio   3   Ginwala   4   Sr.  Paixão   5   Casa  Agraria  -­‐  Sr.  Armando   6   Arlete  Calane   7   Sara  Martins  (Alimoz)   8   Dulcelina  Isabel  (American  School)   9   Miranda  –  Cashewyetu   10   Faruk  Ismael   11   Rashmin  (Tea  packing  -­‐  Gaza)   12   Essau  Sulane   13   Quinta  Tropical       14   Maria  Helena  -­‐  Pro  Salue   15   Maramil  -­‐  Moises  Sitoe   16   Inocencio  Sigauge  –  Quail   17   Katia  Hermìnio  –  Nguluzane   18   Natividade  João   ix 19   Carla  Mahumani   20   Lira  Tembe   21   Elisa  João   22   My  Caju   23   Felizardo  João   24   Issufo  Mahomed   25   Mohammed  Mussagy   26   Maria  dos  Anos   27   Felizminda  Maguane   28   Ivone  Custodio   29   Gostinho  de  Ouro   30   Nelson  Ernesto   31   Gabriel  s  Mandlate   32   Cashew  processor   33   Sara  e  Armenio   34   Lampiao  Nhanombe   35   Miguel  Damas   x LIST OF ABBREVIATIONS AND ACRONYMS ADIPSA Apoio ao Desenvolvimento de Iniciativas Privadas no Sector Agrário AIC Agribusiness Innovation Center AICAJU Associação dos Industriais de Caju AJAM Associação de Jovens Agricultores de Moçambique ASCs Agribusiness Service Clusters BDS Business Development Services CBO Community-Based Organization CEPAGRI Centro de Promocao da Agricultura DANIDA Danish International Development Agency EU European Union FDI Foreign Direct Investment FORMIN Ministry for Foreign Affairs of Finland FOSCs Farmer Owned Service Centers GAPI Gapi Sociedade de Investimentos SA GDP Gross Domestic Product HACCP Hazard Analysis and Critical Control Points ICT Information and Communication Technologies IFAD International Fund for Agricultural Development IIAM Instituto de Investigacao Agraria de Mozambique INCAJU Instituto de Fomento do Caju INEFP Instituto Nacional do Emprego e Formacao Profissional IPEME Insituto de Apoio a Pequenas e Médias Empresas ISCTEM Instituto Superior de Ciencias e Tecnologias de Moçambique ITN Gestor da Incubadora Tecnologica e de Negocios MCT Republic of Mozambique Ministry of Science & Technology xi MDGs Millennium Development Goals MDS Mozambique Distribution Services MIC Republic of Mozambique Ministry of Industry & Commerce MINAG Republic of Mozambique Ministry of Agriculture NGO Nongovernmental Organization PACDE - MESE Enterprise Competitiveness Support Program PAPA Action Plan for Food Production PEDSA Strategic Plan for the Development of the Agrarian Sector Promer Rural Markets Promotion Programme R&D Research and Development RoI Return on Investment SADC Southern African Development Community SMEs Small and Medium-size Enterprises SNV Netherlands Development Organization SPS Sanitary and Phytosanitary SRP Structural Restructuring Program Programme of Cooperation in Science, Technology, and Innovation between Finland STIFIMO and Mozambique USAID U.S. Agency for International Development 3ADI African Agribusiness and Agro-Industries Development Initiative xii Contents STAKEHOLDER SUPPORT............................................................................................... IV LIST OF ABBREVIATIONS AND ACRONYMS..................................................................XI LIST OF TABLES............................................................................................................. XVI LIST OF FIGURES ......................................................................................................... XVII 1.0 EXECUTIVE SUMMARY ..............................................................................................1 1.1 DEVELOPING THE AIC MODEL FOR MOZAMBIQUE ............................................................ 2 1.2 THE FOCUS OF THE AIC ...................................................................................................... 3 1.3 LOCATION......................................................................................................................... 4 1.4 THE SERVICES OF THE AIC ................................................................................................... 5 1.5 LIMITS OF THE AIC .............................................................................................................. 7 1.6 CRITICAL SUCCESS FACTORS ............................................................................................... 7 1.7 IMPLEMENTATION OF THE AIC ............................................................................................. 8 1.8 THE ROLE OF INFODEV ........................................................................................................ 8 1.9 BUDGET REQUIREMENT........................................................................................................ 9 2.0 THE AGRIBUSINESS INNOVATION CENTER CONCEPT ..........................................10 2.1 ACCELERATING AGRIBUSINESS DEVELOPMENT THROUGH INNOVATION .................................. 10 2.2 AGRIBUSINESS INNOVATION CENTERS ................................................................................ 11 3.0 THE MOZAMBICAN AIC FEASIBILITY AND BUSINESS PLANNING PROCESS.........14 4.0 MOZAMBIQUE—ECONOMY AND AGRIBUSINESS................................................20 4.1 MACROECONOMIC OVERVIEW ......................................................................................... 20 4.2. MICROECONOMIC OVERVIEW ......................................................................................... 20 xiii 5.0 POTENTIAL FOR DEVELOPING AN AIC IN MOZAMBIQUE....................................28 5.1 SCALABLE PRODUCTION POTENTIAL (WITH COMPARATIVE ADVANTAGE) ............................... 28 5.2 GEOGRAPHICALLY CLUSTERED GROWTH ENTREPRENEUR CAPACITY ..................................... 34 5.3 STAKEHOLDER SUPPORT FOR AGRIBUSINESS IN MOZAMBIQUE ................................................ 44 5.4 ACCESS TO FINANCE ........................................................................................................ 49 5.5 MARKET OPPORTUNITIES ................................................................................................... 55 6.0 MOZAMBICAN AGRIBUSINESS INNOVATION CENTER BUSINESS MODEL...........64 6.1 AIC VALUE CHAIN FOCUS ................................................................................................. 64 6.2 TARGET ENTERPRISES ......................................................................................................... 66 6.3 LOCATION....................................................................................................................... 68 6.4. AIC BUSINESS FOCUS .................................................................................................... 70 6.5 AIC OFFERING ................................................................................................................ 71 6.6 PHASING SUPPORT ........................................................................................................... 81 6.7A PARTNERSHIP-BASED DELIVERY MODEL ............................................................................. 83 6.8 GOVERNANCE ................................................................................................................ 84 6.9 STAFFING......................................................................................................................... 88 7.0 IMPLEMENTATION APPROACH..............................................................................90 8.0 FINANCIAL PLAN ....................................................................................................93 8.1 BUDGET YEAR 0-5 ............................................................................................................ 94 8.2 SEED FUND ...................................................................................................................... 98 8.3 SUSTAINABILITY ................................................................................................................. 99 8.4 FUNDRAISING PLAN .......................................................................................................... 99 9.0 OUTCOMES AND IMPACT....................................................................................101 9.1 SOCIAL AND ECONOMIC IMPACTS .................................................................................. 101 xiv 9.2 INNOVATION IMPACTS .................................................................................................... 103 9.3 MONITORING AND EVALUATION ...................................................................................... 104 10.0 RISKS ....................................................................................................................110 11.0 CONCLUSION .....................................................................................................113 ANNEX 1. CONCLUSIONS OF INFODEV GLOBAL GOOD PRACTICES ASSESSMENT ON AGRIBUSINESS INCUBATION................................................................................114 ANNEX 2. MOZAMBIQUE MACROECONOMIC OVERVIEW....................................117 ANNEX 3. MOZAMBIQUE GOVERNMENT STRATEGIES FOR THE AGRICULTURAL SECTOR........................................................................................................................119 ANNEX 4. MOZAMBIQUE GOVERNMENT STRATEGY FOR THE DEVELOPMENT OF SME ..............................................................................................................................128 ANNEX 5. DONORS ACTIVE IN AGRIBUSINESS IN MOZAMBIQUE ...........................133 ANNEX 6. STAFFFING REQUIREMENTS .......................................................................144 ANNEX 7. ROYALTY SETTING CALCULATIONS ..........................................................149 ANNEX 8. ENTERPRISE PHASING AND NUMBERS......................................................151 ANNEX 9. KEY FINDINGS OF THE SECOND ENTERPRISE SURVEY CARRIED OUT IN MAPUTO AND INHAMBANE PROVINCES (MARCH 2013) .......................................153 xv LIST OF TABLES Table 1. Indicators for Assessing the Feasibility of Implementing an AIC..................15   Table 2. Traditional Manufacturing Subsectors in Mozambique................................26   Table 3. Mozambique Agro-industry Problems ............................................................27   Table 4. Agribusiness Value Chain Growth Potentials in Mozambique ....................29   Table 5. Definitions of Enterprise Types in Mozambique .............................................35   Table 6. Agricultural Products, Zones of Production, and Entrepreneurship Level ..39   Table 7. Examples of Government Stakeholders Supportive of an AIC....................45   Table 8. Examples of Private Stakeholders Supportive of an AIC ..............................46   Table 9. Examples of Financial Products Available to Entrepreneurs .......................52   Table 10. Price Comparison between Mozambican and Imported Products.........57   Table 11. Strengths, Weaknesses, Opportunities, and Threats for Markets in Mozambique....................................................................................................................63   Table 12. Advantages and Disadvantages of Different Support Approaches .......65   Table 13. AIC Potential Implementation Partners ........................................................84   Table 14. Mozambique AIC's Budget from Y0 to Y5 ...................................................97   Table 15. Impact on Jobs & Revenue Generation (Year 0-5) ..................................102   Table 16. Impact on Jobs and Revenue Generation (Year 6-10) ...........................102   Table 17. Mozambique AIC’s KPIs ...............................................................................105   Table 18. Mozambique AIC Outcome and Impact Indicators ................................107   Table 19. Mozambique AIC's Planning Scheme ........................................................108   Table 20. Mozambique AIC's Reporting Scheme ......................................................109   Table 21. Mozambique AIC's Risks and Mitigation Plan ............................................110   xvi LIST OF FIGURES Figure 1. AIC Service Offering ..................................................................................................... 11   Figure 2. Mozambique AIC Feasibility Assessment and Business Planning Methodology ... 18   Figure 3. Mozambican Agribusiness Stakeholders Consulted ................................................. 19   Figure 4. Mozambique AIC Feasibility Assessment Process Timeframe .................................. 19   Figure 5. Most Important Challenges for Doing Business in Mozambique ............................. 21   Figure 6. Mozambique Food Balance Sheet, April 2010-March 2011 .................................... 23   Figure 7. Most Produced Agricultural Products in Mozambique (2010) ................................ 24   Figure 8. Most Imported Agricultural Products in Mozambique (2010) .................................. 24   Figure 9. Most Exported Agricultural Products in Mozambique (2010) .................................. 25   Figure 10. Mozambique Agribusiness Stakeholder Mapping .................................................. 49   Figure 11. Enterprises Financing Sources of investments in Mozambique, in comparison with Sub-Saharan Africa and Low Income Countries .............................................................. 51   Figure 12. Correlation between the Use of bank Loans and the Value of Collateral in Mozambique, Compared to Sub-Saharan Africa and Low-Income Countries ................... 53   Figure 13. Local versus Imported Product Branding................................................................. 59   Figure 14. Informal Mozambican Trader .................................................................................... 60   Figure 15. Service Offering of the AIC for Mozambique .......................................................... 72   Figure 16. Mozambique AIC Year 0 Implementation Time Line.............................................. 92   Figure 17. Expenditure by Category for Each Operating Year .............................................. 95   Figure 18. Total Expenditure by Category ................................................................................ 96   xvii 1.0 EXECUTIVE SUMMARY Agriculture and fisheries are the main pillars of Mozambique’s economy, having contributed in the last few years to more than 25 percent of the gross domestic product (GDP) and around 7 to 11 percentage points of the rate of economic growth. Agricultural development in Mozambique has been part of the government agenda because it is crucial to reducing poverty within rural zones. The long-term strategy for the agricultural sector in Mozambique focuses on improving food security and reducing poverty by supporting efforts of the smallholders, as well as the private sector, governmental agencies, and nongovernmental (NGO) agencies to improve agricultural productivity, agro-processing activities, and marketing, while sustainably exploiting natural resources. The agro-industrial sector is an important part of the agricultural sector as a whole; the food industries, beverages, and tobacco are estimated to account for about 70 percent of the overall structure of the manufacturing sector in Mozambique. Yet in Mozambique, processing activities are far behind opportunities offered by the potential diversified production. Instead of a vibrant private sector, which is considered a prerequisite for fostering economic growth and social development for poverty reduction, Mozambique has a poor agribusiness environment where most of the enterprises are micro and informal. As a result, it is still very difficult to invest in agriculture and agribusiness, to develop small and medium-size enterprises (SMEs), and consequently, to create new jobs. However, there is potential for many value chains to support increased post-harvest processing in Mozambique, such as horticulture, animal feed, oilseeds, and nuts. Today, the landscape is changing. Many large industries are developing in Mozambique, altering the consumer demographics and creating new domestic markets as towns blossom to support these industries. Leading South African retailers, such as Pick n’ Pay, Spar, and Shoprite, have an ever-growing presence in the country, and others are arriving rapidly. This could be great news for the food and beverage processing industry in Mozambique, except that for most entrepreneurs, this is their first time in being presented with such opportunities. Currently, these entrepreneurs have no outlet to seek out information about industry processes, norms, standards, or compliance. While there are many self-supported people in Mozambique (for example, rural land dwellers), the number of growth entrepreneurs is considered to be very low. The employment mindset among those with adequate education and good potential for entrepreneurship is high. The government of Mozambique has been trying to foster the development of SMEs by implementing a strategy targeted at increasing the establishment of new businesses and improving the competitiveness of existing businesses through the creation of a more favorable business environment, and building the capacity for the development of technologies and management skills, as well as strategic support to SMEs. 1 In line with the government of Mozambique’s strategies, this document proposes an innovative model with high promise to develop value-adding market led post-harvest processing enterprises and to transform the post harvest-processing sector in Mozambique, while creating sustainable jobs and increasing incomes. The challenge is to ensure coordination across value chains to guarantee that the right conditions are in place for making the Agribusiness Innovation Center (AIC) a success. In this regard, a number of challenges exist:  The quality of primary production is highly variable as are the conditions for transportation and storage.  Local markets are relatively limited and largely confined to Maputo and Beira.  Entrepreneurship is weak and a pipeline of growth-oriented entrepreneurs is not assured.  The policy environment is improving, but a strong business enabling environment is not yet in place and post-harvest processing is not well supported. The initiative needs to be phased against the resources that can be mobilized. The current document foresees a start-up investment of $4.2 million with an additional $2 million for a seed fund and $1.57m for implementation support, but should additional funding be secured, the current design of the project could be scaled up. The success of the AIC will be measured by the growth of the enterprises in the form of revenues, profits, and jobs created, as well as the AIC’s positive impact on farmers and other input providers triggered by the increased demand from the processors. Within six years, the AIC is expected to directly increase the competitiveness of 106 enterprises, raise their incomes by close to $8.7 million1, and create 3,320 new jobs. The AIC will also significantly impact the incomes of women as they constitute the majority of professionals involved in agro-processing activities. In addition, farmers will benefit significantly because of the increased demand from processors. Finally, the AIC will actively promote the take-up of product and process innovations beyond its immediate clients. The indirect benefit of the AIC is expected to be exponentially larger because of its commitment to playing a catalytic role in the sector. 1.1 DEVELOPING THE AIC MODEL FOR MOZAMBIQUE The development of the proposed AIC model intends to complete the government’s efforts by focusing on post-harvest processing activities facilitating value addition. InfoDev’s implementation approach is premised on building the local ownership and capacity necessary to plan and implement a successful intervention. Over a six-month 1All dollar amounts are U.S. dollars unless otherwise indicated. 2 period, infoDev consulted over 180 stakeholders, representing SMEs, agribusiness industry, relevant ministries and local authorities, research and development (R&D) facilities, universities, financial institutions, and international agencies operating in the agribusiness sector in Mozambique. The proposed model was derived from the following: conclusions of the feasibility assessment against the background of a literature review; infoDev’s experience with promoting innovation and entrepreneurship over the past decade; and infoDev’s global good practice assessment on agribusiness incubation covering nine countries. 1.2 THE FOCUS OF THE AIC The AIC approach is a targeted effort to accelerate the development of value-adding market-led post-harvest processing enterprises in Mozambique. It focuses on select value chains where there is a demonstrated growth potential. The first step in the AIC assessment was to identify a set of indicators considered necessary and sufficient to assess the feasibility of implementing a successful AIC. This first step was taken because of the tremendous diversity, complexity, and lengths of agricultural value chains and the underdevelopment of agribusiness as a whole in many developing countries. Given that an AIC is aimed at intensively helping growth enterprises to expand, the necessary indicators need to include a mix of production, processing, people, and market- related indicators. The necessary conditions for the successful implementation of an AIC are set out in the table below: 3 Indicators for Assessing the Feasibility of Implementing an AIC Specific Questions Indicator Are there agricultural subsectors and value chains with Scalable Production known comparative advantage that offer sufficient Potential (with production of adequate quality within economic comparative reach of processors? Can this be increased (if advantage) required) to facilitate beneficiation expansion? Do growth entrepreneurs exist? Or can they be developed or recruited to ensure the growth of Geographically beneficiation activities within a suitable geographic Clustered Growth cluster? What do they need to access and develop Entrepreneur Capacity opportunities? Are there gaps in these areas and can an AIC offer solutions? Does suitable and accessible funding exist or can it be Access to Finance facilitated, for development, R&D, commercialization, and expansion? Clear, Ready Are there strong stakeholders that are, or can be, Stakeholders (including active in supporting the value chain? Can they industry leverage) positively affect the likelihood of implementation? Scalable, Accessible, Can markets be identified that are scalable, and Viable Markets accessible, and viable now and in the future? Is there sufficient infrastructure available? Does the Infrastructure and regulatory environment provide incentives for Regulatory Constraints entrepreneurs to take advantage of the value addition opportunity? Source: Authors. The assessment of these parameters identified that Mozambique has a number of competitive value chains that have tremendous growth potential. However, none of the value chains currently has a geographic cluster of growth-oriented entrepreneurs that could feed a pipeline for an AIC. Secondly, enterprise development in general is limited with most enterprises being informal and micro. Small agribusiness enterprise is very limited and while opportunities exist in value chains, these are not being exploited. The third finding is that markets in Mozambique are primarily centered (by value) around major cities and transport logistics, while improving, are difficult and costly. 1.3 LOCATION These findings would support an AIC that focused on multiple value chains in a geographic area around Maputo. The reasons being that no single value chain was sufficiently well represented by entrepreneurs in close geographic proximity to an AIC, or even a good market. Moreover, the Maputo area was seen as a hub of activity for small enterprises because of the proximity to raw materials, markets, and logistics. 4 The location of the AIC is, therefore, critical and must be located in an area that is 1) within close proximity to its target clientele, 2) allows economical procurement of raw materials and processing infrastructure and packaging, 3) is convenient from a logistics perspective, and 4) is near the required sources of expertise (for example, technical, business, R&D, and so on).On the basis of the criteria outlined, a potential location for the AIC would be in the area around Matola and Maputo. Potential satellite centers in Manica, Sofala, and Nampula province should be considered as part of a second phase as the growth corridors develop. 1.4 THE SERVICES OF THE AIC The service offerings of the AIC, which were determined through the assessment process, are proposed as including the following: business coaching; market research, marketing, and procurement facilitation; technology identification, technical training, and access to processing technologies; and financial services, including a small fund as illustrated in the figure below. The AIC is a partnership based, highly networked model. Many of the services outlined below will be delivered in partnership with existing organizations. 5 Mozambique AIC Service Offering Market & Sales Advisory Support Finance Facilitation Facilities Support Awareness & Linkages: - Entrepreneur competitions, self assessments, etc. - Public relations and communications - Stakeholder Linkages Business training & mentoring Market research Product and • High value products Seed fund technology • Suppliers (for innovation & demonstration Product demonstration)Loans or centre loan guarantees: USD development 10-100k Sales training Technology Test market identification production Market linkages to Commercial loan customers and suppliers facilitation Technical training • Local • Working capital • National • Asset financing • Export   Business Center Quality, safety and regulations Source: Authors. 6 The AIC will host innovation challenges and awards and engage in select advocacy activities, in order to have a demonstration effect and spur uptake of technology and marketing innovation beyond the enterprises directly served by the AIC. It is vital to stimulate greater awareness to build a better pipeline of enterprises and so these activities will require strong linkages with such partners as Instituto para a Promoção das Pequenas e Médias Empresas (IPEME), Sociedade de Investimentos SA (GAPI), Instituto Nacional do Emprego e Formacao Profissional (INEFP), business associations, NGOs, and Instituto Superior de Ciências e Tecnologia de Moçambique (ISCTEM). The need to provide reduced collateral loans is critical to grow micro and small enterprises. Currently these enterprises are not able to access loans because of collateral requirements, high interest rates at the micro-finance end of the financing spectrum, and a financing community that is not geared to deal with high-risk, low- levels of entrepreneurial capacity. As such, the AIC needs to manage a seed fund to overcome these constraints and to build trust with the financing community by reducing the risk profile in order to facilitate an increase in future lending to this sector. 1.5 LIMITS OF THE AIC Important barriers to growth that will not be met by the AIC include the provision of a dedicated processing facility as the costs and depreciation involved will be an unbearable financial burden on an initiative, which is designed to develop a high level of financial self-sustainability. 1.6 CRITICAL SUCCESS FACTORS As revealed in Growing Food, Products and Businesses,2 there are a number of critical success factors for an intervention of this kind: 1) help clients manage risk; 2) understand the details of the value chain; 3) maintain a broader goal of demonstrating innovative business propositions so as to stimulate broader sector take-up; 4) adapt the focus and business model of the incubator; 5) proactively identify and promote higher value market opportunities; and 6) design and operate the business incubator in line with good practice, including ensuring a strong selection process that identifies and cultivates innovative, growth-oriented entrepreneurs and developing strong partnerships with the public and private sector. An AIC needs the following to fulfill these success factors: 1) staff with extensive experience in the agribusiness sector, 2) a strong capital structure, and 3) a governance framework that allows the management to operate the AIC in a business- like manner. 2 Global assessment carried out by infoDev to understand the impact and lessons from agribusiness incubators and innovation centers is available at:http://infodev.org/articles/growing-food-products-and- businesses . 7 1.7 IMPLEMENTATION OF THE AIC One possible implementation approach could be to create a new not-for-profit organization, registered as an “association” under Mozambican law. Another possible implementation approach could be to have an existing local organization or a consortium of local organizations to receive a grant to host the AIC. No matter the scenario, the organization managing the AIC would have a board of directors with representation from the public and private sectors, as well as academia, and would be owned and operated by Mozambican stakeholders. The AIC service offering outlined requires a partnership-based model with strong private sector, government, donor, and academic institutional support. All public and private sector stakeholders consulted during the feasibility assessment exercise support the AIC concept. The AIC is seen as highly complementary by all. The finance sector views it as a mechanism to reduce their risk. Manufacturers and distributors see it as providing supply chain and procurement opportunities. NGOs perceive it as partnering potential to leverage their own initiatives. To kick off the implementation stage, infoDev would typically convene an interim Board of Directors (BOD) comprising of public and private sector representation to oversee the planning stage. The BOD would include partners who contribute to the success of the AIC in the form of cash or in-kind contributions, along with a client representative. Organizations that have expressed an interest in partnering include the Development Finance Institution (GAPI), the Institute for the Promotion of SMEs (IPEME), Pick n Pay, Mozfoods, and the National Institute for Employment and Professional Training (INEFP). These, and other organizations interested in contributing to the success of the AIC, could be invited to serve on the interim board. 1.8 THE ROLE OF INFODEV At the planning and implementation stage, infoDev views its role as providing the technical guidance to plan, resource, and operate the AIC successfully. With a strong commitment to building local institutional capacity, infoDev would thus harness its experience with setting up business incubators and innovation centers, its agribusiness incubation training program, and its international network of innovation and entrepreneurship professionals across the world to guide the BOD and the AIC manager through important milestones, such as developing a governance framework, client selection process, service design and execution, marketing and monitoring, and evaluation. InfoDev manages trust funds and could also manage single or multidonor trust funds to be disbursed to the AIC. In order to ensure sustainability and adequate local capacity, infoDev typically remains engaged for a three to five-year period, gradually scaling down its support as the capacity of the local team and partners increases. 8 1.9 BUDGET REQUIREMENT The AIC will require a start-up investment of $7.77 million over six years. The AIC would be expected to reach between 55 percent and 85 percent financial sustainability by Year 10 (45 percent by Year 5) on the basis of a 10 percent royalty on growth revenue and a market-related interest fee on a $2 million seed fund. In order to cultivate local ownership, infoDev requires that local stakeholders contribute a percentage of the total start-up cost. Over six years, the enterprises served by the AIC are expected to have both generated more than $500,000 in additional tax revenues (assuming average growth) and created an additional 860 direct jobs. The total expected job creation is estimated at over 3,300, assuming that a minimum of 2.86 indirect jobs are created for each direct job in the primary agriculture and support sectors. The impact on tax revenues will be even greater, one includes the tax revenues created after the enterprises have left the AIC and the tax revenues from other enterprises that take up the technology and marketing innovations demonstrated by the AIC. . 9 2.0 THE AGRIBUSINESS INNOVATION CENTER CONCEPT 2.1 ACCELERATING AGRIBUSINESS DEVELOPMENT THROUGH INNOVATION According to the World Bank, “the potential of agricultural growth to reduce poverty is four times greater than the potential of growth from “The future of African other sectors.” The 2008 World Development development depends on Report outlined how investments in agribusiness the ability to accelerate produce significant multiplier effects through innovation by capitalizing their forward and backward linkages, on the creativity of African generating demand for agricultural products farmers and agribusiness and associated inputs and services, and entrepreneurs… Innovation creating on and off-farm employment. is under way in African Interventions that can unleash this potential can value chains. It is not driven by research, but by have a tremendous impact on poverty. entrepreneurs, networks The fact is that many developing countries and supportive policies.” have not turned their vast comparative Dr. Andy Hall, LINK advantage in agriculture into a competitive Coordinator, United Nations advantage in value-added processed University, MERIT, Maastricht products. They have subsequently lost out on income generation and job creation opportunities that this value-addition opportunity offers. Tanzania, for example, exports raw cashew nuts and imports processed cashew nuts. Senegal’s retailers stock only a handful of locally manufactured food products—preferring imported products, despite Senegal’s extensive horticulture industry and rich culinary traditions. Reaching such development goals as job creation and inclusive growth in agriculture will require more focus on supporting growth-oriented entrepreneurs engaged in downstream business activities (such as processing) to develop competitive enterprises that effectively link into productive value chains. InfoDev seeks to advance new approaches to accelerating the growth of innovative, technology-enabled, agro-processing enterprises, while creating powerful demonstration cases that illustrate how engaging farmer associations, industry, financiers, and government can catalyze the green growth of an inclusive and job creating, competitive agro-processing sector. 10 2.2 AGRIBUSINESS INNOVATION CENTERS InfoDev is piloting the concept of an AIC as a mechanism to increase the competitiveness and growth of pioneering growth-oriented small or medium agro- processing enterprises that have the potential to become industry leaders. These enterprises would advance product, process, and business model innovations and translate these innovations into improved products and larger market share in existing markets or entry into new markets and development of new products for existing or new markets. The AICs are unique from the perspective of their target clientele, their business model, and the holistic service offering, which generally provide the following services (although tailored to the specific needs and characteristics of the target market). Figure 1. AIC Service Offering 11 Over the past decade, infoDev has accumulated a range of lessons about enabling the start-up and growth of high growth potential enterprises in developing countries. Its recent global assessment: Growing Food, Products and Results from Agribusiness Incubation Businesses,3 revealed a number of critical success factors for an intervention similar to an AIC (the Fundación Chile: conclusions of the global study are available in Initial investment: $50 million Annex 1): Entrepreneurs’ sales: $425 million  Help clients manage risk: Agribusiness is inherently risky because of its reliance on farming (which is susceptible to such environmental risks as flood, drought, and IAA-IPB, Indonesia: pests) and perishable products. Critical to the Initial investment: $300,000 success of an AIC is to help agro-processors manage these risks above and beyond the Entrepreneurs’ sales: $8 million business challenges that any enterprise faces in any industry.  Understand the characteristics of the value chain: The agribusiness value chain can be long with critical dependencies between each element in the chain. The AIC must understand the state and dynamics of the value chain to assist the agro-processing enterprise in being successful. Relatedly, the World Bank has found in its review of agribusiness investments that a strong focus on a few cross-cutting issues, locations, or value chains with an established comparative advantage and strong market prospects provides an opportunity to “pilot difficult reforms, demonstrate success, and learn from those efforts in scaling up the program.” InfoDev has, therefore, sought to proactively identify a few initial focus areas for each AIC.  Proactively identify and promote higher value market opportunities: The agribusiness sector is complex and plagued by information asymmetries that often prevent enterprises from recognizing high-value business opportunities. An important role of the AIC is to help the enterprise gain access to relevant market information. 3 The   global   assessment   carried   out   by   infoDev   to   understand   the   impact   and   lessons   from   agribusiness   incubators   and   innovation  center  is  available  at:  http://infodev.org/articles/growing-­‐food-­‐products-­‐and-­‐businesses. 12  Maintain a broader goal of demonstrating innovative business propositions: The desired catalytic effect of an intervention of an AIC does not necessarily happen without a deliberate, tangible effort. Specific programs must be designed for this purpose.  Design and operate business incubation in line with good practice.  Business incubation good practices include the following, regardless of sector: • Ensuring a strong selection process that identifies and cultivates innovative, growth-oriented entrepreneurs. • Developing strong partnerships with the public and private sector. • Locating the AIC in a geographic location that is attractive to the target clientele. The World Bank’s review of agribusiness investments corroborates this lesson: “Locations with revealed competitive advantage and proven investor demand should be preferred over attempts to initiate new industries in new areas.” • Ensuring that the AIC manager and service provider have entrepreneurial, and preferably industry, knowledge and that these staff members have incentives that align with the desired outcomes and impacts of the AIC. • Obtaining a strong capital structure. • Putting in place a governance framework that allows the management to operate the AIC in a businesslike manner. • Continuously adapting the focus and business model of the incubator in line with evolving market conditions. InfoDev has sought to address each of these factors in the design of the AICs. 13 3.0 THE MOZAMBICAN AIC FEASIBILITY AND BUSINESS PLANNING PROCESS The foundation of the feasibility work to assess the likelihood for a successful AIC implementation has been based on global experiences in conceptualizing, designing, developing, and implementing similar initiatives. This has included infoDev’s 10 years of experience in the implementation of innovation and entrepreneurship programs in over 80 developing countries. Other lessons learned and experiences that have been leveraged for the AIC feasibility work include infoDev’s recent global study on agribusiness good practices that covered numerous continents and case studied successful agribusiness incubators. The first step in the AIC assessment was to identify a set of indicators considered necessary and sufficient to assess the feasibility of implementing a successful AIC, because of the tremendous diversity, complexity, and lengths of agricultural value chains and the underdevelopment of agribusiness as a whole in many developing countries. Since an AIC is aimed at intensively supporting growth enterprises to expand, these necessary indicators need to include a mix of production, processing, people, and market related indicators. The necessary conditions for the successful implementation of an AIC are set out in Table 1. 14 Table 1. Indicators for Assessing the Feasibility of Implementing an AIC Specific Questions Indicator Are there agricultural subsectors and value chains with Scalable Production known comparative advantage that offer sufficient Potential (with production of adequate quality within economic comparative reach of processors? Can this be increased (if advantage) required) to facilitate beneficiation expansion? Do growth entrepreneurs exist? Or can they be developed or recruited to ensure the growth of Geographically beneficiation activities within a suitable geographic Clustered Growth cluster? What do they need to access and develop Entrepreneur Capacity opportunities? Are there gaps in these areas and can an AIC offer solutions? Does suitable and accessible funding exist or can it be Access to Finance facilitated, for development, R&D, commercialization, and expansion? Clear, Ready Are there strong stakeholders that are, or can be, Stakeholders (including active in supporting the value chain? Can they industry leverage) positively affect the likelihood of implementation? Scalable, Accessible Can markets be identified that are scalable, and Viable Markets accessible, and viable now and in the future? Is there sufficient infrastructure available? Does the Infrastructure and regulatory environment provide incentives for Regulatory Constraints entrepreneurs to take advantage of the value addition opportunity? Source: Authors. InfoDev engaged in literature assessments and in-country, multistakeholder interactions to understand and map the indicators. InfoDev convened a series of workshops and interviews with stakeholders to explore the issues surrounding agribusiness development and to assist in the development and design of a business plan to establish an AIC. Analysis of these indicators was completed through a mix of the following. 15 1. Literature assessments: Literature regarding past, current, and potential future initiatives was identified and analyzed. Extensive use is made of this material in this report and is quoted only in exceptional cases. 2. Stakeholder interviews: Interviews were held with individuals representing government, agricultural support organizations, entrepreneurs, academic researchers, investment promotion, and NGOs. 3. Workshops: Two workshops were held in Maputo and attendance is recorded in the Stakeholder Support section. The first workshop primarily focused on identifying sectors and value chains of interest and needs of entrepreneurs. The second workshop presented a summary of the findings and a potential business model for an AIC. This development of an AIC business model examined the following:  Subsector(s)/value chain(s) of interest  The focal entrepreneur group(s)  The geographical location(s) of the AIC  The suite of offerings to be provided by the AIC  Stakeholders and partners to be involved in the AIC  The governance model of the AIC  The financial model underpinning the sustainability of the AIC  Risks and mitigation activities  The targets and impact measures that will indicate progress It must be noted that infoDev maintains a strong commitment to lasting impact, sustainability, and local ownership. InfoDev, therefore, always adopts a highly participatory approach to its feasibility assessment and business planning process. This approach and the length of the feasibility assessment not only ensures accurate information with which to assess the indicators, but also ensures that the constant 16 interaction over an extended period of time results in the basis for the formation of the trust partnerships necessary for future implementation. In Mozambique, during a six-month period, infoDev consulted over 180 stakeholders, representing SMEs, agribusiness industry, relevant ministries and local authorities, R&D facilities, universities, financial institutions, and international agencies operating in the agribusiness sector in Mozambique. The schematic of the stakeholder interaction process is presented in Figure 2 below. 17 Figure 2. Mozambique AIC Feasibility Assessment and Business Planning Methodology Stakeholder Stakeholder • Review of the Gap Analysis • Data Identification Consultation agriculture & •  Workshops gathering to agribusiness and interviews create sectors and • Identification -to validate • Interviews to business • Feedback value chains of selection of map existing model, from local that offer stakeholders value chains service evaluate stakeholders opportunities affecting the and identify offerings and locations, •  Review and for growth success of barriers to SME planned principal inputs from enterprises. agribusiness start-up and initiatives partners/hosts, international entrepreneurs growth etc expert group Value Chain Analysis Business Stakeholder Modeling Consultation Source: Authors. 18 Figure 3. Mozambican Agribusiness Stakeholders Consulted 4%   3%   4%   BDS  Providers     Financial  Services   Providers   11%   NGOs   Government  and  public   15%   entities   63%   International  Cooperation   Stakeholders   Private  Sector*   * Includes entrepreneurs, producers, catering companies, and associations. Source: Authors. A critical decision point for all incubator-type initiatives is the location. The following criteria were therefore utilized to determine the most feasible location 1) is within 150 km of a large number of the target clientele, 2) is within an area that allows economical procurement of raw materials, processing equipment, processing infrastructure, and packaging, 3) is convenient from a logistics perspective, and 4) is near sources of expertise (such as technical, business, or R&D). The business model designed for the Mozambican AIC addressing all the points raised above was then shared with key stakeholders and potential partners and subject to external review by knowledgeable persons. The output of this process is a well-motivated business model for the AIC and the identification of a range of offerings that are tailored to the needs and market opportunities of growth-oriented entrepreneurs in Mozambique. The timeline for the feasibility assessment process is depicted in the figure below. Figure 4. Mozambique AIC Feasibility Assessment Process Time Frame Jan 12: Stakeholder Mar 12: Workshop Mar-Sep 12: Sep 12: Workshop Oct 12: Finalise identification & sector 1: Value chains & Follow-up 2: Model mapping   needs, Maputo   analysis   presentation   business model   Source: Authors. 19 4.0 MOZAMBIQUE—ECONOMY AND AGRIBUSINESS 4.1 MACROECONOMIC OVERVIEW Mozambique has experienced significant economic and social growth over the last decade because of the combined effect of macroeconomic stability and rapid economic growth. From 2005 to 2010, the average economic growth rate was over 7 percent of the GDP and income per capita grew an average of 5 percent a year. This trend was supported by a strong growth across all subsectors in the economy: agriculture (7.2 percent), industry (6.1 percent), and services (8.4 percent). The considerable growth in the agricultural sector, which accounts for 28.4 percent of GDP and employs 80 percent of the adult population, has contributed significantly to the efforts Mozambique has been making in the fight against poverty since the mid-1990s. The other two sectors, industry and services, account for 26.3 percent and 44.7 percent of the GDP, respectively. Major industries include food, beverages, chemicals, petroleum products, textiles, cement, cotton, and tobacco. Major trade flows are with the Netherlands, South Africa, India, and China. Main exports are aluminum, coal, gas natural, minerals, prawns, cashews, cotton, sugar, tea, citrus, timber, sesame, and beans. Imports include machinery and equipment, vehicles, fuel, chemicals, foodstuffs, such as nonalcoholic beverages and cashew nuts shelled, and textiles. More details are provided in Annex 2. 4.2. MICROECONOMIC OVERVIEW At the microeconomic level, where the wealth is generated through business, the situation is far less promising, taking into account the comparative analysis provided by the latest World Economic Forum Global Competitiveness Index4. In fact, Mozambique has fallen in the world rankings in the last few years reaching the 133rd rank out of the 142 countries surveyed. 4 The Global Competitiveness Report 2011-12 is available at: http://www.weforum.org/issues/global- competitiveness. 20 The most problematic factors for doing business in Mozambique are captured in the figure below. Mozambique was ranked the 146th out of the 185 economies assessed in the 10th edition of the Doing Business Report.5 Figure 5. Most Important Challenges for Doing Business in Mozambique Source: WEF, Global Competitiveness Report 2010-11. 4.2.1 AGRICULTURE ACTIVITY Agriculture and fisheries are the main pillars of the economy, having contributed in the last few years to more than 25 percent of the GDP and around 7 to 11 percentage points of the rate of economic growth. Agricultural development in Mozambique has been part of the government agenda since it is of crucial importance to improve food security and to reduce poverty. With the intention of supporting the efforts of smallholders, the private sector, and governmental and nongovernmental agencies, the government over the past few decades has adopted several strategic programs to increase the agricultural productivity and agro-processing and marketing activities. The most important ones are the following: Action Plan for Food Production (PAPA), which addresses the food prices crisis and focuses on the country’s food production potential; and Strategic Plan for Agricultural Development (PEDSA), which focuses on agricultural primary production to contribute to 5Doing Business 2013 Report is available at: http://www.doingbusiness.org/reports/global-reports/doing-business- 2013. 21 food security and increase market-oriented agricultural production in a fast, competitive and sustainable manner. Mozambique’s diverse soils and climatic conditions offer a wide range of production opportunities. Forty-five percent of Mozambique’s total land area is suitable for agriculture, but only 11 percent, around 4 million hectares, is estimated to be cultivated.6 Mozambique is a net importer of basic food commodities. Agriculture occupies 81 percent of the country’s population out of which it is estimated that 60 percent are women. The activities in the sector are mainly performed by smallholders on a small scale. They involve the majority (that is, 3 million) of the rural families with an average of 1.2 hectares of cultivated land. Production is still oriented toward subsistence because of the inefficient rural markets for products and inputs. So, in spite of the capacity of rural families to commercialize their production, food for subsistence is still of high importance for them to achieve acceptable levels of nutrition and food safety. The use of irrigation systems, inputs (fertilizers, pesticides, and so on), and mechanized technologies for land preparation or for post-harvest activities is negligible. Mozambique does not enjoy the availability of developed artificial irrigation channels and networks; agriculture in Mozambique mainly depends on rainfall for irrigation. As a result when rains fail, so does agricultural production. Drought, followed by floods and locust attacks, further affects the production of crops. These cyclic climate changes have caused problems in raising crops, particularly for direct consumption—leaving the rural families in precarious economic and social conditions. These factors directly contribute to the low levels of productivity and quality, ultimately strongly affecting the availability of products for commercialization and processing. Business development is difficult, or even unfeasible, as investments are lacking. Even in years of poor harvests, substantial quantities of agriculture products are exported both formally and informally to neighboring countries, notably Malawi. At the same time, given the large distance that separate surplus producing regions (usually in the North) and structurally deficit areas (mainly in the South of the country), and consequently the substantial transportation costs, imports are required to cover domestic consumption needs. The balance sheet below captures the situation for some of the most consumed agricultural products. 6 FAO/WFP CROP AND FOOD SECURITY ASSESSMENT MISSION TO MOZAMBIQUE Report. August 2010. http://www.fao.org/docrep/012/ak350e/ak350e00.htm 22 Figure 6. Mozambique Food Balance Sheet, April 2010 to March 2011 Source: FAO. 4.2.2. AGRO-PROCESSING INDUSTRY The agro-industrial sector is an important part of the agricultural sector as a whole. Food industries, beverages, and tobacco are estimated to account for about 70 percent of the overall structure of the manufacturing sector in Mozambique. Yet in Mozambique, processing activities are far behind opportunities offered by the potential diversified production. It is well known that the history of agro-industry in Mozambique was mainly based on urban areas—far from the sources of raw material. This situation has aggravated the costs of raw material, which normally count for between 60 percent and 80 percent of the total costs of agricultural processing activities. This was the reason why after Mozambican independence, the processing industry began to struggle, despite its diversification, as it was unable to cope with the increasing costs of transportation. This has impacted the rice and oilseed industry (particularly in the coconut and copra subsector in Zambezia, Inhambane, and with Mafurra in Inhambane) along with the cashew and cotton industries. Cotton was the main supplier of the textile industry, which has virtually disappeared across the country. The following graphs capture the status of the most produced, imported, and exported agricultural products and demonstrate a clear import substitution opportunity for processed products. 23 Source: FAO. Source: FAO. 400000   600000   700000   100000   500000   0   200000   300000   80000   40000   60000   120000   100000   140000   160000   0   20000   Cassava   Rice  –  total  (Rice  milled   Maize   equivalent)   Wheat   Indigenous  Pigmeat   Palm  oil   Tobacco,  unmanufactured   Sugar  Refined   Pulses,  nes   Food  Prep  Nes   Sugar  cane   Soybean  oil   Cotton  lint   Chicken  meat   Sweet  potatoes   Tobacco,  unmanufactured   Cashew  nuts,  with  shell   Cigarettes   Sorghum   Maize   Indigenous  Goat  Meat   Flour  of  Maize   Indigenous  Cattle  Meat   Wine   Rice,  paddy   Cake  of  Soybeans   Fruit  Fresh  Nes   Sugar  Confectionery   Vegetables  fresh  nes   Infant  Food   Cottonseed   Malt   Bananas   Chocolate  Prsnes   Coconuts   Margrine  Short   Sesame  seed   Potatoes   Indigenous  Chicken  Meat   Oranges   Figure 8. Most Imported Agricultural Products in Mozambique (2010) Figure 7. Most Produced Agricultural Products in Mozambique (2010) Value  (1000  $)   Production  (Int  $1000)   24 Figure 9. Most Exported Agricultural Products in Mozambique (2010) 30   25   20   15   10   5   0   Value  (1000  $)   Sesame  seed   Sugar  Raw  Centrifugal   unmanufactured   Pulses,  nes   Sugar  Refined   Groundnuts  Shelled   Maize   Coconut  (copra)  oil   Cigarettes   Groundnuts,  with  shell   Tea   Beverage  Non-­‐Alc   Bananas   Cashew  Nuts  Shelled   Cotton  lint   Cottonseed   Cashew  nuts,  with  shell   Molasses   Fatty  Acids   Flour  of  Wheat   Tobacco,   Source: FAO. So, instead of a vibrant private sector, considered a prerequisite for fostering economic growth and social development for poverty reduction, Mozambique has ended up with a very poor agribusiness environment. As a result, it is still difficult to invest in agriculture and agribusiness, develop SMEs, and consequently, create new jobs. The latest data available from the National Statistics Institute records that in 2007, 75 percent of the active population in Mozambique was involved in the agribusiness sector, which comprises agricultural, processing, and manufacturing activities. In fact, with the exception of the provincial capitals and some other main cities, formal processing businesses are almost non-existent. Where they do exist, activities are informal. Economic activity, particularly within agriculture, is constrained by low capacity in operating on market terms and land ownership aspects; laws also prevent land from being used as collateral for bank loans. Access to finance is further limited by the fact that banks are making an almost risk-free return on investments by placing their funds in treasury bills, as opposed to lending to individuals and businesses. Many NGOs run support programs within rural agriculture but seldom have these programs seemed to be based on market principles The level of agro-processing industry in Mozambique is primarily at the first stage of processing primary agricultural products, such as cashew, sisal, and even copra for factories abroad (see table below). Mainly low-value adding activities are undertaken, such as washing and putting in a box, such as the following: removing fibers from the fiber or seed mix in a cotton gin; curing and baling tobacco leaves or processed one stage further to supply cigarette makers. The agricultural products processed for the domestic market—with 25 the exception of oilseeds, maize, and wheat in certain cases—are processed in a very small scale and most of the time lack quality and the right packaging to access more demanding markets. The percentage of the agricultural production that is processed is very limited because the number of processors is very small and those who do exist usually do not have large scale operations—so, niche processing opportunities are not taken to scale. Even in the domestic markets, with the exception of honey, it is very rare to see national products in outlets of main supermarkets in urban areas, which demand higher quality and better presentation to justify import substitution. In a survey of several wholesale distributors and leading supermarkets (including MEGA, Africom, O Vosso, and Pick n’ Pay), only a small handful of domestically produced, value-added products existed—specifically rice (Tia Rosa and Bela brands), honey (Fruitimel), and one soy bean oil (Dona brand). Domestically grown fresh produce is available in informal markets (although higher-quality produce is exported), but value-added products produced in Mozambique are a rarity. Table 2. Traditional Manufacturing Subsectors in Mozambique Domestic consumption Export oriented products Grain milling (maize) Cotton ginning Cassava processing (flour) Tobacco processing Cassava leaves processing Cashew processing (kernel) Wood processing Copra processing Sugar cane processing Sugar cane processing Cashew apple processing Sisal processing Coconut processing New export-oriented products Oilseeds processing Sugar cane for ethanol Fruit processing (juice, jam, and so Jatropha for biodiesel on) Vegetable processing (tomato paste, pickles, and so on) Chilies processing Source: Authors. 26 The poor state of agro-industry in Mozambique can largely be explained by the following facts. Table 3. Mozambique Agro-industry Problems LEVEL PROBLEM • Unreliable supply of raw materials • Low productivity, which leads to low production and quality of raw materials RAW MATERIAL SUPPLY • Widely dispersed production locations, limiting the collection process and increasing significantly transportation costs • Poor access to appropriate technology • Poor or lack of technical back-up support • High working capital requirements VALUE ADDING •Poor access to relevant business information services THROUGH • Lack of exposure to other processing options AGRIPROCESSING • Poor advocacy structure • Lack of access to supporting infrastructure, such as electricity, telephones, and roads • Poor ability to pay for quality and quantity • Strong competition from imported or products manufactured in the MARKETING large scale urban based centers • Weak market linkages • Poor supply of packaging materials (for example, bottles) Source: Authors. The AIC is intended to contribute to commercialization and modernization of a competitive indigenous agribusiness industry. It will focus on value chains where Mozambique has a comparative advantage to accelerate the growth of value-adding agribusiness enterprises, with the purpose of having a demonstration effect that catalyzes wider enterprise take-up of innovations. To help identify high potential opportunities, the following chapter will provide detailed information on value chains, entrepreneurs, market opportunities, stakeholders, funding opportunities, and industry dynamics. 27 5.0 POTENTIAL FOR DEVELOPING AN AIC IN MOZAMBIQUE 5.1 SCALABLE PRODUCTION POTENTIAL (WITH COMPARATIVE ADVANTAGE) For an AIC to be successful, it must support enterprises capable of growth and which can be competitive along the value chain. Working in value chains that have a comparative advantage in production offers opportunity for competitiveness later in the chain. As such, an assessment was made of key subsectors and value chains. The table below identifies the potential of the main agricultural value chains. 28 Table 4. Agribusiness Value Chain Growth Potentials in Mozambique Value Chain Growth Potential Impact on Job AIC Attractiveness Challenges Level of Creation and Risk (Processing) Revenues • High growth • High potential • Medium-low • Industry is steeped in Timber Forest potential for for rural out- • Few active corruption, regulations, High unique wood grower entrepreneurs and legislation Products varieties, artisan schemes, • Sector • Limited infrastructure for crafts, furniture, value-added dominated by value-addition (no Large and paper processing and multinationals functioning kilns and • Opportunity for forestry • Limited donor one sawmill) SME SME to focus on management programs to • High transportation high-value wood development support the value costs and unreliable varieties • Minimal training chain port system in North • Strategically and investment development • Low levels of policy placed training required • Production areas enforcement centers and in far North and processing West facilities • Year-round • High potential • Medium-High • High cost of inputs Fruits growing climate for out-grower • Few active (irrigation, fertilizer) Medium • High potential to schemes and entrepreneurs • Low annual yields supply growing value-added adding value • Lack of post-harvest Large and mining sector processing beyond sizing- handling facilities SME domestically • Minimal training packing-ripening • Farmers focus on low- • High potential for and investment • Growing areas profitability crops, such exports of select required spread across the as bananas fruits and markets: country • Fruit fly epidemic limits banana, off- • Processed juices export opportunities to season mango and jams South Africa and and pineapple to compete on access to Maputo South Africa; price with • High transportation citrus to Middle imported brands costs and unreliable East & region port system in North • No import duties into U.S. or EU markets 29 • Year-round • High potential • Medium • Extremely high loss for Vegetables growing climate for out-grower • MZ is well known raw materials because Medium • Proximity to South schemes and for various of lack of cold storage African markets value-added processed and transportation Large and • High potential to processing products, such as • 54 percent of SME supply growing • SME processors peri-peri, or production goes to low- mining sector active in achars value domestic market domestically certain sectors • Processing limited • Low profit margins on • No import duties (tomato sauce, to a few raw materials into U.S. or EU canned vegetable crops markets vegetables, (that is, tomatoes) and so on) • Increasing demand for soy- based poultry feed • Large population • Involves large • Medium-High • Low level of quality Oilseed of indigenous number of small • Opportunity to standards for edible oil Medium plants with oil -scale farmers expand processing (Edible & potential • Low-cost processing of • Need capacity building Essential) • Favorable trade processing higher-value of existing cooperatives agreements equipment oilseeds, such as to understand market within SADC readily sesame, essential opportunities Large and • Domestic edible available oils, and so on SME oils compete with • Growing imports domestic market for soybean oil • Long, successful • Involves large • Medium • Aflatoxin levels are very Nuts (Cashew, • Increasing market number of • Expanding high outside of Medium demand small-scale number of plantation cashews Macadamia, • High-value crop farmers processing • Low productivity of Peanuts) • Potential to • Production companies small-holder production exploit (that is, • Processing of • Low survival rate of certifications (for roasting) is value-added planted seedlings Large and example, fair done primarily products (nut • Inefficient marketing SME trade) by large-scale butters and so on) systems companies. is minimal • Common crop in • High potential • Medium-High • No existing value- Cassava rural areas and for out-grower • Inexpensive and addition processing Medium part of staple diet schemes and low-tech • Quality concerns at the for low-income value-added processing of dry SME level of production SME consumers processing breakfast cereal • No defined market • Simple, low-cost • Low cost of could be system and few opportunities for seeds & implemented functioning value-addition minimal inputs • More consumers cooperatives for 30 makes shopping in collection, and so on attractive for supermarkets = • Low value product farmers opportunity for predominantly for • Minimal well-packed sustenance organization in cassava products sector • Third largest • Small-scale • Low • Problematic collection Maize producer in SADC production on • Few system, storage, and Medium (next to South most SME farms entrepreneurs routes to local market Africa and for subsistence focused on value- • Some animal feedlots Large and Malawi) • Low local value added shifting to soy-based SME • Government pushes farmers processing feed over maize support for away from • Negligible milling • No biofuel production development for maize facilities available because of South human (white production for to SME producers Africa’s ban maize) and higher value • Industry • Average SME maize animal feed crops dominated by farm is 1.5 hectare (yellow maize) • SME cannot large processors • Majority of production • Growing compete with in North domestic market large-scale via mining farming units industry • High domestic • Common • Medium-Low • Low-levels of irrigation Rice consumption sustenance • Few • Only 3 percent of rice Medium • Competitive crop in most entrepreneurs production uses pricing offers SME farms focused on value- improved seeds Large and opportunity for • Produced in added • Domestic varieties SME import substitution small-scale with processing (Chokwe and • Growing minimal inputs • Opportunities Zambezia) have low- domestic at SME level best around profitability opportunities via value chain • Low quality of post- mining industry strengthening— production handling irrigation, and so on • Growing • High potential • Medium-Low • Poor production and Beans domestic market to involve SME • Good return on post-harvest handling Low via mining producers investment (ROI) practices industry • Poor existing can be expected • Solar drying at SME level SME • Competitive structure of with higher promotes fluctuating pricing for cooperatives production standards of moisture, potential import and standards • Limited number of and so on substitution of entrepreneurs • Poor quality for dried beans focused on value- packaging and • Interest from added branding 31 South African processing • Short production season market in new varieties (that is, cow peas) • Growing • High potential • High • Domestic market limited Dairy domestic for out-grower • Strong value- to urban areas Medium demand for schemes and chain support • Perishable raw material pasteurized milk, value-added from donors with limited cold Large and cheese, yogurt, processing • High-level of storage facilities SME and butter • Extension value addition • Limited branding to • 90 percent of services to possible with distinguish domestically dairy products ensure quality limited investment produced products (Product are imported and and quantity in • Innovative from imported ones processing) domestically place and entrepreneurs • Low production produced easily involved in sector capacity when products are enhanced compared to South competitive Africa • High – current • Potential to • Medium • High cost of imported Poultry supply covers involve rural • Attractive ROI for raw material for feed – Medium only 50 percent of SME’s in entrepreneurs imported feed is 75 domestic market contracted involved in percent of cost Large and demand production slaughter, fresh • Large producers SME • Strong • Industry favors and/or frozen (25,000+ birds per week) government large-scale processing in North are far from support for producers • Few SME feedlots, resulting in (Meat development entrepreneurs high transport costs processors/ involved • Southern producers buy low-cost from South eggs) Africa • High growth • High potential • Low • SME participation yields Livestock potential across for out-grower • Few active low-quality animals Medium all consumer schemes entrepreneurs • Low-level of extension (Goats & levels • Informal market doing value- services (vet, Cattle) • Strong access added insemination, and so government reasonably processing on) available to small- support available to • Value-added scale producers Large and • Increasing SME products do not • Ineffective SME demand for fresh compete well cooperatives and processed with imports on meats quality 32 (Meat processors) • Honey • High potential • High • Intensive structuring of Honey consumption for out-grower • Processed honey cooperative collection Low rising in SADC schemes and compete on sites required region value-added price with • SME hives generally SME • Solid processing imported brands have very low yields (5- opportunities for • Existing • Well-established 10 KG per year) import substitution cooperatives cooperatives for • MZ honey needs to be • Direct linkage and processors streamlined , low- irradiated for with interested in cost collection importation into South environmental expanding and processing Africa sustainability • Opportunity for • Suitable programs derivative packaging products like options available candles, etc from South Africa Source: Authors 33 5.1.2 CONCLUSIONS There is potential for many value chains to support increased post-harvest processing in Mozambique, such as horticulture, animal feed, oilseeds, and nuts. Nonetheless, land ownership, logistics, technology, and production skills are key issues that may affect growth. An AIC could offer support in many of the value chains and subsectors discussed above. 5.2 GEOGRAPHICALLY CLUSTERED GROWTH ENTREPRENEUR CAPACITY The levels of entrepreneurship in Mozambique are considered to be low with a service economy turned to serve foreign interests and a socialist history post-independence, which did not encourage entrepreneurial endeavor. Entrepreneurship in Mozambique has slowly developed over the last 30 years since the Structural Restructuring Program (SRP) opened "doors "for a development process centered on individualism. The State later created the Institute for the Promotion of Small and Medium Enterprises (IPEME) in order to foster the implementation of an SME strategy that encourages the development of sustainable enterprises, provide technical assistance, facilitate access to finance, and promote, develop and manage business incubators.” However, stakeholders have noted the high rate of "enterprise failure" in the early years of activity that ultimately retards the progression from small to medium scale business. In addition to the main barriers identified in the competitiveness index, such as the limited availability of finance, practitioners attribute this failure to the following:  The limited opportunities for training and development of human capital in business practices.  The lack of linkages between new types of business approaches (which hold capital as technology, management know-how, and access to markets) and the more traditional family sector (which holds capital as natural resources).  The limited institutional support capacity to assist small and medium scale growth enterprises. On this point, many initiatives support microenterprises but few support small and medium-size growth enterprises. The general entrepreneurship environment, the number of entrepreneurs, and their location are all important for assessing the potential for an AIC in Mozambique. If the AIC cannot identify a sufficient pipeline of growth entrepreneurs that are within a geographic cluster that can be reached with ease, it will not be able to sustain itself. 34 5.2.1 IDENTIFYING ENTREPRENEURS A number of stakeholder interactions, literature reviews, and finally, interviews were held with micro and small enterprises, because of the absence of published data and to better identify and understand the entrepreneur landscape (availability, capability, and locality). The government of Mozambique has set its own official classification of micro, small, and medium enterprises, based on revenue or number of employees. Revenue always takes precedence over the number of employees. Table 5 shows how enterprises are classified in Mozambique. Table 5. Definitions of Enterprise Types in Mozambique Type of Enterprise Number of Workers Revenues Micro 4 < 1,200,000 Mtn ($42,000) Small 5 to 49 <14,700,000 Mtn ($525,000) Medium 50 to 100 < 29,970,000 Mtn ($1,070,357) Source: Adapted by the authors. The identification of entrepreneurs to interview was challenging because of the lack of statistical data available and the fact that agro-processing enterprises in Mozambique are scattered through the country. To initiate this process, the infoDev team requested assistance from a number of local organizations with extensive knowledge of the SME and agribusiness sectors, namely Gapi, INEFP, and IPEME. These organizations provided access to their databases of micro and SMEs involved in agriculture production and agro-processing. The databases indicated that processing was taking place in all provinces, but on closer inspection, many enterprises were primary agriculture based and involved in basic on-farm post-harvest activities, such as drying and storage of commodities. There was very limited value addition based on differentiated value addition to primary production. Nevertheless, the infoDev team carried out a preliminary rapid assessment survey to assess a sample of those undertaking agro-processing in different provinces. Twenty-seven enterprises were surveyed. The methodology included both telephonic and personal interviews using a questionnaire (Appendix 9). The results from these 27 agro-processing enterprises indicated that the agro-processing activities in Tete, Sofala, Manica, Nampula, and Gaza provinces were both rudimentary and very scattered, and that the only provinces where agro-processing appears concentrated are the Inhambane and Maputo provinces. Sample numbers were low, but not for lack of trying to identify these enterprises—which indicates the lack of readily available data, support levels, and the low numbers of processors. 35 A second survey in 2013 sought to identify if an adequate pipeline of enterprises could be located in the Maputo and Inhambane provinces. These provinces were selected because the first survey, and stakeholder feedback, indicated that these provinces were the most likely to have the concentrations of enterprises in a feeder area that could support a pipeline for an AIC. The databases utilized to date were supplemented by visits to local supermarkets, micro- retailers, and markets to identify additional enterprises. In total, the infoDev team identified 77 formal enterprises, of which, 35 enterprises were surveyed using a mix of telephone and personal interviews. The survey template (Appendix 9) was employed. A number of informal entrepreneurs were also identified. The main enterprise characteristics and entrepreneur needs that were identified are presented in Appendix 9. Highlights include the following: • Most entrepreneurs are in business to create growth enterprises. • Most are over 30 years of age with secondary education. • Most have been operational for at least 3 years and employ two to eight employees. • Most sell locally, within 20 km of their location, indicating the importance of their proximity (as growth enterprises) to Maputo. • Most are challenged by access to raw materials, finance, infrastructure, and technology. • Most support requirements in networking, market research, facilitation of access to finance, product certification, and technologies. From the analysis, it was possible to further categorize these enterprises into three typologies that span the micro or small continuum. These are described below. 1. Level 1 Enterprises: Level 1 Enterprises are typically home based and operate from home kitchens. They are typically part-time and not growth focused but supplement income or sustain livelihoods. They are mostly unregistered and produce products for sale at local markets or within their immediate localities. Production is not regular and rarely requires specialized equipment. Packaging is nonspecific and often products are packed in re-used packaging (such as jars or alcohol bottles). Employment is part-time and limited in most cases to family and friends. The owner may have limited education, very few business or technical skills, and very limited or no access to finance. Finally, product diversification is 36 very limited with most producing exactly the same product, often in the same type of bottle and they sell it in the same markets for the same price. It is common to find these enterprises near the source of raw materials and they appear to be the most common form of enterprise. Examples include enterprises from the Inhambane province (500 km north of Maputo), where there is production of a large variety of fruits and very small local markets for the fresh produce. The entrepreneurs process locally and traders may send the final product to Maputo.  Amar Malate—Producing jam and related goods.  Maria Gloria Mussei—Processing cassava into flour then “Tapioca” and other local types of food.  Eugenio Benhe—Producing cassava biscuits and bread, jam, marmalade, juice, and liquors.  Piri Piri Dona Minerva—Producing achars (various types) and hot sauces.  Piri Piri Dona Rachida—Produces achars (various types) and hot sauces. 2. Level 2 Enterprises: Level 2 enterprises have some dedicated facilities, but still operate from the owner’s premises either in a separate room or a separate building on the property. While there is limited equipment, there is usually some dedicated equipment (for example, liquidizer) that is used and packaging usually includes virgin material with labeling. The owner is typically engaged full-time and may employ nonfamily members either on a full or part time basis. Markets are primarily local, but not constrained to the immediate community and there is likely to be placement on local supermarket and micro-trader shelves. These businesses are usually registered and are subject to health regulations. The owner is likely to have a good level of education, but limited business and technical skills and limited access to growth finance. Examples include the following:  Palawasokoti Association—Fruit juice production and eucalyptus oil extractions. Based in Namaacha District, Maputo Province.  Kussema Ltd.—Currently a catering and cooking company that is purchasing goods from local farmers and managing canteens, with plans to expand to operations to production of juices and other products.  Agro-Dicing and Chopping—Chopping of vegetables for soup processing, packaging, and so on (Maputo Province). 37 3. Level 3 Enterprises: Level 3 enterprises are only located in dedicated facilities, which have either been designed for, or converted to, hygienic production. Production equipment is dedicated and may be technologically advanced. Markets are formal with regular production. The owner and staff are employed on a full-time basis. Products may be certified and are well packed and hygienically tested. The owner is likely to be well educated, has some business or technical skills, and has access to finance. Examples include the following:  Agro Serviços Lda.—Producer of high quality liquors, achars, piri piri sauces, jams, and marmalade, branded Gutsamba. Based in Maputo Province.  Frutimel Lda.—Beekeeping and related activities (production of beehives, and so on). Growing and selling new born fruit trees. Based in Matola District, Maputo Province. There is also a Level 4 category in this typology, but these are seen as true medium-scale enterprises that fall outside the scope of an AIC. They are typically well-funded, established, and well-managed enterprises capable of export. They are not considered here. 5.2.2 LOCATION OF HUBS OF AGRO-PROCESSING ENTREPRENEURSHIP In many value chains, agro-processing occurs relatively close to the area of primary production. The table below is intended to provide some information about the geographic spectrum of the main agricultural value chains countrywide and the extent of the formalized private sector (for example, if there are commercial or industrial enterprises acting in one or more segments of the value chain or if this is also done by micro and small enterprises). A map representing the different provinces of Mozambique is included as well. 38 Table 6. Agricultural Products, Zones of Production, and Entrepreneurship Level Agricultural Products Entrepreneurship Level Major Occurrences (*) Maize XX Cabo Delgado, Nampula, Niassa, Tete, Zambezia, Manica e Sofala Rice XX Maputo, Gaza, Sofala Zambezia Pulses All country (Niassa, Nampula) Tobacco X Cabo Delgado, Nampula, Niassa, Tete, Zambezia Manica Cotton X Cabo Delgado, Nampula, Niassa, Zambezia Sofala Coconut X Inhambane, Zambezia Soya beans XX Tete, Sofala, Manica, Nampula Sesame X Manica, Zambezia, Nampula, Cabo Delgado Sunflower XX Manica, Nampula, Niassa Groundnut XX Inhambane, Nampula Horticulture XX Maputo, Gaza, Manica, Sofala , Tete Irish potato XX Maputo, Tete, Manica, Niassa Sugar cane X Maputo, Sofala, Zambezia Cashew X Gaza, Inhambane, Zambezia, Nampula, Cabo Delgado Citrus X Maputo, Inhambane, Manica Mangoes XX Maputo, Gaza, Inhambane, Manica , Zambezia, Nampula, Cabo Delgado Litchis X Maputo, Manica, Niassa, Tete Banana XX Maputo, Gaza, Manica, Sofala, Nampula Pineapple XX Maputo, Gaza, Manica e Zambezia Cassava XX Inhambane, Cabo Delgado, Nampula e Zambezia X: Commercial processing done on an almost exclusively medium to large scale basis. XX: Commercial processing done in both medium/large and micro and small scale. (*) In red: the provinces with more potential. Source: Authors. 39 Even though there are geographic primary production clusters with both large and small scale processing, the challenge is that there are no clusters of Level 2 or 3 agro-processing growth enterprises in any one subsector or value chain in any one area. 40 What is instead apparent is that market opportunity and not primary production location drives the multisectoral processing cluster in the Maputo province at the Level 2 and 3 enterprise level. This is apparent from the survey and stakeholder interview data that show that agricultural products are transported in their raw or semi processed state to processing plants near Maputo (for example, cashew from Nampula and fruits from Inhambane). This is an indication of the challenge that an AIC will face in sourcing a meaningful pipeline of entrepreneurs while retaining a relatively narrow market or support focus that is advantageous for a financially sustainability business model. The fact that the Maputo province has the largest single concentration of Level 2 and Level 3 agro-processing enterprises within a 100 km radius of Maputo indicates that this province offers the best opportunity to source a pipeline of enterprises. This does not preclude other areas that could develop an adequate pipeline of enterprises in time. The mining activity in Tete, for example, offers unique opportunities for local production and processing. In this case, competitiveness may be enhanced by the distance competitors have to transport competing products. The AIC could consider a satellite activity in such situations. 5.2.3 ENTREPRENEUR NEEDS Finding entrepreneurs is one part of the support equation. The ability to accept and then meet their needs is critical for an AIC feasibility assessment. The enterprise survey revealed needs in a number of areas across a number of value chains as set out below. PROCUREMENT Description NEEDS  Processors in Maputo identified a problem in procuring sufficient produce at the right quality and price within their geographic area.  Processors outside of Maputo identified a problem of low sales volumes, difficult access to markets.  Processors are unsure about the quality and type of equipment to buy and they buy individually.  Processors note that they cannot buy consumables and packaging at good prices because of low volumes.  Processors suffer from the weak logistics, notably in terms of transport of raw materials from the producers to the processors. PROCESSING Description NEEDS 41  Processors lack appropriate technical advice in terms of processing, including the access to, and use of, adequate and performing equipment. Such advice could help advance and differentiate products and increase growth prospects.  A critical constraint to better quality and longer shelf life is hygienic production.  Meeting of minimum standards is required for exportation and possibly local regulations apply or are expected in order to compete against international imports. Without these, products cannot meet approvals and market expansion may be limited.  It is difficult for processors to test their products for hygiene and nutritional contents.  New product development is limited by a lack of process knowledge and access to equipment for pilot runs. PACKAGING Description NEEDS  Packaging quality is acknowledged to be a significant differentiator in the market. However, equipment is expensive and difficult to operate.  Technical advice on packaging options is lacking and leads to poor quality packaging.  The latest trends in packaging are not known or understood.  As with product standards, packaging standards need to be supported and the quality of labeling improved. MARKETING NEEDS Description  The sales skills of companies and market knowledge to access more lucrative markets are lacking and this limits market access.  Significant market opportunities exist but cannot be accessed because of individual companies lacking the critical mass to deliver on large orders.  Market requirements and new market identification are often not well understood and this results in new product/new market opportunities being missed.  Brand recognition is limited because of size and company credibility. A group brand under which companies market their products could assist in market entry. FACILITIES NEEDS Description 42  Entrepreneurs are lacking storage space for both raw materials and processed products, including a cold chain system.  Entrepreneurs require some process facilities to undertake test or specific production using equipment they do not own.  Access to office space to process contracts, identify markets, and make contact with potential suppliers and customers is required to increase credibility. ADVISORY NEEDS Description  Entrepreneurs need coaching, mentoring, and training to improve their business management skills and their processing competences. In particular, market research, product certification, and technological inputs are needed. NETWORKING NEEDS Description  General linkages between entrepreneurs and their representative associations and other organizations, including both the government and private sector, are inadequate to leverage support.  The value chain from the producers to the wholesalers and distributors is not adequately and efficiently organized.  Access to relevant information is scarce. ACCESS TO FINANCE Description NEEDS  Access to finance is a limiting factor for growth entrepreneurs who are not able to receive financing for equipment or long-term working capital. One factor that kept emerging was the need for access to a body able to provide certification of products, from a quality assurance and dietary composition, or, in cases with a more complex and specific type of certification, such as organic foods. The subject of organic foods and the appetite for these throughout the world was mentioned by a number of the interviews where entrepreneurs claimed to be producing organic foods but without the correct certification it was impossible to market these as genuinely organic. There is, therefore, a need to assist enterprises in ensuring their products are certifiable and with the actual certification process. There also seems to be a generic lack of services that are complementary to agro- processing, such as packaging, bottling, and labeling, with the few that exist charging prohibitive prices because of lack of competition and the low volumes. Most entrepreneurs were packaging themselves either at a considerably high cost, or using “recycled” jars and bottles. There is a possible opportunity here to assist with a centralized packaging plant or identifying affordable packaging solutions. 43 A number of enterprises are using local knowledge in traditional recipes that have been passed on from generations and relying on local fruits and plants within some enterprises. Some examples from the interviewees are the preparation of peri peri sauces, achars, liquors, and others, many made from indigenous fruits found only in certain areas of Mozambique. These products have a lot of potential for the national market, as well as for exporting to neighboring countries and overseas. 5.2.2 CONCLUSIONS An AIC needs a pipeline of geographically clustered growth enterprises to support, if it is to sustain itself. The assessments indicate a very small number of agro-processing enterprises in Mozambique. These are not highly concentrated in a value chain or subsector focus. The highest potential for identifying a geographical cluster is within the Maputo province, and most notably within about 100 to 200 km of Maputo. This is because of potential access to the largest internal market and infrastructure. Many of the raw materials are sourced within the same region or within an economically viable region that is well connected by road infrastructure (such as Inhambane). There is some confidence that a critical mass of enterprises can be found given that more than 70 enterprises were identified (mainly Level 2 and 3), but concerns about the exact number of target enterprises currently in operation and their level of operation, require that the AIC conservatively models numbers, growth rates, service offerings, and output impacts. Addressing gaps in the current service offering identified above can be done by an AIC. 5.3 STAKEHOLDER SUPPORT FOR AGRIBUSINESS IN MOZAMBIQUE A diverse set of stakeholders is involved in agribusiness in Mozambique, from the public and private sectors, as well as the donor community. Their interventions target different sectors, value chains, and segments of the value chain. An AIC is based on a partnership model, because the AIC can only focus on a limited number of activities and does not have the ability to adequately address some issues (such as agricultural research to improve yields in value chains of interest). As such, it can only succeed if there are committed stakeholders who have resources that can be leveraged to support the AIC. Hence, the AIC implementation approach will be to engage all actors, affecting the ability of its target clients to succeed and to partner with organizations that have key competencies required to serve these clients effectively. The AIC will seek to complement existing initiatives and contribute to strengthening the innovation and entrepreneurship ecosystem required for innovative, growth-oriented enterprises to thrive. A quick overview of the key agribusiness stakeholders in Mozambique is provided below and the interconnection between them is illustrated in Figure 10. Further details on the existing agribusiness support initiatives in the country are provided in Annexes 3 and 5. 44 The following stakeholders are indicated that they would see value in an AIC initiative. 5.3.1 GOVERNMENT Table 7. Examples of Government Stakeholders Supportive of an AIC Government Entities Entity Description of Products/Services Agribusiness support center, CEPAGRI—Center for the Support to linking government with private Agri Sector sector. Agricultural Research Institute of Mozambique—responsible for IIAM—Agriculture Research Institute certification, quality tests, research and development, and so on. Mozambique vocational training institute with technical INEFP—National Training Institute training in agro-processing and possible shared facilities for the AIC. Institute for the promotion of SMEs, through Business IPEME—SME Promotion Institute Development Services BDS and other services. MCT—Ministry of Science and Promotion of science and Technology innovation in Mozambique. Source: Authors. These five stakeholders are important for the establishment of an AIC as they cover the government’s entrepreneurial support spectrum from business advisory through training, innovation, research, laboratory analysis, and sector growth facilitation. Furthermore they represent the Ministries of Agriculture, Industry, Science and Technology, and Education. All have an interest in the AIC and the growth of SMEs in Mozambique. 45 5.3.2. PRIVATE SECTOR Table 8. Examples of Private Stakeholders Supportive of an AIC Banks + Financial Institutions Entity Basic Products & Services Commercial Banks (for Commercial banking institutions with a range of medium example, BCI, to long-term loans; financing packages for specific Standard Bank, or projects (such as, poultry out growers). Interest in Opportunity Bank) expanding downwards to small enterprise. Development finance institution offering credit for SMEs Gapi and linking this to BDS services and broader institutional support. Offers credit for microfinance institutions and credit for Banco Terra agribusinesses and other enterprises. Agribusiness Industry Private Entities Description Delta Trading partners in Pick and Pay (Mozambique) and Chicken Out grower Program, Mozfoods —local Distributors manufacturer and distributor—are well linked to export markets. Others include Mega, jumbo, and MDS. Retailers Pick’n Pay is an International supermarket chain that focuses on supporting local procurement. BDS Providers Idea Lab and ELIM Serviços Lda provide business development services, notably to agribusinesses. Science & Technology Institute Private Entities Description ISCTEM—Instituto Superior de Ciencias e Tecnologias de Moçambique Provides entrepreneurship education. NGOs Private Entities Description Technoserve Agribusiness support organization working with micro and small enterprise. Source: Authors. Commercial banks in Mozambique have expressed interest and willingness to reach small enterprises. By providing SMEs with an in-depth and holistic support that assists their growth, the AIC could reduce risks for banks by providing them with a pipeline of growth enterprises with the capacity to manage loans, credits, and other financial support products. As far as 46 the retailers are concerned, the AIC could provide them with a reliable and decent supply of processed products that they could source locally, instead of importing. The AIC concept is well supported by all private sector stakeholders interviewed and some examples are listed in Table 8 above. All stakeholders see it is as highly complementary. The finance sector view it as a mechanism to reduce their risk; manufacturers and distributors see it as providing supply chain and procurement opportunities; and NGOs see partnering potential to leverage their own initiatives. 5.3.3 DONORS Mozambique relies heavily on international organizations to implement programs with the intention of eradicating poverty and improving food security through agricultural activity. A list of the main donor agencies and their programs can be found at (http://www.odamoz.org.mz/reports/sectors/232) and the data are summarized in Annex 5. Although there are 19 major donors active in agribusiness initiatives and a history of numerous projects, there is very little donor support for post-harvest processing activities. Those donors that do provide support mainly assist agribusiness by promoting the creation of business development services and focus on food security. The most explicit is AgriFUTURO, a program funded by U.S. Agency for International Development (USAID) and already in place, whose purpose is to increase Mozambique's private-sector competitiveness by strengthening targeted agricultural value chains. AgriFUTURO develops value chain-focused, private sector-run agribusiness service clusters. These agribusiness service clusters (ASCs) provide a range of business development services to any participant in one or more value chains and will focus on a specific geographic region. The purpose is to increase the availability and accessibility of vital business services for rural agribusinesses and to shift to a model of private sector-delivered business services. By rolling out and expanding farmer-owned service centers (FOSCs), services are provided to members or associations that belong to or own the service center. USAID has had success, under the EMPRENDA project, developing and working with FOSCs, such as IKURU. During the first year of the project, AgriFUTURO is providing assistance to existing FOSCs and is seeking to develop new FOSCs in other districts and provinces. Other key initiatives include a Danish International Development Agency (DANIDA)- supported component entitled “Apoio ao Desenvolvimento de Iniciativas Privadas no Sector Agrário” (ADIPSA), a private sector agriculture support initiative. DANIDA has also supported access to rural markets through improved rural road infrastructure and continues to support the private sector through other business, finance, and partnership for development programs. 47 Another program that will also have a similar approach is funded by International Fund for Agriculture Development (IFAD) and is still being designed. This program will support some selected value chains in the southern regions, with emphasis on smallholder integration, in line with the government’s Strategic Plan for the Development of the Agriculture Sector (PEDSA). Their approach prioritizes the use of rural hubs to provide services to the stakeholders of the selected value chains. The Programme of Cooperation in Science, Technology and Innovation between Finland and Mozambique (STIFIMO) has the key objective of strengthening the build-up of the Mozambican national system of innovation, as well as facilitating its outreach to regions. It thrives to create a more holistic approach in order to enhance the national STI system so that it contributes effectively to economic growth and poverty alleviation. Netherlands Development Organization (SNV) facilitates a Technical Assistance Facility in Mozambique that assists companies to identify, develop, and implement inclusive business. Their work in the agriculture sector is directed at value chain development and inclusive business in the oilseed, staple crops, and honey value chains. SNV has also played an important role in the revival of the cashew sector through its support to small-scale processing units, including access to Fair Trade markets. The European Union support to Mozambique concentrates on agriculture, rural development, and regional economic integration to promote sustainable economic growth in rural areas, enhance food security, and promote trade flows. An initiative focused on processing such as the AIC will help increase shelf life and differentiate products and get past the local market constraint of being saturated with the same products. The foregoing paragraphs show that there are other initiatives in place that have potential to link to and support, or be supported by, an AIC. A few concrete examples include the following: SNV and Technoserve are providing support to primary producers. Working with these partners, the AIC could help its processors source quality produce that these partners have helped farmers to produce. Forward in the chain, the EU initiative will look to support more advanced processing training, and the AIC processors could benefit from the link. Stifimo has the potential to assist an AIC in innovation linkages. The finding is that an AIC will have sufficient opportunity to partner with other development partners both backward and forward in the value chains it supports, and in the broader support environment. As illustrated in the figure below, a vast range of stakeholders affect the ability of processing companies to succeed. The role of the public sector, the donor community, and the private sector (including financiers) with respect to creating a conducive enabling environment for agribusinesses in Mozambique can be summarized as follows. 48 When implementing the government’s entrepreneurial support spectrum from business advisory through training, innovation, research, laboratory analysis and sector growth facilitation, the public sector can create an enabling environment for small and medium size enterprises to develop. The private sector stakeholders aim to support and complement the public sector entrepreneurial support spectrum by providing business development support services, access to finance, supply chains, and markets. The donor community’s interventions lever these efforts. Figure 10. Mozambique Agribusiness Stakeholder Mapping Source: Authors. 5.4 ACCESS TO FINANCE Growth enterprises need investment (debt or equity) to expand. The failure to facilitate access to adequate funding for clients will seriously impact the ability of an AIC to succeed and, therefore, this needs to be well understood. Accessibility is assessed on the availability and conditions of offered finance. Enterprise investment is usually sourced from the following:  Informal sources (friends, family, savings and credit associations, money lenders, and so on) 49  Commercial institutions that range from micro-financing institutions to corporate banking institutions  Nonfinancial institutions that offer financial products  Savings and credit co-operative societies and rotating savings and credit associations  Financial nongovernment organizations  Government and donor programs  Angel investors  Venture capitalists Access to financial services in Mozambique is improving. Over the past few years, government and development partners have introduced numerous government initiatives aimed at increasing the outreach of financial services and improving the performance of financial institutions providing low interest, low collateral; and credit guarantee schemes; these are highlighted throughout Annex 5. However, these are not specifically directed at the agro-processing sector. Some support is being provided across various value chains and include such projects as PACDE - MESE (Enterprise Competitiveness Support Program), which is a World Bank funded SME competitiveness support program. Over five years, PACDE - MESE is offering grants of up to $75,000 for 75 percent of the total value of the finance request. These grants can be used for marketing, business plan creation, and other similar services. Informal financing is usually the first form of financing that entrepreneurs access. It will not be discussed here because although it is important to start ups, it isn’t a common form of growth financing. Angel investing and venture capital will not be considered as they are not very likely in the small and medium scale agro-processing sector and there is a lack of data on them. The other sources of investment will be discussed below. For a detailed and comprehensive overview of the financial system in Mozambique, please refer to the World Bank’s “Mozambique Climate Investment Assessment,”7 which inspired the section below. 5.4.1 THE MOZAMBICAN FINANCIAL SYSTEM Commercial banks (primarily foreign-owned) dominate the financial sector. The three largest banks alone account for more than 80 percent of total bank assets. Most of the credit institutions are still concentrated in Maputo, and of the 128 existing districts in the country, only 28 districts have bank branches, culminating in a poor distribution of banking services in rural areas. 7 The World Bank. October 2009. Mozambique Investment Climate Assessment, available at: http://www.google.be/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&ved=0CDsQFjAC&url=http%3A% 2F%2Fsiteresources.worldbank.org%2FINTMOZAMBIQUE%2FResources%2FICAMoz.pdf&ei=pnmSUKWvIs2BhQeL14D YCA&usg=AFQjCNHubGzBxBDMjQVJBng0mjywOlQQuw&sig2=TK8VcRol01HMamfY1RAbzA 50 Beyond the main commercial banks, several institutions provide finance to SMEs. These include two leasing companies and 68 microfinance institutions (three banks, one micro bank, six credit unions, and 58 microfinance lenders). However, these institutions represent a relatively minor addition to overall credit availability and average loan sizes are considerably smaller than in the commercial bank sector and they often require higher interest rates. Moreover, informal (local money lenders) and semi-informal (trade credits) loan markets provide limited coverage. This suggests that microfinance institutions or the informal sector do not constitute an easier and more accessible source of funding than the formal banking system. 5.4.2 ACCESS TO FINANCE While there are many microfinance, commercial, and development financing schemes available in Mozambique, access to finance is limited by conditions that include high interest rates and collateral requirements. The World Bank’s most recent enterprise survey provides useful data as to the sources of finance by enterprises. Figure 11. Enterprises Financing Sources of Investments in Mozambique, in Comparison with Sub-Saharan Africa and Low-Income Countries Source: World Bank, Enterprise Survey Mozambique: Country Profile 2007. 51 For a detailed overview of the funding alternatives available to the private sector, please see the study “Financing Mozambique 08” developed by Swiss Capital Partners and Finantia.8 In addition to the commercial banks, development finance institutions, foundations, venture capital and private equity managers, among others, are available to the private sector. However, funding may be designed for specific economic sectors, geographic regions, or directed to promote specific development factors (such as exports, creation of markets, technical assistance, or a combination of these). The funds are made available as equity or quasi-equity funding (where a stake in the project is taken by the institution), loans (ranging from interest free to variable rates), or grants. Technical assistance financing, training, or the purchase of equipment can also be covered. A representative sample of financing institutions and products are outline in Table 9. Microfinance institutions offer shorter period, smaller loans but the interest rates can range between 20 and 50 percent and these may not in any case be assessable because of the short payback periods of generally 6 to 12 months. Table 9. Examples of Financial Products Available to Entrepreneurs Financier Banco Terra Gapi BCI inCaju (Cashew Product Name Loan Account Loans Credit Line) Currency $ or Metical Metical Metical Max Period 60 months 60 months 60 months Depending on client's Min Amount MTN 200,000.00 MZN 100,000.00 needs Depending on client's Max Amount $ 3.6 million over MTN 5,000,000.00 needs 16 percent + Spread Interest Rates 19 to 23 percent 50 percent = approx. 25 percent Percent Guarantee 100 percent 120 percent 100 percent Real estate or furniture (personal Financial guarantees, goods), as long as 20 percent blocked in Conditions of Real estate, furniture, they have the client's account, Guarantee cattle, and so on. commercial value 80 percent remains with legitimate captive within the documents not older company. than three months. 8 Available at: http://www.financingmozambique.com/lib/publications/financing_mozambique_2008.pdf 52 Packages are tailor- Viability study for Business must be made to fit within Other Conditions loans greater than operational for more client's business MZN 3,000,000. than three years. projections. Source: Authors. It is important to note that even GAPI, a development finance institution, has to secure its loans with high collateral requirements and at interest rates that approximate commercial banks. In discussions with all financial institutions, concerns surfaced about the lack of an entrepreneurial culture and technical and managerial gaps in many of the enterprises that apply for loans. Risk is, therefore, higher and priced into all products. The most recent World Bank enterprise survey carried out in Mozambique underlines the link between the limited access to bank loans and the high collateral requirements, as illustrated in the figure below. Figure 12. Correlation between the Use of Bank Loans and the Value of Collateral in Mozambique, compared to Sub-Saharan Africa and Low-Income Countries Source: World Bank. 5.4.3 CONCLUSIONS Mozambique appears trapped in the typical growth finance paradox. Money is available but few can access it because of onerous conditions that impact on the ability to repay (such as high interest rates). This situation can result in defaults that further increase the need to place onerous conditions on loan financing. 53 Furthermore, in an attempt to get the financing pipeline flowing, development partners use grants but in many cases, these grants are not as well scrutinized as would be done by commercial institutions. Holistic business support is often not built into the loan or grant program; and this, combined with the noncommercial nature of the approach, results in less impact than intended. Acquisition of growth capital at the micro and small-scale enterprise level is a major obstacle to growth. It is unlikely that this cycle will be broken to any great extent until there are more programs that can offer low or no collateral loans with more affordable repayment terms and which are based on the entrepreneurial quotient of the entrepreneur and the potential for their business. Financing Mozambique 08 study concludes that “it is critical to understand that generally no single funding source will be sufficient to provide the total finance requirements of a project: a bundle of different sources will have to be found to fulfill a project’s needs, including a portion of the capital provided by the promoter. Some effort is required to identify the most appropriate funding source for each investment and to tailor make the approach to each institution in order to meet its requirements.” While NGOs such as Technoserve, government support programs such as IPEME, and financing institutions such as BCI are aware of this holistic requirement, none is able to complete the cycle. While GAPI is probably best structured and positioned to support the cycle, even it does not have the capacity to do so. An AIC is focused on doing just this through the use of partnerships with the three key support sectors—government, the private sector, and financing institutions. By reducing financial risk through analysis of both business and entrepreneur potential and day-to-day interaction with the enterprise in an extremely intensive manner, the AIC’s objective is to reduce risk. Less risk requires less collateral and eventually, less interest to cover lower failure rates. Since all financial institutions interviewed were supportive of this approach, there may be potential to link immediately with some to kick start this cycle with small funds allocated to financing AIC-supported clients. However, a demonstration period may be required and for this reason, the AIC needs a small seed fund for loans to its clients. This will be described later, but the fund’s aim would be to support credit history development and repayment mindsets, along with demonstrating to financing institutions that there is merit in reviewing loan products and their conditions. This will break the cycle that is severely retarding the emergence of growth enterprise in Mozambique. 54 5.5 MARKET OPPORTUNITIES Prior to 1992, Mozambique had no formal supermarkets. The entire food industry was fragmented into local and regional informal markets with few, if any industry standards. This is an important fact that cannot be overstated enough. Twenty years ago, a country of more than 23 million inhabitants had no formal supermarkets to shop in, no international hypermarkets driving local procurement, and no consumer demand for local SME entrepreneurs to adhere to international standards of safety and compliance. The market simply was not there. This is worth highlighting when explaining the current state of readiness of food producing entrepreneurs in Mozambique. Today, the landscape is changing. Leading South African retailers such as Pick n’ Pay, Spar, and Shoprite have an ever-growing presence in the country, and others are coming rapidly. The country CEO of Pick n’ Pay, Mr. Al-noor Rawjee, described the current situation in Mozambique as a “rapid formalization of the market.” This could be great news for the food and beverage processing industry in Mozambique, except that for most entrepreneurs, this is their first time in being presented with such opportunities, and they have no outlet to seek out information about industry processes, norms, standards, or compliance. Consequently, without proper advice and guidance at the entrepreneurial level, many of these formal supermarkets will continue to do what they have always done, which is source their value- added products from South Africa and abroad. Surveyed supermarket buyers expressed a strong willingness to source competitively priced, locally produced value-added products, which do not exist at the moment. The limited number of locally processed products does not comply with quality, consistency, packaging, labeling, and volume consistency required by supermarkets. Hence, there is a clear opportunity for the AIC to assist local processors with developing products that meet the requirements of supermarkets. Agro-processing is very much a new endeavor in most of Mozambique. Few companies are aware of international standards, routes to market, and so on, simply because it was not an option less than two decades ago. They did not know because there was no one there to buy it. In 2007, the World Bank’s report entitled “Snapshot Africa – Mozambique – Benchmarking FDI Competitiveness”9 listed “access to markets and supplies; general business environment; and local potential to recruit staff” as the three most significant 9Available at: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CCkQFjAB&url=http%3A%2F%2Fw ww.fao.org%2Fdocs%2Fup%2Feasypol%2F506%2Fsnapshot_africa_mozambique.pdf&ei=lSdzUInOF_CO0QGY3YDI CQ&usg=AFQjCNEmglN3QOmoSiBm21W8FUByGmqQmA&sig2=PdFLVHwbkR-fN2f0nQU1Fg. 55 factors affecting Mozambique’s agro-processing industry. Today, not much has changed, and these issues continue to plague the sector. The domestic market opportunities in Mozambique can be summarized into two categories: formal and informal. As in most developing countries, these two channels exist side by side with one another, targeting different demographics and having similar, yet unique, standards and processes. The “rapid formalization” that is happening in Mozambique signifies the rising middle class in the country. As always, with more liquid capital comes the demand for higher-quality, branded consumer products. Formal markets The formal market in Mozambique is quite sophisticated and is driven primarily by larger, international supermarket chains and larger, domestic stores. The supermarket industry in Mozambique is a different landscape, which has been growing by leaps and bounds. South Africa’s Pick n’ Pay and Shoprite are the primary international supermarkets in Mozambique, operating stores in Maputo, Beira, Chimoio, and elsewhere. Other large international chains, including Spar, Woolworth’s, and Game, are also present in the Mozambique grocery industry, and Edgars launched locations in Q4 2012. One large supermarket in Maputo, O Vosso, is locally owned and operated. Mr. Firor Ahmad, CEO and founder of O Vosso, used to buy domestically produced products, particularly fresh fruits and vegetables. However, because of low quality and poor fulfillment rates, O Vosso now imports over 97 percent of its product. It does not carry domestically produced, shelf stable products. “My customers would prefer to buy the more expensive, imported cream crackers, because the domestic brands don’t use enough salt,” cites Mr. Ahmad. This statement highlights one key point made earlier in this document—many food processing entrepreneurs in Mozambique have not conducted the proper market research necessary, despite being priced competitively. The shelves of each supermarket listed above are filled with jams, honey, peri peri sauces, juices, and other value-added products, which are almost exclusively imported, largely from South Africa—a country with world-class food processors and a strong culinary tradition soaked in innovation and entrepreneurship. South Africa’s products have high-quality packaging and innovative product development, setting a high bar for Mozambique entrepreneurs to attain and creating a high-level of industry competition. That said, Mozambican products can be competitive as highlighted in Table 10 below. The figures highlight the competitiveness of many entrepreneurs in Mozambique. Industry standards would dictate that for a processing company to operate in a profitable and sustainable manner, a net profit margin of approximately 30 percent is required. While some of the target companies have that, many do not. A lack of industry knowledge, a poor understanding of financial management, logistics, and procurement contribute to this. 56 Table 10. Price Comparison between Mozambican and Imported Products MZ Retail Profit South South South South UAE UAE Entrepreneur Price Africa Africa Africa Africa Margin Pick n' Rhodes Naturelite Thistlewood Staud's Source Pay Bonne Maman Gutsamba 450g 350g 270g 350g 365g 370g Orange $3.28 40 percent $2.44 $2.20 $3.42 $3.05 $6.56 $4.37 Marmalade (300g) *Per gram 0.0032 0.0024 0.0022 0.0034 0.0030 0.0065 0.0043 Source Pick n' Goldcrest Little Bee Fleures Al Shifa Capilano Pay Fruitimel 280g 100g 500g 500g 125g 250g Natural Honey $6.75 22 percent $5.85 $10.25 $5.98 $6.10 $7.10 $5.17 (540g) *Per gram 0.0067 0.0058 0.0102 0.0060 0.0061 0.0071 0.0052 57 Source Pick n' Ina All Gold Nando's Nando's Tabasco Pay Paarman's 1 Liter 10 percent 250ml 200ml 500ml 250ml 250ml 150ml Donna Anna Peri Peri $1.86 (approximate) $2.81 $1.83 $2.44 $3.17 $2.93 $6.30 Sauce *Per ml 0.0019 0.0028 0.0018 0.0024 0.0032 0.0029 0.0063 Source Pick n' Ceres Pure Joy Dew Fresh Al Marai Al Rawabi Pay Palawasokoti 1 Liter 1 Liter 1 Liter 1 Liter 1.75 Liter 1 Liter Orange Juice $1.83 0 percent $1.71 $1.59 $1.71 $1.40 $2.73 $1.57 (500ml) (PET) *Per ml 0.0018 (donor-funded) 0.0017 0.0016 0.0017 0.0014 0.0027 0.0016 Source Pick n' Shoprite Pay Danmoz 1 Liter 1 Liter Fresh Milk (1 liter) $1.68 25 percent $2.06 $1.99 *Per ml 0.0017 0.0020 0.0020 Source: Authors. 58 Branding and product positioning are two key points that are critical shortfalls of almost all entrepreneurs surveyed, although they not directly reflected as “entrepreneur needs” in the enterprise survey. This directly affects the “competitiveness” of the final products. The bottom line is that most processing entrepreneurs in Mozambique simply do not know how to brand and position their products. The two photos below highlight this point (Figure 13). The first is a local peri-peri sauce company who produces a good quality product, but has no branding and uses recycled wine bottles. The second is Nando’s, a South African company who uses expert branding, quality processing, and a maximized distribution network. Ironically, per milliliter, the two products are not that far off on price points. Again, highlighting the intangible fact that branding and product positioning is everything. Figure 13. Local versus Imported Product Branding   Source: Authors. The entrepreneur surveys also highlighted that few, value-adding entrepreneurs utilized Mozambique’s extensive domestic distribution platform. There are a number of extremely sophisticated wholesale distribution companies in Mozambique, including MEGA Cash & Carry and Delta Trading Company. Each of the distribution companies listed has its own distribution, as well as operating cash-and-carry wholesale stores for buyers to pick up provisions. Certification is another way to increase the competitiveness of domestically produced, value-added products. Currently, there is very little in the way of internationally recognized certification being done in Mozambique for value-added food products. In the photos above, we see two peri peri sauces. The one on the left is produced in Mozambique by a small-scale producer, and the one on the right is produced in South Africa by a large-scale producer. Besides the obvious differences in production methods, the South African product is certified all-natural, Kosher, Halal, and “Proudly South African.” This contributes greatly to the competitiveness of the product. Informal markets 59 The informal markets of Mozambique exist and thrive for a variety of reasons, including high poverty levels (lower-quality or cost products and employment opportunities) and high tax rates (most informal companies do not pay income or revenue tax). The informal market in Mozambique is highlighted by Zimpeto Market—a central trading facility located in Maputo with a national reach to comparable markets throughout the country. Zimpeto Market is a well-organized, albeit extremely informal, market system that utilizes multiple layers of brokers, sales agents, and subcontracted transportation companies to get fresh and shelf- stable products from Maputo to the rest of the country. While navigating this system can be difficult, and it is not a system designed for all processed products, it is a critical link that can be maximized in order to develop any brand on a national basis. Figure 14. Informal Mozambican Trader   Source: Authors. Of all the entrepreneurs interviewed, practically none used the Zimpeto Market system. It is estimated that more than 70 percent of the informal sector is made up of women living in 60 defined poverty. While the informal market is not right for every entrepreneur or every product, given the low-level of both entrepreneurship and processing, it can be assumed that many companies will produce something right for the informal sector. Products such as bulk commodities, low-cost snacks, sauces, animal feed, alternative fuels, cereals, and beverages are all possible opportunities for the informal market. Entrepreneurs who would focus on the domestic market do not do so because they do not understand how to access the domestic market through the formal or informal retail and distribution channels that exist. These entrepreneurs distribute themselves, often on motor scooters, without using mass- informal market systems (that is, Zimpeto or informal distribution). There is huge market potential, but it is underutilized. South African-based Ceres, a juice company, is a great example of a company who has maximized both the formal and informal markets. Ceres’ products are everywhere. Although the AIC mainly focuses on domestic market opportunities, potential exists to grow export opportunities using the various trade corridors in Mozambique to establish markets in South Africa, the Middle East, India, China, the European Union, and other viable markets. Several organizations, including the Grow Africa initiative, are heavily focused on developing the trade corridors. As noted previously, Mozambique offers many competitive advantages related to climate and the production of fresh fruits. For example, Mozambique is one of the two countries who can produce bananas year round, with Ecuador being the other. Entrepreneurs in Mozambique producing a variety of value-added food products, from honey to jams, pastas to such traditional recipes as peri peri sauce, will find a welcoming audience in several regional and international markets. Worth highlighting is Mozambique’s strong culinary tradition, which sets a tremendous platform for entrepreneurs interested in producing a “taste of Mozambique.” Mozambique has “the best food in Africa,” according to Anthony Bourdain, celebrity chef and host of the TV show “No Reservations.” Entrepreneurs will do well to capitalize on such comments and perceptions. Finally, there are many large industries developing in Mozambique, changing the consumer demographics and creating new domestic markets as towns blossom to support said industries. The mining industry represents a solid opportunity for food processing entrepreneurs in Mozambique. For many years now, the mining industry has been developed in Mozambique with great success. Mining subsectors—such as aluminum, gold, 61 iron, steel, niobium, tantalum, cement, clays, gemstones, titanium, zirconium, coal, petroleum, uranium, and natural gas—have all increased production dramatically. According to Emmy Bosten, General Manager of External Affairs at Rio Tinto (one of the largest mining companies in Mozambique); there is a huge opportunity for entrepreneurs in Mozambique focused on “catering, culinary arts and food processing” to service the mining industry. Rio Tinto, in the Tete area alone, serves 6,000 meals daily to their workers and staff. To do this, they outsource the services to six catering companies, each of whom import 100 percent of their product. As the mining industry continues to grow, the opportunities for food processing will grow with it. It is a logical consumer base that demands high quality catering, produce, and shelf-stable grocery items. 5.5.1 CONCLUSIONS The market opportunities in Mozambique are undeniable and a summary analysis is presented in Table 11. From the formal to the informal markets, to regional and international export opportunities, to other processing opportunities, such as food service catering and animal feeds, entrepreneurs in Mozambique have a unique opportunity to develop the value-added food processing industry. Critical issues for the AIC to address include providing much needed business development training, technical processing expertise, access to affordable credit, extensive services on branding and certification, and of course, a direct link to the market. 62 Table 11. Strengths, Weaknesses, Opportunities, and Threats for Markets in Mozambique STREGNTHS WEAKNESSES Weaknesses of Mozambican processing operations can be summarized as follows: high country risk rating; numerous business start-up Strengths of Mozambican processing procedures; weak rating on corruption operations are the following: good availability perception; high employment rigidity; of industrial land and buildings; increased unfavorable labor relations; poor availability of trade competitiveness; good availability of professionals; poor availability of technical unskilled workers; and low-wage rates for workers; poor availability of skilled workers; high unskilled workers. wage rates for managers; high wage rates for skilled workers; high shortage of water supply; and high site lease costs for industrial land. OPPORTUNITIES THREATS The tourism and restaurant trades, which are The largest threat to Mozambican processing vigorously growing, source all of their inputs operations is the inconsistent water supply externally since current local food production caused by droughts and flooding. Companies is limited. The demand for processed food is whose profits have been squeezed by natural expected to grow and there are opportunities disasters may lose the ability to resume for companies to become suppliers to these operations once normal weather conditions industries. Opportunities exist for vertically resume. Other obstacles facing this sector are integrating some processing operations. In the Hazard Analysis and Critical Control Points addition, the decrease of available fish in (HACCP) and other food and sanitary major markets coupled by the product’s high certifications required to export to European and demand make the fishing industry high in North American markets. Export markets will global demand and gives this industry great remain closed to Mozambican products as long potential. as the rarity of waste treatment facilities makes these certifications difficult to obtain. Source: Authors. 63 6.0 MOZAMBICAN AGRIBUSINESS INNOVATION CENTER BUSINESS MODEL The AIC proposes a new model for promoting the growth of a competitive, value-adding agribusiness sector in Mozambique. This model aims to accelerate the growth of value- adding processing enterprises through technology and marketing innovation supported by actions to improve the enabling environment and upstream and downstream linkages through partnerships with other actors, with the purpose of having a demonstration effect that can catalyze take-up of these innovations across the sector. The AIC is a targeted effort to accelerate the growth of a domestic value-adding sector, focusing on a variety of value chains that have a demonstrated demand, and primary production already yields a significant quantity of raw materials. The AIC will provide clients with a comprehensive service offering designed to position them for growth. Such services include the following: business coaching; market research, marketing, and procurement facilitation; technology identification, technical training, and access to processing technologies; and financial services, including a small fund. 6.1 AIC VALUE CHAIN FOCUS The AIC will not focus its efforts on a specific value chain. Instead it will support any agribusiness that meets its selection criteria as outlined in Section 6.2 on Target Enterprises. The reason for this decision is that the survey, interviews, and literature surveys did not identify a critical mass of entrepreneurs in any value chain that were geographically close enough to provide a pipeline of growth enterprises. Given that the general benchmark worldwide is that no more than 3 to 10 percent of all entrepreneurs are “growth oriented” (most are described as “survivalist” and “lifestyle” entrepreneurs), an initiative that aims to support 20 growth entrepreneurs must by necessity draw from at least 200 applicants. Clearly, Mozambique has a number of value chains with comparative advantage and a growing (but not yet adequate) number of growth entrepreneurs to support a specific value chain intervention. The issue of geographic spread is a critical bottleneck to the AIC’s intensive, financially sustainable approach. The broad focus approach has advantages in the situation that Mozambique finds itself in with a limited number of growth entrepreneurs. The scale of financing and the scope of managing a support initiative that has a large geographic spread do not favor the holistic approach represented by the AIC. As such, the value chain focus is not deemed feasible in Mozambique. The options are reduced to a geographic focal area. There is option one: a multivalue chain intervention (termed hereafter as “mixed use” support) that focuses on any aspect of 64 a value chain; or option two: a multivalue chain “component(s)” that focuses on processing, packaging, distribution, and so on, which support one or more specific components in multiple value chains. Each of these approaches has positive and negative aspects, which are outlined in Table 12. Table 12. Advantages and Disadvantages of Different Support Approaches Intervention Positives Negatives A very dedicated staff Success of AIC very dependent on Single value chain focus with a good one commodity, and with limited focus understanding of the financing, either one location with a chain offers higher high number of growth competitiveness and entrepreneurs (not identified in growth. study) or a broad geographic spread to attract adequate entrepreneur pipeline (not practical). Multivalue chain Improves access to a Diverse value chains require intervention (broad) pipeline of entrepreneurs broader knowledge and can result that can be reached for in the fragmentation of technical a given funding base. and market understanding, and lower growth. Multivalue chain Very specific focus If entrepreneur challenges are intervention allowing dedicated across the value chain, then this (segment) expertise and potential focus will not establish growth. major increases in growth. Source: Authors. Given that the target enterprises are likely to be small, the initial level of knowledge required by AIC staff in terms of market, process, and product knowledge is expected to be manageable in a multivalue chain (broad) model and in the mixed use (component) models. Strong partnerships will be required with other organizations, such as INEFP or Technoserve to supply more specialized knowledge. As such, the choice of a mixed-use model, which reduces risks of location errors and concerns about the entrepreneur pipeline numbers, is proposed for a Mozambican AIC. 65 6.2 TARGET ENTERPRISES The AIC is primarily targeted at supporting businesses that operate in the post-harvest sector, including both secondary (manufacturing) and tertiary (service providers) level businesses. Examples of target business could include manufacturers of honey, jams, achar, and others, input suppliers, agricultural consultants, and exporters of agricultural products. To reach the requirements of financial sustainability, the enterprises would need to meet the following criteria: • Be in operation and generating some sales. • Show potential to grow through product quality, quantity, and market access improvements with AIC support. • Be located within the Maputo/Namaacha/Inhambane triangle. It is usual to further segment the target enterprises by scale of operation (such as, revenue and staffing). However, the AIC will operate across all levels, given the lack of a definable pipeline of growth entrepreneurs in any one value chain, in any particular region, and in any particular enterprise category. These levels have been described in Section 5, but are described in more detail here. Level 1 Processors: Micro-level informal agribusinesses (average monthly turnover: less than $1,000) with a highly variable production both in terms of quality and quantity. The focus may be on household processing or local and ad hoc services. They are within indirect supply chains and their markets (informal) are very localized and erratic. They typically employ zero to two people on an ad hoc basis, operating with kitchen equipment and usually in their own homes. The majority are survival entrepreneurs and women likely constitute 80 percent of this level. Level 2 Processors: Several small local-level processors (average monthly turnover of $1,000 to $10,000) and many have some formal registration. They utilize microfinance and often have a formalized business model demonstrating their understanding of the market demand and the need for quality—although there are limited quality controls in place. They target local and nearby formalized stabilized and expansive markets (for example, schools or private parties) with labeled products and an organized distribution scheme. They may have a planning component for their raw material (they manage a more direct relationship with their sources of procurement). They typically employ 2 to 10 people, the majority of those being full-time employees that often have received technical training (such as processing). They have access to limited, yet quite adequate, equipment and dedicated processing facilities (they can have an area separate from the kitchen in their homes) that allows them to process and sale a full range of products, including juice, syrup, and jams. 66 Level 3 Processors: Some medium-sized companies (average monthly turnover of $10,000 to $40,000) who demonstrate full understanding of market demand and implement accordingly as per their business plan. (They have already established contacts with commercial banks for accessing funding for equipment and running costs.) They access the broader distribution nationally (national supermarket chains and urban small supermarket chains) and regionally by exporting very limited quantities. They typically employing more than 10 people and own some processing equipment and facilities. Level 4 Processors: A handful of large companies (average monthly turnover of more than $40,000) with an established brand and a full structured industrial production facility, including adequate processing equipment, along with having local, national, regional, and export market access. The main focus of the Mozambican AIC will be on growing Level 2 entrepreneurs. As there are currently too few Level 2 enterprises to support the financial sustainability of an AIC, nor to justify its mandate, in the first six years there will be a major injection of business advisory and technical services into a pre-incubation program for Level 1 processors. This is necessary, because the AIC recognizes that there is a large pool of potential entrepreneurs who are in operation (having identified a potential opportunity), but need assistance to develop their businesses or ideas in order to develop into Level 2. The AIC also intends to work with some Level 3 companies in the first six years of operation as it develops capacity and as market opportunity allows. This will be scaled from one or two enterprises in the first years to eight in Year 5. Year 6 presents a dichotomy in the possible strategy of the AIC. If it has stimulated entrepreneurial development and encouraged the emergence of a strong growth entrepreneur pipeline (either directly or through partner organizations), it will be able to gradually shift its focus upwards to provision of support to Level 3 companies. Level 1 companies will then no longer be supported directly by the AIC, but the AIC can contribute materials and knowledge to other organizations that support Level 1 companies (for example, to IPEME) and NGOs. This “high road” scenario will provide an 85 percent self- funding AIC by Year 10. If the pipeline of growth entrepreneurs is still as limited in Year 6 as it is at present, the AIC will not be able to focus more on Level 3 enterprises. It will continue to operate as it had in Years 0 to 5 and as a result, it will not become financially sustainable. In fact, while it can self- finance its operating budget, it will not be able to fund staffing, capital expenditure, or depreciation. An amount of $300,000 will be needed each year from Year 6 onwards. This “low road” scenario translates into a 55 percent self-funding AIC by Year 10. However, the AIC will have a critical mass of Level 2 and Level 3 companies on which to focus its support, with local partners supporting Level 1 companies, if the pipeline of growth entrepreneurs has 67 significantly increased, building on the results of the awareness raising and pre-incubation services delivered by the AIC to the Level 1 companies. This “high road” scenario translates into an 85 percent financial sustainability by Year 10. For this reason, an intensive effort is needed by AIC management to target the optimal mix of enterprise level to both address socioeconomic issues and self-financing requirements. 6.3 LOCATION As noted previously, the largest concentration of growth agribusiness entrepreneurs in Level 2 and higher appears to be in the Southern region from Inhambane through to the Maputo region, with the densest concentration in and around Maputo. The reasons are believed to be proximity to market and access to infrastructure and logistics. This is typical of situations where the enterprise does not have established markets or “middlemen” and the entrepreneur is forced to spend a large amount of time in the sales function. The need for Level 1 and Level 2 small enterprises to be near their markets and the fact that the largest concentrated market is in the Maputo region provide motivation for the AIC to be located in or near Maputo. That said, there are a good number of enterprises along the coastal route to Inhambane that could be supported. 68 As such it is proposed that the AIC consider a base in the Maputo-Matola area but with outreach functions extending to Namaacha to the west and to Inhambane to the North. The further from the main location, the more important it will be to have partnerships with other organizations and self-funded entrepreneur inputs (in terms of traveling to Maputo to receive advice). Other areas have growth entrepreneur concentrations: the areas around Beira, Chimoio, Tete, and Nampula. It is not practical to focus AIC activities in more than one area in the first few years but the AIC plans to operate “satellite AICs” in these areas as a precursor to consideration of fully fledged operations. A satellite AIC has a limited staffing, which may be dedicated or allied to other initiatives in the region (for example, IPEME/GAPI activities and staff). Staff members will be supported from the main hub in Maputo in terms of market research, contracting and finance facilitation, procurement of materials, and so on. Local staff will be skilled in business and technical advisory for on-site support of enterprises. Periodic visits by the main AIC hub staff will allow for intensive higher-level support to these enterprises. Private sector development initiatives led by development stakeholders are, and will be, concentrated in the locations identified above. It is artificial to expect more rural or northern region development when the economics, infrastructure, and markets cannot justify it. There are in fact many donor projects in the regions selected, which justifies the choice of the locations. The range of activities offered and the mode of operation of an AIC also impact the AIC’s location. In this regard, the focus on Level 2 entrepreneurs reduces the need to provide a facility for site location of manufacturing and service enterprises. These entities would already have some access to facilities, even within households. However, given the potential for assisting Level 1 enterprises and those contemplating a business opportunity, it is necessary to have some demonstration production facilities available and even some space for enterprise housing. The location would need to have offices for staff, meeting areas, a training area, and demonstration area, and be central to entrepreneur access. More specifically:  Five offices of approximately 20 sq/m each = 100 sq/m  One meeting room of approximately 40 sq/m  One training room of approximately 60 sq/m  One demonstration area of approximately 100 sq/m with adequate access, electricity, and water connections  One hot desk area of approximately 50 sq/m 69 A total of 410 sq/m is forecast and with nonproductive areas included will require approximately 5,000 sq/m of space. A suitable site has been identified next to the Maputo International Airport. It has adequate space and is currently undergoing renovation by INEFP to develop a food processing facility. Given that INEFP will use this facility for training and will house both training staff and equipment on site, it is deemed a perfect location with all requirements in place to operate an AIC. Alternatives have not been concretely identified, although there are office facilities owned by the Maputo Municipality and an existing entrepreneur support location in Matola that has plans for renovation in the near term. In all cases, no firm commitments for space allocation have been provided. 6.4. AIC BUSINESS FOCUS The AIC will focus on a diverse range of value chains, and within the processing component, anything from facilitating the procurement of raw materials through packaging and distribution. This, added to the coverage area required to identify a suitable number of enterprises, requires that the AIC adopt an “outreach” model of support. It is not practical to develop a physical incubator facility, because of the high fixed costs and depreciation charges that would result and because there is geographic enterprise dispersion that would limit usage. In this scenario, entrepreneurs will receive much of their support from advisors visiting their own establishments, while entrepreneurs will be required to interface with the support infrastructure in the Maputo/Matola area from time to time. Another reason for an outreach model is that it can support enterprises in their own locations. While this may be limiting for micro enterprises that would benefit from shared processing facilities, it is important for growth enterprises that may not be prepared to relocate. Very few requests for permanent processing facility provision were received during the survey of entrepreneurs, but requests were received to access facilities for product testing and equipment demonstration. In this regard, having local partner organizations involved will increase the frequency of support and the extent of services offered. For instance, there might be some scope for shared facility provision at the future IPEME incubator facility redevelopment in Matola to be led by the EU initiative. This opportunity still needs to be formally discussed. This model requires considerable financial support for travel expenses, but given that many of the target enterprises are themselves cash strapped and located where they are for their own strategic reasons (for example, partner has local employment, family infrastructure, or cost factors), it is unlikely that any other model would be feasible (for example, having a facility in Maputo where enterprises must relocate). 70 6.5 AIC OFFERING The Mozambican entrepreneur landscape is highly heterogenic, and so are the support functions from general awareness through to specialized support consultancy. While the AIC will need to provide clients with a specific service offering designed to position them for growth, the offering will focus on four key areas:  Marketing and sales support  Business and technical advisory services  Finance facilitation  Facilities The AIC will also offer a crosscutting activity: awareness creation. This is necessary to increase the exposure of Mozambicans to entrepreneurship and to build a pipeline of enterprises that can be supported by the AIC itself and other support organizations. This is represented by the following figure (Figure 15) and is further discussed below. 71 Figure 15. Service Offering of the AIC for Mozambique Market & Sales Advisory Support Finance Facilitation Facilities Support Awareness & Linkages: - Entrepreneur competitions, self assessments, etc. - Public relations and communications - Stakeholder Linkages Business training & mentoring Market research Product and • High value products Seed fund technology demonstration • Suppliers (for innovation & Product centre demonstration)Loa development ns or loan guarantees: USD 10-100k Sales training Technology Test market identification production Market linkages to customers and Commercial loan Technical training suppliers facilitation • Local • Working capital • National • Asset financing Business Center • Export   Quality, safety and regulations Source: Authors. 72 6.5.1 AWARENESS CREATION While there are many self-supported people in Mozambique (such as rural land dwellers), the number of growth entrepreneurs is very low. The employment mindset among those with adequate education and good potential for entrepreneurship is high. The AIC needs to partner strongly with key entrepreneurial support organizations, decision makers, and partners who are active in entrepreneurial education and development so that their service offerings include business plan competitions and awareness raising among students at universities. Specific activities directed at prospective entrepreneurs and Level 1 enterprises are the “Am I an Entrepreneur” workshops. These workshops are designed to be fun, yet informative self- assessment workshops where prospective entrepreneurs and those operating in Level 1 will discover their entrepreneurial quotient. The prospective entrepreneurs will also be presented with a pathway for being evaluated as candidates for a pre-incubation program that will develop their idea or existing business and allow assessment by the AIC of growth potential. Other activities include extensive press articles and activities that are news worthy for television broadcast (for example, business success cases). Business plan competitions, weekend mass coaching classes, and entrepreneur fairs are all potential activities that can expand both awareness and knowledge. Extensive lobbying and advocacy is also seen as being critically important to extend the range of entrepreneur support available in Mozambique. Efforts need to be made at both the government and private sector levels to increase involvement, financing, and outcomes. Financial institutions are understandably hesitant to invest in start-ups and large private sector companies are understandably hesitant to open their supply chains to small, untested enterprises. These are areas in which an AIC can work to increase confidence and as such, linkage creation is seen as a core function of the AIC. The awareness creation activity needs to run across all of the AIC’s offerings, because the success of supported enterprises needs to be communicated at all stages (for example, enterprises that receive funding, win tenders, export products, or develop novel products that are successful in the market). Likely partners include GAPI, ISCTEM, INEFP, IPEME, Ministries of Industry, Agriculture and Science and Technology, existing donor programs, and NGOs. Funding is budgeted for this activity, but it will be up to the AIC management to target corporate, donor and government funds, and partner initiatives, to really support this component. 73 6.5.2 OFFERING FOR LEVEL 1 ENTERPRISES Entrepreneurs who have already started enterprises, which are at revenue, no matter how small their income, can be considered for support to grow into Level 2 enterprises. This will include the following:  A formal three-month pre-incubation development—for selected entrepreneurs, provided as a fee-based formal business strengthening program that includes business skill development, coaching functions, and exposure to other entrepreneurs and support organizations. The output will be a business plan and pitch to financing professionals. This will strengthen the IPEME and INFP programs.  Technical training at INFP—for existing enterprises, a partnership with INEFP could allow entrepreneurs to access better equipment, learn better processing skills, develop new processing approaches, and potentially, process limited quantities of new products for test marketing.  Partnership programs—for selected entrepreneurs, which link with programs run by partners to improve skills, for example, USAID mechanical training. Those entrepreneurs and enterprises that show potential can be incubated under a “royalty on growth” model. AIC staff will provide support as necessary. An initial 30 to 50 enterprises will kick start this in Year 0 with the identification of 20 of these for support in Year 1, providing that they can meet a minimum revenue of $100 per month and the cohort can average an enterprise income of $500 per month. The initiation of this phase in Year 0 (the year more focused on internal development) will provide newly appointed staff with a good opportunity to prepare them and to identify operational changes needed for Year 1, which is when the AIC formally initiates entrepreneur support initiatives. The pre-incubation program will continue to Year 5 and numbers supported will be varied according to pipeline need and average growth rates identified in previous years. Likely partners for this stage of support are IPEME, INEFP, EU, and GAPI. 74 6.5.3. OFFERING FOR LEVEL 2 ENTERPRISES Level 2 enterprises offer a good foundation for growth having migrated from sole ownership and operation into a larger operation with some sense of formality and a reasonable sales cycle. Enterprises will undergo an assessment phase to determine growth prospects. This will be a very participatory review that will allow the entrepreneurs to work with the AIC and to determine their own pathway forward. This could include attending the three-month pre- incubation program. Those enterprises deemed to have suitable entrepreneurial capabilities and a business that can be supported to grow will be considered for incubation in the AIC. At this stage, the enterprises will have full access to the whole service offering as discussed later. Likely partners include CEPAGRI, GAPI, INEFP, IPEME, and Technoserve. 6.5.4. OFFERING FOR LEVEL 3 ENTERPRISES While the AIC acknowledges that successful enterprise support requires a holistic approach, in the case of Level 3 enterprises, after an initial assessment that will identify the position and requirements of the enterprise, support is likely to be fragmented. In these cases, specific interventions may be carried out to help improve growth and remove bottlenecks. The entire portfolio of AIC offering will be made available and those required can be worked on in a very specific and participatory manner with enterprise management. Typical inputs will include finance facilitation, export marketing assistance, and so on. Potential partners include consultancies and specialized agencies, such as the export assistance organizations. The following section describes each of the pillars, outlining the core services to be provided. 6.5.4. AIC HOLISTIC SERVICE OFFERING FOR ENTERPRISES The AIC will offer a crosscutting awareness component and four pillars of support. It will provide both technical and business support in a holistically managed manner to ensure growth is achieved. The aim is to work very closely with partner organizations that have skills and facilities that can be leveraged. 75 CROSSCUTTER: Description AWARENESS • Business plan competition • University visits • One-day workshops on entrepreneurship in future AIC Activities satellite areas, including Chimoio, Beira, and Nampula • General media communication • Targeting of association and partner linkages (for example, GAPI or USAID) Founding Partners  IPEME, GAPI, INEFP, ISCTEM, CEPAGRI Financial Details  Grant financed with little to no direct financial return Pillar 1: ADVISORY SUPPORT Description  The AIC will provide focused support in accounting, business strategy, sales, market development, and so on. This will be provided by a limited internal staff and outsourced to specified experts, such as mentors and coaches.  The AIC will facilitate processing technology improvements, hygiene improvements, standardization, testing, and access to the latest processing knowledge. Activities  The AIC can assess packaging standards and labeling for both local and international markets.  The AIC will create a network of support organizations that will be able to support entrepreneurs in areas, such as registration, regulatory compliance, export promotion, sector development, advocacy, R&D linkages, North/South linkages, financing, and network support organizations. Founding Partners  GAPI, Technoserve, IPEME, INEFP, CEPAGRI Financial Details  AIC will charge royalty fees on turnover. The AIC will support enterprises from the point of identifying growth markets to developing suitable products for those markets to accessing factors of production to supporting logistical decision making and finally, to working with the enterprise along the sales process. This holistic support sets the AIC aside from any other initiative identified to date in Mozambique with the exception of some Technoserve programs. 76 Pillar 2: MARKET AND SALES Description SUPPORT  The AIC will assist companies to undertake market research to assess opportunities and to correctly position themselves in the markets with current and new products.  The AIC will assist enterprises in the identification of, and access to, appropriate produce, consumables, logistics, and equipment (for example, establishment of contracts between farmer and processor for adequate supply of appropriate quality at good pricing).  The AIC will facilitate procurement of common commodities Activities in bulk for resale to processors. Items such as jars, bottles, bags, and others can be resold in this manner, giving both AIC and processor an advantage.  The AIC will offer packaging advice to entrepreneurs that will enhance packaging outcomes and increase market competitiveness.  The AIC will assist companies to identify, target, and conclude sales deals. Founding Partners  IPEME, GAPI Financial Details  AIC will charge royalty fees on turnover. Access to capital is critical to facilitate growth. However, it is currently very difficult for the target enterprises to get loans from commercial banks as they cannot demonstrate a track record and their resources tend to be unstable. This is why there is a gap between a significant number of Level 1 and a limited number of Level 3 enterprises. The seed fund has been envisaged to break the “growth gap.” The seed fund will make small investments in the enterprises in order to build a credit record and facilitate growth. It is assumed that the seed fund will be managed on some commercial basis by a third party. Some commercial banks (for example, BCI or Standard Bank) have expressed a new interest in investing in agribusiness SMEs; therefore, such an entity could manage the seed fund. 77 Pillar 3: FINANCE FACILITATION Description The AIC will have a $2 million seed fund to allow selected entrepreneurs to finance their growth, while establishing their credit record (collateral). The AIC will try to use the seed fund to leverage additional Activities financing through, for example, facilitating commercial loans (for working capital and asset financing). The AIC will create linkages with local financing institutions to connect enterprises to funders. Founding Partners  GAPI Financial Details  AIC will earn a fee on finance raised. It is proposed that the AIC provides loans or loan guarantees, rather than grants or equity. The motivation is set out below. Equity is a complex intervention from a management perspective and at the size that is envisaged ($10,000 to $100,000), it makes more sense to do this via loans. Most of the target businesses have average revenue of $1,000 per month. Assuming an operating profit of 20 percent means their businesses are worth about $2,400 in operating profit per annum with a valuation of about $10,000. So an equity investment of $10,000 made at true value would be impractical. International experience has shown that incubators should not take anything more than 10 to 15 percent (in fact, 5 to 10 percent is preferred) because if there is second round investment, this eats away quite dramatically at their remaining equity. Worse still could be the dilutions that may accompany second and third round equity deals—one could classify the AIC’s shares as preference shares or class them so as not subject to dilution, but it starts to get complicated and it is widely acknowledged that investors prefer simplicity. In many cases, the risk is that the AIC will have inadequate financial data on which to value the businesses. Besides, the exit potential for equity is likely to be limited and lengthy. This will tie up funds and not allow recycling. In the case of Level 3 businesses, as they demonstrate bigger earnings, the AIC might get some reasonable percentage out in an equity deal, but the exit potential will still be a main concern and the AIC would tie up cash quite quickly in this case. Besides, market insight and working capital are key here and the latter favors loan capital as a better bet than longer-term equity. 78 Grants do not encourage sustainable business. Level 2 and 3 processors are at the level to afford a reasonable interest bearing loan. Their struggle is to get banks to believe in them and so here the seed fund can loan directly or be used to cover a guarantee in lieu of collateral. “Reimbursable grants” are an interesting scheme to encourage innovation, that is, if the enterprises succeed, they pay the grant back; if they do not succeed, they do not pay back. The reimbursable grant could also be made a "matching grant" so that the company will lose some of its own money if they fail. Matching funding helps to remove the stigma of "free money," which often generates negative feedback as it is seen as having less value. In either case, the upside of succeeding is much higher than the amount of the grant, so there is an incentive to succeed. Having said that, the AIC could look to "release" hard-working innovative entrepreneurs from repayment when AIC staff is sure the enterprise really did try but did not succeed. The AIC could defer repayment, repackage it, or look to account for time or resources allocated. After all, if they do fail, the AIC cannot stand aside and apportion blame only to the entrepreneurs. Handling this approach in a way that does not eventually give entrepreneurs the idea that it is a "grant in sheep's clothing" will be the difficult part and best handled by limiting failures that require soft releases. This approach could be explored in more depth when incubatees test new products. A seed fund of $2 million covering loans more than three years will enable the AIC to fund loans that may be too risky for the commercial sector. Given the new interest of some financial institutions to invest in agribusiness SMEs, commercial loans could be facilitated for the $50,000 plus loan arena. At this level of need, there must be a viable company that is stable. The interest demanded by a commercial bank or other financial institution will be between the incubatee and the organization that loans the funds. The AIC will charge a market-related interest rate on its seed fund and take a 1 percent fee of the loan amount raised from external sources Two million dollars will fund more than 50 percent of the AIC companies, if commercial banks take on some lending. Internal lending is premised on 45 percent of loans of $10,000 to $30,000; 30 percent of loans at $30,000 to $50,000; 25 percent of loans $50,000 to $100,000. The stakeholder consultation process considered the establishment of a physical processing facility (a small demonstration facility or a large full scale production premise). It was acknowledged that access to equipment is problematic and that the provision of equipment in a facility would be advantageous. However, in the case of Level 2 processors, the initial requirement is not necessarily for a production line or advanced equipment, but for incremental improvement with the injection of small, yet vital, pieces of equipment, such as heat sealers. 79 Pillar 4:FACILITIES Description  A product and technology demonstration center will be made available through AIC partners.  A process and packaging facility with limited processing equipment will be made available through AIC partners. The AIC could procure demonstration packaging equipment for use by Level 3 enterprises for product development and testing. This will enable processors to ensure high quality Activities packaging that allows better market assessment of new products.  The AIC will link with local institutions to facilitate testing (such as microbiological tests, pH, and others); lab facilities will hence be made available through AIC partners.  The AIC will offer a limited number of meeting rooms and shared office equipment for entrepreneurs. Founding Partners  INEFP Financial Details  AIC will charge royalty fees on turnover. The gender of the processors and their current processing practices further mitigated against the provision of a central facility that they would move into, or use on, a per-need basis. Women entrepreneurs, who constitute the majority of the Level 2 processors, may find it difficult to move to a central facility given their other responsibilities (for example, child rearing) and their operations, certainly in Level 2 enterprises, rely on low-cost facilities (for example, their homes) and on local distribution that would not be facilitated by movement to a central facility. As enterprises advance, specific equipment will be needed that may not be immediately affordable to enterprises (such as pasteurizers). In this case, the AIC will both procure specific equipment that is not available for advanced packaging and access to facilities that already have required processing equipment. Access to meeting spaces and shared facilities, such as Internet access, library, printing, copying, and scanning, will be necessary to improve the credibility of AIC clients in face-to- face negotiations and proposal preparations. The aim will also be to improve self-reliance for market understanding through on-line browsing and so on. As such, the AIC will have very limited physical facilities, largely office space, and will operate on an outreach basis with interactions largely taking place on the premises of its clients. Group training, social and business interactions, and access to equipment, buyers, and suppliers will be facilitated either at the AIC offices or at partner organizations. 80 6.6 PHASING SUPPORT The AIC development approach is a phased process that allows the building of a solid foundation in one location, the extension of offerings, and the expansion through partners and future satellite AIC centers. The rate of phasing is premised on the budgeted funding and attaining the incomes projected. Increased funding will allow faster implementation and decreased funding will reduce the opportunities to expand this initiative from the Maputo region to other regions. Phasing is expanded on below (please note that the actual enterprise numbers and levels are in Annex 8). 6.6.1. YEAR 0 InfoDev’s previous experience in establishing revenue generating centers in Senegal and Tanzania has highlighted the incredible efforts needed to recruit and position staff, establish facilities, and plan and prepare the entrepreneur recruitment process. These activities can realistically take at least six months and longer, depending on the activities proposed, the complexity of the local environment, the contributions of the stakeholders, and the capability of human resources. As such, the AIC conservatively allocates one year of operation for spooling up to the first support activities. In reality, this period will provide an opportunity to support entrepreneurs and engage in process learning that will allow upgrading of the AIC approaches. It is planned to begin with extensive awareness creation programs and a pre-incubation pilot for 40 Level 1 enterprises during the latter part of Year 0. However, there are neither financial income expectations, nor measurable entrepreneur growth targets during this period. Year 0 will result in the following:  Staff recruitment, orientation, and training.  Facility development and finalization and acquisition and commissioning of capital equipment.  Partnership process being agreed on and activated.  AIC operating processes put in place.  Awareness creation in the area of initial operation in the Maputo/Namaacha/Inhambane triangle  A 40 enterprise pre-incubation program (2 x 20 enterprise intakes for three months) to identify the Level 1 intake in Year 1 and to test the operating processes of the incubator and staff. Level 1 selection procedures will identify the Level 1 intake for Year 1. 81  Selection processes to identify Level 2 and 3 enterprises that will be supported in the next year. 6.6.2 YEAR 1 Year 1 is a key year for the AIC as it begins to support selected entrepreneurs. The key activities will be focused on Level 1 and 2 enterprises with an emphasis on strengthening Level 1 enterprises in order to create a reasonable enterprise pipeline for the years ahead. At least two pre-incubation programs for Level 1 enterprises and potential entrepreneurs with new ideas will be run. Awareness creation will extend from the Maputo/Namaach/Inhambane regions to Beira, Tete, and Nampula (the latter three to source on the ground insights for a potential future AIC satellite development in one or more of these areas) There is the possibility to work with at least one Level 3 enterprise, but as these enterprises are not well represented and the AIC will be a new entity, it is envisaged that the numbers of these enterprises supported, will only increase from Year 2 onwards. 6.6.3 YEARS 2 AND 3 Years 2 and 3 will be a continuation of Year 1 with an increasing number of Level 2 and 3 enterprises being supported. Support for Level 1 enterprises will continue and expansion of staffing will also occur. In Year 3, the AIC may expand to another region with the establishment of a satellite AIC. This will be based on the scope and scale of engagement that has occurred with enterprises in the targeted areas outside the original southern parts of Mozambique. It is not expected that this activity will reach a critical mass of supporting more than 10 enterprises until Year 4 begins, unless there is strong partner and stakeholder support. Additional funding will be needed for these satellite activities. 6.6.4 YEAR 4 Assuming a support period of three years for Level 2 enterprises, Year 4 will be a key period as these enterprises are exited from the AIC at the end of this year. The success of the Level 2 enterprises may increase the scope for the AIC to work with Level 3 enterprises and increase the level of services offered. The satellite initiative in one or more of the Beira, Tete, and Nampula regions will be in operation with the aim of attracting at least 10 enterprises in this year. 6.6.5 YEAR 5 82 Year 5 will signal the start of the second three year period of support in the Maputo region and the cycle will repeat with the difference being an increase in the number of Level 3 enterprises being supported. The satellite initiative in one of the regions will run in its second year and there may be an opportunity to begin a satellite operation in a second location with setup activities and selection processes for an enterprise intake in Year 6. 6.6.6. YEAR 6 TO 10 Year 6 represents the point at which the AIC either moves onto an 85 percent financially sustainable model (the “High Road” scenario) or adopts the “Low Road” scenario described earlier in Section 6.2 on Target Enterprises. This would largely have been determined in Years 3 to 5 as it became clear if there would be an adequate number of Level 3 companies to support. In the “Low Road” scenario, the cycles initiated in Years 2 to 4 will continue to run and be repeated. In the “High Road” scenario, Level 1 enterprises are no longer supported by the AIC but by partners, such as IPEME. Level 2 enterprises comprise the entry-level intake. Level 3 enterprises are increasingly supported and spilt into two groups: those with revenues between $10,000 to $25,000 per month and those with $25,000 to $40,000 plus per month. This allows more focused support in a very wide band of revenues. The second satellite AIC will be established and a third satellite AIC could be established at the end of Year 7 for a Year 8 start. Decisions will be made after an evaluation process to determine if any of the satellites should be converted to full AIC hubs and this will allow fundraising to take place. 6.7A PARTNERSHIP-BASED DELIVERY MODEL The AIC service offering outlined by nature requires a partnership-based model. Some of the services of the AIC will be outsourced to competent existing entities, while other competencies will be developed internally in the AIC. This will allow the AIC’s services to be delivered by the most appropriate organizations and leverage existing expertise, networks, and overheads, while reducing duplication of existing activities. Other opportunities for partnership include engaging the few larger scale companies, which currently import products or buy significant amounts, which can be competitively processed in Mozambique to develop a local supply chain. This represents a win-win opportunity for the importer, local consumer, and the local producers. To deliver services effectively, implementation partners in the AIC could include the following. 83 Table 13. AIC Potential Implementation Partners Government: IPEME, INEFP, MST, CEPAGRI Idea lab, Pick‘n Pay, Mozfoods Mega, Jumbo, MDS, and GAPI Private sector: Research IIAM, ISCTEM, FDA organizations Technoserve with integration or linkages into the programs of NGOs and donors USAID, SNV, DANIDA, Finland, and EU Source: Authors. 6.8 GOVERNANCE InfoDev’s experience with its network of over 400 business and technology incubators indicates that a public-private partnership offers the best governance structure. In this model, both government (who has a public good role), academia (which have a teaching, research, and often a commercialization focus), and the private sector (which has a profit motive) work together to advance each of their own interests and thus collectively contribute to growth. The incubator model, unlike many others, is designed for near cost recovery and so it must be driven in a “Public Mission/Private Management” model. The government must be involved because there is a large “public good” element and it runs at a loss of about $200,000 per annum in the “Low Road” scenario. The full involvement of the government is critical for the incubator to succeed in bringing formality to the sector and to take advantage of government support programs (for example, export promotion, trade missions, tax incentives, and others). Other public sector organizations, such as research centers (providing equipment and knowledge), will be a key success factor of the AIC. It is important for the entity to have a significant level of autonomy given that it will operate as an entrepreneurial organization in its own right as it implements a novel business model. The key stakeholders forming the steering committee need to evaluate this structure but it could be an association or a foundation (not-for-profit organization). While it is not possible at this stage to determine final representation, the following organizations are indicative of potential partners who could constitute an initial steering committee and potentially foundation, association, and other structure representatives (see discussion of implementation approach in Section 7). Gapi Sociedade de Investimentos SA 84 Gapi-SI (Investment Society) is a financing institution, incorporated as a public-private partnership, with the mission of contributing to the creation of a more inclusive financial system, through the promotion of creditworthiness of SMEs and community-based organizations (CBOs). Gapi aims at supporting the implementation of development projects from both the government and its development partners. It also aims at supporting initiatives from private investors, particularly SMEs and CBOs, through an intervention model that integrates the provision of financial and business development services, along with the promotion of institutional capacity of rural finance. GAPI has its central office in Maputo city, but is present countrywide through a network of 10 delegations and three sub delegations, covering all 11 provinces of Mozambique. GAPI employs 104 Mozambican and one international staff and manages an investment portfolio of around 625 million MT ($25 million) in 50 districts, funding local business initiatives and providing training activities on business management and microfinance. All provincial delegations are fully equipped with office and information equipment, linked to GAPI intranet, and possess at least two 4x4 vehicles. The GAPI delegations are executive organs, which are supervised by the Commercial Direction of GAPI. GAPI is currently working with the government of Denmark through DANIDA on a multilevel large private sector development program with an Agribusiness Development component. This is in line with the objective of the AIC and there is potential scope for collaboration in this area. More detail on this program can be found on the document “DANIDA Program— Growth and Employment.”10 10 http://mozambique.um.dk/pt/danida-po/programmas-da-danida/crescimento-eo-emprego/ (Portuguese version) 85 Instituto Nacional de Emprego e Formação Profissional (INEFP) INEFP is a government body responsible for professional training. It has been operational for 15 years and is present in Maputo Province (Maputo City and Machava), Inhambane Province (Inhambane City and Maxixe), Sofala Province (Beira city), Manica, Nampula, and Niassa Provinces. The training programs cover a huge variety, ranging from accounting, financial management, public relations, and so on to more practical activities, such as construction, locksmithing, hairdressing, and mechanics. INEFP is in the process of implementing a course that involves agro-processing and is looking at implementing a business incubation program for the graduates. INEEP sees the AIC as a potential partner that could contribute in this regard. It has suggested a willingness to allocate some space to the AIC in exchange for their services and has requested some funding to rehabilitate the section where they intend to setup the processing machinery for the training, as well as usage by the incubatees. Instituto de Apoio as Pequenas e Médias Empresas (IPEME) IPEME is the government body designed to support the micro, small, and medium enterprises. The institute currently has representations in a few districts, but needs some capacity boosting. It has the following programs, which can be of value to the AIC: One District One Product A project financed by the Japanese government, based on their “One Village One Product” initiative in the 70s to stimulate and direct the rural communities to produce competitively for consumption and for the market, through the integral and sustainable utilization of natural resources. The ultimate goal is to improve the quality and quantity of products by means of transformation and diversification and improved packaging conditions required by local and foreign markets. These actions should result in typical brands and ultimately increase income, which will improve the quality of life of communities. Agro-Industrial Demonstration Centers Under the promotion of agro-processing activities, IPEME is to develop activities under the Rural Industrialization Strategy (EIR) with an emphasis on the implementation of the Agro-industrial Demonstration Centers. These centers will be placed where finalist students, entrepreneurs, and the wider community will be trained on good processing practices to add value to existing and underused raw materials, and supplemented by 86 notions of entrepreneurship and business management to promote the creation of microenterprises. Business Incubators Part of IPEME’s mandate is the implementation and running of business incubators. There is a plan to convert an existing infrastructure in the Maputo Province, which will be able to house a number of SMEs in the more industrial and mechanics sector. The project is currently in preparation phase. Other Partners Other partners have been identified that can provide a lot of value to this project. They are existing private entities with invaluable experience and very well networked in Mozambique, with particular involvement in the value chain of food products, including production, processing, distribution, and payment methods. Pick n’ Pay The CEO of Pick n Pay Mozambique, Mr. Al-noor Rawjee, has expressed interest in actively supporting this initiative. He indicated a number of projects that could fit into the AIC scope, such as the outgrower chicken farming project, as well as agro-dicing and chopping. MozFoods MozFoods CEO, Mr. Enriques, has been working in food production throughout Mozambique for more than 20 years and is part of a variety of related projects, such as bar coding for Mozambican products. His access to export markets, as well as national network, could be very valuable to the project. Technoserve Technoserve is well-known for its agriculture support projects in rural Mozambique (and other countries) and is seen as a valuable hands-on implementing partner within the scope of the AIC. ISCTEM ISCTEM is a private university that has become well known for its support of student entrepreneurship in Mozambique. It has organized an annual entrepreneurship day. BCI/Standard Bank 87 A commercial bank would be a valuable partner in enabling the AIC to pass on enterprises that could receive commercial financing. 6.8.1 MANAGEMENT BOARD The independent structure (for example, foundation or association, depending on the Mozambican legislation) may constitutionally only meet once a year for an annual general meeting. In the interim, the AIC needs strategic inputs from a small group of up to three representatives elected by the members. It has been suggested that this be comprised of a government representative and two private sector representatives. They should serve for a term of at least two years. Their function is to meet monthly to assess progress made by the AIC and to recommend future direction to the AIC manager. Their role is neither to run the AIC nor to have any operational role. 6.8.2 INVESTMENT COMMITTEE Investments using the seed fund that will be created will be the primary focus of the Investment Committee. This committee will be comprised of three member representatives of whom two representatives will differ from the representatives on the Management Board. The purpose of having a common member of the Investment Committee and the Management Board is for purposes of continuity and communication. The Investment Committee oversees both direct and indirect financial issues of the AIC, including financial policy and procedure and enterprise selection, respectively. In the case of the latter, a subcommittee with additional representatives can be created. In all cases, a term of two years of service is recommended. 6.9 STAFFING At full implementation, the AIC is expected to have the following core staff: • Manager • Sales Manager • Business Advisor (x2) • Food Processing Expert • Financial Manager (Accountant) • Receptionist/Administrative Assistant 88 The responsibilities of these staff, as well as the key qualifications required for each, are outlined in Annex 6. 89 7.0 IMPLEMENTATION APPROACH The AIC is planned to be wholly owned and operated by a set of Mozambican stakeholders. Therefore, the implementation approach is designed to a) cultivate local ownership, and b) build the local capacity necessary to plan, resource, and execute the AIC successfully. InfoDev would normally provide support over a three-five year period to assist the local team and partners, gradually decreasing its assistance while the capacity of the team increases. In order to cultivate local ownership and commitment, infoDev suggests that local stakeholders contribute a percentage of the total start-up cost, even if donor financing can be secured for the full amount of up-front investments required. The funding made available by international donors is then structured as seed financing and is intended to help start the center and get it to the stage of generating revenues that can cover the ongoing operating expenses. The implementation phase only starts when the necessary local cofinancing has been secured. To kick off the implementation stage, infoDev typically convenes an interim Board of Directors (BOD), comprising public and private sector representation to oversee the planning stage. The BOD would include organizations in Mozambique who contribute to the success of the AIC in the form of cash or in-kind contributions (such as, by providing access to lab facilities or equipment, or making available staff profiles needed by the AIC), along with a client representative. As previously discussed, throughout the feasibility assessment and business planning process a number of entities have been identified as partners and some have expressed interest in partnering. The BOD would select a chairman to lead the deliberations. InfoDev would not be a formal member of the BOD, but rather an advisor, guiding the BOD as to the actions needed on the basis of international good practice in implementing an AIC-type intervention. The BOD then derives and monitors an action plan. An AIC can either be constituted as a new legal entity or be hosted by an existing entity in Mozambique: Creating a new Not-for-Profit Creating a new entity registered as a not-for-profit entity under Mozambican law for fund disbursement and management is one option. However, it will not have a financial management track record demonstrated by independent audits. In similar cases, including when infoDev helped to set up the information and communication technology incubator in Senegal, a new foundation was created, but a board member with a track record received the funds on behalf of the foundation under the condition 90 that all assets associated with the incubator would be transferred to the new entity once it had acquired the necessary human resources and systems. The agreement with this partner also explicitly mentions that all strategic decision making must be endorsed by the BOD of the independent not-for-profit organization. This arrangement has worked well. Selecting a Host for the AIC The alternative solution is to advertise a bid to host the AIC. The advantage of this option is that the AIC theoretically becomes a seamless extension of that organization’s existing service offering. The risk of this approach is that the governance system of the host organization may not be conducive to successful operation of the AIC. For example, infoDev has experienced that a publicly funded entity that hosted an incubator de facto refused to engage the private sector in strategic deliberations, thus significantly impacting the incubator’s success. Another example included significant restrictions on whether and under what conditions private companies could be hosted on the premises. Based on the stakeholder mapping conducted, infoDev would have no issue recommending either option. At the planning and implementation stage, infoDev’s role is to provide the technical guidance to plan, resource, and operate the AIC successfully. With a strong commitment to building local institutional capacity, infoDev will harness its experience, agribusiness incubation training program, and international network of innovation and entrepreneurship professionals to guide the BOD and the AIC management (once hired ) through important milestones, such as developing and executing a governance framework, client selection process, services and marketing, and monitoring and evaluation. As discussed in the Financial Plan (see Section 8), donor financing can be channeled through infoDev. In this case, infoDev would have the fiduciary oversight of the funds. Its Agribusiness Program Implementation Team would execute implementation oversight, project management, and monitoring and evaluation to ensure timely and successful program delivery. The project would in this case be executed via contractual grant agreements between infoDev and the AIC partners. InfoDev would act as the administrator of the grant agreements and source recipients based on their ability and capacity to deliver the AIC’s services and programs as outlined in the business plan. Multiple grant agreements could be issued with various partners based on their capability of delivering a specific service. The AIC could also subcontract specific services as appropriate. This will allow the AIC’s services to be delivered by the most appropriate organizations, leveraging existing expertise, networks, and overheads, while reducing duplication of existing activities. 91 The figure below shows the staged roll-out plan for the AIC. The first year of implementation activities (Year 0) will be a critical time of securing requisite funding, identifying and contracting partner institutions, establishing the Center’s structure, and making key hires. The majority of the AIC programs will begin with the opening of the AIC in the fourth quarter of the first year and scale-up over the first years of AIC operations. Figure 16. Mozambique AIC Year 0 Implementation Timeline Source: Authors. 92 8.0 FINANCIAL PLAN The AIC is designed to become the following:  Fifty-five percent financially sustainable after 10 years in the “Low Road” scenario  Eighty-five percent financially sustainable after 10 years in the “High Road” scenario Financial sustainability is defined as covering the ongoing operating expenses of the AIC through earned revenues. An initial investment of $4.2 million will be needed as start-up capital in order to achieve this objective. An additional $2 million is required for the revolving loan or loan guarantee fund that is needed to support early investments in the SME sector and $1.57 million for implantation facilitation and trust fund management. In total, $7.77 million is required. The AIC is planned to be wholly owned and operated by a set of Mozambican stakeholders. In order to cultivate local ownership and commitment, infoDev requires that local stakeholders contribute a percentage of the total start-up cost, even if donor financing can be secured for the full amount of up-front investments required. This staff contribution can constitute a mix of in-kind and cash contributions. The likely approach to the seed fund is to identify an existing financial institution to manage the fund on behalf of the AIC. As discussed in the Implementation Plan (see Section 7), infoDev views its role at the implementation stage as providing the technical guidance to the AIC Board of Directors and Executive Director to plan, resource, and operate the AIC successfully. InfoDev is set up to manage trust funds on behalf of donors. Donor financing can thus easily be channeled through infoDev, similarly to how infoDev is currently managing Canadian funds for implementation of incubators in the Caribbean and Danish funds for implementation of a Climate Innovation Center in Kenya. Being hosted by the World Bank Group, infoDev is bound by all the fiduciary requirements of the institution. The income generating component for the incubator is a mix of royalty fees on growth in turnover and finance raising fees. The model requires an annual 10 percent fee on growth in turnover and a 15 percent fee on finance from the seed to cover 55 percent or 85 percent of its total running costs by Year 10 (with depreciation charges included). In informal discussions with Level 2 and Level 3 entrepreneurs, there was ready acknowledgement of the need to pay for services, and royalties of up to 10 percent on growth in turnover were not rejected by respondents. The income figures factor in that only 80 percent of the funds will be collected given failures and improper activities will occur. 93 The royalty fee is set against income needs of the AIC and the ability of the clients to pay it. Modeling an increase in turnover of 50 percent and an improvement of 10 percent in both gross and operating profits indicates that the net profit will still exceed pre support net profits after payment of a 10 percent royalty fee. The rationale is that support will improve financial well-being while in the AIC, even with a royalty fee, and that on leaving, full benefits will be reaped by the entrepreneur. The calculations are based on conservative assumptions outlined in Annex 7. The figures provided below are all expressed in dollars and depend on successful negotiation of partnership arrangements. For example, the analysis below assumes that the AIC will not have to invest in its own equipment demonstration center, but that this can be provided through access to partners’ facilities. 8.1 BUDGET YEAR 0-6 It has been foreseen that a Year 0 is needed to allow complete planning and set up before clients start coming in the AIC. During Y0, expenses will be incurred. For example, salaries of four staff members—a CEO, a processing expert, a financial manager, and a business advisor—are necessary to do the preparatory work before clients enter the AIC program. The number of staff will increase progressively with the number of clients supported, starting with four staff members in Y0 to reach seven staff from Y3, which will mean working on a standard of one professional staff member for seven to ten incubatees. Given the commitment to a demonstration effect, an allocation for communications and marketing expenses is required. A monitoring and evaluation scheme is critical to ensure the success of such an initiative. Hence an allocation for communications and marketing, as well as for monitoring and evaluation activities, has been budgeted within the main budget lines presented below. In the budget overview provided below, “overheads” are defined as phone, Internet, information and communication technology (ICT) support and website development, postage, photocopying, stationery and printing, outreach motor vehicle expenses, advertising and public relations, accounting, audit and legal, insurances, functions and launch, staff training, travel, and subscriptions or library. 94 Figure 17. Expenditure by Category for Each Operating Year 11 2,000,000     1,900,000     1,800,000     1,700,000     1,600,000     1,500,000     1,400,000     1,300,000     1,200,000     1,100,000     Capex   1,000,000     Seed  fund   900,000     Deprecia;on  &  Provisions   800,000     700,000     Building  rent  and  services   600,000     Staffing  and  overheads   500,000     400,000     300,000     200,000     100,000     0     Note: The seed fund is reflected as the initial disbursements over three years. Source: Authors. 11 Reflecting the high road scenario. 95 Figure 18. Total Expenditure by Category  12   5%   Staffing  and  overheads   Specialised  services   32%   50%   Building  rent  and  services   Deprecia;on  &  Provisions   Seed  fund   Capex   7%   1%   4%   Source: Authors. 12 Idem. 96 Table 14. Mozambique AIC's Budget from Y0 to Y5 13 % of Category Yr0 Yr1 Yr2 Yr3 Yr4 Yr 5 Total Budget Staffing and overheads 442,170 486,170 537,170 537,170 537,170 537,170 3077020 50% Specialized services 0 24,000 56,000 63,000 67,000 67,000 277000 4% Building rent and services 14,406 14,406 14,406 14,406 14,553 14,553 86731 1% Depreciation & Provisions 65,265 67,943 69,671 71,939 74,099 74,099 423018 7% Seed fund 0 550,000 650,000 800,000 0 0 2000000 32% Capex 308,500 308,500 5% Totals by Year 830,341 1,142,520 1,327,248 1,486,516 692,822 692,822 6172269 100% Source: Authors. 13 The figures quoted are conservative in income and liberal in expenditure to reduce the risk of shortfalls. They have also been rounded to the closest thousand. 97 8.2 SEED FUND A seed fund of $2 million is proposed. The motivations for establishing a seed fund are twofold: First, enterprise growth at Level 1 and Level 2 is constrained by access to growth capital. This “finding gap” is well known in developing countries and generally exists between $30,000 to 50,000 and $500,000. Smaller amounts are available from family and friends or from micro- credit lenders, but as entrepreneurs look for financing above $30,000, banks become the more apparent sources of fund. However, banks’ collateral requirements are usually onerous and in some cases 150 percent of the loan amount is required to cover not only the loan repayment in the case of default, but also the administration cost recovery. Secondly, many of the entrepreneurs are women. In this case, the appetite for loans is hindered by an aversion to risk that may impact negatively on the family and there are issues with collateral ownership. Women are, therefore, less likely to access loan finance. Loan guarantee schemes (less than 100 percent guarantee) were considered but were deemed limiting because financial intermediaries still bear the risk on their component of the loan and may still require collateral or institute proceeding against defaulters. The purpose of the seed fund would be to make unsecured loans at near commercial rates to businesses where due diligence indicates the following: 1. A viable market exists that is accessible to the entrepreneur. 2. The business assessment indicates that the business has the potential for growth. 3. The entrepreneur has a high entrepreneurial quotient. 4. The entrepreneur and their business are accepted for support by the AIC. The impact would be to advance loans against business and entrepreneur potential without the need for collateral. The rationale is that growth entrepreneurs with good businesses and ongoing deep support from the AIC will be able to pay off their loans without defaulting. This underlies the premise of the AIC—an organization that can identify growth entrepreneurs and support them to expand their businesses. Assets acquired with funding will remain the property of the fund until paid off. 98 The seed fund is set at $2 million to allow adequate funding of entrepreneurs in the AIC support program within a three-year growth cycle. Payback amounts are then pooled for funding entrepreneurs in subsequent years on a rotating basis. The aim of the seed fund is not to replace banks or other financial institutions. Instead it is aimed at demonstrating that deep ongoing support and financing can combine to develop growth businesses. As such, banks will be asked to join the initiative with small amounts of loan financing that is matched to the seed fund, thereby reducing their own exposure while reaping the benefits of having clients supported on a day-to-day basis. It is hoped that this will encourage greater SME lending over time as banks begin to understand the SME environment. A local financial institution will likely manage the fund. It may or may not itself participate in lending alongside the fund. 8.3 SUSTAINABILITY The model seeks to achieve between a 55 percent and 85 percent self-financing capability, depending on the selection of the “Low Road” or “High Road” scenario, within 10 years. The cost recovery model is justified by the capacity and willingness of the target enterprises to pay to the AIC 10 percent of their growth in revenue and a 1 percent fee on finance raised. The seed fund will charge a market-related interest rate (15 to 20 percent) but have no collateral requirements. The remainder 45 to 15 percent in ongoing financing will be sought from local sponsors, including government and donors. The financing required to initiate this AIC will be provided for the first six years with income generated during this period being banked. The front-loading of the external investment allows the management to focus on the development of the AIC. It also allows the model to be changed, if it becomes clear after two years that the income generation targets are not likely to be met. Changes can be made before the AIC needs to rely on its own income generating streams in later years. On this basis, and assuming a financial investment of $7.77 million, the AIC can operate for 9-10 years, even operating at a 55 percent sustainability rate. 8.4 FUNDRAISING PLAN The concept and proposal will be presented and discussed with key donors that are active in Mozambique and in agribusiness and women programs. Donors that have participated in discussions and who may be approached include the following: 99 o DANIDA o Government of Finland o Government of Mozambique o USAID o European Union o GAPI In all cases, the significant socioeconomic impact, the gender focus, and the fact that the model seeks self-sustainability while strengthening local associations under the guidance and support of a cross-sector stakeholder base, must be exciting for funders who support private sector development. 100 9.0 OUTCOMES AND IMPACT 9.1 SOCIAL AND ECONOMIC IMPACTS The social impact of AIC interventions will be felt across the agribusiness sector, including farming, ancillary, and supportive services, and will particularly benefit the lives of women, youth, the unemployed, and underemployed. Technical skills will make managerial staff more marketable in both Level 1 and Level 2 companies, and improved quality control training will open new markets to farmers and suppliers. Although difficult to quantify, the forecast to multiply the production of each Level 1 and Level 2 entrepreneur’s business by up to two times will most certainly have direct and indirect social and economic impacts. Employment creation is the most direct and easily recognized impact. With the growth forecasts listed above, companies within the AIC program are expected to double within the first three years of participation. The potential direct impact in terms of job, enterprise, and wealth creation over six years has been captured in the tables below. These tables model two scenarios – a Low Road and a High Road scenario. In the first period (Year 0-5), the scenario outcomes are the same because the models are predicated on the current pool of entrepreneurs and their expected ability to scale. However, the second period (Years 6 to 10) is marked by increased growth in the High Road scenario as entrepreneurs develop faster (through awareness, support and a better enabling environment) and grow their businesses faster and to higher levels. What is of interest in the High Road scenario is that the AIC facilitates increases in all the parameters, yet does this through supporting fewer enterprises as a result of the scalability increases associated with higher growth companies. 101 Table 15. Impact on Jobs & Revenue Generation (Year 0-5) PARAMETER LOW ROAD SCENARIO HIGH ROAD SCENARIO 860 DIRECT JOB CREATION 860 2460 2460 INDIRECT JOB CREATION REVENUE INCREASES $ 8.7 million $ 8.7 million 106 106 ENTERPRISES SUPPORTED Source: Authors. Table 16. Impact on Jobs and Revenue Generation (Year 6-10) PARAMETER LOW ROAD SCENARIO HIGH ROAD SCENARIO 1675 1930 DIRECT JOB CREATION 4790 5520 INDIRECT JOB CREATION REVENUE INCREASES $15.3 million $22.7 million 206 178 ENTERPRISES SUPPORTED Source: Authors. Over a six-year period, the AIC is expected to have created more than 3,300 jobs. It is expected that more than 70 percent of these new jobs will be created for women (as determined from the survey of entrepreneur and staff gender). The creation of jobs is by itself only one measure of impact. The associated training and experience that supports these jobs creates a pool of workers that will be better placed to support other enterprise growth. The impact could catalyze significantly larger impacts than those that are being measured. Direct and total economic impacts from this initiative will bring a tangible benefit to women in Mozambique. An increase in production, as well as a higher degree of training, will allow women entrepreneurs to succeed in ways not currently available. The enterprises are expected to generate an additional $8.7 million in turnover over a six-year period. 102 The phasing of the AIC program during a six-year period should allow support to 106 sustainable growth-oriented enterprises. By more than doubling the output of SME producers, it is logical that their input purchases will double, as well. Additional increases in the demand for glass, plastic, and cardboard packaging options are expected, as is the demand for graphic design services, printing, transportation services and laboratory analysis—all of these actions will impact the unemployment and underemployment of personnel in each sector. Unlike other countries, Mozambican consumers have yet to embrace the buy-local concept, with imported products being seen as of a higher quality and standard. One critical aim of the AIC, as listed above is to bring domestic companies to an equal or higher standard than those imported brands. National taxation gains are another critical area of economic impact. Most Level 1 companies are not fully registered with the Mozambican government, and consequently are absent in the taxation programs. There could be a significant increase in tax revenue with the AIC working with companies to ensure registration and compliance. Tax revenue would increase by approximately $562,000 in the first six years, given the analysis of participating companies. The direct and indirect effects of such interventions are spread widely across various value- chain and supply-chain services, and reflect a positive increase in employment and marketability for all entrepreneurs affiliated with the AIC program. 9.2 INNOVATION IMPACTS Improved processing practices are perhaps the most innovative impacts to be felt as a result of this program. Entrepreneurs will increase productivity dramatically by cutting waste, implementing quality controls, and maximizing processing times with the availability of modernized processing equipment. Working with the various institutional partners, innovations will be made to develop new processing equipment that suits the needs of entrepreneurs. Lastly, innovations will be made with regard to the distribution models utilized by the entrepreneurs involved. During the interviews, most companies agreed that while production and efficiency were major issues, there were also issues with distribution models, which were often completely inadequate for the entrepreneurs to service their customer base. From small- scale, localized distribution to partnering with large, national, and international distribution firms, the innovations put forth in this area will tremendously affect the entrepreneurs and their ability to increase local, domestic, and international markets. 103 9.3 MONITORING AND EVALUATION A range of qualitative and quantitative measures are required to evaluate performance, related to both internal processes and outcomes. The core of the monitoring and evaluation system should be assessment of performance against key performance indicators, on a quarterly and annual basis and using these organizational indicators as a basis for development of key performance indicators (KPIs) for all staff. 9.3.1 KEY PERFORMANCE INDICATORS Key performance indicators are in four key performance areas (KPAs):  Customers  Financial  Human resources  Innovation 104 Table 17. Mozambique AIC’s KPIs Focus area Indicator Measurement Frequency Annual Bivariate client satisfaction survey with all resident and affiliate clients. A bivariate survey measures the satisfaction for particular service elements, as well as the relative importance of each to the client. The first survey sets the base line for subsequent improvement. Customer satisfaction— also calling for Anonymity is important for honest feedback and will be achieved Customers suggestions for with a ballot box system, if clients do not want to e-mail completed improvement forms back to the incubator. Another alternative is a web-based survey conducted by a reputable and independent company. Every Workshop and event evaluation of satisfaction, content and workshop presenters. and event Outcomes survey Turnover—Against actual targets form the model Employment Annually Wages paid Client Business and for five Performance years after Investment graduation Business survival—Expecting 80 percent of clients and graduates to survive for at least a five-year period after graduation (the monitoring period). Business growth—By comparing one year’s figures to another. 105 Frequency set on entry, but typically Formal client performance reviews, noting informal contact with quarterly. clients on a daily and weekly basis is still crucial. More frequent for high tech. Monthly and New clients, industry and quarterly type (service or Clients entering the AIC compared to the targets. reporting to technology) the board. From client records with Clients graduating and period under support (average three to four Graduation quarterly years anticipated). reporting to the board. Quarterly Efficiency Budget versus actual and variance reporting to Financial board Bivariate independent staff satisfaction survey—first survey sets the base line for improvement. Anonymity is crucial and it will need to Human Staff satisfaction Annually be conducted by a reputable independent company, ideally with Resources a web-based survey instrument. Annual review of business New programs Progress developing and implementing new programs. plan and Innovation specified new projects. Source: Authors. 106 Once the board agrees upon performance indicators, individual key performance indicators for each staff member will be negotiated with the staff member related to these organizational indicators. 9.3.2 IMPACT ASSESSMENT The baseline data of the clients of the AIC will be recorded at the time the client enters the AIC. Assessment of impact should be undertaken independently every three years at the instigation of stakeholders, drawing upon data from the AICs monitoring and evaluation system and combining this with qualitative information gathered from stakeholder interviews and client case studies (and with data obtained from independent surveys of clients and graduates if the AICs data is flawed or seen as inadequate and socio economic data). The assessment will make judgments about the following:  The overall socioeconomic impact flowing from the client businesses, making use of input and output multipliers in terms of employment, wage rates, and sales revenues.  The cost effectiveness of the AIC intervention, noting that 10 years of support is required before significant impacts will be evident, as it takes time for businesses to grow and have impact.  Impacts on the business environment, in particular improved culture of entrepreneurship, improved early stage financing mechanisms, and improved regulations.  Performance against the objectives of the AIC. Table 18. Mozambique AIC Outcome and Impact Indicators CLIENT BUSINESSES 106 growth-oriented businesses supported over six years. Additional $8.7 million turnover generated in six years. EMPLOYMENT 860 direct jobs created over six years. 2450 indirect jobs created over six years (ratio of 2.86:1 in food processing). TAX REVENUES Additional $562,000 over six years. Source: Authors. 107 9.3.3 PLANNING Planning involves stakeholders, the management board, and the management team. It encompasses the needs of clients and the desired outcome of stakeholders. Annual planning should be implemented for strategic and business planning, involving the board, informed by management reviews of performance. Table 19. Mozambique AIC's Planning Scheme Planning By Whom When Board, management, Annual or biannual Strategic planning and stakeholders Business planning and Management; Annual annual budget Approval by Board Sustainability Management and As a part of annual Board business planning Program review Management To inform annual business planning Source: Authors. 9.3.4 REPORTING To ensure good governance and facilitate stakeholder involvement, regular reporting mechanisms will be instituted. 108 Table 20. Mozambique AIC's Reporting Scheme Reporting By Whom When Management will Quarterly Management report to prepare and submit a report addressing the Board key performance indicators, for consideration by the board at quarterly meetings. Annual report Management will Annual prepare and submit a report addressing the key performance indicators for consideration by the Board at either its final meeting in each year or the first meeting in the next year. Management liaison CEO/Manager and Minimum monthly and with Chair of the Board Chair of the Board as required Program review Management, to feed Annual into the final management report each year and the annual report. Source: Authors. 109 10.0 RISKS The table below captures a comprehensive risk and mitigation plan. Table 21. Mozambique AIC's Risks and Mitigation Plan Impact Likelihood Mitigation Risk • Realistic modeling • Good phasing Financial model Failure of clients to • Extensive linkages underperforms/ High reach growth targets • High caliber management reputational damage. • Good selection procedures • Board representative of Mozambican economy Significant delays in implementing the AIC model: 1. The expected funding is not received • Improved communication with and between Objectives not met 2. Change in the stakeholders within timelines and political context Medium • Agreement with all funders on timing of financial funders and 3.Inability to hire the contributions and application stakeholders withdraw. right manager • Support of key government officials) 4.Partners do not come around the table and infoDev needs to build the capacity 110 • To further examine market opportunities when developing the AIC’s business plan. • Consequently potentially broaden the scope of Market might get Market assessment the AIC’s intervention areas (such as honey, saturated and prices Medium failure herbs, and others). might get affected. • Final AIC’s business plan should reflect the balance between the center’s focus and the market opportunities. • Excellent marketing activities Failure to attract Funding model Medium to • Demonstration of benefits to companies sufficient clients underperforms. High • Modest targets of intake per annum • Accurate market assessment • High caliber management Companies do not • Ratio of 1:10 management staff to clients Financially strains model. Medium stay/pay • Value added services • Contracts (fees and participation) • Adequate funding for high caliber management • Good board to attract high caliber Inadequate service Management failure Medium management provision. • Selection of high caliber management • infoDev technical assistance • Ongoing model review annually as part of business planning Model flaws Failure to reach targets. Medium • High caliber management • Board assistance in review and refinement • Board selection Inadequate • Board training Board failure Low leadership/governance. • High caliber incubator management • infoDev technical assistance 111 Funders fail to • Donor consortium and coordination Inadequate funding. Low support full cycle • Pre-implementation funding agreements Source: Authors. 112 11.0 CONCLUSION Although Mozambique has comparative advantage in many agricultural sectors, it possesses a poor beneficiation capacity, which limits greater local employment and revenue generation. Coordination across the various value chains is generally poor and there are tremendous logistical, innovation, and financing constraints to scaling up small and medium scale processors. The establishment of the AIC model in Mozambique will serve to plug these critical gaps and accelerate the development, deployment, and transfer of agribusiness innovation. The business support services of the center include the following: a dedicated staff; business coaching and mentoring; an enabling environment facilitating networking and linkages with relevant stakeholders, and access to finance through the facilitation of a seed fund and commercial loans. Coordination among the existing agribusiness market players is a key success factor and will be one of the main objectives of the AIC. The AIC will require an initial public investment of $7.77 million ($4.2 million for operation; $2 million seed fund; $1.57m for implementation support). The AIC would be expected to reach between 55 percent and 85 percent financial sustainability by Year 10 (with depreciation charges). Sources of financing are fees charged to the client enterprises, an annual 10 percent fee on revenue growth, and a market-related fee on finance raised. Having100 percent self-financing sustainability is not considered practical as the level of entrepreneurship is too low to attract a sufficient pipeline of enterprises that can generate the levels of revenue required to sustain an AIC. By Year 6 the AIC will operate at 45 percent financial self sustainability and the bulk of the required financing needs to be sourced as a public good from donors and government sources. The stakeholder engagement process has already built a strong coalition of partners and identified a pipeline of potential incubatees that will allow the AIC to hit the ground running and produce tangible impacts over the first six years. Pending the success and outcomes of the AIC’s programs, the direction, scope, and scale of the center (and business plan) will evolve over time with the guidance from a strong management team and board. Agribusiness-led growth can contribute to sustained economic development by enabling the growth of sustainable innovative small- and medium-scale enterprises. The topic is currently on top of the donors’ agenda. The timing is right to capture the momentum on this issue and develop a leading and world-class institution in Mozambique from which lessons learned will be applied globally. 113 ANNEX 1. CONCLUSIONS OF INFODEV GLOBAL GOOD PRACTICES ASSESSMENT ON AGRIBUSINESS INCUBATION In 2011, infoDev conducted a study of 10 agribusiness incubation programs located in eight countries. The full study—as well as video documentaries of incubation programs in the mountainside of Java, Indonesia, and rural South Africa, as well as rural areas of Brazil, Chile and Mexico—can be found at http://infodev.org/articles/growing-food-products-and- businesses. Examples of the results generated by these programs include the following: • Fundación Chile has spearheaded the development of the salmon industry that in a span of just slightly more than 10 years has been able to grow by a factor of 1,000 and contributed to $2.2 billion exports and more than 35,000 jobs. • The efforts of Technoserve in Mozambique and Fundación Jalisco in Mexico have led to the upgrading of entire subsectors, such as poultry, cashew nuts, and blueberries. • CENTEV-UFV in Brazil has developed a new model for commercialization of agricultural research in Brazil. It has cultivated such successes as a biotechnology business specializing in a fungus that protects plans from parasitic nematodes, a product that could help reduce the yearly $100 billion losses in world agriculture. • Timbali Industrial Incubator in South Africa has transformed the life of poor women into assertive entrepreneurs in the highly competitive flower business. • ABI-ICRISAT in India has supported the growth of successful biotech companies. • IAA-IPB in Indonesia has promoted the growth of zero-stage enterprises owned by women into successful, competitive, and growing medium enterprises. The table below provides a snapshot of the quantifiable outputs of these incubators vis-à-vis the public investment in them. The age of the incubators and the vastly different scale of investments must be taken into account when reviewing these results. It should also be noted that the return on investment (ROI) calculation does not take into account backward linkages—that is, while the calculations would include a processor who increased his or her sales by x, the increased income of the farmer who was able to sell more produce to the processor has not been taken into account. The calculation also does not include the impact on “copycats,” which adopted the production practices that were demonstrated and started or scaled their own businesses. Nevertheless, the calculations provide some indication of what results are achievable. 114 Total “ROI” Average Initial Sales of Sales of Number of Years Investment Graduate Enterprise Incubator Graduates Enterprises the Incubator in d Sales/ Initial Has Operated Incubator Enterprise Investment in ($ million) ($ million) s ($ Incubator million) Fundación 85 5 30 50 425 2.3 Chile CENTEV 24 2.5 16 0.7 60 60.4 Fundación 4 1.25 5 4 5 1.2 Jalisco IAA-IPB 38 0.21 16 0.3 7.98 18.7 Timbali 140 0.03 8 2.8 4.2 1.3 Not all the programs reviewed had been equally successful. In one case, an incubator focused on commercialization of domestic R&D had not yet achieved successful market entry. The review of the 10 programs, therefore, provided powerful insights into models that can be adopted, as well as factors that are critical to success. Many viable models exist for agribusiness incubation. Selection of a model depends on the stakeholders’ core objectives, combined with the unique characteristics of the local business environment and the amount and nature of the funding available to initiate the incubation activity. A commonality of the case studies assessed in this report was that most were structured as public-private partnerships. Beyond that, there were significant differ- ences. The report identifies three types of agribusiness incubators: 1) agribusiness sector/value chain incubators; 2) agricultural research commercialization incubators; and 3) technology transfer incubators. Within each type, there are significant differences in terms of public-private partnerships, affiliations, target clients, business models, and organizational design. 115 Based on the literature review and the case studies conducted, it appears that the success of agribusiness incubators in creating sustainable and competitive enterprises relies upon six factors. These factors include the ability of the business incubator to effectively— 1. Help the entrepreneur manage the risks associated with an agribusiness enterprise through a combination of technology, institutional, and networking strategies. 2. Understand the value chain affecting the success of the enterprise and assisting the enterprise with positioning itself in the value chain by linking farmers and enterprises to meet the demand of consumers for stable, quality, and affordable products. 3. Identify and demonstrate innovative business propositions so as to catalyze broader sectoral take-up. 4. Adapt the focus and business model of the incubator, and strategically scale it up in response to market opportunities and market failures. 5. Promote pro-active business orientation that actively identifies market opportunities. 6. Support incubation design basics: leadership with a business mindset and excellent agricultural market knowledge (preferably with agribusiness experience), a lean staff complemented by strong partnerships, an institutional framework that provides sufficient flexibility allowing for learning by doing, strong capital structure, and dense networks — including effective linkages with sector leaders. 116 ANNEX 2. MOZAMBIQUE MACROECONOMIC OVERVIEW In 2010, the economy benefited not only from foreign direct investment (FDI) but also from the recovery of the aluminum price. For 2011, an increase in exports was expected, but there was still a negative trade balance caused by the heavy imports of food, oil, and manufactured products. Nevertheless, in the medium term, Mozambique is expected to maintain high rates of economic growth, mainly because of the increasing impact of mega projects. However, this growth will result in non-inclusive economic growth since it will not benefit the less favored segments of the population, as it is based on an “extractive economy” not followed by economic and export diversification.14 This is further impacted by the level of development of business such as the relatively low level of public investment (such as roads, bridges, or energy) and difficult access to financial services, which leads to a weak business environment.15 This economic trend has forced the government to adopt macroeconomic level interventions intended to reduce the level of inflation, which had increased significantly from 3.3 percent in 2009 to 12.7 percent in 2010. In 2010, the rate of inflation achieved two digits basically because of the elimination of the subsidy on domestic fuel prices, the increase of international prices of oil and food stuff, and the huge depreciation of the Metical against the currencies of major trading partners, as well as the contraction in the supply of fresh products resulting from heavy rains. Meanwhile, the government has pursued efforts to cushion the inflationary pressure, bringing down the rate of inflation to a single digit by intervening in the pricing of urban transport and wheat flour, by adopting a tighter monetary policy, and reinforcing the national food production strategy (Action Plan for Food Production—PAPA). In 2011, the government approved a new exchange policy but it is expected that this measure will only produce effects on the long term as economic agents need some time to adjust to the new law. However, in spite of the growth rates registered by Mozambique in the last few years, it still remains one of the most underdeveloped and poorest countries in the world. This unbalanced growth is reported to be a result of an economy heavily dependent on megaprojects, which have a considerable impact on the national trade account, but which are unable to develop the sectors that impact the majority of its population. 14 Victor Lledó and Marcos Poplawski-Ribeiro, IMF Working Paper: Fiscal Policy Implementation in Sub-Saharan Africa, 2011. Available at: http://www.imf.org/external/pubs/ft/wp/2011/wp11172.pdf ]] If so, please put in full citation]] 15 Doing Business. 2011. 117 The levels of poverty have fallen from close to 70 percent in 1995 to around 54 percent in 2003.16 However, more recent estimates suggest no change in the official poverty rate since 2003.17 Poverty remains high and concentrated in rural areas where many households derive their income from agricultural activities. Many of the Millennium Development Goals (MDGs) are in danger of being missed and basic challenges, such as improving the quality of education and health services and the fight against HIV/AIDS, remain daunting. The social differences have increased slightly within urban areas comparatively to rural areas. This can be inferred from the almost non perceptible change of the social differences measured under Gini18 coefficient of 0.42 in 2002-03 and 0.41 in 2008-09. 16 Source: Inter-American Foundation (IAF). 2002/03. 17 Source: IAF. 2008/09. 18 Measure often used to calculate differences on income distribution. 118 ANNEX 3. MOZAMBIQUE GOVERNMENT STRATEGIES FOR THE AGRICULTURAL SECTOR “Concept, Principles and Strategy of the Green Revolution in Mozambique” Translation of Section 3.-Green Revolution in Mozambique: Concept, Purpose and Pillars The Green Revolution in Mozambique is a process of finding solutions to increase levels of agricultural production and productivity through use of improved seeds, fertilizers, tools of production, production technologies suited to local conditions, agricultural mechanization, including animal traction, construction and operation of dams for irrigation, and watering cattle, among other actions. It is a multidimensional strategy to combat hunger and poverty and ultimate goal is to increase production and productivity of land a competitive and sustainable. The concept of the Green Revolution in Mozambique based on the following assumptions: a) combating poverty involves the elimination of one of its manifestations, namely, the lack of food and basic permanent or temporary food insecurity; b) the generation of employment and income are crucial for creating conditions necessary for the return of human dignity communities; c) the experiences of other countries where similar programs were successfully implemented must be taken into consideration. Objectives and Principles The Green Revolution in Mozambique's main goal is to induce increased production and productivity of small farmers to a greater food supply in a competitive and sustainable manner. To be sustainable, progressive and irreversible, this objective must observe the following principles: a) be endogenous, based on the basic socio-economic and cultural producers; b) rely on the effective capacity of government support; c) take into account local specificities, including the agro ecological potential of each region, including peri-urban areas; d) have strong leadership, creativity and maximizing the use of local resources places and not to rely solely on the State Budget e) greater decentralization of powers, human resources, material and financial resources to the districts; 119 f) assist in guiding policies and programs promoting associative movement of producers; g) promote self-esteem among producers, discouraging programs in free distribution of material or financial resources and encouraging savings schemes and mutual help; h) implement specific programs with clear goals and accountability in the implementation, and i) integrate primary, secondary and technical professionals in implementation. EXTENSION MASTER PLAN 2007 – 2016 (Original Document in English) 1. Background 1.1 General The long term goals of the agricultural sector in Mozambique are to improve food security and reduce poverty by supporting the efforts of smallholders, the private sector and governmental and non governmental agencies to increase agricultural productivity, agro- processing and marketing, while keeping a sustainable path for the exploitation of natural resources. PROAGRI I, the first national investment program for the agricultural sector (1998 – 2004) has been instrumental for the fulfillment of these long term goals. Extension Services was one of the eight components of PROAGRI and the first Extension Master Plan(EMP, 1999-2004) was formulated in line with the basic principles for extension in PROAGRI I:enhanced research-extension linkages, downward accountability to farmers on services delivered, multiple extension service delivery systems, social inclusion (in particular women, youth and PLWHA)and quality staff at different levels. The EMP called for a twofold approach: the adoption of Unified Extension Services, SUE, encompassing crop production, livestock and natural resource management, and the development of an integrated National Agricultural Extension System, SISNE, with functional partnerships between public and private extension services, including the development of public contracts with non-government service providers. Moreover, the plan also calls for increased linkages with other institutions such as research, agricultural services and marketing institutions; and mentioned the possibility for cost recovery from farmers served by public extension services. The Extension Master Plan provides the strategy of the Ministry of Agriculture for agricultural extension for the period 2007-2016. The agricultural extension strategy is based on the strategy for PROAGRI II 2006-2010, the draft Extension Master Plan and the National 120 Agricultural Extension Programme 2007-2014, PRONEA, which is based on the Agricultural Support Programme documentation (ASP, 2005) All referred documents have gone through extensive consultation process with stakeholders at district, provincial and central level, as well in the public and private sector. Farmers and their organizations have in particular been consulted on their demands for knowledge- based services in the coming years. The base documents for the current extension master plan have been further based on the positive and negative lessons learnt during the implementation of the Extension Master Plan 1999-2005 and indeed the lessons learnt during the implementation of PROAGRI I, such as the generally recognized need for a paradigm shift on agricultural extension in the country due to recent developments such as decentralization, participatory planning monitoring an evaluation and the wide-spread introduction of multi-stakeholder approaches in agricultural innovation systems and value chain developments. 121 Final Evaluation of the First Phase of the National Agriculture Development Programme PROAGRI (1999 - 2005) 4. PROAGRI GOALS AND OBJECTIVES A good baseline understanding of the initial precepts of PROAGRI was required to carry out an evaluation process. Normally the baseline and conditions and vision would be reflected in a log frame in the project document. However, in the case of PROAGRI, there was no log frame with elaborate activities and indicators that could be evaluated. There was a clear statement of goals and objectives in the two main documents: the earlier PROAGRI Master Document and the later-published PROAGRI Basic Principles Document. A detailed assessment of the two documents is available in Volume III as a programme baseline assessment; section 4.1 summarizes the programme goals and objectives and gives a quick assessment. 4.1 PROAGRI Goals PROAGRI was an ambitious programme, anticipating more complex decisions in the wider arena of the public sector. Consequently, some of its stated goals may be seen to be a pilot attempt for use in the larger debate of national public sector reform. All the articulated goals, however, remain conceptually relevant. The following are presented in a perceived order of priority obtained from discussions with senior government officials during the course of the evaluation: Goal 1. Poverty reduction Assessment of validity: The causes of poverty are multidimensional and typically interrelated. It relates to inadequate assets, lack of political power and vulnerability to shocks. The agricultural sector can have a large impact on poverty, but can only progress within the wider socio-economic environment within which it exists. Impact of activities (and therefore actual poverty reduction) is measured outside the agricultural sector and is often long in developing – much longer than the life of the programme. Goal 2. Decentralization and empowerment of stakeholders 122 Assessment of validity: The move toward decentralization to the district level provides scope to permit co-ordination of investments in transport, water, market infrastructure and services, and agricultural research and extension. The process is expected to lead to more responsive and locally applicable policy decisions. Participation enhances stakeholders’ influence and control over development of priorities, policy making, resource allocations and access to public goods and services. However, local stakeholders commonly focus on short term gains and can demand actions and services that run counter to long term plans for other goals (i.e. market oriented policy and environmental sustainability). This has happened during the implementation of PROAGRI and demands better phasing of development plans, advocacy and building of social awareness locally. Goal 3. Good governance: transparency, accountability and participation Assessment of validity: Mozambique has made perceptible progress in a wide range of good governance issues (e.g. human rights, free press, programmes of public reform, etc), but also recognizes that it has work to do in other areas. PROAGRI activities addressed greater awareness of public opinion in the rural areas, more transparency in government actions, and greater accountability of public institutions and officials. Further progress has been made, but the effort must continue as these improvements impact directly on the primary goal of poverty reduction. Goal 4. Market-oriented policy Assessment of validity: Initial emphasis was on Ministry policy to withdraw from market activities that would be better performed by the private sector and concentrate on core activities, creating an enabling environment for the private sector partners. This has transformed somewhat through the programme as it was recognized that the private sector was much weaker than originally thought, and its growth relied heavily on national economic and administrative sectors that were not proceeding as quickly in instituting their own sets of reforms. A plan to rephase the changes envisioned, better interlinking it with progress in related sectors and more support for programmes at the preliminary stages of the process of change should be developed. Goal 5. Mainstream gender and HIV/AIDS issues Assessment of validity: Both gender and HIV/AIDS were identified as crosscutting issues which needed to be mainstreamed into the activity programme of PROAGRI. It is recognized that both these issues are at the heart of both poverty alleviation and empowerment of stakeholders in rural areas. There must be profound changes in the system to make it more effective at dealing with both of these issues. Goal 6. Environmental sustainability 123 Assessment of validity: Environmental sustainability, while at times working against perceived short-term economic needs of a community (as well as development in other sectors), has been identified as a long-term goal. It directly impacts on the issues of livelihood improvement, and is as much a part of poverty alleviation as, for instance, job creation is. These goals are defined at the strategic level representing larger social commitments of Government. To address these goals the technical managers in the Ministry of Agriculture design activities to be carried out both immediately throughout the annual programme and over longer planned periods. The activities of both these types of programmes will have specific objectives which lead to development of the goals stated. PEDSA (2010-2019) 1. Mozambique ́s economy is essentially agricultural. Mozambican agriculture is predominantly subsistence, characterized by low levels of production and productivity. Seeking solutions to this problem, in 2007 the Government adopted the Green Revolution Strategy. 2. The PEDSA is integrated into the instruments established by the National Planning System, and presents a medium/long term vision based on national directives for agriculture and the priorities set out in Africa ́s common guiding framework for improving agricultural sector performance – the Comprehensive African Agriculture Development Programme (CAADP). 3. By systematizing the wide range of strategic guidelines for agriculture, PEDSA aims to incorporate a vision that is shared by key actors within the sector, creating a harmonized framework that will guide decisions, deal with issues that affect investor confidence and speed up agricultural competitively in a sustainable way. It focuses in particular on the Green Revolution Strategy, the Priorities of the Agriculture Sector, the Research Strategy, the National Extension Programme, the Re-­‐forestation Strategy, the National Forestry Plan, the Irrigation Strategy, the Food Production Action Plan, and the Strategic Plan for Livestock. 4. PEDSA ́s implementation approach is based upon the value chain, so its operationalisation takes into consideration all the activities linked to: (a) the development and transfer of technologies and provision of agricultural inputs; (b) agricultural production; (c) processing and marketing activities that add value to agricultural, livestock, forestry and wildlife products; and (d) sustainable natural resource management. 124 5. PEDSA ́s vision is founded in Mozambique ́s Vision 2025: An integrated, prosperous, competitive and sustainable agriculture sector. 6. To materialize the vision, the strategic plan defines the following general objective: “Contribute towards the food security and income of agricultural producers in a competitive and sustainable way, guaranteeing social and gender equity”. ␣Increase agricultural production and productivity and its competitiveness ␣Improve infrastructures and services for markets and marketing ␣Use land, water, forest and fauna resources in a sustainable way ␣Establish a legal framework and policies that is conducive to agricultural investment ␣Strengthen agricultural institutions 8. PEDSA will be implemented through a flexible and interactive learning process that takes into account the specificities of each province and relies on the participation of all key actors on three major fronts: ␣The long term commitment and involvement of the Government and all the actors ␣Decision-­‐taking based on analytical work and evidence-­‐based planning ␣Alliances and partnerships to mobilize resources for agricultural investment focusing on: (i) increasing the availability of food in order to reduce hunger, through growth in small producer productivity and emergency response capacity; (ii) enlarging the land area under sustainable management and the number of reliable water management systems; (iii) increasing access to the market through improved infrastructures and interventions in marketing; and (iv) improving research and extension for increased adoption of appropriate technologies by producers and agro-­‐processors 9. The strategy aims to increase agricultural growth by an average of at least 7% per year. The sources of growth will be productivity (ton/ha) combined with an increase in the area under cultivation, with a view to doubling yields and a 25% increase in the area cultivated for basic food production by 2019, while ensuring the sustainability of natural resources. 10. The strategy creates space for a more active private sector in both production and service provision. Family sector producers, associations, emerging farmers, commercial farmers and livestock producers, forestry entrepreneurs and the providers of agricultural goods and services including inputs, equipment, technical assistance, financial service, processing and marketing all form part of the private sector. 125 11. The Government essentially engages in creating a favorable environment for the private sector to invest in production, processing and marketing, through infrastructures, incentives, improving the legal framework and providing public services. These latter focus on the administration and management of land and forests, environmental protection, promoting production, agricultural information, protecting plant and animal health, agricultural research, training for producers and the emergency response safety network. 12. PEDSA aims to (a) produce synergies that will transform the agriculture sector from being predominantly one of subsistence farming to being more competitive; (b) embody a vision that is shared by the sector ́s key actors; and (c) deal with issues that affect investor confidence. 13. PEDSA additionally aims to fill existing gaps in the National Sub-­‐System for Agricultural Development Planning and respective Framework that came to light with the implementation of the Food Production Action Plan (PAPA). It will also guide the efforts of development partners and align agricultural development with national, regional and international guidelines. 14. PEDSA expects increases in the levels of public resource allocations in order to create a favorable environment for the private sector. The state will subsidize the supply of production factors at progressively lower levels, and will focus on the large-­‐scale use of animal traction, the adoption of technical packages, promoting mechanization, the use of water and electricity for production, processing and marketing, as instruments that will lead to the proposed levels of growth. 15. Public investments for areas with high agricultural potential will be given priority, including guaranteeing access to productive areas. In other areas the state will support local initiatives to enable alternative sources of income. 16. PEDSA will be operationalised in 5-­‐year and annual plans: ␣The 5-­‐Year Programme 2010-­‐2014 harmonizes sectoral activities to introduce significant improvements in land, water and forest use, with the objective of achieving the Millennium Development Goals. The Food Production Action Plan (PAPA) for 2008-­‐2011 forms part of PEDSA during the first five years. ␣The 5-­‐Year Programme 2015-­‐2019 consolidates food security and widens access to domestic, regional and global markets. The operational basis for this period will be established in the light of lessons learned during implementation in the first five years. ␣PEDSA will be monitored within the framework of the National Planning System, translating the priorities, strategies and plans formulated at political level into practical programmes 126 that can be carried out efficiently and effectively. Four evaluations are included: the Agricultural and Livestock Census currently under way to provide the starting point, evaluation of the food production plan to provide operational lessons, and evaluations at the end of each 5-­‐year period. 127 ANNEX 4. MOZAMBIQUE GOVERNMENT STRATEGY FOR THE DEVELOPMENT OF SME Definition of National Strategies for the Development of SMEs 4.1. Strategic Framework 4.1.1. Objectives The aim of this strategy is to create a solid foundation for the development and growth of SMEs This will contribute to the efforts made by the Government to mitigate the level of poverty and achieve sustainable economic growth. The objectives of growth and development of SMEs in Mozambique follow: (I) Establishment of liaison with foreign capital and consequently with the global value chain; (Ii) Increase in the establishment of new businesses, and (Iii) improving the competitiveness of existing businesses. As indicated, the ultimate goal of the national strategy is to create a solid basis for endogenous development of SMEs To achieve this objective, as mentioned above should be considered two strategic pillars namely: • The establishment of a link with foreign capital,. • The vitalization of starting a business and improving existing SMEs. The rationale for the first strategic pillar, i.e. the establishment of a connection with foreign capital, is as follows: • The country does not have the capital nor the technology to develop the industry, the only option left is to get them from outside sources / foreign; • Without combining capital and technology, the advantage of the abundance of manpower and geographic location will be useless to the economic development of the country; • The industrialization and enterprise development is a learning process, which was witnessed p she laughed development path of other countries. By employing foreign capital, the country needs to quickly build capacity of local firms to absorb advanced technologies and management skills as quickly as possible. This can be achieved by forming partnerships with foreign capital. Indeed, advanced technologies and management skills come from foreign investment. Hence the fact that invites foreign capital has particular importance, since the country does not have the resources to develop the industries that are so necessary. 128 Nonetheless, foreign capital would not feel stimulated if there was not a sufficient industrial base that could sustain their operations. This substantiates the reasoning of the second strategic pillar, namely vitalize the opening of local businesses, promote and improve the capacity of existing SMEs. 4.1.2. Conceptual Framework for Achieving the Objectives The two objectives described in the previous section will be achieved through a three- pronged strategy, namely: (I) the creation of a more favorable business environment; (Ii) build the capacity for the development of technologies and management skills, and (Iii) the strategic support to SMEs This strategic program, closely linked to each other, contribute to the achievement of strategic objectives. The creation of a more favorable business environment it is essential to invite foreign capital. It is also a necessary condition for greater openness of local businesses and to strengthen the capacity of existing SMEs. The capacity building is directly connected to the revitalization and improvement of SMEs, in turn, is directly related to the facilitation of foreign capital. Indeed, the probability of investing in foreign territory would increase when the partnerships and workforce of high quality are available in the target countries. At the same time, the strategic support SME is absolutely necessary in the development stage since, in general, not inherently possess SMBs resources. Thus, the support must focus on relieving the constraints in terms of resources that SMEs are struggling. Furthermore, a base is needed to implement the administrative solid SME development strategies effectively. To achieve this objective, the base administration must be redesigned to facilitate the implementation of strategies. To this end, it is necessary to redefine the categories of SMEs and reorganize the administration solely dedicated to matters of SMEs 4.2. Recommended actions 4.2.1. Removal of Regulatory Barriers Recommendation 1: Introduce a negative licensing system 4.2.2. Creating an environment with simplified inspections Recommendation 2: Create an environment with simplified inspections without prejudice to the need for the control of the business. It should disseminate the culture of educational 129 inspections for micro, small and medium enterprises. Where possible, these should be joint inspections. 4.2.3. Greater Access to Finance 4.2.3.1. Reasons for the high cost and lack of availability of credit to SMEs 4.2.3.2.Strategy of access to finance 4.2.3.3. Introduction of a credit guarantee Recommendation 3: Introduce a credit guarantee system based on mediation between SMEs and commercial banks through an institution for the promotion of credit guarantee. This requires the creation of an institution dedicated to supporting SMEs that among various functions promote the guarantee funds to finance various business initiatives. 4.3. Promoting the establishment of the system of leasing for SMEs Recommendation 4: Promote the establishment of the system of leasing for SMEs as a way to enable them to have access to and acquisition of machinery other physical assets required for its activity. 4.4. Creating lenders and investment funds Recommendation 5: Promotion of operation of investment funds - Profits from investment activities, the profits that Private invest or obtain from investment funds and profits from investment funds should also be exempted from payment of taxes. -In addition, you must provide information to fund SMEs, so they know where SMEs can invest. 4.5. Incentives for the efforts of banks in relation to SMEs Recommendation 6: To induce banks to increase SME credit through appropriate measures including, among them, the application of interest rates preferred to reserve deposits of banks loans bank Central. 4.6. Encouraging rural credit and micro-credit Recommendation 7: Motivate the Banks funding to strengthen institutions of rural credit and micro-credit and assist them in training institutional. 4.7. Deepening of regulatory measures to make the labor workforce more competitive Recommendation 9: Regulating the new labor law in order to make our workforce more competitive. 130 4.8. The issue of tax burden Recommendation 10: Undertake the studies on the current tax regime, in particular, Concerning the SME in view of the following: 4.9. The VAT refund Recommendation 11: Continue efforts to reduce delays in VAT refund 4.10. Expanding market access will Recommendation 12: Increasing market access for SMEs through Government procurement and export promotion. The program "Made in Mozambique "now under way should be used as a promoter of this measure by encouraging the public to demand local goods and services in particular, provided by SMEs The program will also promote links between SMEs and large companies. 4.11. Information markets Recommendation 13: Improve the flow of information transfer on markets by creating a database intended for use by SMEs 4.12. Business Alliances Recommendation 14: Creating Niches Promotion of SMEs, through following mechanisms: - Appointment of a square or special financial markets in which they operate companies in the same industry or similar; - Creation of a system of incentives for SMEs that decide to operate within the designated area; 4.13. Designate special financial centers in major regions of the country Recommendation 15: Encourage local governments to establish by meager financial sectors to ensure specialization and growing market. 4.14. Entrepreneurship Recommendation 16: Promoting entrepreneurship especially in youth layers through the establishment of a system of technical and vocational training adequate and even the creation of a conducive business environment. 4.15. Capacity Building for the Development of Technologies and Management Skills Recommendation 17: Encourage the transfer of management skills, and technological 131 knowledge to national frameworks, the ventures SMEs who hold foreign capital. 4.16. Establishment of a system of national technical qualification Recommendation 18: Establish a qualification system that allows technicians are assessed throughout their career by specific qualities that have, and for that purpose recognized for employment purposes. 4.17. Enhancing vocational training institutions Recommendation 19: Increased coordination and utilization of installed capacity the institutions providing training 132 ANNEX 5. DONORS ACTIVE IN AGRIBUSINESS IN MOZAMBIQUE 1. Millennium Challenge Account “Compact” Program The Millennium Challenge Corporation and the Republic of Mozambique have signed a five-year (2008-13), $506.9 million Compact to reduce poverty and increase economic growth. The Compact’s goal—through targeted investments in water supply, sanitation, transportation, agriculture, and land tenure—is to increase the productive capacity of the population in selected districts, with the intended impact of reducing the poverty rate, increasing household income, and reducing chronic malnutrition in targeted districts. The various interventions are designed to foster investment and increase economic opportunities for Mozambicans living in the northern four provinces (Zambezia, Nampula, Cabo Delgado, and Niassia) of the country. More information about the Compact can be found at www.mca.gov.mz and additional information about the Millennium Challenge Corporation can be found at www.mcc.gov. Business Development Fund Focused in Nampula and Zambezia, this fund is aimed at raising agriculture productivity and is composed of targeted grants to small and medium enterprises that play a critical role in the agricultural value chain. A pool of $1 million is to strengthen weaknesses and identify opportunities in the coconut and intercropping value chains. These initiatives include supporting a variety of interventions from small-scale saw mills for value-adding coconut wood, commercial warehousing to increase post-harvest and storage capacity, milling machinery to value-add cash- crops/dual purpose crops (both personal consumption and sale), and initiatives to foster direct production increases with small scale producers by providing certified seed, water pumps, dryers, and sellers. 2. Instituto Portugês de Apoio ao Desenvolvimento—IPAD (Portuguese Institute for Development Support) Programa Indicativo de Cooperação Portugal has signed a cooperation agreement entitled Programa Indicativo de Cooperação (PIC; Cooperation Indicative Program) with Mozambique. This agreement 133 defines the areas and modalities of cooperation between the two countries by 2014, with a planned investment of about €62 million. The new PIC renews commitment in strategic sectors, such as traditional-technical cooperation, police, or education, but also promotes bilateral cooperation in science and technology and entrepreneurship and business development. Framed by the UN Millennium Development Goals, this agreement will enable the development on the ground of about 40 programs and projects, in order to support the fight against poverty and sustainable development in Mozambique. 3. Denmark—DANIDA DANIDA has established a number of business programs, including the Private Sector Development program, Mixed Credits program, Business 2 Business (B2B) program, and the IFU Fund. Danish, bilateral development assistance is predominantly implemented through Sector Investment Programs (SIPs) and Sector-Wide Approaches (SWAPs). These programs make use of services, works, and goods. The department for Business Cooperation & Technical Assistance is the entry point for companies to Danish development assistance. Sectors Agribusiness Manufacturing Industry Banking & Finance Other Services Education Telecommunication Energy Tourism & Hospitality Extractive Industry Trade & Commerce Health Transport Infrastructure Target group SMEs and entrepreneurs. For IFU fund, SMEs generally must have less than 300 employees, an annual turnover of less than DKK 300 million, and positive outcomes in two out of the three latest financial years. Fundo para Ambiente de Negócios Fundo para Ambiente de Negócios (FAN; Business Environment Fund) has been created with financial support from the government of Denmark and political support from the government of Mozambique to help business associations and trades unions advocate 134 improvement in public policy related to the enabling environment. The phrase, enabling environment, is used to describe the external constraints that impact on business—making it harder to do business or raising the cost of doing business. This includes legislation and regulation, infrastructure such as power and water, access to finance, availability of skilled labor, property rights, corruption, and so. The ability to improve at least some of these is within the grasp of government. Growth and Employment Program This program provides farmers, as well as small and medium enterprises, with business development support and promotes access to credit, support organizations, including business organizations, and associations working to defend the interests of its members. It also support public-private dialogue, based on evidence or facts, along with financing district roads in order to improve access to markets and public services in rural areas. 4. USAID Feed the Future Feed the Future in Mozambique focuses agriculture and nutrition efforts in Zambezia and Nampula provinces based on need, potential for impact, and opportunities to leverage other public and private investments. These provinces also contain or are adjacent to the country’s three main trade corridors. Investments will focus on oilseed, cashew and fruit value chains, because of the income and nutritional benefits they offer. In 2010, USAID worked closely with the government of Mozambique to finalize a 10-year strategic development plan for the agriculture sector. USAID also reached over 20,000 small- scale farmers through a seed and fertilizer “smart subsidy” program, resulting in greater yields for rice and maize. USAID investments in research and technology have resulted in several improved seed varieties for maize, sweet potatoes and soybeans. 5. Canada Enhancing Food Security and Increasing Incomes. Location: Cabo Delgado Amount: €13,068,000 Time Period: 6/28/2010 to 9/30/2016 The objective of the Enhancing Food Security and Increasing incomes in Northern Mozambique (FSI) initiatives is to improve the quality of life of women and men living in Cabo Delgado province through increased food security and improved livelihoods. The 135 project aims to achieve this goal through working to increase agricultural production capacity, improving access to financial services, and broadening market opportunities for individuals and households. 6. Switzerland (SDC) Private sector led rural growth in Northern Mozambique Location: Nacala Corridor and Cabo Delgado Amount: €4,776,300 Time Period: 1/1/2010 to 12/31/2013 This project focuses on public-private development partnerships (PPDPs) with formal value chain actors to leverage investment and commercial activity in pro-poor expansion of value chains and support and improve supporting services that are essential to the growth of agricultural markets in Mozambique. The project will concentrate in the North of Mozambique, specifically, the Nacala Corridor and Cabo Delgado Province. 7. Finland MOZ/Project for rural development Location: Zambezia Amount: €1,500,000 Time Period: 1/10/2010 to 12/31/2014 The purpose of the second phase of the project for rural development is to continue the implementation of the first phase, which will end in May 2010. The second phase will focus activities more clearly in two components: 1. Agriculture and Agribusiness; and 2. Good Governance and Decentralization. 8. Spain Increase and improve systems for sustainable production in Cabo Delgado, Phase II Location: Cabo Delgado Amount: €311,911 Time Period: 1/1/2012 to 1/1/2013 Increase and improve systems for sustainable production for 1,800 farmers in Cabo Delgado, Phase II 9. European Union (EC) 136 Biomass Production Projects Location: Zambezia, Sofala and Cabo Delgado Amount: €305,312 Time Period: 1/1/2009to 1/28/2013 The main purpose of this project is to contribute to the development of certified economically, environmentally, and socially sustainable pilots supplying processed biomass (woody and biogases) to the domestic and export energy industry. Support to Sugar Sector (Accompanying Measures Sugar Protocol 2011-13) Location: National Amount: €1,500,000 Time Period: 7/1/2012 to 12/31/2015 (Planned but not yet signed) Accompanying Measures from the 2011/2013 Sugar Protocol EC intervention aims to enhance the contribution of the sugar sector to the government of Mozambique' poverty alleviation strategy by promoting participation of small and medium farmers in the sugar production chain. 10. Italy Socio-economic Development of the Gilé district, Zambesia Province (NGO MATE) Location: Zambézia, Gilé District Amount: €771,012 Time Period: 10/1/2007 to 12/31/2013 The project aims at helping the development of agricultural sector in the district of Gilé, easing access to safe water, financial credit, regional markets, and basic health services. Development of Family Agricultural in Nacala District Location: Nampula, Nacala District Amount: €783,752 Time Period: 1/1/2011 to 12/31/2013 Development of family agricultural in Nacala District and experimental cultivation of Artemisia annual in Mozambique, Malawi, and Madagascar (NGO ICEI/GUS). Promoting the Development of Cereal and Oilseed Chain (NGO CESVI) Location: Nampula, Nhamatanda District Amount: €289,788 Time Period: 4/20/2012 to 4/30/2015 137 The project aims to reduce overall poverty rates in the District of Nhamatanda, improve agricultural production focused on self-consumption, and promote agriculture for commercial purposes in the district by improving agricultural activities to generate income. 11. Technoserve Support to Private Sector Development in Inhambane Location: Inhambane province Amount: €4,320,000 Time Period: 1/1/2004 to 12/31/2016 Farmers Income Support Location: Inhambane province Amount: €1,800,000 Time Period: 12/1/2009 to 12/31/2016 Support to cashew production and productivity in Northern Inhambane Province. 12. Belgium Water Infrastructure—Rural Development—Food Security in the Province of Gaza Location: Gaza province Amount: €3,000,000 Time Period: 6/1/2012 to 12/31/2015 Complementary with BOF-Segurança Alimentar: water infrastructure (bilateral cooperation) related with multiactor program for improving food security in six districts of the province of GAZA. BOF- Segurança Alimentar (food security) in the province of GAZA executed by BTC FOS) Location: Gaza province Amount: €10,080,000 Time Period: 8/1/2012 to 3/31/2016 13. United Kingdom Beira Agricultural Growth Corridor (BAGC) Location: Beira Corridor (Sofala Province) Amount: €8,612,500 Time Period: 2/7/2011 to 3/31/2015 138 To catalyze economic activity and leverage private sector investment leading to accelerated job creation and income generation in central Mozambique. This will help bring additional benefits in terms of food security through increased productivity of rural farmers and communities. 14. Japan The Project for Improvement of Techniques for Increasing Rice Cultivation Productivity Location: Maganja da Costa District (Zambezia Province) Amount: €1,445,502 Time Period: 1/17/2011 to 1/16/2015 The project seeks to increase productivity and production of irrigated rice cultivation in the Intabo irrigation scheme with three main outputs: 1) develop a package of improved techniques for irrigated rice cultivation, 2) improve capacity water users’ association for irrigation facility management, and 3) disseminate improved irrigated rice cultivation techniques. One Village One Product Location: Gaza, Inhambane, Maputo Amount: €69,126 Time Period: 9/1/2010 to 8/31/2012 This project aims to promote local economical development through development of local resources, such as agricultural products, handicrafts, cultural products, and human resource. JICA will support the establishment of One Village One Product: OVOP movement in Mozambique, starting with three provinces in the south through technical assistance by a Japanese expert. Improving Research and Technology Transfer Capacity for Nacala Corridor Agriculture Development Location: Nacala Corridor, Nampula Province Amount: €1,728,996 Time Period: 5/6/2011 to 5/5/2016 Under the ProSAVANA Program, which is based on the experience of “Cerrado” development cooperation in Brazil since 1970s, this project is implemented as the first project. The project has the Project Purpose of developed and transferred appropriate agricultural technology in Nacala Corridor with 5 main outputs as 1) strengthened capacity of IIAM research centers in Northeast and Northwest is strengthened, 2) evaluated natural resources and socio-economic conditions, 3) developed soil improvement technology, 4) 139 developed appropriate cultivation technology, and 5) implemented new agricultural technology developed/validated in demonstration units. Sustainable Production of Biodiesel from Jatropha in Mozambique Location: National Amount: €498,840 Time Period: 7/1/2011 to 6/30/2016 The project aims to establish Jatropha cultivation technologies in semi-arid areas. In addition, the project would try to develop technologies to produce BDF and solid fuels that do not affect environment and human health. The Project for Rice Productivity Improvement in Chokwe Irrigation Scheme. Location: Chokwe District, Gaza Province Amount: €1,905,798 Time Period: 2/27/2011 to 1/26/2015 The project seeks to increase rice productivity in the Chokwe Irrigation Scheme with five main outputs: 1) disseminating improved rice cultivation techniques of transplanting, 2) developing improved rice cultivation techniques of direct sowing, 3) disseminating improved rice cultivation techniques of direct sowing, 4) strengthening activities of farmers groups in the areas of demonstration farms, and 5) promoting implementation process of the Action Plan with the collaboration of stake holders. 15. World Food Programme (WFP) Rural Markets Promotion Programme (P4P PRIMER) Country Programme 200286 -Component 5: Market Access Location: National Amount: unknown Time Period: 2/27/2011to 1/26/2015 and 3/1/ 2012 to 12/31/2015 Market access activities aim to facilitate access to markets and develop the capacity of smallholder producers and processors, by increasing marketing infrastructure and market information and improving commodity quality. Approximately 30,000 rural smallholders— including women involved in small-scale subsistence farming or market-oriented production—along with and small to medium-size rural traders and entrepreneurs will be targeted. WFP’s innovative local procurement models will be leveraged while the market environment is consolidated along value chains through engagement with supply-side partners, such as the Food and Agriculture Organization of the United Nations (FAO), the International Fund for Agricultural Development (IFAD) and ministries of agriculture and commerce. Purchase the Progress (P4P) food will be procured in central and northern districts for distribution in WFP programs. If direct linkages between local purchases and 140 school feeding can be facilitated, there will be potential for generating and using surpluses in both traditionally productive areas and those not generally considered highly productive. 16. International Fund for Agricultural Development (IFAD) National Agricultural Extension Programme (PRONEA) Location: National Amount: €16,506,062 Time Period: 11/25/2007 to 6/30/2016 The overall goal of the National Extension Programme (PRONEA) is to contribute to absolute poverty reduction and to an improvement in the quality of life of poor men and women, while the purpose of PRONEA is to attain increased returns and improved household food security of subsistence farmers, particularly female-headed and disadvantaged households, through a steady uplift in production efficiency. This will be achieved through the following: wider access to effective technical support services focused on districts; better organized producer groups influencing supply of services; and delivery of support services in response to requests. PROMER Location: National Amount: 20,545,750 EUR Time Period: €4/26/2009 to 12/31/2015 The goal of PROMER is to improve livelihoods of poor rural households; and central to achieving this goal the purpose of PROMER is to enable smallholders to increase their agricultural income by marketing their surpluses more profitably. This will be realized by the developing interventions that promote more efficient marketing by a range of market intermediaries while at the same time capitalizing on opportunities linked to agribusiness investment within specific value chains and will be complemented by policy, institutional, and management support. Thus, the program will combine a horizontal “market linkages” approach aiming at building the capacity of market intermediaries (traders, agri-dealers, and farmers' organizations), with a '”value chain” approach looking at seizing and facilitating opportunities for vertical integration between smallholders and agribusinesses. The following are the main expected outcomes of PROMER: 1) improved smallholder access to and participation in agricultural markets and value chains; 2) more efficient market intermediaries, and more effective partnerships, stimulating increases in agricultural production and value addition; 3) a more conducive environment for agricultural market operations 17. World Bank 141 Market-led Smallholder Development in the Zambezi Valley Location: Zambezi Valley Amount: €14,400,000 Time Period: 12/28/2006 to 3/31/2013 18. United Nations Development Programme (UNDP) Millennium Villages Chibuto & Lumbo, Chokwe and Alto Molocue Location: Chibuto (Gaza Province) Amount: €50,259,701 Time Period: 1/1/ 2007 to 12/31/2012 Location: Chokwe, Gaza Province Amount: €57,659,671 Time Period: 1/1/2008 to 12/31/2012 Location: Alto Molocue, Zambezia Province Amount: €136,133,364 Time Period: 1/1/2009 to 12/31/ 2012 Project objectives: 1. Elimination of hunger and malnutrition in the village through the increase of agricultural production and productivity 2. Improvement of men and women’s means of subsistence and the increase of their income from agricultural activities. 3. Achievement of full access to primary education and the elimination of gender disparities in schools 4. Improvement of access to health services, especially aimed at the improvement of women’s health and the drastic reduction of maternal and child mortality 5. Reduction in infection rates of HIV/AIDS, malaria, tuberculosis, and other high-risk diseases, and increased access to essential medicines, such as antiretroviral drugs. 19. United States Economic Growth Program Location: National Amount: €31,760,235 Time Period: 9/30/2009 to 9/30/2014 The program seeks to increase crop production significantly, reduce poverty levels, malnourishment, and food insecurity, to support analysis, dialogue, and key advocacy political reforms needed to improve trade environment, in order to attract investment, increase productivity and agricultural competency, forestry, small and medium companies. 142 Farmer Income Support Project Location: National Amount: €3,563,386 Time Period: 9/22/2008 to 9/22/2013 CLYD control and livelihood diversification (MCC Funded project). 143 ANNEX 6. STAFFFING REQUIREMENTS STAFF MAIN ACTIVITIES 1. AIC Manager A seasoned business manager who o General management of the AIC, has the following: including day-to-day operational o Strong knowledge of SME management and strategic development. planning. o Agro-industrial background, o Interaction with key stakeholders, preferably having controlled media and other organizations and significant enterprises (for individuals to position the AIC as example, more than $10 million the premier support organization turnover) for a minimum period for post-harvest agribusiness of 5 to 10 years. development. o Strong experience in business o Provision of business advisory management backed by services to entrepreneurs. relevant tertiary expertise. o Fundraising (such as proposal o Good deal-making and writing, or donor management). negotiation skills. o Good people management skills. o Innovative, enthusiastic personality with strong leadership skills. o Ability to transfer knowledge, conduct training, and facilitate human resource development. 144 2. Process Expert (hygiene, process, packaging, and so on) An expert in food processing with the o Working onsite with enterprises to following: improve quality and hygiene. o Ten years experience in o Assisting enterprises to reduce general food processing. waste and improve efficiencies. o Experience in process and o Working with enterprises to identify product development. appropriate packaging formats o Ability to train and and materials. demonstrate to AIC type o Assisting enterprises to acquire the clients. correct packaging materials and packaging equipment. o Assisting enterprises in troubleshooting and repair and maintenance of the equipment. o Guiding enterprises in branding color choices or others. 145 3. Sales and Market Development Manager An experienced deal maker who can o Working with enterprises to identify do the following: market needs and market o Undertake market assessments requirements for current and future to identify new sales products. opportunities. o Sourcing deals for AIC client and o Progress the sales cycle from walking them through the sales initial market opportunity cycle. assessment to sale. o Sourcing procurement o Work with AIC clients to opportunities. understand their products, product positioning, and sales and marketing strategies and to improve these where required. o Identify potential vendor relationships and negotiate favorable trade terms and identify, communicate, and manage the process required to deliver products on time, on target, on budget and in compliance with requirements. o Identify raw material procurement opportunities and negotiate good deals for procurement. 146 4. Financial Manager A qualified financial manager with the o General financial management of ability to do the following: the AIC with reference to income o Manage the accounts of the and expenditure streams. AIC. o Support and advisory to the o Provide advisory services to the enterprises in establishing and clients of the AIC. improving financial management o Advise on general financial practices. management. o Strategic advice to the AIC o Track the performance of the Manager on service pricing and seed fund. income generation. o Supporting the business advisors with specific and higher level structuring of deals and associated pricing and costing. 147 5. Business Advisor (x 2 in a phased appointment process) An expert in business management o Coaching and mentoring of enterprise staff. with the following: o Diagnostics and business analyses. o General business skills gained o Assistance with business system with both academic and development in enterprises. experiential learning. o Management of enterprises against o Higher degree and up-to-date agreed targets. understanding of managerial o Oversight of the financial techniques. management with special regard o Experience in guiding to use of funds raised. entrepreneurs through coaching and mentoring activities. o Specific areas of expertise are required in three of the following: marketing, sales, strategy, operations, logistics (import/export practices); finance and accounting; human resource management. 6. Reception/Administrative assistant A general assistant to manage the o General administration and day-to-day administrative affairs of the reception activities. o Handling marketing administration. AIC and with skills in the following: o Assistance in the development of o Reception/guest relations public relations materials. o Public relations/marketing o Event coordination. o General administration, typing, and so. 148 ANNEX 7. ROYALTY SETTING CALCULATIONS                               SETTING  A  ROYALTY  FEE  ON  GROWTH  IN  TURNOVER                                             Royalty   10.00%                           Growth  in  turnover   50.00%                           GP  %  of  turnover   55.00%                           OP%  of  GP   15.00%                                                     SCENARIO  1.  AN  INCREASE  IN  TURNOVER  WITH  NO  CHANGE  IN  GP  or  OP  AS  A  %  OF  TURNOVER  (i.e.,  increased  turnover  with  no  efficiency  gain  from  intervention)                                       BEFORE   AFTER     Royalty  fee                         $   $     $                     Turnover   100.00   150.00     5.00                     GP     55.00   82.50                         OP     8.25   12.38                         OP%  of  turnover   8.25%   8.25%                         Royalty  %  of  OP     0.40                                                     Gain  in  OP  ($)   4.13                           Payment    ($)   5.00       Royalty  of   10.00% and growth of 50.00% confers extra -$0.88 profit   Nett  gain  ($)   -­‐0.88                                                             SCENARIO  2.  AN  INCREASE  IN  TURNOVER  WITH  AN  INCREASE  IN  GP  and  OP  (i.e.,  some  efficiency  gain  from  intervention)                                               BEFORE   AFTER       Royalty  fee                           149       $   $     $                       Turnover   100.00   150.00     5.00                       GP     55.00   97.50     GP  increased  to  original  +     10%   due  to  intervention             OP     8.25   24.38     OP  increased  to  original  +   10%   due  to  intervention             OP%  of  turnover   8.25%   16.25%                           Royalty  %  of  OP     0.21                                                                 Gain  in  OP  ($)   16.13                           Payment    ($)   5.00       Royalty  of   10.00% and growth of 50.00% with a           Nett  gain  ($)   11.13                         OP confers           10% GP increase and increase of 10% extra $11.13 profit   150 ANNEX 8. ENTERPRISE PHASING AND NUMBERS Client Type and Phasing for Low-Road Scenario CLIENT CUMULATIVE CLIENTS TOTAL/PHASE TYPE Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 0-5 YRS 6-10 YRS Level 1 0 20 20 20 20 20 20 20 20 20 20 100 100 Level 2 0 5 10 15 15 15 15 15 15 15 15 60 75 Level 3 0 1 2 4 8 8 12 12 12 12 12 23 60 TOTAL 0 26 32 39 43 43 47 47 47 47 47 183 235 NEW 0 26 20 20 20 20 20 20 20 20 20 106 206 CUMULATIVE 0 26 46 66 86 106 126 146 166 186 206 106 206 151 Client Type and Phasing for High-Road Scenario CLIENT CUMULATIVE CLIENTS TOTAL/PHASE Year Year Year Year Year Year Year Year Year TYPE Year 0 1 2 3 4 5 6 7 8 9 Year 10 0-5 YRS 6-10 YRS Level 1 0 20 20 20 20 20 Level 2 10 10 10 10 10 100 50 Level 2 0 5 10 15 15 15 Level 3 8 12 20 20 20 60 80 Level 3 0 1 2 4 8 8 Level 3 4 4 8 12 16 23 44 TOTAL 0 26 32 39 43 43 22 26 38 42 46 183 174 NEW 0 26 20 20 20 20 0 12 20 20 20 106 178 CUMULATIVE 0 26 46 66 86 106 106 118 138 158 178 106 178 152 ANNEX 9. KEY FINDINGS OF THE SECOND ENTERPRISE SURVEY CARRIED OUT IN MAPUTO AND INHAMBANE PROVINCES (MARCH 2013) ABOUT THE ENTREPRENEURS: • The most prevalent age is between 41 to 50 years (37 percent) followed by 51 to 60 (22.8 percent) and 31 to 40 (20 percent). • 45.7 percent of the entrepreneurs are in business in order to have a sustainable long- term business and 22.8 percent are in business because they have no other alternative. • 45.7 percent work on the business between 35 to 50 hours per week, and 22.8 percent work between 31 to 40 hours per week. • About two-thirds do not have other employment. • 51 percent of the entrepreneurs claim that the income from the agro-processing activity is less than 25 percent of their total income. • 57 percent of the entrepreneurs were employed in the private sector before entering agro-processing. • 42 percent have secondary education and 20 percent have a technical certificate. ABOUT THE BUSINESS: 2.1 Products: • Processors were most likely to manufacture achar, peanut, juice, or cashew nut products. • The most common ingredients are fruit (mango, granadilla, and orange), chili pepper (piri piri), cashew, and peanuts. Processes • In most cases, processing is done using very basic technology. • The most common processes are washing, cutting, boiling, roasting, and in most cases basic packaging. 153 2.2 Location: • Most businesses are operated in a space owned by the entrepreneurs, with larger enterprises located in a space dedicated to the business and smaller enterprises in a shared area inside the home of the entrepreneurs. • The largest enterprises are in rented spaces. 2.3 Period of Operation • 42 percent of the businesses have been operational for three to five years. • A handful of businesses have stopped operating because of a number of difficulties and have indicated interest in starting again, if there is help available. In many cases the difficulties range were in administration and business skills. 2.4 Registration • 57 percent of the businesses are registered. Most are registered either as a company (34 percent) or as a sole proprietor (34 percent). 2.5 Origin of Funds to Start the Business • To start the businesses, 65 percent resorted to personal savings. Only two businesses managed to get bank credit and 1 received investment finance. 2.6 Employment • 65 percent of the companies employ between two and eight full-time paid staff. • 14 percent employ from 10 to 110 people. 2.7 Sales Volumes • 25 percent had annual revenues between MT 5000 ($166) and MT 50,000 ($1,666). • 34 percent had revenues between MT 50,000 ($1,666) and MT 500,000 ($16,666). • 14 percent had revenues over MT 500,000. 2.8 Comparison with Previous Year • 40 percent claim to be doing the same amount as previous year. • 34 percent claim to be making less money than previous year. • 14 percent claim to be making more money. 154 2.9 Sales Location • 62 percent sell locally, within 5 to 15 km from where they produce (typically Matola or Maputo). • None distribute outside of Maputo or export. 2.10 Intention to Grow the Business • 77 percent intend on increasing sales and clients. • 34 percent intend on increasing profit. • Some entrepreneurs selected a combination of options. 2.11 What Makes the Business Competitive • 68 percent claim their product has higher quality. • 8 percent believe they have a unique product. • 42 percent believe they are price competitive. • Some entrepreneurs selected a combination of options. 2.12 What are the Challenges the Business Faces • Too few clients—37 percent • Clients buying from competitors—14 percent • Not able to produce enough for the market—37.1 percent • Lack of raw material or services—60 percent • Lack of qualified personnel—25 percent • Lack of space—11 percent • Lack of capital / financing—88 percent • Lack of adequate technologies—65 percent • Lack of technical knowhow—20 percent • Lack of business skills—22 percent • Lack of time—2.8 percent • Problem with infrastructure—57 percent • Government / regulatory—25 percent 2.13 Interested in Receiving Support • Yes—97 percent 155 SUPPORT SERVICES: 3 Support Services 3.1 Types of Services 2.1.c 71.4%   Very   High   Workshops   2.8%   2.8%   20.0%   31.4%   40.0%   Low   Some   High   High   to  Very     Interes Interes Medium   Interes Interes High     2.1.d 74.2%   t   t   Interest   t   t   Business   plan   5.7%   5.7%   11.4%   42.8%   31.4%   2.1.a 57.1%   Tutor/ment 2.1.e 85.6%   or     14.0%   8.5%   17.1%   25.7%   31.4%   Networking   2.8%   0.0%   8.5%   31.4%   54.2%   2.1.b 68.5%   2.1.f 82.8%   Business   Market   Manageme Research   2.8%   2.8%   8.5%   34.3%   48.5%   nt  advice   5.7%   8.5%   11.4%   31.4%   37.1%   156 2.1.l 2.1.g 77.0%   34.2%   Sales   Company   5.7%   2.8%   8.5%   22.8%   54.2%   Registration   25.0%   20.0%   14.2%   5.7%   28.5%   2.1.h 85.7%   Financing   2.1.m 0.0%   8.5%   2.8%   5.7%   80.0%   79.2%   Packaging   Services   2.1.i 2.8%   11.4%   8.5%   25.0%   54.2%   74.2%   Financial   Manageme nt   5.7%   5.7%   11.4%   28.5%   45.7%   2.1.j 88.5%   Product     Certificatio n   0.0%   2.8%   5.7   11.4%   77.1%   2.1.k 85.0%   Technologie s   0.0%   2.8%   5.7%   20.0%   65.0%   157 Preferred Payment Methods: • “Pay for services” model—22 percent. • “Revenue share on growth” model—65.7 percent. • “Equity stake in their business” model—11 percent. (Some entrepreneurs selected a combination of options.) 158 Mozambique Agribusiness Innovation Centre Feasibility Study Form Number: Introduction Business incubation is a unique and highly flexible combination of business development processes, infrastructure and people, designed to nurture and grow new and small businesses, products and ideas by supporting them through the early stages of development and change. Interviewer Script Good morning or afternoon. My name is ……….................................................. We’re undertaking a survey of small businesses in Mozambique to determine if there is a need for an agri-business innovation centre in Mozambique. The work is being undertaken for InfoDev/World Bank. Are you able to spare several minutes to take part in the survey? Your actual responses will only be viewed by the interviewer and the consultants working with for infoDev. All your responses will be treated as strictly confidential and will be grouped with other people's responses for reporting. The survey is anonymous and you will not be identified in any way. We appreciate your co-operation in this study. Thank you – we will commence the survey now. If the interviewee does not want to answer any particular question don’t force him/her and just move on. 1 Mozambique Agribusiness Innovation Centre Feasibility Study Name of interviewee (optional) ___________________________________ 1. ABOUT YOU – THE BUSINESS OWNER 1.1 What is your age group? Under 20 20-30 31-40 41-50 51-60 +60 1¨ 2¨ 3¨ 4¨ 5¨ 6¨ 1.2 Why are you in business?(Please tick one box only – the main reason) Because you have no other option for employment 1¨ To supplement other income 2¨ To seize a market opportunity and grow a long term business creating 3¨ employment for yourself and others Don’t know 4¨ 1.3 How many hours do you work in your business each week? Under 10 11 to 20 35 to 50 35 to 50 51 to 75 Over 75 hours hours hours hours hours hours 1¨ 2¨ 3¨ 4¨ 5¨ 6¨ 1.4 Do you have other employment? 1¨Yes 2¨No 1.5 What proportion of your personal income does your business provide? Less than 25% to 51% to 76% to 100% 25% 50% 75% 1¨ 2¨ 3¨ 4¨ 1.6 Before starting or buying this business, were you: Not formally Employed (private Employed Studying employed sector) (public sector) 1¨ 2¨ 3¨ 4¨ 1.7 What formal qualifications do you have? 2 Mozambique Agribusiness Innovation Centre Feasibility Study Technic Primary Secondary Bachelor Post Non al School school s level graduate e certifica completed completed degree Degree te 1¨ 2¨ 3¨ 4¨ 5¨ 6¨ Other 7¨: 3 Mozambique Agribusiness Innovation Centre Feasibility Study 2. SECTION 2 – ABOUT YOUR BUSINESS 2.1 Please describe in a few words the activities and products of your business: PRODUCTS (raw materials used and final products produced): ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________ PROCESSES (drying, blending, mixing, concentrating, cutting, boiling, packing, cooling etc): ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ _____________________________________________ 2.2 Where is your business based? 1 At home using space I only use for my business, If at home why? ¨ 2 At home in a space that I use for other things ¨ In a separate building that I own 3 4 Mozambique Agribusiness Innovation Centre Feasibility Study In a separate building that I own 3 ¨ 4 In a separate building that I rent ¨ 5 Other ¨ 2.3. How long has your main business been running? (Either part time or full time). 1 to under 3 Less than 1 year 3 to under 5 years 5 years or more years 1¨ 2¨ 3¨ 4¨ 2.4 Is your business registered or not? ¨Yes ¨No 2.4a. If so what is the structure? Partnersh Sole Trader Company Co-operative Other ip 1¨ 2¨ 3¨ 4¨ 5¨ 2.5 Where did the money come from to start the business? 1 Did not need any ¨ 2 Personal savings ¨ 3 Friends and family ¨ If yes to friends and family (above), were any of the friends and family 4 located overseas and did they send the money to you? ¨ 5 Micro credit or bank loan ¨ 6 Investor ¨ 5 Mozambique Agribusiness Innovation Centre Feasibility Study 7 Other – be specific if possible ¨ 2.6 How many people, including yourself, other family members, other owners and employees currently work in your business? Full Time Part Time Full Time PAID Part Time PAID UNPAID UNPAID 2.7 What were your sales (turnover) last year? Don’t force people to answer if it is too Confidential Under 5 001-50 000 50 001-500 000 500 001 - 5m +5M Mt 5000 Mt Mt Mt Mt 1¨ 2¨ 3¨ 4¨ 5¨ 2.8 This year I am: Making more Making the same amount Making less money money than last of money as last year than last year year 1¨ 2¨ 3¨ 2.9 Sales by location and to who? (describe key points) Local (within 5km) 1¨ Regional (+200km) 2¨ National (across the country) 3¨ 6 Mozambique Agribusiness Innovation Centre Feasibility Study International (export) 4¨ 2.10 Are you intending to grow your business over the next 12 months? Tick as many boxes as appropriate By increasing By Not sales and By By increasing employing going customer exporting profit? more to grow numbers? people? 1¨ 2¨ 3¨ 4¨ 5¨ 2.11 What makes your business competitive? Price Scale of Uniquene Cost Product/ser competitiven economi ss/differe efficiency vice quality ess es ntiation 1¨ 2¨ 3¨ 4¨ 5¨ Other 6¨ : 2.12 What problems do you face in growing your business? Tick as many boxes as appropriate Cannot make Customers enough Lack of raw Not enough Lack of buy from product or materials or customers skilled staff others time for services services 1¨ 2¨ 3¨ 4¨ 5¨ Lack of Lack of Lack of Lack of Lack of 7 Mozambique Agribusiness Innovation Centre Feasibility Study space finance/c technology/e technical business apital quipment skills skills 6¨ 7¨ 8¨ 9¨ 10¨ Utility Other (specify) problems (water, Government Lack of time power, regulations road, transport 11¨ 12¨ 13¨ 14¨ 2.13 Would you be interested in receiving support to help your business grow? Y e 1¨ Proceed to SECTION 3 s N 2¨ Thank you for your time and assistance. o 8 Mozambique Agribusiness Innovation Centre Feasibility Study 3. SECTION 3 – SUPPORT SERVICE INTEREST Please rate the priority to your business of each of the following business support services that could be provided by a business support service. Low interest High interest 3.1 Business support services 1 2 3 4 5 N/A D/K* a. Business mentoring and coaching ..... 1 2 3 4 5 6 7 b. Business management advice ............ 1 2 3 4 5 6 7 c. Business training workshops .................. 1 2 3 4 5 6 7 d. Business planning advice ..................... 1 2 3 4 5 6 9 e. Networking opportunities ..................... 1 2 3 4 5 6 7 f. Market research and marketing advice 1 2 3 4 5 6 7 g. Help with sales ....................................... 1 2 3 4 5 6 7 h. Help raising finance .............................. 1 2 3 4 5 6 7 How much?.................................................. For what purpose?................................................................................................................................ i. Financial management advice............... 1 2 3 4 5 6 7 j. Help testing/certification .......................... 1 2 3 4 5 6 7 k. Help sourcing (identify) technology ... 1 2 3 4 5 6 7 l. Advice on business licensing.................... 1 2 3 4 5 6 7 m. Help in accessing packaging services 1 2 3 4 5 6 7 n. Others (specify).................................................................................................................................... * N/A = Not Applicable, D/K = Don’t Know 9 Mozambique Agribusiness Innovation Centre Feasibility Study 3.2 How would you like to pay for the support services – success sharing or pay as you use? 1 Small % of equity (shares or equivalent) in your business i.e. 5% – 7% ¨ 2 Royalty on increase in gross sales e.g. 3% – 7% for a 3 or 4 year period ¨ 3 Pay as you go at full cost (rent, advice, secretarial, phone, fax, internet etc) ¨ 4 None of the above ¨ 3.3 Any other points you would like to make: ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… THANK YOU FOR YOUR TIME AND ASSISTANCE. 10