Honorable Luísa Dias DIOGO
Minister of Planning and Finance

Maputo, 29th of August 2003

Honourable DIOGO, Luísa Dias has been Miniter of Planning and Finance since January 2000. From 1994 to 1999 she held the position of Vice-Minister of Planning and Finance.

Luísa Dias Diogo was born on the 11th of April of 1958, in the district of Mágoè, part of the central province of Tete. Luísa Dias Diogo integrated the University "Eduardo Mondlane" in Maputo where she did a Bachelors in Economics in 1983. By 1992, she had concluded a Masters in Financial Economics from the University of London. Luísa Dias Diogo started working at the Ministry of Finance in 1980 as a technician in the Economic Sectors and Investments Department (Research Department). In 1984, she became Director of this same Department. By 1986, she was named Director of the Budget Department of the Ministry of Finance, responsible for the National Investment and Functioning, Defence and Security, and State Treasury and Public Accounting. From 1993 to 1994, Luísa Dias Diogo was program officer at the World Bank office in Maputo, having substituted several times the World Bank's representative here in the country. In fact Honourable Luísa Dias Diogo has been involved since in the shaping of the economic and financial policies of Mozambique. Over the years she has worked with various international organizations such as the International Monetary Fund (IMF), the World Bank, the African Development Bank (ADB) just to name a few. Since 1980, she has been involved with the Ministry of Finance. In May 2003, Honourable Luísa Dias Diogo signed the World Bank's Multi-Sector HIV/Aids Response Project (MAP) and the Public Sector Reform Project (PSRP). It was the first time that projects were signed in the country, and this was considered an historic moment for Mozambique.

Question 1: Could you please tell us what are the Ministry's main objectives and guidelines at the moment?

Answer 1: The Ministry of Planning and Finance is the governmental Ministry that is responsible for the planning of financial expenses of the government. Some say that it is the Ministry that transforms money into actions and results. We actually plan our finance in order to direct it to those areas where most needed to make things happen in Mozambique. At the moment, we are in the process of reforms and this represents our main challenge and objective: reforms in terms of second generation. In fact w after the change from a central planned economy to a market oriented economy in 1987 we had the 1st generation reforms designed to restore basic equilibrium and to re-kindle growth through pricing, exchange rate and interest rate reforms, tax and expenditure reforms and the establishment of rudimentary market institutions accompanied with a stabilization program. After the peace agreements in 1992 and the general elections of 1994, the government of Mozambique studied the issues of reconstructing the country and its economy, stabilizing inflation. After the elections of 1999, we looked at the sustainability of the economic growth in order to obtain durable high-quality growth. Most countries, after the 1st generation reforms have problems maintaining the level of growth and loose the rhythm in terms of economic growth. Therefore we studied the possibility of doing in-depth reforms and this resulted in the launch, in 2001, of the public sector reforms and decided to establish five vectors. One of them is the financial sector where we have the banking reform as well as the fiscal reform. There are other sectors that are undergoing reforms as well, but reforming the financial sector reform in terms is the key. In fact we are putting in place a new and different way of doing governance in order to have results and reduce poverty. So in 2001 we approved the Poverty Reduction Strategy (PRSP) also called Action Plan for the Reduction of Absolute Poverty (PARPA). This requires that we allocate funds to priority sectors which are agriculture and rural development, education, health sector, water supply and infrastructure as well as good governance through institutional reforms and strengthening of democratic institutions, the rule of law and macroeconomic stability. Basically for the period 2000-2004, the Ministry will concentrate on these reforms with the objective of reducing poverty.

Thus the Ministry of Planning and Finance has to perform in terms organizing the annual package of planning the development, looking at macro indicators and guaranteeing the finance of all the activities of the government. Since 2000, the Ministry has managed to approve the reforms of the financial administration and reforms of the taxation system. The idea behind the reforms of the taxation system is to make a broad based taxation system in accordance with the will to obtain a broad based growth accompanied with a new legislation on incentives. This legislation on incentives aims to bring more and investment and make a fair tax holiday system and stimulate the most important sectors like agriculture where tax is almost zero, like infrastructure which represents Mozambique's major challenge at the moment. More precisely, the aim is to bring private investors to make public-private partnerships and thus the tax system has to accommodate this challenge. Fortunately we are actively working with the World Bank, which currently has a portfolio that comprises 21 active projects with commitments of US$1.1 billion in all major sectors. They are also bringing financial institutions such as MIGA . Infrastructure is one of the sectors where we are actively developing and allocating a major part of our resources.

In terms of macroeconomic stability, it has been strengthen and is visible in the economic growth which was of 8% in 2002 and which should be this year around 7.7%. This is due to the policies and measures we are putting in place throughout the country. All of this to say that Mozambique is going through a moment of reforms. Reforms of planning, of budgeting, of taxation in order to combine our policies with the agenda of poverty reduction & eco growth by incentivating local and foreign private sector to invest.

Question 2: As you say, private investments play a very important role in the economic development of Mozambique. Could you give us a brief summary over the situation with Inwards Foreign Direct Investments in Mozambique as well as their main destinations?

Answer 2: FDI has been coming into Mozambique at a very significant level these last few years. Indeed we are satisfied with its level but nevertheless we would like to see it diversity itself.

This diversification should be not only in terms of sectors, but also in terms of levels. In fact we do not want only big projects, but also want small and micro sized investments through joint ventures and other business agreements because that represents the real source of sustainable growth. The investment coming into Mozambique since 1996 is of around $7 billion of which $2 billion were direct to Mozal and the rest to the Corridor projects and other major projects. We would like to see more investments in agriculture and industry as 80% of our population lives in rural areas and agriculture represents 30% of the GDP. Therefore, development in agriculture plays an important role in poverty reduction. We want labour intensive investments in agriculture with agro-industries in order to improve the living standards, which requires income improvements. We also want investment in infrastructure. Investment in this sector is happening but we would like it to increase because tourism, which is one of our major advantage, requires good infrastructure in roads, energy and telecommunication. In telecommunication the situation is good as you know especially with the opening of the mobile sector. Energy is another sector we want to develop. We signed two days ago an agreement with South Africa on the development of IPPs (Hydroelectricity Independent Producers) in a NEPAD focus. Mozambique possesses great advantages in terms of hydroelectric power because of the extended river system we have and our strategic location. This means we can do something for the region and for NEPAD. Mineral resources presents very big potentials in Mozambique especially for small and medium sized companies in gold, and for Multinationals in graphite which is the best in the region and coal with very big reserves. We also have potentials in gas and companies like Sasol have realized it. Thus investments are happening but we would like to direct it a bit more towards the priority sectors I have mentioned earlier on.

Question 3: Attracting foreign investors is also about incentives and investment legal frameworks. CPI, the Investment Promotion Centre, is in charge of this aspect. What is your relationship with CPI?

Answer 3: CPI functions under the Minister of Planning and Finance and we are really satisfied with their work. It is a very active and dynamic institution and it has been very successful over the past year.
The current challenge is to make CPI become more incisive and more aggressive. This means that CPI should direct more precisely the investments and the promotion of the existing opportunities. Additionally CPI has to constantly adapt the investment legislation, make it as modern as possible and work hard to become a one-stop shop. The result should be making Mozambique an easy country to invest in. This is a major challenge for CPI. The follow up of the projects is another challenge, but I believe we should make the sectorial ministries focus on this and leave CPI with the promotional aspect of the projects. In fact I believe it would be a lot more effective if the different sectorial ministries take care of the investors once they have decided to invest in Mozambique.

Question 4: Additionally to FDI, Mozambique receives strong aid from International organizations such as the World Bank and the IMF. What is the contribution of this aid?

Answer 4: This international aid is key to the development of Mozambique. In fact we depend of this aid in terms of balance of payment around 70% and in terms of budget more then 50%. Now we are working to reduce this dependence because for the country this represents a limitation on our capacity to maneuver the budget as we wish. There are areas where the donors are not very kin to invest but which are important for Mozambique's development. Then negotiating for them to invest in these areas is very time consuming and demands a lot of efforts. Nevertheless we must recognize that Mozambique has had a lot of support and this has been crucial for the country's development. We have very good relations with these international donors and indeed have several important ongoing programs with them. In is important to understand that reducing this dependence does not mean that we do not want this aid, but we wish to have increased space for maneuver and power to increase the number of programs in place as well as to help other sectors.

Question 5: Not to long ago, the IMF Deputy Managing Director, Mr. Shigemitsu Sugisaki stated that Mozambican authorities were to be congratulated for their continued satisfactory performance. Also you have been involved in defining the country's policies for several years now. In your opinion what has been the country's greatest achievement as well as yours?

Answer 5: Mr. Shigemitsu Sugisaki is very kind. The performance of Mozambique in terms of stability in something that we have worked hard to achieve. Performing in terms of macroeconomic stability, foreign exchange stability and so on is key. In terms of growth was we have doing is concentrating on the sectors that are important for Mozambique such as agriculture, infrastructure and industry. We have been doing that through an implementation of reforms, which in their turns contribute to growth. For example the liberalization of the mobile phone industry will have a growth impact. So you understand that these reforms are not only reforms, they are in fact growth resources. In the airlines when we opened the market, more destinations were created. Thus Mozambique's performance, over the past years, can be explained by these effective reform processes. Last but not least, the political stability and the existence of democratic institutions have been crucial.

Question 6: As a final question, what do you believe will be your biggest challenge in the years to come?

Answer 6: The main challenges will be poverty reduction and economic growth. These are the two areas we must deliver positive results to our people. And we are actively working within Mozambique and with international institutions to effectively meet these challenges. Economic growth and poverty reduction are two aspects that go hand in hand and these are the main challenges.

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