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Dr' Rosalind H' Thomas

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Ottawa Canada 'FDI & SME Linkages the case of Mozal I and II' 11/11/09. 2. Introduction: FDI in Southern Africa. The rationale for SDIs. Prioritizing SMEs ... – PowerPoint PPT presentation

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Title: Dr' Rosalind H' Thomas


1
IDRC Private Sector Development Task Force
Conference 7 8 April 2005 Ottawa Canada FDI
SME Linkages the case of Mozal I and II
  • Dr. Rosalind H. Thomas
  • CEO SADC-DFRC

2

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

3
Introduction
  • FDI in Southern Africa
  • Project related
  • Resource based
  • Benefits seldom spill over to rest of economy
  • Rationale for SDIs
  • RSA leading strategy on SDIs
  • To attract more efficiency seeking/ market
    related FDI
  • Address structural problems which inhibit
    investment trade
  • Allow clustering
  • Develop complementarities enhance dynamic
    competitive advantage allow exploitation of
    export opportunities
  • Nurture private sector development

4
Prioritising SMEs
  • Support for SMEs a critical strategy of NEPAD
    RISDP
  • Significant development impact
  • Promote backward forward linkages in economy
  • Have a high capacity to generate employment
  • Key to poverty eradication
  • Contribute to vibrant middle class essential
    for generating domestic savings therefore
    increasing domestic investment in SADC
  • Why are DFIs interested in SMEs?
  • DFIs engaged in supporting SMEs across all
    sectors
  • Provision of Finance
  • Business Support Services
  • NEPAD RISDP clear prioritization
  • Facilitating BSS stronger SME client base
    stronger DFIs!

5
FDI Linkages?
  • The Maputo Development Corridor (MDC) Mozal?
  • MDC Mozal an interesting case study because a
    successful export-oriented FDI project allows
    analysis of lessons of failure/success
  • Need to look at MDC from 2 perspectives
  • Fostering links between Big Business and SMEs
  • Fostering links between PPI and SMEs
  • MDC through restoration of historic transport
    routes - regional trade reviving new
    investments
  • Successes include N4 Toll Road Maputo Port
    upgrade rail links RSA to Mozambique under one
    management (Spoornet) Nelspruit - regional
    service centre expanded use of Maputo Port by
    RSA businesses RSA Mozambique - electricity
    telecoms upgraded Tourism Maputo
    industrializing and Mozal is lead development!

6
Development Corridors SDIs in SADC
7
Linkages with the Local Economy?
  • Mozal I II Development Impact?
  • First major FDI project in Mozambique (US2.2 bn)
  • Project sponsors Billiton IDC Mitsubishi
    Corp. Govt. of Moz.. Financiers IFC DBSA
    Private Banks
  • Mozal I completed 6 months ahead of schedule
    under budget production began earlier than
    anticipated (June 2000) - set world record
  • Contributed
  • US160 m/an to GDP Export earnings US430 m/an
    US 4 m/an in tax revenues dividend for GoM US
    5 m/an
  • First rate infrastructure roads bridges
    telecoms networks water sewerage systems
    upgraded harbour electricity supply
  • Mozal II doubled capacity of the plant for
    smaller investment, also completed ahead of
    schedule under budget.
  • Contributed
  • US170 m/an to GDP tax revenues of US 4.1 m/an
  • Mozal is Mozambiques largest foreign exchange
    earner (54).

8
Linkages
  • Mozal Development Impact (ctd)
  • Mozal I 745 direct jobs (88 Moz) 2,500
    indirect during construction 9,000 temporary
    jobs (65 Moz) 5,000 trained during construction
    phase
  • Mozal II 376 additional jobs (90 Moz) during
    construction 6,000 temporary jobs (4,500 to
    locals)
  • Smelter contracted SMEs for variety of services
    (transport, catering, cleaning, security) 400
    jobs on site contracts valued at US35 m/an.
  • IFC/APDF supported Programs
  • SMEELP for construction 15 SMEs contracts
    worth US5 m
  • Mozlink for Mozal operations 2 yr program
    SMEs win contracts to service Mozal targets
    supply chains - 25 SMEs - so far contracts
    worth US11 m. Develops SMEs to competitiveness
    allowing repeat contracting
  • 1 SME developed to point supplying Mozal sister
    company in Richards Bay (US2 m contract)
  • Capacity Building for 2 local financial
    institutions
  • Mozal Community Development Trust
  • Mozambique Business Network
  • SECOP new 3 year program increase supply
    chain activities with big industries.

9
Linkages
  • What Lessons to learn from Mozal?
  • Failure of Mozal I to develop effective links for
    2 reasons
  • Contracts bundled - components too large
    complex
  • Contracts in English local SMEs could not
    understand
  • Successes emanate mostly from Mozal II mainly
    because of SMEELP Specialized program for supply
    chain support -
  • identified contracts for local sourcing
  • Trained local SMEs on tendering
  • Follow-up training for SMEs which won bids
  • One-on-one mentoring to firms winning contracts
    and
  • Capacity building of local DFI/ PFI providing
    technical assistance grants.
  • PPI SMEs Maputo Port (?)
  • Maputo Port under development by Consortium
    (US70 m)
  • Linkages program in pipeline (SEPCO) yet to be
    developed
  • IFC/APDF office in Maputo Capacity Building
    Facility will inform results of current
    evaluation of programs.

10
FDI SMEs?
  • Concluding Remarks
  • Clear need to develop real linkages between FDI
    local economy
  • MDC experiences success especially with Mozal
    is noteworthy
  • Latter has had substantial development impact on
    Mozambiques economy
  • Challenge derive lessons of experience explore
    potential to replicate in other SDIs
  • Warrants in-depth case-study examination of
    development impact reasons for success
  • Support for SME activities in SADC a strategic
    priority for SADC DFIs DFRC keen to explore
    this issue further with support from donor
    community
  • DFRC convinced that this is an important approach
    to private sector development addressing
    challenges of job creation poverty eradication
    (i.e. Millennium Development Goals)
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