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MozambiquePolitics
Home›African Arguments›Country›Southern›Mozambique›Bankrupting Mozambique: From poster child to cautionary tale

Bankrupting Mozambique: From poster child to cautionary tale

By Paolo de Renzio & Adriano Nuvunga
July 12, 2016
4576
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The actions of unaccountable elites and international banks have undermined Mozambique’s impressive progress, with the costs falling on the shoulders of ordinary Mozambicans.

An industrial zone in the capital Maputo. Credit: Nuno Ibra Remane.

An industrial zone in the capital Maputo. Credit: Nuno Ibra Remane.

Over much of the past two decades, Bob Dylan’s idyllic lyrics to ‘Mozambique’ – in which he sings of “magic in a magical land” and “lovely people living free” – would not have seemed out of place when thinking about the country itself.

Since the end of the bloody 16-year civil war in 1992, Mozambique has made some incredible strides.

It has transitioned from one-party rule to electoral democracy. It has moved from a planned to a market economy, clocking double-digit growth and significant reductions in poverty levels. International donors have flocked to support the country’s recovery, showering foreign aid with unusual largesse. And some ten years ago, when significant gas and mineral deposits were found and foreign investment started pouring in, it seemed that little could stop Mozambique becoming one of the most shining examples of a new rising Africa.

But fast forward to the present day, and most of that luster seems to have faded. Over the past decade the country has gone from poster child to trouble child, and from an example to emulate to one to avoid.

Poverty has proved to be more persistent than expected as the country continues to linger near the bottom of the Human Development Index rankings despite the billions of dollars invested by donors.

Political stability has come under increasing stress, as the main opposition party and former guerrilla movement Renamo has contested the results of the 2014 presidential elections and engaged in what some have called an “invisible civil war” in the central part of the country, where it commands more votes and support.

The country’s independent media and dissenting voices are being gradually stifled. For instance, Gilles Cistac, a Franco-Mozambican lawyer who defended the constitutionality of Renamo’s demand to take control in central provinces, was gunned down in broad daylight last year. And José Macuane, a university professor, was kidnapped and shot in the legs just a few weeks ago after repeatedly denouncing government corruption.

And finally, the global financial crisis and drop in commodity prices have put off international investments and placed Mozambique’s hopes for resource-fueled development on hold.

Debt, default and deception

As a result of its economic crisis, the government was forced last year to ask the International Monetary Fund for help. But only a few months after the initial disbursements of a new loan, news broke out of large hidden debts taken on by companies partly owned by government entities and guaranteed by the state.

What is now known is that at least three such companies – created in the past few years and part-owned by the Mozambican government’s secret service agency or linked to the defence ministry – raked up more than $2 billion in debt with the help of Credit Suisse and Russian bank VTB.

The way all this money has been spent, or where it ended up exactly, is mostly still to be determined. We know that there were some purchases of tuna fishing vessels that were never actually used for fishing and can be seen rusting away in the Maputo port as well as other less well-defined purchases of maritime security equipment. But it is not at all unlikely that a good chunk also ended up in private pockets, never to appear again.

These deals were mostly carried out while the previous president, Armando Guebuza, was still in power, and could be linked to his efforts to clinch a third term in office. But his successor Filipe Nyusi, who was defence minister at the time, cannot easily claim ignorance.

However, the crux of the matter is that these companies are now in no position to pay off their debts and will end up having to be rescued by the government, with the costs of these corrupt deals falling onto the shoulders of Mozambicans for years to come. In fact, that has already started to happen, pushing public debt to more than 80% of GDP and triggering drops in sovereign ratings and rumours of default.

That not even the IMF knew anything about these loans highlights the limits of fiscal transparency and begs the question of how much corrupt governments are actually able to hide from international institutions, and their citizens, about the true state of their public finances.

According to data from the 2015 Open Budget Survey, governments around the world are not as transparent about their debt as they are with other aspects of public finance. While the global average score for budget transparency is 45/100, the average score for questions that look at public availability of detailed information on government debt and its composition is only 33/100.

Things get even worse when looking at guarantees provided by governments on debt incurred by public companies – so-called “contingent liabilities”. Average transparency on contingent liabilities is even lower, at only 22/100.

The role of international banks

Mozambique is now almost bankrupt in a number of ways: morally, due to the pervasiveness of corruption and greediness of its elites; politically, as its 20-plus years of peace are now at risk; and fiscally, with its ballooning debt and dashed hopes of a natural resource bonanza.

Whether the country will pull itself together depends mostly on domestic factors, including whether the people responsible will be held to account. However, it would be wrong to put all the blame on corrupt Mozambicans. Reputable international banks walked off with hefty fees for helping shady public companies incur debts that were not only of dubious economic value, but clearly against the laws of the government guaranteeing those debts, as they had not been screened and approved by the Mozambican Parliament.

Surely there are ways to ensure that large profits for some do not result in whole countries going bankrupt. In a number of cases, some basic due diligence by international banks and investors might be enough. But if international banks cannot be made to comply with basic requirements themselves, there could be a role for independent watchdogs, either official – like the IMF itself – or through citizen-led initiatives that check on dubious deals being offered to international investors.

In other words, a combination of more transparency and independent monitoring could help avoid other painful bankruptcies. Sunlight, alongside a number of watchful eyes, could indeed be one of the best disinfectants.

We can only hope that Mozambique’s cautionary tale will force other countries to take note and the international community to take action.

Paolo de Renzio is Senior Research Fellow with the International Budget Partnership.

Adriano Nuvunga is Executive Director of the Centro de Integridade Pública, a Mozambican civil society group.

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3 comments

  1. Mat 12 July, 2016 at 13:41

    What is it with Africa and our leaders. Surely we should all by now that discipline with the way we manage our resources is key to our emancipation. Why is it difficult for us to it down and take postmortems of our situations so as to draw different courses of actions for our people. I do not believe that we are a special case or children of a lesser god. I believe strongly that all that Africa needs to do is redefine its civil services for it is they that are corrupt and not politicians. Politicians come and go but the managers of the government stay on and these are civil servants. These are the rotten eggs of Africa and need to be checked if we are to see any change to the things are done in Africa and our continent.

  2. Andy6 17 July, 2016 at 01:34

    Our problem is not that we don’t understand peace, wealth, corruption, or better life. It has been always not standing on our own . if you go back to the removal of colonies in Africa , accesses all the achievements done , verify who possessed power , at what cost for how long? The top of the list are the so called European and North American Intellects who run to their native countries to run the country as the son and daughter of Africa (that specific country) . I DO NOT LIKE TO POINT OUT ONE COUN TRY ; they all have these group of people.
    The problem starts these group of people being recruited by the former colony or countries who give them Asylum , Educations then clean of health and blessing to go back to their native land to serve their country, with the promise they will bring peace, stability and economy freedom in a fair election processes to their country they belong. What is wrong being educated or live abroad and going back serving your country…..absolutely nothing? Then what is the problem.
    Problem
    -1-power -every one of the return son and daughter of African countries would like to be President-Prime Minister-Chairman in some countries King/Queen
    2- the means of power grabbing will start with the involvement of forging aids, financial assistant sometimes arms and political with the promise they will cater that country IF they hold power
    3-becouse of Africa’s tribal division you will find each tribe thinking being a leader without the help of the other tribe (s).
    4-once they grab power they literally will forget about the other tribes, parties, groups hoping they will last for ever
    5-the opposition parties , tribes, groups will start digging ditches holes and will come abstractionist
    6-All opposition parties will go to other Europeans, North American Asian and Mid East countries to seek money and power-well guess what there are a lot of countries who will sponsor these people because the seating government is not friendly with them. What IS the easiest victory in politics find “THE ENEMY OF YOUR ENEMY’.
    Well just as I said we all want to be on the top of the food chain no one would like to be second or third. I don’t have any problem people going back home to serve their country –from my 30 years observations those refuges who spend time in all civilized/developing countries return home with the intention to be wealthy. Yes there few like Mahatma Gundi –who refuse to be rich on the back of the poor/his people. As far as Africa When you have a soldier like Gadhafi who use to makes less than $200.00 become a 30- billion man or a simple teacher Daniel arap Moi , Hosin Mubarak-Mobutu Sese Seko so on and on who become milliners, you will wonder who is giving them all this money? for what purpose? You will end up with the answer other NATIONS –what is the meaning of insanity “ doing the same thing again and again end up with the same result. African need to form a government involved every tribe peacefully so that robbers and thief’s will stay out of the cookie jar. At the same time there are –wonderful-thoughtful-smart-kind and absolute leaders in Africa i just don’t see them being convincing other to be like them. There are more corruption and theft in the civilized world this is not bushing African leaders –the difference the Europeans North Americans-Asians has a lot of money to split among themselves most African countries don’t , that is why we cannot afford to burglarized our own home.

  3. Andy6 19 July, 2016 at 18:58

    Just to help Mat where he is coming from let me share this true story with you. Around 2014 a friend of mine got an offer to buy Copper from Mozambique . The person who was delegating this purchase declared himself as assistant to the president Armando Guebuza office come to the United states as one of the state gust or delegate , that is what the person who introduce him told my friend. At the last day of the meeting my friend invite me to check him out if this man is what he is I also was going seek some copper if he has more of it. As soon as I start asking the key questioner’s the man wants to just leave he cannot answer any of the chemical composition or the nature of copper metal. I told my friend no matter what you do don’t give any advance for the product until you saw then actual product in your own eyes . it was too late the man got $30,000 US advance to purchase two loads of copper about 48 Metric ton each . my good man left United States through LAX he never heard from him again. No product no money no news. These are a kind of people representing the president office . The head of States of Mozambique should do a better job when they send delegate to promote the country’s wealth most African countries has a natural source of some kind find people who will represent the country honestly don’t send your party member , your cousin, your husband or wife brother country first when it comes to Africa specially Mozambique,

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