Bankrupting Mozambique: From poster child to cautionary tale Posted on July 12, 2016 <http://africanarguments.org/2016/07/12/bankrupting-mozambique-from-poster-child-cautionary-tale/> by Paolo de Renzio & Adriano Nuvunga <http://africanarguments.org/author/paolo-de-renzio-adriano-nuvunga/> *The actions of unaccountable elites and international banks have undermined Mozambique’s impressive progress, with the costs falling on the shoulders of ordinary Mozambicans.* [image: 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 <http://www.economist.com/node/21541008>. 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 <http://hdr.undp.org/en/content/human-development-index-hdi> 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 <http://foreignpolicy.com/2016/05/06/mozambiques-invisible-civil-war-renamo-frelimo-dhlakama-nyusi/>” 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 <http://www.wsj.com/articles/tuna-and-gunships-how-850-million-in-bonds-went-bad-in-mozambique-1459675803> 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 <http://www.africa-confidential.com/article/id/11658/Secret_security_debts_devastate_economy>. 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 <http://www.bloomberg.com/news/articles/2016-05-18/mozambique-says-can-t-pay-178-million-debt-interest-this-month>, 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 <http://www.internationalbudget.org/opening-budgets/open-budget-initiative/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* <http://www.internationalbudget.org/>*. * *Adriano Nuvunga is Executive Director of the **Centro de Integridade Pública* <http://www.cip.org.mz/>*, a Mozambican civil society group.* If you enjoyed this post, please consider leaving a comment <http://africanarguments.org/2016/07/12/bankrupting-mozambique-from-poster-child-cautionary-tale/#comments> or subscribing to the RSS feed <http://africanarguments.org/feed/> to have future articles delivered to your feed reader. This entry was posted in African Politics Now <http://africanarguments.org/category/politics-now/>. Bookmark the permalink <http://africanarguments.org/2016/07/12/bankrupting-mozambique-from-poster-child-cautionary-tale/>. One thought on “Bankrupting Mozambique: From poster child to cautionary tale” Mat says: July 12, 2016 at 1:41 pm <http://africanarguments.org/2016/07/12/bankrupting-mozambique-from-poster-child-cautionary-tale/#comment-83619> 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. -- To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] Visit this group at https://groups.google.com/d/forum/southsudankob View this message at https://groups.google.com/d/msg/southsudankob/topic-id/message-id For more options, visit https://groups.google.com/d/optout --- You received this message because you are subscribed to the Google Groups "South Sudan Info - The Kob" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. To post to this group, send email to [email protected]. Visit this group at https://groups.google.com/group/SouthSudanKob. To view this discussion on the web visit https://groups.google.com/d/msgid/SouthSudanKob/CAJb14orWv5ZL3NrXRvNMUoAdrohaeeEQVd2gfij1sef%2BupHsfA%40mail.gmail.com. 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