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Mozambique/Global: Fossil Fuels, Debt, and Corruption
AfricaFocus Bulletin
May 31, 2021 (2021-05-31)
(Reposted from sources cited below)
Editor's Note
“The scandal of Mozambique’s “hidden debts” has already cost the
country at least 11 billion US dollars, and has plunged an
additional two million people into poverty, according to a detailed
study of the costs and consequences of the debt published on Friday
by the anti-corruption NGO, the Centre for Public Integrity (CIP),
and its Norwegian partner, the Christian Michelsen Institute. The
term “hidden debts” refers to illicit loans of over two billion US
dollars from the banks Credit Suisse and VTB of Russia in 2013 and
2014 to three fraudulent, security–linked Mozambican companies –
Proindicus, Ematum (Mozambique Tuna Company), and MAM (Mozambique
Asset Management).” - report by Centre for Public Integrity
(Mozambique) and Christian Michelsen Institute (Norway)
Long-time subscribers to AfricaFocus Bulletin will know that I occasionally publish two Bulletins on one day (although not more than 4 times a year). This Bulletin (available at http://www.africafocus.org/docs21/moz2105b.php) and its companion Bulletin on Mozambique/Global: War, Intervention, and Solidarity (http://www.africafocus.org/docs21/moz2105a.php) are the first such double-posting this year. The reasons are both personal and analytical, given my editorial criterion of focusing on developments relevant for the entire continent and for the world, as well as one particular country. This editorial note is also longer than usual, although even so it points to more questions than answers.
First, it's personal for me, since Mozambique has been the African
country to which I have had the most personal ties for more than 50
years, since first arriving in Dar es Salaam to teach at the FRELIMO
secondary school in 1966. My time actually living and working with
Mozambicans, first in Tanzania and then in Mozambique and working
with Mozambicans only amounts to five years in the 1960s and 1970s.
And my occasional visits for research or conferences in the decades
since then have been far less frequent than I would have wished. But
like my Mozambican friends and others who have worked in that
country, I am acutely and painfully aware that Mozambique is now
suffering its third war over the last six decades.
All three have been the result of complex interactions of national,
regional, and global factors. The armed struggle for independence
lasted 10 years, from 1964 to the 1974 agreement for transition to
independence in 1975. The post-independence war from 1976 to the
peace agreement in 1992 was simultaneously a regional war fueled by
Rhodesia and South Africa and an internal conflict. And the present
“insurgency” in the northeastern province of Cabo Delgado is driven
both by internal discontent and by a mix of external factors. It
began in October 2017 and has escalated sharply since March 2020,
drawing increased international news coverage and debate.
But much of that coverage is superficial and focused on the single
issue of whether external actors should intervene militarily or not,
and if not, which of the numerous candidates to do so should step up
first. Within Mozambique and the Southern African region, there is a
much better informed debate by both scholars, civil society
activists, and in the media about the causes of the conflict and
what kind of response is needed from Africa and the global
international community, prioritizing humanitarian assistance and
development rather than a military solution.
[Those who know me will know that I am normally not a fan of webinars, which often supply less solid content than the time they take to watch. But this 2-hour webinar hosted by SAPES Trust on May 27 (https://www.facebook.com/sapestrust/videos/1076962609494070) is an exception. These are real experts from Mozambique and the region with in-depth knowledge of the issues engaged in real debate. No answers, but keen insights and eloquent presentations. A must-watch for anyone wanting to understand the real options for international response to the conflict and humanitarian crisis in Cabo Delgado.]
Mozambique's Cabo Delgado is now a central test case for whether
lessons have been learned from the consistent failures of such a
military solution in Mali, Somalia, and northeastern Nigeria. Sadly,
it is likely to be a protracted repetition of such mistakes, with
the added complexity of the interests of multinational natural gas
companies.
This AfricaFocus Bulletin contains excerpts from the new report quoted above on the hidden debt in Mozambique, as well as some additional reflectino by Joseph Hanlon on the future of natural gas in Mozambique. The situation is rapidly changing, but Hanlon regularly provides updates, links to other sources in English and Portuguese, and well-informed analysis. You can subscribe to his newsletter at https://bit.ly/Moz-sub.
My apologies for the length of this comment and of these two
Bulletins. If you do not have time to read them now, I hope that you
will put them aside for later reference. For now, however, I have
several suggestions.
- Do read and watch this first short on-the-scene report from the conflict zone in Cabo Delgado by veteran BBC journalist Catherine Byaruhanga, who is based in Uganda (https://www.bbc.com/news/world-africa-57254543), from on May 27, 2021
- Do read this summary of the report on the hidden debts, from the Mozambique News Agency, May 29, 2021 (https://allafrica.com/stories/202105290201.html), and
- Take a break from the news by watching the short music video embedded at the end of this Bulletin (a new feature I added last week, featuring videos I have found it essential to watch while taking breaks from writing subjects which more often feature grim realities than hope for change. The videos I choose are not linked to the specific theme of each Bulletin, but they definitely illustrate the visions of the resilience and hope needed both by Africa and the world.)
For previous AfricaFocus Bulletins on Mozambique, visit http://www.africafocus.org/country/mozambique.php
For previous AfricaFocus Bulletins on peace and conflict in Africa, visit http://www.africafocus.org/intro-peace.php
++++++++++++++++++++++end editor's note+++++++++++++++++
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Costs And Consequences of The Hidden Debt Scandal of Mozambique
Centro de Integridade Pública (CIP), Moçambique, and
Chr. Michelsen Institute, Norway
May 27, 2021
[Excerpts below from the executive summary and the preface.
For the full report in English:
https://www.cipmoz.org/en/2021/05/27/costs-and-consequences-of-the-hidden-debt-scandal-of-mozambique/
Additional coverage from CIP, in both English and Portuguese
https://www.cipmoz.org/en/category/dividas-ocultas/]
Executive Summary
How a $2 billion hidden and corrupt loan has cost $11 billion and
increased poverty
In 2013, bankers in Europe, businesspeople based in the Middle East,
and senior politicians and public servants in Mozambique conspired
to organise a USD 2 billion loan to Mozambique – an incredible 12%
of GDP of one of the poorest countries in the world. The loan was
kept hidden. None of the borrowed money, except bribes, went to
Mozambique, and there were no services or products of benefit to the
Mozambican people.
The knock-on effects of such a huge corruption scandal may already
have cost Mozambique at least USD 11 billion – nearly the country’s
entire 2016 GDP – and almost 2 million people have been pushed into
poverty. If Mozambique is forced to service this debt, there is USD
4 billion more to pay, on top of future damaging impacts.
This report is an inventory of the huge costs and consequences of
the hidden debt scandal – measuring them in numbers where possible
and tracing the chain of harmful events and tendencies resulting
from it. The impacts were economic (direct costs and damages),
social (reducing welfare), and institutional (worsening politico-
institutional environment).
Economic costs
There are direct costs associated with the loans, mainly past and
future costs of interest and repayments. Past direct costs – those
incurred up to, and including, 2019 – amounted to USD 674,2 million.
To that will be added another USD 3,93 billion that the country will
have to pay to service the hidden debt until 2031.
The economic crisis was caused partly by the debt itself, but even
more by the damage that flowed from the secrecy and corruption, and
the following discredit. And its impact on Mozambicans was hugely
more than the hidden debt. When rumours about hidden loans began to
circulate, Mozambican ministers lied to the IMF and ambassadors of
Mozambique’s development partners, denying the existence of any
loans. When the Wall Street Journal revealed the hidden debt in
April 2016, the anger was extreme. Donors and lenders had kept the
country afloat, and they pulled the plug.
The IMF halted its programme and donors cancelled direct budget
support and other aid to the government – a reduction of USD 831
million in 2016 compared to the year before. The cascade that
followed included a fiscal crisis making the government unable to
pay its bills, there was a major currency devaluation, foreign debt
became unpayable, the economy slowed down sharply, real GDP per
capita fell, unemployment soared, and poverty increased.
This report calculates that damage. The best and simplest overall
measure of it is the fall in the value of the GDP caused by the
debt, which we calculate to be USD 10.7 billion in the four-year
period. Future costs of lost GDP will continue to pile up, since the
damage caused by the HDS is perennial.
[see table by year in full report]
Summarised, a group of corrupt businesspeople and senior government
officials committed Mozambique to a debt of over USD 2 billion and
split the proceeds of the fraud. That cost Mozambicans, in the years
2016-2019 alone, over USD 11 billion – or USD 403 per citizen.
On top of that, in the decade to come, Mozambique is scheduled to
pay nearly USD 4 billion more in direct costs, plus the incalculable
economic damage.
Social Costs
The sudden reduction of external donations after the hidden loans
were revealed in April 2016 triggered a fiscal and monetary
instability that forced the government to reduce public spending
severely.
In 2016 real public expenditure (in USD) was cut to less than half
of what it was in 2014. That reduction in public expenditure hit the
sectors aiming at social welfare. Comparing the three-year average
of 2016-18 to the three previous years, spending on health and
education fell by USD 1,7 billion – entirely due to the debt. Put in
per capita terms, the scandal caused, for each Mozambican citizen:
- USD 10 less in the education sector, each year
- USD 7 less in the health sector, each year
There are many indications that poverty increased during the years
after 2015, in various ways of measuring it. The sudden rise in
inflation in 2016 and rising prices drove 2,6 million people under
the threshold of consumption-based poverty, as shown by studies
projecting poverty levels in 2016 using data from the most recent
household surveys (IOF 2014/15). We then estimated the proportion of
the increase in poverty to be explained by the hidden debt, and
found that:
- because of the hidden debt scandal, at least 1,9 million people
fell below the line of consumption-based poverty by 2019.
There is no starker measure of the tragedy that the hidden debt
scandal has inflicted upon Mozambicans.
Political and institutional costs
The costs and consequences of the hidden debt scandal on the
political and institutional landscape in Mozambique were real and
severe, yet no single figure or currency captures its full impact.
Mozambique’s performance deteriorated on all relevant indexes
measuring aspects of democracy, governance, public financial
management and credibility in the decade between 2010-2020. Many of
them also registered an acceleration of the deterioration after 2013
when the debt was incurred, and a particularly sharp fall coalescing
with the discovery of the secret debt in 2016 – the “smoking gun”
evidencing the secret debt’s contribution to the deterioration. This
report goes beyond circumstantial evidence and also shows how and
why the hidden debt contributed to the deterioration of governance.
Knowing that the debt was illegal and fraudulent, some powerful
Mozambicans pushed developments contradicting good and democratic
governance. They acted to:
• Cover up the deal and the debt, reducing transparency. Senior
politicians lied to the public about the debt, and public finance
management reforms stagnated or were reversed.
• Seek impunity, manipulating politics and institutions to avoid
accountability for punishable offences. So far, no one in Mozambique
has been held to account and convicted for manifestly illegal
actions. Checks and balances failed. The Justice system and the
Assembly of the Republic were unable to control the actions of the
Executive. A Special commission of the Assembly of the Republic was
highly critical, but no action was taken. The Constitutional Council
ruled that the hidden loans were unconstitutional, but the Executive
has ignored this.
• Create political conflict, reducing institutional cooperation.
Injection of large amounts of money into one faction of the
political elite, and the inevitable bickering over responsibility
following the fraud, increased factional fights and institutional
chaos.
• Discredit the country and its reputation, as the eventual and
inevitable discovery of the debt damaged the Government’s and
country’s reputation and integrity. Mozambique’s credit rating
plummeted, and its reputation as a serious development partner was
severely dented.
Some were inevitable costs of the decision to defraud the state and
the population. However, some political choices were not inevitable.
When Mozambican society reacted to the fraud with demands of
accountability and refusal to pay the debt, the state chose to
implement: authoritarian measures, countering the principles of the
liberal-democratic Constitution. Harassment of key individuals
reduced the scope for public criticism. Blatant manipulation of
elections in 2018 and 2019 reduced chances that the regime would
lose power.
Summarised, the hidden debt and ensuing scandal impacted heavily on
politics and institutions and led to:
1. More contradictions and debilitating conflicts within the state and political system.
2. Worse governance quality and weakened state institutions.
3. Disrepute of the regime and government.
4. A less democratic and more authoritarian country.
Preface
. . .
The hidden debts, the pandemic and other disasters
The final draft of the report was drawn up in the second half of
2020, a time when the Covid-19 pandemic was battering both
Mozambique and the rest of the world. This analysis will make no
mention of this plague, for the simple reason that the last year
included in the report is 2019. It is, however, noteworthy that is
in that year Mozambique suffered the abnormal consequences and costs
associated with the damage caused by the cyclones named Idai and
Kenneth. The consequences of these disasters will be included in the
due analyses under the relevant indicators.
The reader will have the opportunity to understand that a small
group of people linked to the hidden debts scandal, some of them
Mozambican and others foreign, caused damage which greatly exceeds
the losses caused by the cyclones. The debts which they managed to
conceal until 2016 resulted in an economic meltdown, a weakening of
the institutions of governance, and a loss of political and
international trust. They contributed to a worsening of the social
indicators.
While we do not yet know the consequences of the pandemic currently
under way, we are sure that Mozambique would have had much greater
capacity to face the pandemic – and perhaps also the growing problem
of the war in Cabo Delgado – had it not been for the hidden debts.
For example, we will show that it is likely that, without the hidden
debts, the health services would have been in better condition.
Although our analysis is mostly retrospective, it is obvious to us
that the costs of the hidden debts will have consequences of
delaying development, also in the future – like a coefficient that
multiplies the weight of all the other difficulties.
The analysis in the report leaves aside speculations about the
future, the forensic debate about the individuals responsible, and
the politico-normative considerations about the necessary reforms in
governance. It is dedicated mainly to describing and analysing the
consequences of the hidden debts, and calculating their costs
realistically, from their conception up to the end of 2019.
The judicial situation of the HD
When the CIP and CMI team of researchers finished writing this report, 17 citizens were under arrest in Mozambique, accused by the Attorney-General’s Office of being involved and of having benefitted directly from this corrupt scheme. Among them there stand out:
* Ndambi Armando Guebuza, son of the former President of Mozambique, Armando Guebuza;
* Gregório Leão, former director of the State Intelligence and Security Services (SISE) ;
* António Carlos do Rosário, former Chairperson of the Board of Directors of Ematum, ProIndicus and MAM;
* Inês Moiane, private secretary of President Armando Guebuza;
* Renato Matusse, political advisor to the then President Armando Guebuza;
* Teofilo Nhangumele, one of the Mozambicans who is also accused in this same case by United States prosecutors.
Internationally, the former Minister of Finance, Manuel Chang, has
been under detention in South Africa since 29 December 2018,
awaiting a decision as to whether he will be extradited to the
United States or to Mozambique. While Chang was awaiting this
decision, in the United States, in a New York court, Privinvest
official Jean Boustani was tried and the jury considered he had not
committed the crimes of which he was accused within the New York
jurisdiction, and so he was acquitted.
In London courts, other lawsuits are under way. In one of them, the
Mozambican Attorney-General’s Office is pitted against the bank
Credit Suisse and Privinvest, while in others a group of creditors
is fighting the Mozambican government, as well as VTB against MAM
and the Republic of Mozambique.
So, when the final draft of this report was produced, this case was
still far from reaching an outcome in the various jurisdictions
where the lawsuits were being waged. However, its effects, as from
2016, are already visible in the lives of millions of Mozambicans
who have witnessed a worsening cost of living and the deep economic
and financial crisis into which the country has been plunged. With
regard to the lawsuits, although it is regrettable, the delay in the
trial of the various cases related with this enormous corruption
scheme is understandable. It is justified by the fact that the cases
are taking place in several jurisdictions and may potentially have a
contagion effect – that is, the decision in one case may influence
or produce evidence for the other cases.
The path to follow
However, the same excuse cannot be used for the delay in introducing
structural reforms to prevent the occurrence of new scandals on this
scale. Since the discovery of the hidden debts, in April 2016, more
than four years have passed and the focus of the analyses is still
on the individuals who were behind the contracting of the debts, and
never on analysing how the system of checks and balances completely
failed to create antibodies so that a fraud of this nature would not
happen .
The Assembly of the Republic (AR) failed completely in its role of
checking the actions of the Executive, and did not redeem itself
even after the debts were discovered. The parliamentary commission
that investigated the case was a clear example of this failure of
the AR. The Mozambican parliament never managed to take the case of
the hidden debts as an opportunity to initiate a more profound
debate on the role of the legislature as inspector of government
actions, probably because parliament is controlled by the ruling
party which benefitted from the swindle (in the New York court,
documents were presented which proved bank transfers of about USD 10
million to finance the party’s campaign), in which at least part of
the leadership was complicit. So, it is an inconvenient matter for
the Frelimo parliamentary group.
As for the judiciary, this also showed it did not have enough power
to force the Executive to comply with the Constitution. The refusal
of the government to obey rulings of the Constitutional Council is
the most flagrant example.
It is essential that the country should reflect deeply on the
structural reforms that should be implemented so that cases like
this are not repeated. And after this reflection, mechanisms must be
set up to guarantee that these reforms are undertaken. The Assembly
of the Republic should lead this process.
But intellectuals, academics, civil society organisations and the
public in general can and should play an important role in helping
the political institutions make the necessary reforms. Currently,
the weaknesses of the system persist. Hence, new actors and the
knowledge of what went wrong with the hidden debts, could lead to an
even more daring swindle, and one which avoids financing from
western countries, such as the United States and Britain who have
legislation which can act belong their physical borders.
If the internal control systems remain weak, if the parliament and
the judiciary remain decorative bodies, then the Government of the
day, under a presidentialist system in which the President of the
Republic is all-powerful, can seek financing from creditors who are
outside of the western financial systems, but who have liquidity
and as a counterpart for the high risks involved, demand in
exchange the country’s natural resources.
The institutional weakness, the weakness of the institutions that
should act as checks and balances raises some questions in the event
that Mozambique manages to win the lawsuits that it brought in
London, and if it has to be compensated for the damage done to
Mozambicans. If this hypothesis comes to pass, where would the money
paid to the country in compensation for the damage caused by the HD
go? If the institutions are not credible and controlled by the
Executive and by the party that controls the government, it raises
the possibility of this money returning to the hands of some of
those involved in this case, thus overturning all the efforts that
are being made so that companies such as Privinvest, Credit Suisse
can be held responsible for the damage done to the country.
This report is a contribution to the debate around this matter and
may be a useful tool for political decision makers, for public
institutions, for the Assembly of the Republic, the Attorney-
General’s Office, the Administrative Court, the Constitutional
Council, the private sector, civil society organisations,
intellectuals, academics, and the public at large.
We are confident that the report will contribute to constructive and
structuring debates. Debate it, criticise it and improve its
analyses and estimates! But, above all – use it! Let the extent and
gravity of the injustice committed be known, so that it is never
repeated, and so that its lessons may be used to build a more just,
equitable and safe society!
Edson Cortez
Executive Director of CIP
May, 2021
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Mozambique 546 - Energy agency says no more Moz gas; Total demands peace - 20 May 2021
International Energy Agency says no future for Mozambique gas
This newsletter in pdf is on http://bit.ly/Moz-546
Mozambique's gas fields cannot be developed if global warming is to
be kept to 1.5º above pre-industrial levels, according to a dramatic
International Energy Agency (IEA) report published Tuesday (18 May).
The IEA is part of OECD and thus represents establishment,
mainstream thinking. So when it says gas is done, that carries
significant weight.
The IEA report is entitled Net Zero by 2050, and shows what needs to be done to reduce global carbon dioxide (CO2) emissions to net zero by 2050, to limit the long-term increase in average global temperatures to 1.5º C, and ensure universal access to electricity and clean cooking by 2030. https://www.iea.org/reports/net-zero-by-2050
To do this requires that "beyond projects already committed as of
2021, there are no new oil and gas fields approved for development."
Only two Cabo Delgado projects fit within that window - ENI's
floating LNG plant (3 million tonnes per year - mt/y - of LNG) and
Total's suspended project (13 mt/y). ExxonMobil has still not
committed, and Total has not committed to a larger project, so under
IEA scenario they are excluded. In any case, the Economist
(4 Feb) reports that shareholders are pushing ExxonMobil to go
green. This means production of at most 16 mt/y, which is far less
than the 100 mt/y being predicted just six years ago.
"The contraction of oil and natural gas production will have far-
reaching implications for all the countries and companies that
produce these fuels. No new oil and natural gas fields are needed."
This will mean a huge cut in projected income for gas-producing
countries. "Net zero calls for nothing less than a complete
transformation of how we produce, transport and consume energy."
"No new natural gas fields are needed… beyond those already under
development. Also not needed are many of the liquefied natural gas
(LNG) liquefaction facilities currently under construction or at the
planning stage. Between 2020 and 2050, natural gas traded as LNG
falls by 60%. ... In the 2030s some [gas] fields may be closed
prematurely or shut temporarily."
. . .
Global 2º compared to 1.5º for Mozambique: Hotter, drier, worse
cyclones; south hit hardest
IEA cites extensively a report by the IPCC (Intergovernmental Panel
on Climate Change), which is so detailed that it is possible to
estimate the difference between global warming of 1.5º and 2º for
Mozambique. The 1.5º and 2º are global average increases, and the
actual impacts vary significantly across the world, and even within
Mozambique.
+ Temperature rise in Mozambique will be more serious at global 2º
than global 1.5º of warming. The hottest days and coldest nights
will both be hotter. Global 1.5º causes a Mozambique temperature
rise, but the increase is much greater at 2º. The number of hot days
increases more in the north than in the south.
+ Southern Mozambique will become much dryer at 2º with droughts.
Water shortages will be more severe at 2º than 1.5º. The number of
consecutive dry days increases, particularly in the south.
+ Total rainfall will decrease more at 2º than 1.5º across
Mozambique, and will be most serious south of the Zambeze river.
However extreme rainfall increases significantly, particularly in
northern coastal zones.
+ The number of cyclones may actually decrease, but their intensity
increases. Thus flooding causes by heavy rain and intense cyclones
will be more serious with 2º warming than with 1.5º.
+ The ocean will get warmer, and sea level will rise - with
significant difference between 1.5º and 2º.
+ There is increased
risk to mangroves.
+ Moving from 1.5° to 2° of warming reduces maize yield and the suitability of maize as a food crop. Food shortages are predicted, and the risks at 2º are "much larger than the corresponding risks at 1.5°".
This all comes from an extremely detailed comparison of 1.5º and 2º with maps good enough to identify differences within Mozambique in Chapter 3 of the IPCC (Intergovernmental Panel on Climate Change) thick 2018 tome Global warming of 1.5ºC https://www.ipcc.ch/sr15/ .
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