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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.

  1. 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
  2. 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
  3. 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+++++++++++++++++

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

*******************************************************

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/ .

Higher Ground with Playing for Change 2020

There are many other versions of this song available on-line, including two by Stevie Wonder.
Three that I found and think you might like are:
https://www.youtube.com/watch?v=XV1DK9tSHio – Stevie Wonder in 1973
https://www.youtube.com/watch?v=0PEPrPRAp4M – Stevie Wonder, Shakira & Usher at Obama inauguration
https://www.youtube.com/watch?v=uYi8Haq4C-oAfrican River


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