Mozambique’'s Hidden Debt Scandal
BY RHEA LOUIS / JANUARY 29, 2022
One of the biggest corruption scandals of the continent has shaken the Mozambican economy to the core, turning it into an international pariah.
or the longest time, Mozambique was known to be one of Africa’s most promising economies. Endowed with ample arable land, water, energy, commercially important deposits of mineral resources and newly discovered natural gas offshore, much of the country’s economic growth depends on its natural resources. Gifted with an Indian Ocean coastline of 2500 km, three deep seaports, a relatively large potential pool of labor and four of its six neighboring countries being landlocked, the country acts as a conduit to global markets.
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Pictured: Illustration By Unknown Via Pinterest
Between the years 2014 and 2017, owing to a combination of several large-scale foreign-investment projects in the extractives sector, sound macroeconomic management and significant donor support, the country projected a Compounded Annual Growth Rate (CAGR) of 7.30%, one of the highest among the continent. In recognition of the growth achieved by the country, in 2014, Maputo, the capital city of Mozambique, was chosen to host the Africa Rising Conference by the International Monetary Fund (IMF) during which, Christine Lagarde, the Managing Director of IMF, spoke about the countries impressive performance and raved about having high hopes for the country’s future. But in the 8 years since, much of that optimism has dissipated.
Between the years 2014 and 2017 the country projected a Compounded Annual Growth Rate (CAGR) of 7.30%, one of the highest among the continent.
In 2016, Filipe Nyusi, the current president of Mozambique, owned up to the charges of misappropriation of state monies, corruption and financial scandal carried out under the presidentship of his predecessor Armando Guebuza. It was later revealed that, in 2014, three Mozambican state-owned companies, Proindicus, Ematum and Mozambique Asset Management (MAM), borrowed USD 2 billion, an incredible 12% of the GDP of one of the poorest country in the world, from Credit Suisse and VTB, a Russian investment bank, under the pretense of financing maritime surveillance, fishing and shipping products. However, neither were the loans approved by the country’s parliament nor did the government guarantees applied to them comply with the 2013 and 2014 Finance Acts.
Pictured: Illustration By Edel Rodriguez Via Pinterest
The illicit scheme was largely the brainchild of Privinvest, an Abu Dhabi based group, who, after becoming the sole contractor for the three companies, profited from the deal by charging them vastly inflated prices for fishing boats and other assets.
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Pictured: Illustration By Fanatic Studio Via Getty Images
With the numbers involved in the deal not adding up, the loans were surrounded by irregularities, perhaps explaining why it was not made public initially. An audit report by Kroll, a risk consultancy firm, found that the project which was supposed to be development-oriented was in fact mainly military-based with a significant proportion of the funds being spent on the purchase of three Ocean Eagle 43s, a military vessel capable of launching unmanned aerial vehicles and dispensing machine gun fire, which does not directly contribute to the country alleged fishing goals.
Moreover, not only do the records show evidence of over-invoicing of USD 713 million, but almost USD 500 million of the loan simply remains unaccounted for, of which over USD 200 million, according to the United State Prosecutors investigating the case, was spent on bribes and kickbacks. Manuel Chang, the former finance minister of the country who signed the loan guarantees, other senior Mozambican officials and the three Credit Suisse bankers who negotiated the loans, Andrew Pearse, Surjan Singh and Detelvina Subeva, are among those who confessed to taking these bribes.
The initial disclosure of the scandal in 2016, brought about an abrupt end to Mozambique’s success story and damaged the country’s financial credibility causing Western donors to temporarily suspend financial aid. Furthermore, the metical, the currency of the country, also collapsed by 32% against the US dollar, resulting in the country’s worst financial crisis after its Independence in 1975.
As of 2020, non-performing loans in the country have been recorded to be 12.6% and both the fiscal and external balance of the country has deteriorated.
As of 2020, non-performing loans in the country have been recorded to be 12.6% and both the fiscal and external balance of the country has deteriorated. Pushed by lower revenues from tax relief, economic slowdown and the increasing public debt, which was already high at 108.4% of the GDP in 2019, the fiscal deficit is estimated to be 7% of the GDP. In addition to this, due to lower export earnings, the current account deficit has been estimated to be 30.8% of the GDP.
The trial for the accused nineteen people on charges of blackmail, embezzlement and money laundering, which began in September of 2021, included Ndambi Guebuza, son of former President Armando Guebuza, Gregorio Leao, former head of the security services and Filipe Nyusi, the current president, who was minister of defense at the time of the events, among other senior Mozambican officials.
Pictured: Global Corruption Barometer Illustration by Augusto Zambonato Via Google
With the relations of the country with traditional donors being severely disrupted, in order to solve the liquidity crisis, the country now looks at credit from China, one of Maputo’s biggest financial creditors since 2015, for help who in turn is happy to accept the country’s commodities as security. But is China really trying to help Mozambique out of its financial crisis or is it all an effort to build a Chinese military base in the country, catering to the Chinese military prospects while facilitating economic control over the African continent?
Being the country’s largest bilateral creditor at USD 2.2 billion, the Chinese exercise enormous influence over Mozambique.
Being the country’s largest bilateral creditor at USD 2.2 billion, the Chinese exercise enormous influence over Mozambique. Reports suggest that beginning in 2015, China has invested over USD 100 million to construct the modern office building of the Ministry of Foreign Affairs and the Cooperation of Mozambique with a view to house high-tech Chinese-built office complexes, conference rooms and international facilities which serve as centers of espionage and surveillance for China. In addition to this, the China Aviation International Construction and Investment Co Ltd are in the process of developing the Xai-Xai Chongoene Airport in Chongoene City involving an investment of about USD 60 million.
Pictured: Illustration by Eduardo Salles via Pinterest
With the social and political condition of the country deteriorating and many Mozambicans expressing their anger at the armed conflict in parts of the country,the public debt, and, above all, the rising cost of living, the Centre for Public Integrity (CIP) argues that the scandal combined with the attempted coverup led up to further weakening of state institutions as well as disreputed the government regime. Amidst this war of words, will Mozambique turn into a less democratic and more authoritarian country?
Keywords
Mozambique, Maputo, financial crisis, financial scandal, corruption, IMF, Philipe Nyusi.
References
Cascais/ck, A. (2016, September 15). Mozambique looks to China for financial help. DW. https://www.dw.com/en/mozambique-looks-to-china-for-financial-help/a-19266055
Chaudhury, D. R. (2021, September 16). Hydrocarbon Rich Mozambique a future military base for China? The Economic Times. https://economictimes.indiatimes.com/news/defence/hydrocarbon-rich-mozambique-a-future-military-base-for-china/articleshow/86250224.cms
Toulemonde, M. (2021, October 22). Mozambique's hidden debt scandal: Where did the $2bn go? The Africa Report.
https//www.theafricareport.com/137710/mozambiques-hidden-debt-scandal-where-did-the-2bn-go/
Krippahl, C. (2021, September 1). Mozambique: 'hidden debt' trial exposes depth of corruption. DW.
https://www.dw.com/en/mozambique-hidden-debt-trial-exposes-depth-of-corruption/a-59052690
Holodny, E. (2016, June 2). A 'hidden debt scandal' might crush one of the world's poorest countries. Business Insider.
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