Cyclone Idai leaves a trail of destruction in Mozambique as the country’s economy grapples with the mission billions of dollars
Mozambique has just been hit by cyclone Idai and more than a thousand people reportedly having lost their lives. President Filipe Nyusi recently indicated that the damage of Cyclone Idai is still to be quantified. These tragic events revealed Mozambique’s underbelly: weak infrastructure and under-preparedness to deal with natural disasters of this magnitude. Mozambique’s development has been frozen in time for most of the country’s 31 million people.
The country’s underdevelopment is not unrelated to the rise in avarice. Consider the US$2bn dollars that disappeared from the coffers of the Mozambican government. Properly used, these resources could have gone far in improving a lot of Mozambicans. The combination of poverty, corruption and vulnerability to natural disasters reflects years of institutional erosion and embedded culture of impunity.
Apart from the natural disasters that have visited that country, political risk in Mozambique remains heightened. The leading economic analyst, Wandile Sihlobo, has recently highlighted concerns related to food insecurity in that country due to damage in crop fields and port infrastructure. Further, the country’s political economy landscape is currently characterised by inter alia: ongoing low-intensity insurgency in the far north; the high debt to GDP ratio; and endemic corruption. The country’s inland revenue authority has missed its revenue collection target by 4.9%. Trade of goods and services is looking positive with the country has scored well in the Global Connectivity Index of 2019. Mozambique had an overall score of 116 out of 169 in terms of connectivity and 83 out of 169 when the depth of connectivity is measured. The country is connected mostly to China (28% of trade) and Portugal at 14%. On the diplomatic front, the arrest of former Finance Minister Manuel Chang and the death of a South African citizen while incarcerated in what looks like poisoning could sully the relations between the two countries.
Manipulation of institutions
South Africa has recently been asked to assist Mozambique to deal with the devastating effects of Cyclone Idai. The country has indeed responded by dispatching military personnel. Subsequently, Maputo asked Pretoria to hand over Mozambique’s former Minister of Finance Manuel Chang, who was arrested in South Africa on the back of a US warrant of arrest for allegations conspiracy to commit fraud and accepting bribes in a $2bn loan scandal.
In another sign of institutional manipulation, in August 2018, Mozambican authorities detained a South African businessperson based in the northern part of the country. They accused Mr Andre Hanekom of assisting the terrorist groups in Delgado province. Hanekom was denied a fair trial with Mozambican authorities holding him in custody for over six months without appearing in court. He later died in prison under mysterious circumstances. His death and the detention of Chang in South Africa might muddy the diplomatic relations between South Africa and Mozambique with consequences for business. This could be through Mozambique making arbitrary decisions against South African firms invested in that country.
Possible regional contagion
While Mozambique’s neighbours, Malawi and Zimbabwe have been directly hit by Idai, the repercussions from the financial storm relating to the missing US$2bn is being felt by South Africa. The regional giant has been roped into the debt saga through the arrest of former Mozambican Finance Minister Manuel Chang. In addition, the Mozambican authorities seem to be applying diplomatic pressure to Pretoria for Chang’s extradition to Maputo. It is needless to mention that a Mozambique with a struggling economy and weak resilience to natural disasters inevitably exerts economic and humanitarian pressure on South Africa.
Mozambique is susceptible to terrorist attacks beyond the internal insurgency related to FRELIMO and RENAMO tensions. Thus far a non-descript group of fighters has been launching guerrilla-style terrorist attacks on civilians in the far north region. This violence has thus far claimed the lives of 150 people in 2018. Security analysts have not yet been able to figure out the identity of the terrorist group involved. One view suggests the group could be linked to more continent-wide Islamic terrorist groups such as Boko Haram or Al Shabaab. The alternative conjecture locates the terrorist group within disenfranchised communities in the north, adjacent to where massive offshore gas deposits have been discovered.
This narrative argues that the minority communities in the far north have been marginalised by Maputo since the country’s independence from Portuguese rule. It is possible that these communities have, with the discovery of gas deposits, decided to launch proactive attacks as a way of highlighting their plight to the government and the international community. However, the first suspicion that these groups are somehow linked to Al Shabaab is more compelling considering the arrest of four Ugandan nationals in the area in February of 2019, on allegations of being terrorists. It may be that the two schools of thought are not mutually exclusive.
US Efforts to recover the stolen US$2bn
The Mozambique government took a loan of US$2bn from private international creditors in 2013-2014. Initially, the money was intended for the provision of marine and fishing infrastructure. However, the funds were embezzled by banking and government officials. International development finance institutions, such as the IMF and World Bank, had to suspend aid to Maputo due to the disappearance of the funds. The US authorities, after extensive investigations, have arrested three Credit Suisse banking officials and a Lebanese businessman for the disappearance of the loan. The banking officials are alleged to have facilitated the diversion of the money to non-state accounts. It is alleged this was done with the knowledge and authorisation of then Finance Minister Manuel Chang. Just like cyclone Idai, the embezzlement of the US$2bn loan almost sunk Mozambique’s economy.
There have been efforts towards a smooth transition from the long-time leader and founder Afonso Dhlakama. The Renamo conference was an attempt to manage a delicate transition. This peaceful transition augurs well for Mozambican stability and business in the long run. However, the arrest of Manuel Chang could drive deep divisions within the governing FRELIMO and might have repercussions for doing business as the graft involved the private sector. Maputo’s reluctance to pay the US$2bn debt might induce a strike by international lenders. This could lead to an unfavourable financial situation in Mozambique with adverse effects for business. The Chang arrest and Hanekom’s death under mysterious circumstances might lead to tensions between Maputo and Pretoria. Such a diplomatic standoff will not be good for South African businesses in Mozambique. This will also dent Mozambique’s image in the investor community. It is therefore advisable for businesses to keep a watching brief on the developments in Mozambique and between the two countries’ diplomatic relations. Thus far, the developments in Mozambique and South Africa seem not to have soured the relations as South Africa swiftly moved to mitigate the cyclone Idaho carnage.
Image: Evening Standard