History of corruption
Mozambique has experienced several corruption scandals that have significantly impacted both the country’s development and its relationships with donors. Among the most significant are the 2000 Metical Bank scandal and the 2016 Hidden Debt scandal.
The 2000 Metical Bank Scandal
This scandal involved approximately 400 million USD in loans given to high-ranking politicians, which were never repaid. The scandal also led to the assassination of journalist Carlos Cardoso in 2000 and a bank director in 2001. Both assassinations are believed to be connected to the fear for discovery of the case. The loans were provided during the aftermath of the Limpopo floods in 2000, when the international donor community, focusing on the country’s urgent need for reconstruction, was less vigilant in its oversight (IOB 2008, page 170, 171).
The 2016 Hidden debt Scandal
This scandal had a far more significant impact on Mozambique’s donor relationships. According to the Centre for Public Integrity and the Centre for Mozambique Studies, the total direct and indirect losses amounted to around 11 billion USD, equivalent to the entire national budget of 2016 (CIP/CMI, 2021).
World Bank summary
In 2013, Ematum, a state-owned fishing company, borrowed 850 million USD from Credit Suisse and the Russian VTB Bank to finance a new tuna fishing fleet. This loan was secured through "tuna bonds," which were unlisted securities guaranteed by the state. By 2014, Ematum reported losses, and it became clear that the government would need to assume responsibility for the debt.
As Mozambique’s public finances deteriorated in 2016, partly due to falling commodity prices and poor agricultural harvests, it became evident that the government could not meet its debt obligations. In response, the government restructured the tuna bonds into a sovereign bond. However, in 2016, it was revealed that Mozambique had contracted additional undisclosed debt, totaling 1.4 billion USD (about 10% of the GDP), which included non-concessional debt and guarantees for state-controlled companies.
This revelation led the International Monetary Fund (IMF), the World Bank, and other donors to suspend budget support to Mozambique, precipitating a budget crisis, a sharp rise in external debt (127%), and a broader economic downturn.
Sources: Based on information from the Financial Times, Forbes, and the Wall Street Journal.”
In addition to Ematum, state-owned companies like Proindicus and Mozambique Asset Management were also implicated in the scandal, with loans totaling over 2 billion USD (Hanlon 2017).
The Netherlands
Some of the financial transactions related to the scandal passed through so-called "letter-box" companies in the Netherlands, which were connected to Russian investors. These firms were established to take advantage of the Netherlands’ favorable tax regime. However, the oversight of these firms was minimal, which allowed such questionable transactions to occur.
As a result of the scandal, most Dutch-supported projects in Mozambique were affected, especially those that utilized the Common Bank Account for Donor Aid. In an effort to mitigate the negative impact on the ordinary Mozambican population and to salvage investment opportunities in northern Mozambique, the Dutch government sought new ways to continue its support for projects and investments. In 2017, the President of Mozambique visited the Netherlands, urging continued Dutch investment, and this was granted despite the controversy surrounding the visit.
References
CIP (Centro de Integridade Pública) and CMI (Chr Michelsen Institute/Norway) (2021). Cost and consequences of the hidden debt scandal of Mozambique
Hanlon J. (2001) Killing the goose that laid the golden eggs; Open University
Hanlon J. ed (2017 Feb) ‘Special report on the secret $2 billion debt’; in: MOZAMBIQUE News reports & clippings 359, 13 February 2017
Hanlon, J. (2017). 'Following the donor-designed path to Mozambique's US$2.2 billion secret deal'. Third World Quarterly 38 (3): 753-770
IEG/World Bank Group (2021). Approach Paper Mozambique Country Program Evaluation; Appendix E
Original text 20/12/2024 D. Bouman