Illicit trade & insurgency in Mozambique

The Daily Maverick has an excellent piece on how the ongoing insurgency in northern Mozambique may be reshaping the illicit trade industry in the country:

mozambiqueThe most reliable reports of the insurgents developing an illicit income stream are linked to the heroin trade. There is a significant range in street-level heroin prices across East and Southern Africa. The range in prices in northern Mozambique – far greater than found in any other research site – reflects the variance in heroin quality available in Cabo Delgado that we also found during qualitative fieldwork in the region…

There has been a significant recent shift in the rhetoric and style of attacks committed by the Cabo Delgado insurgents. Rather than terrorising communities as in previous months, they are instead attacking state infrastructure and military bases. They have used their increasingly vocal media campaign to declare their intentions to create a caliphate. Analysts we interviewed suggest that part of the insurgents’ aim is to re-establish control over areas historically controlled by Muslim sultanates along the Swahili coast. This historical claim would play into the caliphate narrative and the group’s claim of legitimacy.

If this territorial control were achieved – along the coast from Quissanga to Palma as well as on the key inland transport corridor along the N380 road and the town of Macomia – this could vastly change the dynamics of the insurgency.

Control over key sea and land routes would allow the insurgents to “tax” legal and illicit economies in the region more systematically. While there may already be some protection of heroin trafficking and involvement in the gold and ruby trade, this could expand to include human smuggling, timber trafficking and possibly a share of the illegal wildlife trade.

The insurgents’ access to Mozambique’s illicit trade networks is an ominous development. Taxation of the drug trade and access to point resources like gold will likely boost the insurgents’ staying power and capacity for violence, while also weakening their dependence on local populations. That probably means more civilian deaths.

Portugal used to claim to be a big country

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This map is based on one produced by Henrique Galvão in 1934, supporting the imperial ambitions of the then-new Portuguese dictator Antonio Salazar.”

Angola (pop. 30m) is three and a half times the size of Germany (pop. 83m).

If you are interested in learning more about Angola and Mozambique, see here and here.

The Case for Term Limits, Angola Edition

The erasure of Jose Eduardo dos Santos’ 38-year rule in Angola appears to be accelerating. Angola does not have executive term limits, but Eduardo dos Santos finally stepped down as president in late 2017.

On Wednesday his successor, Joao Lourenço, removed replaced his son (Jose Filomeno dos Santos) as head of Angola’s $5b sovereign wealth fund. This follows the sacking of Isabel dos Santos (Africa’s wealthiest woman) as head of the country’s state oil company last year. President Lourenço has also moved to replace key security chiefs in sub-Saharan Africa’s third largest economy and second biggest oil producer.

When Eduardo dos Santos said he’d retire I was skeptical. The anointment of his defense minister, Joao Lourenço, as his successor (while retaining position atop the ruling party) did little to change my mind. But like in Mozambique and Zambia before it, the mere change of guard in Angola appears to have initiated a process of elite churn that is accompanied by a dismantling of the old order (at the very least within the ruling party).

Now, there is no guarantee that this will lead to normatively desirable outcomes (such as better governance and service delivery in Angola). Change for its own sake is only good up to a point. But it is a testament to the political importance of term limits. Regular leadership turnover is a nice way of ensuring that no single interest group or ruling cabal completely dominates a country’s political economy.

Relatedly, I am not a close watcher of Angola but recent events have led me to update my view of the level of institutionalization of MPLA. For a long time I thought that it was just an electoral/patronage SPV for Eduardo dos Santos. But news events seem to suggest that its powers transferred almost intact to Joao Lourenço (I could be wrong of course).

 

The top 20 best countries to invest your money in Africa

This is according to the latest Ernst & Young’s Africa Attractiveness Report (2016). Kenya is ranked 4th. Ahead of Tunisia, Mauritius, and Botswana. You just need to spend a few hours in Nairobi, or the other 46 county headquarters, to understand why. While economic inequality remains to be a huge (political) challenge, it’s hard to argue against the structural transformations underway in the Kenyan economy.

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More on this year.

Mozambique: Is there such a thing as predatory sovereign lending?

The Wall Street Journal has a great story on Mozambique’s hidden debt scandal:

Screen Shot 2016-06-30 at 8.03.37 PM.pngThe government picked Mr. Safa’s company, Privinvest, to supply ships, including patrol and surveillance vessels, and asked its help getting financing. The company disputes the characterization of the ships as military, saying they weren’t outfitted with weapons. Privinvest approached Credit Suisse about a loan for Mozambique, and a committee of senior executives, including then-CEO Gaël de Boissard, approved the deal.

Credit Suisse’s top brass signed off in part because the bank had pioneered a way to lend in developing countries without taking on much risk.

The bank found it could purchase sovereign-debt insurance through the Lloyd’s of London insurance market to hedge as much as 90% of the loans against default. Credit Suisse charged higher interest rates on the debt than its insurance premiums, pocketing the difference mostly risk free.

The insurance policies Credit Suisse used only covered governments. So when Mozambique wanted to borrow the money through state-owned companies instead, the bank came up with a twist: Mozambique would cosign.

FT notes that:

The debt was originally borrowed via a special purpose vehicle for Ematum [tuna fishing company], an arrangement that does not require the same level of disclosure as a sovereign bond issue.

Basically Credit Suisse, the Russian VTB Capital, and their Mozambican accomplices knew exactly what they were doing.

When the money got to Mozambique it mostly went into private pockets. The proposed tuna business the loans were intended to finance went bust (realizing a paltry 2.5% of projected sales). And the security purchases (ostensibly to secure Mozambique’s vast yet-to-be-developed gas fields) proved useless.

Meanwhile…

…….conditions in Mozambique are worsening. Its foreign-currency reserves fell to $1.8 billion in May from $2 billion in January, and it is seeking $180 million in food aid. Intensified fighting has sent more than 10,000 refugees to neighboring Malawi, according to the U.N. High Commission for Refugees.

Credit Suisse is a Swiss financial services company. According to the WSJ Privinvest’s struggling subsidiary Constructions Mécaniques de Normandie built the ships sold to Mozambique. The latter is, of course, based in France. Corruption knows no borders.

Mozambique may have squandered up to $2b of borrowed money

Public Finance is emerging to be one of the biggest development challenges of our age. Here’s Africa Confidential on Mozambique’s hidden loans, which may amount to more than $2b.

Screen Shot 2016-05-12 at 1.38.32 PMSources close to Rosário Fernandes, ex-head of the revenue authority, the Autoridade Tributária de Moçambique, have told us of systematic diversions of taxes straight into the pockets of the Frelimo elite, especially in the later years of President Guebuza’s term of office, when he exercised enormous patronage. Massively inflated contracts were commonplace. The latest to emerge is the extravagant, nearly complete, Bank of Mozambique building in Maputo, which boasts a helicopter landing pad on the roof. Originally estimated to cost $90 mn., the final cost is reckoned at at least $300 mn., with kickbacks and ‘commissions’ accounting for the cost inflation, say Frelimo sources.

Guebuza engaged in an ultimately doomed attempt to extend his term of office, which ended in October 2014, and this partly explains the extraordinary scale of his liberality towards loyalists, sources formerly close to him told us (AC Vol 53 No 18, The Putin option). The schemes became increasingly brazen, and the creation in 2013 and 2014 of three companies – Empresa Moçambicana de Atum (Ematum), Proindicus and Mozambique Asset Management (MAM) – was the culmination of this programme. The companies, which received the totality of the $2 bn. now owed by the state, were mainly in the field of maritime security, even though it was the intelligence and security services that provided the management. They bypassed parliament, illegally, and defence procurement, effectively privatising, as one commentator put it, national security while lining the pockets of the elite into the bargain. Yet the ill-equipped companies could not cope and quickly collapsed. Ematum, which originally claimed to be focused on tuna fishing, is no longer operating its few licensed vessels because it cannot pay salaries (AC Vol 56 No 24, Nyusi’s nightmare).

Kenya, Zambia, among others, have also borrowed enormous amounts of money that have not been properly accounted for. Several of these countries have recently gotten cover from the IMF that all is well. But the IMF has strong incentives to save face and maintain confidence that it does its job.

If Mozambique could do it, what stops more sophisticated treasuries elsewhere on the Continent?

I am increasingly convinced that Africa’s newfound love with international creditors is a bond bubble waiting to happen. The 1980s and early 1990s sucked. And we might be headed for a repeat if the African states floating eurobonds continue on the same path.

How did Mozambique manage to hide more than $2b in debts from the IMF?

It’s common knowledge that most developing states have data problems. But even with those priors, the revelation that Mozambique managed to hide more than $2b in undisclosed debts from the IMF for almost three years is cause for pause.

According to the FT:

Details of the previously undisclosed loans — which add about the equivalent of 10 per cent of gross domestic product to the government’s known debt burden — emerged after the “tuna” bond was restructured last month.

Of the two previously undisclosed loans confirmed last week, the first was for $622m to a state-owned company, Proindicus. The second, to another unidentified state company, was valued at more than $500m, a person familiar with the matter said.

Credit Suisse, the Swiss bank, and Russia’s VTB bank, both of which arranged the sale of the tuna bond, provided the undisclosed loans, the IMF said.

Basically Mozambique borrowed a lot of money ostensibly to set up a state-run tuna fishing company but ended up spending nearly all the money on military speed boats.

Borrowing so much money to spend on the military seems like a really REALLY bad idea.

Also, how did the IMF miss this for so long?

Public Finance is hard.

More on this here.