Are Donors to Mozambique Promoting Corruption?

By Joseph Hanlon

Paper submitted to the conference, Towards a New Political Economy of Development, Sheffield 3-4 July

“Corruption”, “elite predation”, and the “criminalisation” of the African state have become fashionable topics. “Africa remains unproductive and … the pursuit of rents or unearned fees is becoming ever more extensive,” writes Béatrice Hibou, adding that the bureaucratic apparatus, including the courts, is being privatised and criminalised; bank and company frauds burgeon; and drug trade and money laundering are becoming ubiquitous.

But World Bank researchers find that “foreign aid can induce corruption” and that there is “no evidence that donors systematically allocate aid to countries with less corruption”.

Mozambique seems to fit the pattern. From having been a paragon of integrity in the late 1970s, a study by the South African Institute of Security Studies (ISS) “clearly shows … that Mozambique is very close to becoming a criminalised state.” The legal system has collapsed and court rulings are available to the highest bidder. Money laundering is common, and Mozambique has become an important drug warehousing and transit centre, with senior figures involved. In two major bank scandals, at least $400 million was stolen, partly by senior figures in Frelimo, the ruling party. Two people who tried to investigate the bank frauds, newspaper editor Carlos Cardoso and the government’s head of banking supervision, Siba-Siba Macuacua, were both publicly assassinated and the investigations of the killings blocked at high level.

Donor support seems to grow in tandem with criminalisation. At its donor Consultative Group meeting in October 2001, just two months after the murder of Siba-Siba Macuacua, Mozambique asked for $600 mn in aid and was given $722 mn. Sergio Vieira, a former security minister, wrote that the pledge of more money than Mozambique requested shows that the international community recognises “the good performance of the government” and that this “overrides the bank scandal and the assassinations of Siba-Siba Macuacua and Carlos Cardoso”.

On the issues of both corruption and development, donors and some Mozambicans seem to see totally different countries.

“Corruption, though not non-existent, is not institutionalised and the possibility for controlling funds earmarked for Mozambique is easy and transparent,” said Guido van Hecken, Belgium’s Chief of Cabinet for the State Secretary for Development Co-operation.

“We live in a kingdom where those who lead are gangsters,” said one of the country’s foremost writers, Mia Couto, last year. On 24 May 2002, Couto added that in Mozambique an elite is using power “in order to enrich itself. They don't think of Mozambique, they think of themselves”. ISS says “there is a lack of political will to fight organised crime and corruption” and that “the relative impunity with which some of the successful [drug] traffickers operate is often a result of their close connections with individuals at the highest levels of government or the Frelimo party.”

Mozambique continues to be one of the best performing economies in Sub-Saharan Africa, according to the World Bank economist in Maputo, Dipac Jaiantilal. “Mozambique over the last decade has emerged as an example of successful reform,” notes the World Bank. “GDP has grown at an average rate of 8.4%.”

“Ordinary Mozambicans have yet to see any real changes in their daily lives, despite official World Bank figures,” according to an article published by the United Nations Office for the Coordination of Humanitarian Affairs Integrated Regional Information Network. This is confirmed by a public opinion survey which showed people do not feel their standards of living are improving. In a survey of 13,790 households undertaken by the National Statistics Institute (INE) between October 2000 and May 2001, people were asked to compare their situation with what it had been a year earlier; 35% said they were in much the same situation as a year previously while 38% said they were worse off.

Are van Hecken and Madeira talking about the same government? Are the World Bank and UNDP talking about the same country? Yes they are, because it all depends where you look.

“It is possible to work with Mozambican authorities,” said van Hecken. That is the key point. Mozambique has become a donor playground, and the Mozambican elite has become highly skilled at giving the donors what they want. Thus management of donor money is transparent and clear. The predatory elite do not steal donors’ funds; instead they rob banks, skim public works contracts, demand shares in investments, and smuggle drugs and other goods – and they ensure that the justice system does not work so they cannot be caught.

Similarly, donors see rapid GDP growth , growing exports, increasing enclave foreign investments, growth in the areas of Maputo that they frequent, and a government which does the bidding of the international financial institutions (IFIs) and can manage donor projects. They choose not to see that poverty is worsening in rural areas.

Indeed, they reject what they are being told by Mozambicans. The donor’s annual Consultative Group (CG) meeting was held in Maputo 25-26 October 2001. After meeting with each other and the government, and heaping praise on the government for following IFI economic policies so closely, they met civil society. “Several civil society organisations (CSOs), in a consolidated statement, stated their belief that structural adjustment and high growth had not resulted in poverty reduction in Mozambique,” according to the meeting chair Darius Mans, World Bank Country Director for Mozambique. The report indicated no donor reply; they seem not to have heard.

The Poverty Reduction Strategy Paper (PRSP), known in Mozambique as the Plano de Acção para a Redução da Pobeza Absoluta (PARPA), (Action Plan for Reducing Absolute Poverty), show the differences of opinion starkly. In his report on the CG meeting, Mans reported that “there was widespread agreement [of the donors present] that the most significant achievement of the last 12 to 18 months has been the completion of the PARPA.” Mans went on to note, without comment, that “a number of CSOs expressed concerns about health and education spending, which they claim is projected to decline as a percentage of GDP after 2002.” Indeed, the PARPA shows that spending on “priority areas” for poverty reduction falls from 19.4% of GDP in 2001 to 17.0% of GDP in 2005. Education spending falls in cash terms as well as percentage terms, from approximately $247 mn in 2001 to $218 mn in 2002 (a savage 12% cut), rising slowly after that to $244 mn in 2004 and finally to $262 mn in 2005. Despite the admitted need for more teachers, not only to expand primary education but also to replace teachers dying of AIDS, teacher training expenditure is kept constant.

How can donors praise a “poverty reduction” paper that cuts spending on education and other areas of poverty reduction? The answer is that it satisfies other donor demands, and this is made clear in the arcane language of the international financial institutions. In his report on the CG meetings, Darius Mans cites the World Bank economist Dipac Jaiantilal noting that poverty reduction requires “creating and maintaining a sound economic environment, including low inflation.” The World Bank praised the government for including in the PARPA tight monetary policies to “slow inflation”.

Reporting on the statement of the IMF Resident Representative Arnim Schwidrowski, Mans says “Mr Schwidrowski observed that, in line with the PARPA’s fiscal targets, the framework aimed for a reduction in the domestic primary deficit, excluding bank restructuring costs, to under 5 per cent of GDP.” This sentence makes two very different points. First, to meet tight monetary policies, PARPA does indeed involve a cut in spending. Second, so long as the cap is met, the IMF will allow the government of Mozambique to plug the hole in the banking system created by high level people plundering the banks instead of increasing anti-poverty spending.

Taken together, the donors are making three points about their own priorities:
1) Writing a document, rather than any concrete action, was “the most significant achievement of the last 12 to 18 months”;
2) That the priority for “poverty reduction” is inflation reduction and a tight monetary policy, even though it requires a cut in education and other poverty related spending; and
3) That the government is free to use money to cover the costs of gross corruption, so long as it is done transparently and without breaking the spending limits.

Corruption in Mozambique – and Africa – is not a unique phenomenon. The mafia in Italy and the recent Enron scandal show how single-minded promotion of certain priorities can create a penumbra in which corruption is fostered. The donor community stresses good governance, but this paper argues that in practice it has a low priority, and that in their quest to increase aid to Mozambique and promote further “market-friendly” policy change as quickly as possible, donors are rewarding corruption and refusing to support honest Mozambicans.