Abstract
Selected Issues
The Governance Challenge in Mozambique1
This chapter focuses on governance and corruption weaknesses in Mozambique. The chapter is based on a broad range of sources. While the assessment relies on a number of quantitative inputs based on internal Fund work and third party indicators (TPIs), it also relies on qualitative assessments made by Fund staff as well as other institutions, especially the World Bank.2 The overall governance scores and perceptions of corruption measures for Mozambique have been deteriorating since 2010, and the scores have been decreasing at a faster rate over 2012–16. Based on the foregoing, and the recent disclosure of the hidden loans, governance and corruption weaknesses are judged to be significant and pose risks to the country’s macroeconomic stability. The chapter summarizes the current situation, looks at potential economic costs of corruption, and offers recommendations on how to advance anti-corruption reforms.
A. Background
1. An increasing body of literature, including case studies and survey data, shows that weak governance and corruption severely hampers economic performance. Economic performance is impacted through several channels, especially in the domains of fiscal, market regulation, financial sector oversight, and the rule of law. This undermines the society’s trust in government, puts at risk the quality of public institutions, and give rise to rent seeking behavior, eroding the general rule of law, and slowing overall economic development.
2. For Mozambique, governance and corruption indicators have been progressively deteriorating. Over the past ten years, the Worldwide Governance Indicators (WGI) deteriorated on all six dimensions (Figure 1).3 While Mozambique still fares better than Sub Saharan Africa’s (SSA) averages on two indicators, (voice & accountability and regulatory quality), it continues to fall behind neighboring countries in government effectiveness, control of corruption, and rule of law (Figure 2). The gap between its percentile ranking for control of corruption (21) and SSA average (31) stands out and marks a rapid drop since 2010 (41 percentile rank) (WGI 2016). This is in line with findings from other governance and perception of corruption indices, including the Corruption Perception index (CPI), the Ibrahim index of African Governance (IIAG), and the survey of business leaders by the World Economic Forum.
Mozambique: Selected Governance Indices
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Mozambique: Selected Governance Indices
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Mozambique: Selected Governance Indices
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Mozambique and SSA: Indicators of Corruption, Governance, Regulatory Quality and Judicial System
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Sources: Worldwide Governance Indicators, Mo Ibrahim Foundation, and Corruption Perception Index.Mozambique and SSA: Indicators of Corruption, Governance, Regulatory Quality and Judicial System
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Sources: Worldwide Governance Indicators, Mo Ibrahim Foundation, and Corruption Perception Index.Mozambique and SSA: Indicators of Corruption, Governance, Regulatory Quality and Judicial System
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Sources: Worldwide Governance Indicators, Mo Ibrahim Foundation, and Corruption Perception Index.3. Several factors underlie this progressive deterioration in governance and corruption in Mozambique. These include: (i) a large informal economy with limited financial inclusion, which allows for a high share of cash transactions, and makes it difficult to track and control illicit transactions; (ii) a large, complex and obscure structure of beneficial ownership of state owned enterprises; (iii) a patronage political culture that often relies on the provision of benefits and public goods in exchange of political support; and (iv) weak and underfunded oversight and regulatory institutions.
4. The government recognizes the magnitude of the problem, but a coherent strategic plan remains to be enforced. Supporting anti-corruption efforts was at the forefront of president Nyusi 2014 presidential campaign and was emphasized in his inauguration speech, promising zero tolerance with government corruption. However, progress has been slow with momentum building up only recently. A new anti-corruption plan was adopted in November 2016 after the disclosure of hidden loans.4 This was also followed by other corruption cases making it to the news headlines (Box 1). While Mozambique has an updated anti-corruption framework, it faces the challenge of effective implementation and enforcement.
B. Cost of Corruption
5. Weak governance and corruption is costly for Mozambique. A study by the Centro de Intergridade Publica (CIP) and Chr. Michelsen Institute (CMI) estimated the cost of corruption to Mozambique in the period from 2002 to 2014 at around $4.8 to $4.9 billion (more than 30 percent of 2014 GDP). On annual basis, this amounts to around $500 million per year, a figure higher than the state budget annual allocations to social spending on health and education. While it is difficult to quantify the costs of corruption, the impact on the economy can be traced though several channels:
Lower economic growth and macroeconomic instability
6. A study by Ugur and Dasgupta (2011) finds strong links between the perception of corruption and lower per capita GDP growth. They estimate that on average a one-unit increase in the corruption perception index (CPI) is associated with a reduction in per capita GDP growth by 0.59 percent for the case of low income countries. Mozambique’s ranking in the CPI index dropped from 31 in 2015 to 27 in 2016. This translates to an average reduction of 1.8 percent in per capita GDP. In other words, if Mozambique could effectively implement a robust corruption plan and bring the perception of corruption back to the 2015 level, annual per capita growth, everything else equal, would have been 1.8 percentage points higher.
7. Corruption threatens macroeconomic stability through fiscal channels. Corruption affects tax collection efficiency. Tax compliance and tax evasion becomes a problem as society losses trust in government institutions, resulting in weaker capacity for the government to raise revenue and leading to prolonged development issues. In Mozambique, for example, customs procedures are identified as an area of pronounced corruption (CIP and CMI, 2016). Corruption can also lower spending efficiency, through higher costs, reducing the quality of public goods and services, distorting the allocation of public funds away from sectors that need them the most. In addition, public procurement and inadequate payment system controls are other venues affecting spending efficiency. In Mozambique, procurement in the telecom, construction and public works sectors are areas where corruption is pervasive (CIP and CMI, 2016).
Fiscal risks and SOEs performance
8. The public sector is large, complex and vulnerable to corruption and mismanagement. Formally, it consists of 13 public enterprises (SOEs) and 109 companies in which the state is the majority shareholder. In addition, the state has a stake in at least 116 private companies through joint ventures or subsidiary arrangements. Most corporations have a weak financial position, and lacks systematic reporting to the treasury. For some of these corporations the structure of ownership is not clear. This increases the risk of conflict of interest and corruption. at an early stage in 2014. The three companies Ematum, Proindicus and MAM, aim respectively at fishing tuna, providing maritime protection, and building shipyards. The three companies were created shortly before the borrowing took place and were all headed by the same CEO, who at that time was a senior officer of the security services.
9. The rapid expansion of public investment through public corporations has increased fiscal risks.5 Expecting an increase in revenues from natural resources, during 2009–2014, the Mozambican government scaled up public investment to support development. 6 During this period, public investment increased significantly, reaching 18 percent of GDP in 2014 (compared to 10.5 percent of GDP in 2008). While public investment was scaled down in 2015–16, it remains high compared with peer countries (Figure 3). Borrowing has been the main source of financing for public corporations and, with weak governance, is a significant source of fiscal risk.7 Public investment projects are increasingly financed by foreign loans contracted on non-concessional terms, and loans from the banking system. On-lending and guarantees have been issued, including to poor performing entities.8 In addition, the current oversight arrangement is fragmented with significant gaps.9 While the pace of accumulation of liabilities has rapidly increased, implementation of due diligence mechanisms have lagged behind. The public corporation debt is not systematically monitored and consolidated or publicly available.
Mozambique: Public Investment, 2007–2016
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Mozambique: Public Investment, 2007–2016
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Mozambique: Public Investment, 2007–2016
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
10. Weak governance, transparency and accountability in the sector increases vulnerability to corruption, fiscal and macrofinancial risks. The volume of guarantees has grown in recent years, and spiked with the disclosure of sizable external loans contracted by SOEs in 2014 and 2016. The loans disclosed in 2016 have increased the country’s risks of debt distress from medium to high (see DSA) and constrained government access to external financing, including from development partners. The combination of sudden stop of budget support and higher debt service added to the external and fiscal risks.
11. Urgent oversight reforms are warranted to reduce risks of mismanagement in SOEs. By end-2017, the authorities approved a decree on issuance of debt and public guarantees, and submitted to parliament a new SOE law.10 Steadfast implementation is warranted including controls applicable to public corporation borrowing as well as to issuance of government guarantees. Operationalization of a single oversight unit is needed to manage the complexities of an underperforming SOE sector. Public corporation borrowing and issuance of guarantees should be guided by financial performance under the new strengthened legal and regulatory framework. Finally, firming procurement practices for different entities is required, with sufficient emphasis on transparency, competitiveness, and promoting value for money and efficiency.
Financial sector integrity
12. Corruption constrains financial sector development through the following channels:
Preference for cash balances relative to deposits. The prevalence of cash transactions facilitates the concealment of illegal proceeds. Such proceeds reduce funds available for financial intermediation and delay financial sector development.
Money laundering in the financial system. In weak regulatory environments, criminal elements may take control of small financial institutions. Transactions with corrupt clients may increase operational risks for banks and other clients. These risks compromise the client base trust in financial corporations and their reputation. In addition, it may increase concentration of deposits in large and reputable financial institutions with strong control systems in place. In addition, an increased perception of respondent banks inability to manage money laundering risks, can compromise correspondent banking relationships.
Reduced access to finance for companies. Financial institutions operating in corrupt environments end-up increasing the cost of financial intermediation, leading to: (i) reducing credit to the economy, (ii) causing portfolio loan concentration and (iii) discouraging legitimate investment. In Mozambique, lending rates are structurally high, constraining access to credit for SMEs and households, and potential pricing risks of money laundering.11
13. Over the last decade, Mozambique experienced a rapid growth of the banking sector. The banking sector expansion was driven by potential growth in a resource-rich economy.12 It experienced an increase in domestic source of funding, creating opportunities for financial intermediation and deepening. Mozambique ranks well in financial sector development in relation with comparable countries in SSA (Figure 4). The number of banks increased from 12 to 18 between 2005 and 2017. Also, bank branches increased from 214 to 659 in 2017, largely in urban areas (about 71 percent).13
Mozambique: Banking Sector Development and Corruption Risks
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Sources: Mozambican authorities; and IMF staff estimates.Mozambique: Banking Sector Development and Corruption Risks
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Sources: Mozambican authorities; and IMF staff estimates.Mozambique: Banking Sector Development and Corruption Risks
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Sources: Mozambican authorities; and IMF staff estimates.14. Mozambique faces structural characteristics that challenge financial sector development and integrity. These challenges interact with corruption and money laundering risks. The Mozambican banking sector is highly concentrated with the top 4 largest banks being foreign owned and holding almost 85 percent of loans and deposits in 2016. Many banks are small in size. The deposit base is narrow and concentrated in a few large clients.14 In mid-2017, there were 5.4 million bank accounts held by a maximum of 36 percent of the adult population. The use of cash transactions is important in demographic segments characterized by informality, poverty, and limited access to financial services and products.
15. Mozambique faces important anti-money laundering vulnerabilities. Mozambique was last assessed against the FATF 2004 standard by the Eastern and Southern Africa Anti-Money Laundering Group (ESAMLAAG) on September 2011. In its mutual evaluation report, Mozambique was not found compliant with any of the 40+9 FATF recommendations, and largely compliant with only one.15 As a consequence, it was placed – and remains – under enhanced follow-up. Some of the main concerns include: (i) inadequate AML/CFT supervision of financial institutions;16 (ii) lack of effective supervision of Designated Non-Financial Businesses and Professions (DNFBPs); and (iii) lack of enforceable requirements for financial institutions to identify PEPs.17
16. An effective implementation of the AML/CFT framework could support Mozambique’s anti-corruption efforts. Proceeds of corruption must be laundered to be enjoyed. Therefore, an effective AML framework can contribute to the prevention, detection and confiscation of ill-gotten gains. Under the Financial Action Task Force (FATF) standard, a country’s AML framework must require (i) enhanced scrutiny of transactions conducted by politically exposed persons (PEPs); (ii) transparency of the ultimate beneficial owner of corporate vehicles; and (iii) effective and operational agencies specialized in AML, such as financial intelligence units. These measures, among others, can protect the integrity of the public sector, prevent the abuse of the private sector, and increase the transparency of the financial system.
C. Strategies to Mitigate Corruption
17. Experience has shown that political will is crucial to reduce corruption. Political will, defined as “the extent of committed support among key decision makers for a policy solution to a problem, and making the solution of such problem sustainable over time”,18 is fundamental for a country’s anti-corruption strategy to be long lasting and effective. Political will is quite complex, and composed of four key elements: a) ownership of the initiative; b) comprehension of the underlying issues; c) the application of credible sanctions or accountability; and d) resource dedication.
Options to Strengthen Components of Political Will
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Source: IMF staff layout based on Brinkerhoff (2010)Options to Strengthen Components of Political Will
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Source: IMF staff layout based on Brinkerhoff (2010)Options to Strengthen Components of Political Will
Citation: IMF Staff Country Reports 2018, 066; 10.5089/9781484345634.002.A002
Source: IMF staff layout based on Brinkerhoff (2010)18. Mozambique’s leadership is committed to curb corruption. This commitment has been evidenced by the country’s latest Strategic Reform and Development Action Plan (ERDAP) for the years 2016 to 2019,19 which places an emphasis on preventing and fighting corruption, making it one of the Government’s strategic objectives for the five-year period20. The ERDAP seeks to create public integrity systems in which each government agency must identify its own corruption risks to recognize preventive strategies. Emphasis is given to public financial management. This has also been echoed by the President of Mozambique in his latest State of the Nation Address to Parliamentarians, where he reiterated his Government’s willingness to support the Attorney General in implementing the recommendations from the audit report on the hidden loans (Box 2).
19. Anti-corruption efforts have been translated into prosecutions of several recent scandals. The Central Public Ethics Commission (GCCC) and the Public Prosecutors Office (PGR) have successfully investigated and prosecuted several high-profile corruption cases, including bribery and misappropriation (Box 1). In 2017 alone, the GCCC received 14 reports from the public. To an extent, cases with an international component have been pursued because of overseas prosecutions, which points to the need of the PGR to develop capacities to detect corruption at an international scale to broaden its reach.
Recent Corruption Cases
LAM/Embraer Case. On Dec. 6th, 2017, the GCCC announced it had charged the former Mozambican Minister of Transportation, the former chairman of LAM, and the middleman who set up a company to launder the payments, with money laundering and illicit participation in business. According to press reports based on Brazilian Court documents, the former LAM chairman allegedly insisted on a bribe to secure the purchase of Embraer aircraft.
Agricultural Development Fund (FDA) Case. On 21 December 2017, the former chairperson of the FDA, along with 24 other people, were sentenced to prison (sentences ranged from 12 months to 18 years) for embezzling 170 million meticais ($2.8 million). They were accused of embezzling public funds through the creation of fake agricultural projects and granting money to finance them.
National Social Security Institute (INSS) case. Senior officials in the INSS and the company CR Aviation were charged with embezzlement and abuse of office. In 2014, INSS and CR Aviation signed a memorandum of understanding to use INSS funds to purchase four aircraft for CR Aviation at 84 million meticais ($3 million).
20. Progress has been slow on more complex multi-jurisdictional cases. While domestic cases have been dealt with quickly and somewhat efficiently, the initiation of more complex cases, involving multiple jurisdictions, has been slower, and dependent on overseas prosecutions. The level of complexity in layering was added using obscure corporate vehicles, international money flows, and the use of multiple jurisdictions (Box 2). Together with the legal constraint of having to bring charges forward 6 months after a case has been initiated (3 months if there are defendants placed under pretrial detention)21, have created delays in the initiation and prosecution of significant corruption cases.
21. While Mozambique has an updated anti-corruption framework in place, it is lacking in implementation and enforcement. In 2012 Mozambique underwent an intense legal reform with a broad legislative anti-corruption package approved by the National Assembly. Such package consisted of a revised and consolidated Criminal Code, a revised Criminal Procedures Code, a Witness Protection Law, a Code of Ethics of Public Officials – approved as a Public Probity Law – and several small legislative reforms to specific laws, such as the Public Prosecutors Organic Law. Several relevant laws followed, such as the Access to Public Information Law, and the Political Party Funding Law (Box 3). Notwithstanding these efforts, a combination of lack of resource dedication and sustenance, and poor prioritization have resulted in an ineffective implementation of the legal framework hindering perception of political will.
22. Mozambique has in place a broad institutional architecture. Within the 2012 package, Mozambique created several new institutions to support anti-corruption efforts, such as the GCCC or the Reception and Verification Committee (RVC) (Box 4). The Central Anti-Corruption Office was also strengthened and placed under the supervision of the PGR. As noted in the last United Nations Convention Against Corruption (UNCAC) review, there is an interinstitutional task force, formed by law enforcement agencies. Several MOUs are in place to allow bilateral cooperation. For example, the Financial Intelligence Unit (GiFIM), has signed MOUs for the exchange of information with the Revenue Authority, the Bank of Mozambique, and the Criminal Investigations Revenue Service. The Criminal Investigations Police (PIC) signed an MOU with customs in February 2008. According to the last mutual evaluation report, the Ministry of Finance, Ministry of Justice and the Ministry of Interior meet on a quarterly basis.
Delayed Multi-Jurisdictional Cases
Lava Jato case. According to press reports, the Odebrecht case may have had implications also in Mozambique, with Odebrecht having reportedly paid roughly $900 thousand between 2011 and 2014, in relation to the construction of the Nacala airport. Part of the bribes were supposedly utilized to speed a loan application with the BNDES (Banco Nacional de Desenvolvimento Economico e Social). No investigation has been opened in Mozambique.
Hidden debt case. This involved borrowing by two state-owned enterprises, Proindicus and MAM, and disclosed in April 2016, for about $1.1 billion, and of several smaller bilateral loans ($0.3 billion)—a total of $1.4 billion or around 11 percent of the 2015 GDP. Borrowing ($0.85 billion) from a third state-owned company, Ematum, was discovered at an early stage in 2014. The three companies Ematum, Proindicus and MAM, aim respectively at fishing tuna, providing maritime protection, and building shipyards. The three companies were created shortly before the borrowing took place and were all headed by the same CEO, who at that time was a senior officer of the security services. A criminal investigation is ongoing in Mozambique, but the judicial proceedings have been delayed due to the complexity of the mutual legal assistance process, which requires assistance from the US, the UK and the UAE.
23. Ensuring adequate criminalization of acts of corruption, in line with international instruments is key. Criminalization of all UNCAC offences is significant as it facilitates international mutual legal assistance, eliminating potential hurdles over dual criminality. Mozambique has taken strides to criminalize all offences covered under the UNCAC, however, there is still important work to be done. During the first round of reviews, it was found that several deficiencies remain to fully criminalize all UNCAC offences. Examples of important deficiencies include the offences of bribery and misappropriation. While active and passive bribery are both defined through the new Criminal Code, benefits for third parties and the concept of offering are not explicitly covered. Similarly, transnational bribery is not covered. Third party beneficiaries are also excluded from the offence of misappropriation, and misappropriation in the private sector has not yet been criminalized.22
24. A comprehensive and effective asset recovery regime is fundamental to curb corruption and white-collar criminality. Freezing, seizing and confiscation provisions in Mozambique do not fully comply with the UNCAC and the FATF standards. While the Criminal Code includes provisions for seizing and confiscating proceeds of crime, it does not include instrumentalities intended to be used in committing offences. While the AML law contains provisions for seizing, freezing and confiscating proceeds, instrumentalities, and mixed property, this is AML specific. Additionally, the Criminal Procedures Code allows for the confiscation of assets deposited in financial institutions, but other assets or instrumentalities are excluded.23
Legal Framework
Anti-Corruption Law. It was issued in 2004 with the objective to introduce white collar crimes and economic crimes. It fell short in the sense that while it criminalized bribery (both passive and active), it did not include such crimes as misappropriation, traffic in influence, and illicit enrichment. It also introduced a loose asset disclosures system, which did not meet international best practices.
Criminal Code. Mozambique introduced a new criminal code in 2014 which addressed gaps in the criminalization of corruption, including by widening the passive and active bribery offences and by including the offences of misappropriation, trading in influence, and illicit enrichment.
Public Probity Law. This law, which was introduced with the anti-corruption package, provides a definition for public official, albeit not entirely consistent with the United Nations Convention Against Corruption (UNCAC) definition and leaves out members of the judiciary. It also introduces a comprehensive asset disclosures system, including by providing an asset disclosure form in the annex, subject to verification. Sanctions for not declaring or falsely declaring are not sufficiently stringent, and the regime is not subject to publication. The law regulates conflicts of interest, and establishes a cooling off period. This law created the Central Public Ethics Commission (GCCC) to investigate and recommend sanctions for violations to public ethics and incurring in conflict of interest. Finally, it reintroduced illicit enrichment.
Anti-Money Laundering Law. A new anti-money laundering law was introduced in 2013 with the aim to comply with the revised standards issued by the Financial Action Task Force (FATF). This law introduced important reforms, but is still pending the promulgation of regulations that will allow its full implementation, such as the supervision of designated non-financial businesses and professions.
Law on Protection of Victims and Witnesses. As part of the 2012 package, this law contains measures for the protection of witnesses and whistleblowers, such as relocation, which should allow them to testify without compromising their safety. It has been delayed due to complications in the mutual legal assistance process.
Institutional Architecture
Central Anti-Corruption Office. Established in 2005 via decree, this entity is responsible for the prevention and criminalization of corruption. Under the 2012 anti-corruption package, through the Law on the Office of Public Prosecutions, it was placed under the supervision of the Public Prosecutors Office (PGR), and mandated to investigate and prosecute corruption.
Central Public Ethics Commission (GCCC). Created by the Law on Public Probity, the central commission coordinates the work carried out by local public ethics commissions. It is mandated to establish norms, procedures and mechanisms, to avoid or prevent potential conflicts of interest. It is made up of nine members, elected for a 3-year term with the possibility of reelection for one additional term. There are also 77 sectorial commissions spread around the country, which report to the GCCC.
Reception and Verification Committee (RVC). Art. 63 of the Law on Public Probity established the responsibility of the PGR to evaluate, verify and investigate issues arising from asset disclosures of public officials. A committee was established within the PGR to coordinate from Maputo, and to receive, verify and investigate asset disclosures from Maputo. There are in total 12 provincial committees (including the committee in Maputo), with 5 members each. There is a representative from the PGR in each of the provincial committees.
Financial Intelligence Unit (GiFIM). The GiFIM was created in 2008 to collect, centralize, analyze and disseminate information to law enforcement agencies on potential cases of money laundering. It is staffed with 18 people, 8 of which are operational.
25. Mozambique has an asset disclosure system. This regime was included in the Public Probity Law, as part of the 2012 anti-corruption legislative package. The law requires public officials24 to disclose assets and interests legally owned – and those of their spouse, underaged children and legal dependents – to enhance transparency and prevent conflicts of interest. These disclosures are subject to verification by the 12 RVCs. The forms are accessible to law enforcement agencies and in fact, according to the PGR, corruption investigations have already been initiated because of the verification of asset disclosures.
26. To enhance its effectiveness, Mozambique should consider reassessing the implementation of their asset disclosures regime and further reforming the legal framework to bring in line with international best practices. For an asset disclosure regime to be truly effective, it should be publishable online, and subject to dissuasive sanctions for non-compliance or false declarations, and should comprise assets owned overseas. Verifications should be done methodically and accompanied by a comprehensive investigation into the declarant’s lifestyle to detect non-declared assets. In Mozambique, the gravest sanction foreseen by the Public Probity Law is of two years imprisonment for the offence of illegally accessing the asset disclosures (art. 70 Law on Probity) and for prevarication (art. 74 Law on Probity). In Maputo alone, there are approximately 1,500 declarants. In 2017 only 869 disclosures were received. The RVC has yet to pursue those officials who have not declared their assets, and yet attempts to verify all forms received through the year. The verification process itself has shortcomings, as it consists on comparing the assets and interests declared with those declared the previous year, looking for discrepancies or suspicious increases in patrimony.
27. It is necessary to increase transparency in the ultimate beneficial owner of legal persons. Beneficial ownership of corporate vehicles continues to be obscure in Mozambique. It is required that the names of shareholders owning 20 percent or more shares of a company must be included in the articles of incorporation of a legal person. There is a registry of legal entities which is already digitalized, however, it collects exclusively information on the legal ownership of companies and is not accessible online. Bearer shares are still in use in Mozambique. Furthermore, powers of attorney are not registered. Beneficial ownership information of corporate vehicles is not required or held by financial institutions and DNFBPs. While fit and proper measures to prevent criminals and their associates from controlling financial institutions are in place, they do not cover the ultimate beneficial owner of corporate vehicles, making these measures difficult to enforce.
28. In this context, continue to strengthen access to finance could potentially support AML/CFT and anti-corruption efforts. Access to finance in Mozambique was at 14.2 percent in 2016.25 Mozambique has a highly informal economy. This, combined with absent supervision over DNFBPs may facilitate the concealment of proceeds of crime. An increase in the access to finance together with adequate AML/CFT supervision of DNFBPs could reduce the opportunities for financial crimes. Financial inclusion has improved since 2005 but more needs to be done. Authorities are executing a detailed financial inclusion strategy based on three pillars that include access and use of financial services, strengthening of financial infrastructure, and better consumer protection and financial literacy (SIP chapter 3).
29. International Mutual Legal Assistance (MLA) is key in the investigation and prosecution of corruption, as it allows evidence sharing and eventually the repatriation of proceeds of corruption. Through international treaties ratified by Mozambique, such as the UNCAC, it is possible to provide or receive international mutual legal assistance. For this purpose, the PGR is the designated central authority. However, Mozambique lacks a detailed MLA process. For this reason, the PGR has prepared a draft MLA law which will be presented to the Council of Ministers for approval. The GiFIM has signed many MOUs with the Financial Intelligence Units of countries in the area26, joined the Asset Recovery Interagency Network for Southern Africa (ARINSA), and recently initiated the process of applying to the Egmont Group, sponsored by the FIC-South Africa. While the GiFIM is not yet part of the Egmont Group, it has signed MOUs with South Africa, Angola, Malawi, Botswana, Swaziland, Zimbabwe, Kenya, Cape Verde, Brazil, and the Isle of Man.
30. Overall, while Mozambique has created agencies to support anti-corruption efforts, it has not provided them with sufficient authority or adequate resources to be effective. The GCCC was only recently been given an office. There are 9 commissioners, three from each one of the three powers. They work on an ad hoc basis around their regular work schedules, with little support staff of their own. Furthermore, the GCCC’s decisions are not binding, which means that sanctions against public officials who may have violated the Code of Public Ethics are discretionary. For this reason, the GCCC has presented a draft law to the Legislative Assembly to improve its autonomy, authority, and resources. Likewise, the members of the RVC are staff from the PGR and work on the verification of asset disclosures on an ad hoc basis. They are only five prosecutors and specialists from the PGR who are also charged with receiving and verifying asset disclosure forms. They are not given additional resources or time to carry out this task. The AML/CFT banking supervisor was created only in mid-2017 as a separate entity within the Central Bank. It is responsible for the AML/CFT supervision and for the payments area. It is staffed by only three people who are tasked with off-site, on-site and payments. Mozambique could benefit greatly from providing adequate resources to these agencies to be able to carry out their mandates and to separate the AML/CFT supervision, from the oversight of the payment system.
D. Summary
31. The overall governance scores and perceptions of corruption measures for Mozambique have deteriorated since 2010. Considering the above, governance and corruption weaknesses are judged to be significant and pose risks to the country’s macroeconomic stability and potentially hamper the country’s development.
32. Corruption is multi-dimensional and requires simultaneous reforms. Some legislative reforms are still needed, but it must be accompanied with building strong and independent institutions. For this, it is essential to build capacity, increase transparency, and empower civil society.
33. Mozambique should support anti-corruption efforts by strengthening the legal and institutional framework, but more importantly by improving effective enforcement. Authorities are encouraged to enhance good governance policies by prioritizing legislative reforms to bring the legal framework in full compliance with international standards. Priority should be given to the mutual legal assistance law, asset recovery, criminalization of acts of corruption in line with the UNCAC, strengthening of the asset declaration framework, and the implementation of the AML law provisions. Reforms to the Public Ethics Law that will strengthen institutions created to prevent conflict of interest (e.g. The GCCC) or that require online publication of asset disclosures should also be prioritized. However, these reforms are meaningless if they are not accompanied by effective implementation that requires resource dedication and sustenance.
References
Ankamah, S. and Khoda, S M (2017): “Political Will and Government Anti - Corruption Efforts: What Does the Evidence Say?” Public Administration and Development, no. 1–12. http://onlinelibrary.wiley.com/doi/10.1002/pad.1815/epdf.
Bova, E., M. Ruiz-Arranz, F. Toscani, and H. E. Ture (2016): “The Fiscal Costs of Contingent Liabilities: A New Dataset,” IMF Working Paper 16/14 (Washington: International Monetary Fund). https://www.imf.org/external/pubs/ft/wp/2016/wp1614.pdf.
Centro de Intergridade Publica and Chr. Michelsen Institute (2016): “The costs of corruption to the Mozambican economy: why it is important to fight corruption in a climate of fiscal fragility”. (CMI Report Number 6, Mozambique).
Rose-Ackerman, S. and Palifka, B. (2016): Corruption and Government: Causes, Consequences and Reform. Second Edition. Cambridge.
Simione, F. and Xiao, Y. (2016): “Monetary Policy, Banking Structure and Interest Rates in Mozambique” in Selected Issues, IMF country report No.16/10.
Ugur, M. and Dasgupta, N. (2011): “Evidence on the economic growth impacts of corruption in low income countries and beyond”, London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.
World Bank (2016): “Mozambique Economic Update: Navigating Low Prices”, Mozambique Economic Update Series, March.
Prepared by Yara Esquivel Soto, Naly Carvalho, Moataz El Said, and Harold Zavarce.
The qualitative assessments include Article IV staff reports, country strategy and monitoring reports of the World Bank.
The six dimensions are voice & accountability, political stability and no violence, government effectiveness, regulatory quality, rule of law, and control of corruption.
This hidden debt included borrowing by two state-owned enterprises, Proindicus and MAM, disclosed in April 2016, for about $1.1 billion, and of several smaller bilateral loans ($0.3 billion)—a total of $1.4 billion or around 11 percent of the 2015 GDP. Borrowing ($0.85 billion) from a third state-owned company, Ematum, was discovered
See the World Bank (2016, pp.15–24) for an analysis the implications of scaling up investments in Mozambique and associated fiscal risks.
The investments focused on agriculture and irrigation, ports and railways, airports, roads and bridges, energy, fishing, human capital development, water supply and youth housing.
Biva et all (2016) shows historical evidence that ranks SOEs contingent liabilities among the major source of fiscal risks government face. In fact, the average cost of state-owned enterprise (SOE) contingent liability crises was about 3 percent of GDP with a maximum exposure reaching a total of 15.1 percent of GDP.
Most loans with government guarantees are denominated in foreign currency.
A unit in the National Treasury Directorate exerts oversight of the 13 public enterprises to a limited extent. The State-owned Equity Holding Management Institute (IGEPE) is focused on representing the interests of the state in its capacity as shareholder and does not have mandate to manage fiscal risks. There is no entity empowered with oversight responsibility for managing fiscal risks of the 215 companies in which the state has shareholdings.
The new SOE law is an important opportunity. The law applies to all entities owned or controlled by the state, including subsidiaries and indirect shareholdings. Also, the law put mechanisms for fiscal risk management, specifically: (i) establish the state’s role in overseeing all public corporations through a dedicated unit reporting to the Minister of Economy and Finance; (ii) set adequate controls to govern borrowing and guarantees; (iii) provision for improved transparency and reporting; (iv) require developing financial and operational performance targets. Finally, clarification of procurement practices for different entities is required, with sufficient emphasis on promoting value for money and efficiency.
Simeone and Xiao (2016, pp. 9–11) points to high market concentration in the banking system as other cause of high borrowing cost.
Investment in the mining sector and LNG facilities have become an important driver of medium-term growth on the back of coal mining expansion and infrastructure investments. (DSA, 2017 Article IV consultation).
Only 32 percent of the adult population live in urban areas.
Simeone and Xiao (2016, pp. 9–11) explains that such concentration of deposits has grown since 2005 stabilizing at 15 percent of total deposits in 2014 (peaking 20 percent in 2010). Large clients comprised 14 public companies, 2 large pension funds and not more than 10 large non-bank financial institutions.
ESAAMLG. “Mutual Evaluation of Mozambique,” September 2011. http://www.fatf- gafi.org/documents/documents/mutualevaluationofmozambique.html.
Onsite visits are not carried out on a regular basis, partly due to a lack of understanding of the AML/CFT risks, and partly due to an enormous lack of resources
Regulation 16(1)(g) to the AML Law establishes a threshold to require senior management approval, as opposed to generally requiring approval to enter into a business relationship, which compromises the institutions exposure to ML.
Ankamah and Khoda (2017, p.2–3) proposed a framework to assess political will.
See “Plano Estrategico Do Sector Da Administracao Estatal e Funcao Publica – PESAEFP – 2016–2019,” http://www.cedimo.gov.mz/index.php/noticias/147-governo-aprova-plano-para-eficiencia-da-administracao-publica
“Governo Aprova Plano Para Eficiência Da Administração Pública.” Centro Natcional de Documentacao e Informacao de Mozambique. December 2, 2016. http://www.cedimo.gov.mz/index.php/noticias/147-governo-aprova-plano-para-eficiencia-da-administracao-publica.
See article 390 of the Criminal Procedures Code.
UNCAC Implementation Review Group. “Mozambique Executive Summary.” United Nations, February 18, 2016. https://www.unodc.org/unodc/en/treaties/CAC/IRG-session7.html.
UNCAC Implementation Review Group. “Mozambique Executive Summary.” United Nations, February 18, 2016. https://www.unodc.org/unodc/en/treaties/CAC/IRG-session7.html.
As per article 58 it includes elected or nominated officials, PGR magistrates, Central and Local Administration managers, Managing Counsil of the Bank of Mozambique, Directors of the Tax Authority, managers of public assets of the armed forces and the police, managers of public institutions and SOEs, and members of provincial assemblies.
Bank of Mozambique Financial Inclusion Index.
The Republic of Angola, Cape Verde, Federal Republic of Ethiopia, Kingdom of Lesotho, Republic of Malawi, Republic of Namibia, Federal Republic of Brazil, South Africa, Swaziland, Uganda, Zambia, and Zimbabwe.
