Growth, capital accumulation and economic porosity in Mozambique: social losses, private gains

Abstract

The Mozambican economy has been growing at an annual average of 7.5% for the best part of two decades, and has become one of the three most attractive economies for foreign direct investment (FDI) in sub-Saharan Africa. Yet, it has been ineffective and inefficient at reducing poverty and providing a broader social and economic basis for development. It is argued here that the dominant political economy of Mozambique is focused on three fundamental and interlinked processes, namely the maximisation of inflows of foreign capital – FDI or commercial loans – without political conditionality; the development of linkages between these capital inflows and the domestic process of accumulation and the formation of national capitalist classes; and the reproduction of a labour system in which the workforce is remunerated at below its social cost of subsistence and families have to bear the responsibility for maintaining (especially feeding) the wage-earning workers by complementing their wages or trying to maintain the availability of the enormous idle reserve of labour. This article focuses on economic porosity, which, arguably, is a dominant factor in promoting the linkages between domestic and foreign capital, nurtured, supported and mediated by the state.

[Croissance, accumulation du capital et porosité économique au Mozambique: pertes sociales, bénéfices privés.] L’économie mozambicaine croit à un taux annuel de 7,5 % depuis presque deux décennies, et est devenue une des trois économies les plus attractives pour les investissements directs à l’étranger (IDE) en Afrique subsaharienne. Cependant, elle a été inefficace et inefficiente en matière de réduction de la pauvreté et de construction d’une base sociale et économique large pour le développement. Il est avancé que l’économie politique dominante du Mozambique s’est concentrée sur trois processus fondamentaux et reliés entre eux, notamment la maximisation des flux de capitaux étrangers – IDE ou prêts commerciaux – sans conditionnalité politique ; le développement de liens entre ces flux de capitaux et le processus au niveau interne d’accumulation et la formation de classes capitalistes dans le pays ; et la reproduction d’un système de travail dans lequel la main d’œuvre est rémunérée à un niveau inférieur au coût social de subsistance ce qui implique que les familles doivent supporter la responsabilité du maintien (en particulier au niveau de l’alimentation) des travailleurs salariés en complétant leurs salaires ou en tentant de maintenir la disponibilité de la réserve énorme de travailleurs inoccupés. Cet article se concentre sur la porosité économique qui, probablement, est un facteur dominant de promotion des liens entre les capitaux étrangers et nationaux nourris, soutenus et arbitrés par l’État.

Keywords:

• Mozambique
• growth
• accumulation
• porosity
• financialization
• FDI
• linkages

Mots-clés:

• Mozambique
• croissance
• accumulation
• porosité
• financiarisation
• IDE
• liens

Note on contributor

Carlos Nuno Castel-Branco holds a doctorate in economics from the School of Oriental and African Studies (SOAS) of the University of London. He is coordinator of the Research Group on Economics and Development of the Institute of Social and Economic Sciences in Maputo (www.iese.ac.mz), Associate Professor of Industrialisation and Economic Development in the Faculty of Economics of Eduardo Mondlane University, Maputo and Associate Researcher in the Department of Development Studies at SOAS, University of London.

Notes

1. This article was translated for ROAPE from the original Portuguese by Francis McDonagh. Email: [email protected]

2. PRE, an economic rehabilitation programme, was a classical stabilisation and adjustment process led by the International Monetary Fund (IMF) and the World Bank aiming at stopping economic decline, reducing inflation and promoting market liberalisation and privatisation of state-owned assets.

3. According to Mozambican investment law, a private investment project is classified as ‘mega’ when it requires an initial investment cost of US$500 million or more.

4. These are officially confirmed and published figures from the 2011 and 2012 EITI reports on Mozambique (BDO 2011; Boas and Associates 2011; Ernst & Young 2012). EITI stands for Extractive Industries Transparency Initiative. Countries that wish to qualify as being in compliance with EITI rules and standards need to be submitted to an annual auditing carried out by independent consultants. Most of the disaggregated data on tax payments by extractive industry firms come from these reports. As they focus on traditional extractive sectors, Mozal is not included in Table 1.

5. Obviously, the ‘without corporate tax incentives’ scenario is a simulation based on disaggregated tax and fiscal incentive figures from the approved public general accounts.

6. Despite official socio-economic figures showing that 54% of the population live below the poverty line and less than 10% of the active labour force have formal jobs from which taxes can be collected, GDP growth rates have averaged more than 7% for two decades and the Mozambican economy has become the third in sub-Saharan Africa in terms of destination of FDI.

7. In the meantime, the government is negotiating with two gas and oil multinationals, Anadarko and ENI, the provision of a special tax regime with significantly increased incentives for the establishment of gas liquefaction plants in Cabo Delgado. In order to accelerate the negotiations, the government applied for permission from parliament to legislate via decree without the need to go back to parliament (CIP 2014).

8. In late July, after two years in Mozambique, it was announced that Rio Tinto had sold its coal concession to an Indian company for US$50 million, about 80 times cheaper than the price it had paid for it to Riversdale. The sale happened before any taxes on the transaction with Riversdale were paid to the state. Vale Moçambique, the largest coal company, which had acquired management rights for the railway infrastructure to the northern ports, has also announced that it wishes to sell shares in its concession (Savana 2014, 4–5).

9. The analysis of the losses of public income could be extended to include the taxes on land for large commercial projects of around US$0.40 per hectare, which, despite being so low, are not collected (Castel-Branco and Mandlate 2012), but these data are too inconsistent, with large gaps and concealment of data, to be included in the calculation.

10. This study showed that customs exemptions, though largely redundant, are more important than corporate tax exemptions because of the Mozambican economy's dependence on imports of capital and other production-related goods and services.

11. Mozal's website, accessed on August 8, 2014, states that the London Metal Exchange (LME) price to break even on a cash plus debt repayment basis is less than half of the lowest price at which aluminium has been traded in the LME in 2014, showing that Mozal's cost of production is highly competitive.

12. Not surprisingly, several mining, gas and oil companies are now registered in Mauritius and that tiny island has become one of the leading ‘sources’ of FDI to Mozambique (CPI n.d.).

13. This estimate excludes all the other potential forms of illicit capital flight that cannot be captured by an analysis of balance of payments data.

14. For countries with medium Country Policy and Institutional Assessment (CPIA) scores, like Mozambique, the sustainability ratios are the following: net present value of the debt as a percentage of exports (limit 150%) or of GDP (limit 40%) or government revenue (limit 250%), debt service as percentage of exports (limit 20%) and of government revenue (30%). See Ossemane (2010) for a more detailed discussion of indicators of debt sustainability, their validity and applicability to Mozambique with its extractive and porous economy. Ossemane questions the appropriateness of these ratios to Mozambique's economy. Assuming that the aim of the ratios is to indicate the capacity of the economy to create and mobilise resources of its own to service the debt and development, he draws attention to two issues: (i) the need to exclude foreign aid from the analysis of debt sustainability in relation to government revenues, and (ii) the need to relate debt to the current account balance, not the trade balance, to take into account the economy's porosity and absorption capacity (see Figure 1).

15. It is interesting that the Minister of Finance mentioned the limits of sustainability as the only concrete criterion for contracting debt. One would think that the main criterion would be the economic function of debt within a specific set of economic and financial conditions and strategies. The fact that the only criterion mentioned is the limit of sustainability suggests that the government is more concerned with the amount of debt it can mobilise and utilise than with its socio-economic functions.

16. Because of not meeting the key ‘good governance’ criterion related to its application for a commercial loan for the EMATUM project (as mentioned, the government failed to inform the central bank, the parliament and the IMF before going to the commercial capital markets), the government could only mobilise funds at a higher premium (interest rates of 8.5% per year, instead of 7%). Afterwards, the government argued in parliament that this higher premium encouraged more lending by commercial financial institutions, raising the amount of debt thus mobilised from US$550 million to US$850 million.

17. In 2008 and 2010 there were widespread street protests, with some violence, against the rise in prices of basic consumer goods, especially food, and domestic fuel and public transport. The political and social impact of these protests, which momentarily shook the country's political establishment, was amplified because they occurred at the same time as the ‘Arab Spring’ and dozens of other waves of protest around the world against the food and energy crisis and against the austerity associated with the financial crisis. Soon after the 2010 riots, published official statistics were showing that despite robust and accelerated economic growth, poverty levels had not fallen for six years.