Can integrated infrastructure investment plans contribute to more effective public spending? The case of Mozambique

ABSTRACT

All countries, especially developing countries with limited financial resources, face difficult decisions in prioritising public funds for investment projects in the face of multiple demands in order to achieve strategic public goals. Effective investment often requires coordination between different institutions and the management of political pressure to divert investment in support of private interests. It also requires the identification of appropriate sources of funds for different purposes. The preparation of an integrated infrastructure investment plan (IIIP) that uses structured approaches to review investment proposals has been suggested, and adopted in some cases, as an instrument to address these challenges and bridge the gap between national planning and sectoral budgeting. This article considers the experience of Mozambique in deploying an IIIP as well as some recent events and concludes that the instrument may be helpful as part of a system of investment planning and allocation but that it has significant limitations.

KEYWORDS:

• Infrastructure
• development planning
• budgeting
• Mozambique

1. Introduction

How much infrastructure investment is required by a national economy; what; where; when; and by whom? The investment planning challenge is hardly new to governments but that does not mean that it has been resolved. This is demonstrated by the experience of the world's two largest economies. While China (and, before it, Japan) is considered by many to have overinvested in infrastructure over the past two decades, the USA is widely acknowledged to have underinvested with infrastructural inefficiencies impacting on economic activity and social life.

In those countries, the level of investment is the result of more or less conscious policy decisions. However, in poorer countries the greater challenge that remains is to address far larger demands with more limited financial resources. Countries have sought to address this challenge in a systematic way through national development planning and associated budgeting processes.

Development planning has a chequered history. During the early post-colonial period, it was considered to be almost obligatory (Waterston, 1965; Lewis, 1966) while subsequently, it was associated with an ideology of state-led development and opposed in many circles for that reason (Brinkerhoff, 2008). Nevertheless, it is currently widely accepted that some form of planning is necessary to guide the interventions of government in the wider economy (Rajaram et al., 2014). Within new approaches to planning, there are two key elements: the identification of a long-term trajectory and the promotion of the interventions that are critical to its achievement (Guerrero, 2004).

The translation of a Development Plan from well-intentioned proposals to implemented projects has thus long been a concern for practitioners. The planning process has to achieve coordination and cooperation between often ‘silo-style’ institutions. And there is a systemic challenge, across time and jurisdictions, of managing the impact of political pressures that go beyond objective reflections of preferences and strategies.

Politics often operates within a short-term horizon in which an electoral cycle is seen as the long term. Meanwhile, strategies and plans for economic and social development necessarily span decades. Some systematic way is needed to ensure that short-term decisions are guided by longer-term strategy. One instrument proposed as part of the toolkit to address this is the Integrated Investment Plan or, more specifically, an Integrated Infrastructure Investment Plan (IIIP), which focuses primarily on the infrastructure required to achieve the goals of the Plan.

The objective of this paper is to outline the concept of the IIIP, to present the initial experience of Mozambique with its application and to consider to what extent it has proven to date and may in the future prove to be a helpful innovation. The fact that the IIIP's introduction occurred across a dramatic inflection point in Mozambique's immediate economic fortunes illustrates the different roles that an IIIP may play in different circumstances. Two recent investment decisions relating to the ‘Mozambique Maritime Projects’ and the construction of a 400MW gas-fired power station in Inhambane are considered as examples of areas in which an IIIP might have contributed.

2. IIIPs as generic instruments

2.1. The global context

The concept of the IIIP must be located in the context of broader national development planning and budgeting processes. While most plans and budgets have a capital or investment component, the IIIP emerged as a specific instrument in response to the economic and public finance management challenges of the first decade of the twenty-first century. The financial crisis of 2008 ended the dominance of the Washington Consensus policies (Williamson, 2009) and the associated doctrines of New Public Management which had constrained both economic planning and public investment (Brinkerhoff, 2008). Those policy prescriptions had been a response to debt crises triggered by the oil price shocks of the late 1970s, which saw many developing countries default on their debts and become dependent on conditional bailouts from developed countries and the multilateral development agencies.

The 2008 crisis represented a failure of economic policy in the developed countries. Their response both required and enabled a return to more aggressive state-led policies in developing countries. This was explicitly recognised by many of the multilateral institutions that had enforced Washington Consensus policies through their structural adjustment programmes. World Bank authors now recognise that the state has a role in managing economic development; at issue is the balance between it taking a limited, facilitative role and a more dominant one. In both cases, it is acknowledged that government must undertake public investments (Rajaram et al., 2014). This position is now reflected in the advice being given to developing countries on their approaches to planning and budgetary processes.

2.2. Evolving approaches to public finances: from visions and plans to strategies and budgets

The state intervenes in public affairs through its powers to tax and spend, guided by a set of goals that may be implicit or explicitly defined and that are often set through formal planning processes. In twentieth-century socialist countries, planning provided the formal mechanism to allocate capital, productive resources and goods. Following the apparent success of central planning in the first decades of the Soviet Union, forms of national planning were adopted in Western Europe's mixed economies after the Second World War and their former colonies in the early years of independence (Waterston, 1965).

In both cases, the methodologies were adapted to address the particular challenges of their times: the management of demand to achieve full employment and welfare objectives in Europe; the mobilisation and direction of investment to achieve ‘development’, economic growth and higher standards of living, in newly independent states of Africa and Asia as well as in Latin America.

In these mixed economies, Lewis (1966) cautioned that development plans should not be regarded as definitive; they were based on forecasts that would necessarily be influenced by external factors. He distinguished between an ‘indicative’ and a ‘controlling’ Plan:

The Plans made by Communist countries are documents of authorisation; they tell each industrial unit what it must produce and how much it may invest. A Development Plan, on the other hand, authorises nothing. Even public expenditure is authorised not by the Plan but only by the Annual Budget. (Lewis, 1966:19)

In this he anticipated the adoption of strategic and scenario planning by the private sector (Wack, 1985). These approaches recognised that it was not possible to forecast future economic developments with any degree of precision and that what was more important was to identify and recognise the uncertainties and possible trends and to ensure that the approach adopted was at least internally consistent and able to respond to evolving circumstances (Mintzberg, 1994).

Such indicative strategic planning processes have now been adopted by many countries as instruments for the promotion and management of national development. And development planning is once again recognised as a legitimate and useful instrument that can help to align public and private sectors to work towards the achievement of common national goals (Richard & Tommasi, 2001).

This perspective was encouraged by the experience of the predominantly East Asian countries that had successfully applied national development planning since the 1960s and adapted it to the changing global environment. Development planning in its new, more inclusive forms, also offers a mechanism through which to encompass social, environmental and political dimensions of development (Midgley & Tang, 2001; Nunan et al., 2012) in addition to economic issues of growth and the distribution of wealth and income.

In the new environment, rather than passively accompanying rapid social and economic change, governments seek to guide development towards more or less explicitly described goals. Their approaches often include some kind of long-term ‘envisioning’ through development of a formal vision (Guerrero, 2004) or a broad statement of intent of a political party. From such visions, which are often sufficiently general to ensure support and continuity across political cycles, more specific medium-term proposals emerge. These may be in a formal national development plan or simply a political manifesto, which may become binding in countries where coalition politics require formal cooperation.

2.3. The particular importance of infrastructure investment

The provision of infrastructure or ‘overhead capital’ (Youngson, 1967) is an important focus of national development planning. Adam Smith identified ‘ … the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual or small number of individuals to erect and maintain’ as one of three key functions of a state and the understanding of this role has been systematised over time (Hirschman, 1958). More recently, the Washington Consensus controversially promoted the private sector's role in providing what, for most of the twentieth century, was considered to be public infrastructure (Estache, 2010).

Infrastructure investment projects attract considerable attention in the planning process. Technically, they may be complex and require considerable effort to analyse and implement; politically, they are large and visible and often embody elements of development strategy; in practice, they offer substantial opportunities for rent seeking by powerful interests. The planning challenge is to design programmes of public investment that help to achieve the society's broader goals and to protect them from private interests by providing a review ‘gateway’ through which proposals must pass (Rajaram et al., 2010).

However, governments’ ability to do this had been constrained by policy conditionalities, leading some to complain that ‘decisions to curb public investments for a prolonged period would result in sacrificing the potential for long-term growth’ (Rajaram et al., 2014:3). Recognising the validity of this concern, institutions such as the World Bank began to promote a structured process of public investment planning and management to ensure that, as capital expenditure increased, it would be effectively deployed.

2.4. The potential contribution of an IIIP

One instrument proposed to achieve the goal of effectively deploying investment capital is the IIIP. The two key objectives of the IIIP are first, to promote better analysis of and decisions about investment proposals; and second, to constrain inappropriate investments. A useful generic problem statement is set out in a recent World Bank review of public investment management:

… public investment decisions are often seen to be wastefully managed, subject to corruption and misappropriation, and a constant source of dismay and disappointment to citizens. … investing in the effort to establish effective systems for managing public investment is likely to yield high returns. (Rajaram et al., 2014:2)

And the approach proposed for the pre-investment phase (project development, appraisal, review and selection) is clear from the questions asked to determine whether a Public Investment Planning (PIP) process is producing an effective and efficient programme. These include:

• Is there an established process for screening of project proposals for basic consistency with government policy and strategic guidance? Is this process effective?

• What proportion of projects so screened is rejected?

• Is there a formal cost–benefit appraisal process?

• What proportion of project appraisals is rejected or sent back for amendment?

• Does the government review project appraisals undertaken by donors? Are appraisals screened by an external agency or department for quality and objectivity of appraisal? Are such reviews credible as an independent perspective?

• Are donor-funded projects ever rejected on the basis of cost–benefit analysis?

• Is final project selection undertaken as part of the budget process or prior to the budget process? Does the government maintain an inventory of appraised projects for budgetary consideration? Are public investment projects selected and funded through extra-budgetary channels?

• Is there an effective process to control the gates to the budgeted PIP? Is there an established but limited process for including projects for emergency or politically imperative reasons?

  • What proportion of projects enter the PIP by ‘climbing the fence’, thus avoiding the gatekeeping process?

  • What proportion of projects that ‘climb the fence’ is donor-financed?

These questions address both the potential benefits of, and the likely challenges to, a formal investment programme approach as sectoral ministries and other interested parties push to have their projects included. They also identify the particular difficulties facing donor-dependent countries where donor procedures and pressures may lead to poor investment decisions. And they give finance, economics and planning ministries the difficult task of acting as ‘gatekeepers’.

2.5. International experience with the use of IIIPs

Many countries have implemented formal infrastructure investment planning to link between development planning and public financial management systems, with mixed success. In Latin America, Mexico prepares a National Infrastructure Program (NIP) as part of its constitutionally prescribed National Development Plan. Its impact is reported to be limited because the National Development Plan has little authority and is treated simply as a compliance measure. The NIP does not achieve adequate inter-sectoral cooperation because much of the preparatory work is undertaken by the sectoral institutions themselves and it often fails to consider either political acceptability or the availability of resources. A consistent finding in three other countries reviewed (Chile, Peru and Uruguay) is that integrated investment planning suffers from coordination failures between sectors and levels of government (Alberti, 2015).

A more positive perspective comes from Mauritius whose government prepares a Public Sector Investment Programme on the basis of the country's National Development Strategy (OECD, 2015). This is not a binding document but is ‘prepared as a courtesy for reference and provides a framework that outlines the way Public Sector infrastructure investment decisions and policies are planned, financed and implemented’ (Government of Mauritius, 2014:i). It presents a five-year pipeline of public sector investment projects and proposes how each should be financed, ‘through a combination of debt raised on the local market, external debt from Development Partners, state-owned enterprises’ own funds and FDI [foreign direct investment] for PPP [public-private partnership] projects’.

In the European Union, new members from Central and Eastern Europe were required to prepare a national development plan, specifically including an infrastructure investment programme, to access Community funds. The Organisation for Economic Co-operation and Development (OECD) guidance for public financial management in these ‘transition countries’ emphasised the importance of sequencing decision-making to link project preparation with budgeting ‘to ensure that policies drive programmes; programmes fit the financial constraints; and programmes drive projects’ (Richard & Tommasi, 2001:187).

Even core members of the European Union recognised the value of a coherent and coordinated approach in response to the challenges of the financial crisis. The United Kingdom Treasury prepared a National Infrastructure Plan to provide a ‘broad, integrated, cross-sectoral vision and plan for the substantial infrastructure investment required to underpin the UK's economic growth’ (Stewart, 2010:28). Similarly, Ireland's National Development Plan (2007–13) included a ‘Multi-annual capital investment framework’ which summarises capital expenditure by ministry, distinguishing budget funds from PPPs and other development finance sources. A National Development Finance Agency is responsible for advising on PPP financing opportunities and methodologies.

These examples illustrate a variety of approaches to integrated infrastructure investment programming, driven by the common need to improve the prioritisation and effective use of limited investment funds for public infrastructure. The practical experience of introducing such a process in Mozambique is now reviewed against this background.

3. The Mozambican case

3.1. The evolution of Mozambique's planning and budgeting, in context

The evolution of Mozambique's planning, development and investment systems followed the same generic pathway as in many other countries, with some local characteristics. The country's attempt to establish a centrally planned economy ended in the late 1980s as a consequence of a conjuncture of events. While global trends, natural disasters and the state's own mistakes contributed to failures, additional aggravating forces were:

• destabilisation by South Africa;

• internal armed opposition, backed by a range of external supporters including South Africa;

• the collapse of the Soviet Union and the Council for Mutual Economic Assistance (Comecon) bloc on which Mozambique had relied for economic and political support;

• conditions imposed by the external Bretton Woods agencies to which Mozambique found itself obliged to turn for financial support.

As a consequence, the policy space available for Mozambique's government from the late 1980s into the first decade of the twenty-first century was constrained by its extreme dependency on external resources. Following the floods and related disasters of 2000, 62% of the government's 2001 budget was expected to be funded from external sources (GoM, 2001).

During this phase, Mozambique's public financial management was subject to the same conditionalities and constraints as in many other countries. A comprehensive Economic Rehabilitation Programme (ERP) in 1987 was followed by an Economic and Social Rehabilitation Programme (ESRP) in 1989, with funds to mitigate the ‘social impact of adjustment’, and later the ‘PARPA’, Mozambique's ‘Poverty Reduction Strategy Paper’ (Arndt et al., 2000).

There were also political reforms. A new constitution in 1990 separated the executive, legislative and judiciary powers and mandated regular elections. In parallel, the country's planning and financial instruments were also developed and formalised. A medium-term Quinquennial Plan (QP) guided the annual National Budget which, by 2000, had to be approved and monitored by Parliament. There were tensions over whether the PARPA or the QP was the dominant instrument. However, as aid dependency reduced (to 55% in 2005, 34% in 2010 and 15% in 2013), this process became less significant. The PARPA served to ensure that there was concurrence with donors over the use of their funds but the QP and the budget were legally binding.

This reflected the growing trust between the Mozambican government and its development partners, which saw more external assistance channelled through the domestic budgetary process, an important step in normalising Mozambique's governance and financial management processes. The institutions charged with managing the planning and budgeting process are also defined in legislation although the specific role of provincial administrations and the administrative arrangements for decentralised local-level planning and implementation are contested and may change over time (Bueno et al., 2015).

Mozambique's planning and budgeting process was strengthened in 2003 by the preparation and adoption of Agenda 2025, a broad national long-term vision which was drawn up by a non-partisan committee of advisers, with extensive external support (Committee of Counsellors, 2003). The hope was that whatever political force may come to govern Mozambique, they, together with all other national actors should not ignore the path set out in Agenda 2025. A decade later, a National Development Strategy (ENDE) 2015–2035 was produced, to take forward the strategies outlined in Agenda 2025.

As elsewhere, Mozambique benefited from the changes in the policy environment in response to the global financial crisis of 2008. But the country has had to rediscover the role of the state and restructure its public financial management processes to be fit for purpose in the current conjuncture. The development of the IIIP was one part of that larger process.

3.2. Mozambique's Integrated Infrastructure Investment Programme

As the planning and budgeting process evolved, challenges emerged, particularly in the area of public investments. There was limited capacity to undertake the social and economic analysis required. Each sector ministry took its own approach, identifying and preparing projects without prior involvement of the then Ministry of Planning and Development. There was a further coordination problem: where industrial or agricultural developments needed transport, power and water links, these needs were often not included in the relevant sector plans (Ubisse, 2013).

In 2011, two committees were established to strengthen the planning and budgetary process: Public Debt Management (under the then Ministry of Finance) and Coordination and Selection of Public Projects (under the Ministry of Planning and Development). Tasked to select and propose the prioritisation of public projects for external financing, and to ensure the effective implementation of the criteria established for the selection of such projects, the latter committee produced:

• criteria for the selection of public projects for external financing (published in 2011);

• a manual for the preparation of public projects; and

• the Integrated Infrastructure Investment Programme, IIIP (published 2013; revised 2014).

The IIIP is based on the five-year QP (2010–4) and the PARPA, covering a similar period (MPD, 2014). It also refers to preliminary drafts of documents, notably:

• the National Development Strategy 2015–35 (ENDE);

• provincial and sector policies and strategies; and

• the Strategic Plan for the Promotion of Private Investment 2014–7.

3.3. IIIP 2014 – some selected highlights

Mozambique's first IIIP (MPD, 2014) was not intended to be the outcome of a formal evaluation of project proposals to determine whether their implementation should be approved. Rather it was to:

• help to prioritise investments in the face of limited financial resources;

• reinforce an integrated vision of public sector projects, emphasising the synergy between projects of different sectors; and

• provide information about possible public/private investment cooperation (MPD, 2014:S.7).

It identifies infrastructure projects that could: create an environment which would attract investment and, in turn, improve the competitiveness of the Mozambican economy; create a logistics environment that supports investment and improves the circulation of goods and services; improve the management of water resources; and expand access to low-cost, environmentally friendly energy supplies.

It restates the government's focus on providing energy, transport, water and telecommunications infrastructure in the ‘Growth Poles’ of the Zambezi valley and the larger Nacala Corridor as well as creating special economic zones in these and other areas. Other broad criteria used in project prioritisation include the contribution to economic activity and impacts on the balance of payments, the linkages between projects, a reduction in territorial inequalities as well as the economic and financial sustainability of the projects.

From extensive lists of projects in agricultural development; rail, ports and airports; roads; energy production and distribution; and water supply and sanitation, the IIIP identifies seven key infrastructure projects as priorities for 2014–7:

• Tete–Maputo electricity transmission line (CESUL)

• construction of the Mphanda Nkuwa hydroelectric project

• construction of the Moamba-Major dam to supply water to Greater Maputo

• Caia–Nacala electricity transmission line

• completion of the EN1 north–south highway

• rehabilitation of the EN6 highway between Beira and Machipanda

• construction of the Catembe harbour bridge and road to Ponta de Ouro.

A number of these projects had already begun (Catembe bridge and some roads projects); financial agreements were already in place for the Moamba-Major dam. However, for others, intended to be developed as PPPs (e.g. CESUL and Mphanda Nkuwa), there was not yet a financial basis for implementation.

As important, in retrospect, were a number of projects that were not included in the IIIP, specifically what were described as the ‘Mozambique Maritime Projects’ which aimed ‘ … to furnish Mozambique with the means to assert sovereignty over its Exclusive Economic Zone and exploit the natural resources within it’. These projects were funded by a US$2 billion loan in what later transpired to be questionable circumstances (Kroll, 2017).

3.4. Technical consistency and policy coherence

The IIIP presents some project data which show that there is not yet a consistent approach to project evaluation that would allow comparison, let alone prioritisation. At a technical level, discount rates applied vary from 3% (for an irrigation rehabilitation project) to 12% (for new inter-provincial road links); even within the same sector, roads projects used rates between 8% and 12%.

The strategic focus is also often lost. Some project ‘benefits’ might better be considered as risks. A beneficial impact claimed for the harbour bridge between Maputo and Catembe is that new urbanisation plans will be developed. However, since no details of these plans are provided, addressing the integration of transport and urbanisation strategies, there is equally a risk of disorderly urbanisation.

For the Nacala Corridor railway, the potential social contribution of reducing general freight costs in both Mozambique and Malawi is not mentioned; the only social impact mentioned is potential danger to pedestrians! The Nacala Port development mentions benefits to neighbouring countries of more efficient logistics; its social impact concerns are the relocation of fishermen and HIV/AIDS risks amongst temporary construction workers. The Moamba-Major dam will provide additional bulk water to Maputo; information provided is about the (limited) number of people who will be displaced rather than the far larger number who will gain access to safe water. The potential for employment from the rehabilitation of the Chokwe irrigation scheme is only briefly mentioned; the primary focus is on mechanisation, improved productivity and greater profitability.

The overall impression is that project evaluation approaches have been determined primarily by individual sectors and their funders rather than on a consistent basis established by Mozambique's public finance authorities, illustrating the need for a more coherent and coordinated approach.

3.5. Funding options for the IIIP, and their challenges

The IIIP's discussion of ‘Implementation Mechanisms’ highlights Mozambique's continued dependence on external funding and the related challenges. Since different sources of finance present different opportunities, constraints and risks, the appropriate source of finance for each project has to be decided. Five financing options are identified:

• highly concessional, long-term, low-risk finance from multilateral sources;

• bilateral concessional finance, often long-term but with a variety of currency and interest rate conditions that need to be assessed;

• commercial non-concessional funding, only for projects that will generate sufficient operational revenue to repay loans;

• local public debt is an emerging source although its short terms will present refinancing risks for long-term projects;

• sovereign guarantees may be used to support PPPs, particularly those involving public enterprises (MPD, 2014:S126).

It is evident that the structuring of the national investment programme is complicated by the conditionalities around concessional funding. Similarly, while PPPs appear attractive, they are invariably complex. Producing a coherent programme making optimal use of such diverse funding sources is not easy.

3.6. Some cases: Nacala coal corridor, hydropower generation and agricultural development

Progress in 2016 on three specific projects that were included in the IIIP helps to highlight the strengths and weaknesses of the current approach.

The Nacala coal corridor is arguably a success. A 910-km railway (230 km new and 680 km rehabilitated) now links the Tete coal mines to the Nacala Port coal terminal. The provision for general cargo has already increased traffic, helping to reduce Malawi's cost of transport to the sea and reinforcing regional integration. However, this is not attributable to the IIIP since the work had already started when the plan was produced. Much of the progress is due to the incentives for the Brazilian Vale company which operates the Tete mines and led the financing and construction of railway and port facilities, which are essential to its mining business. Performance elsewhere in the corridor has been less impressive (Nyunga et al., 2015).

Hydropower development on the Zambezi is perhaps the most egregious failure. Although a new Zambezi hydropower project was first identified as a regional priority in 1980 (SADCC, 1980), it has still not progressed to implementation. The Mphanda Nkuwa dam was to be a PPP, with a Brazilian company as development partner (SADC, 2013). However, the project stalled because no power purchase agreement (necessary for PPP financing) could be reached with South Africa's Eskom utility. New Chinese partners also failed to make progress. In a third iteration, a new strategy has emerged through which the first phase of the backbone transmission line, a critical requirement for any new Zambezi development, will be built as part of the 400MW Temane Gas to Power project by a partnership between South Africa's Sasol, Electricidade de Mozambique (EDM) and HCB, the operator of the existing Cahora Bassa hydropower plant (Club of Mozambique, 2017). The opportunity to use Mozambique's share of gas landed in Inhambane to generate power and underpin the first phase of the transmission line was the kind of coordination that the IIIP should have identified.

The ProSavana agricultural development programme in Northern Mozambique was included in the IIIP because of the extensive infrastructure that it needed. Seen variously as an attempt to replicate the big-farm model of Brazil's cerrado or, alternatively, to improve small-farm productivity by establishing commercial ‘nuclei’ farms to provide technical and marketing support, it has become very contentious (UNAC, 2012; Classen, 2013; Okada, 2015; MAJOL, 2016; Shankland & Goncalves, 2016). The different visions reflect the respective perspectives of Mozambique's development partners Japan and Brazil and implementation has been slow. While there has been some technical extension activity, commercial farming development has been limited, largely because few large tracts of land are unoccupied there, contrary to what was originally believed. A practical planning-related problem that has arisen has been the lack of funds for local and provincial agencies to respond to local infrastructure needs since they were not fully involved in the initial planning.

4. Discussion

4.1. A roller coaster ride: Mozambique's development challenges and responses 2011–7

When the IIIP was initiated in 2011 there was a strong sense that Mozambique might be that theoretical once-struggling country, described by a World Bank author, whose finance minister:

has received news of a large new resource discovery and is anticipating significant new fiscal revenues on the order of hundreds of millions, possibly even billions, of dollars (but) … recognizes that there is no institutional capacity to make the necessary decisions on sound economic principles and there is a high risk of ad hoc and politically motivated investments that will not contribute to the development goals of the country. (Rajaram et al., 2014:1)

This optimistic perspective was reinforced by external partners and the media. The International Monetary Fund (IMF)'s ‘Mozambique Rising: Building a New Tomorrow’ cited Mozambique as one of the fastest-growing countries in Africa for the past two decades. Although challenges were acknowledged, sound policy and a supportive international environment were highlighted:

Mozambique has a unique opportunity to build on the discovery of ample natural resource endowments that, if managed well, will allow it to achieve its social development goals and overcome its reliance on foreign aid. (IMF, 2014:1)

These sentiments were echoed by commentators impressed by evidence of rapid growth in cities such as Maputo and Nampula, accompanied by a commercial building boom. They were reinforced by apparently credible private financial institutions who gave assurances that the boom was sustainable:

The forecast increase in investment in transport and energy infrastructure necessary for the country's development should be compatible with macroeconomic stability and debt sustainability, focusing on integrated projects with proven economic returns within the terms of the recently presented Integrated Investment Plan. The temporary recourse to non-concessional loans is seen being replaced, in the long-term, by the availability of revenue associated with the development of natural resources, which should create the necessary fiscal base required to meet investment commitments and other social priorities. (Banco Espirito Santo, 2012)

The IIIP may have been a late contributor to this enthusiasm. However, evidence was mounting of both micro and macro constraints. While millions of tons of coal were being exported from the Nacala Corridor, ProSavana's problems highlighted the need for coordination and consultation as well as more focus on technical detail. The continued delay in Zambezi hydropower development showed that the inclusion of a project in a Plan would not in itself mobilise funding.

As commodity prices continued the 2011 decline into 2013, some of the cheerleaders rather belatedly began to warn about new economic risks. Financing options that were not available before the discovery of natural resources were opening up but the country lacked the debt and fiscal risk management capacity to assess the liabilities that came with them:

Countries that may have been financially constrained, as is the case with Mozambique, will also seek to address longstanding development needs (e.g. in infrastructure) by frontloading investments in the expectation of a surge in government revenues in the near future. These rapid increases in spending, if financed by debt, could lead to higher risks of debt distress if the investments do not have the expected returns or if the natural resource revenues fall below expectations. (World Bank, 2014:50)

By 2014, it was becoming clear that Mozambique's ambitions, or at least those of some of its leaders, had run ahead of its resources:

 … the current fiscal stance does not appear sustainable. Public spending is projected at almost 42 percent of GDP [gross domestic product] in 2014, and the deficit after grants is expected to widen to over 9 percent of GDP. Maintaining this trend will quickly lead to an unsustainable debt burden [warned the Bank.]  … to reinforce macroeconomic stability, public spending and debt levels need to be reduced. … Most likely this will involve reprioritizing spending on the wage bill and public investments. (World Bank, 2014:19)

Concerns intensified when it was revealed that Mozambique had raised large loans in 2013 for the Mozambique Maritime Project, which was not included in the IIIP. The viability and probity of this enterprise were soon questioned and it transpired in 2016 that the government had entered into secret loans, outside formal financial management structures. This ‘loans scandal’ seriously damaged Mozambique's relationships with its traditional development partners. Some aid transfers were halted and stringent oversight controls imposed on the remainder. Economic performance suffered as the value of the currency fell and inflation rose, aggravating the effects of the drought. To make peace with the development partners, a number of policy reforms are being implemented. An independent enquiry into the ‘illegal’ loans is underway (Kroll, 2017). But it remains necessary to prepare for the future:

… substantial resource revenues expected toward the end of the decade present an unprecedented opportunity but this will need to be well managed. If the developments in the coal and gas sectors proceed as planned resource revenues could be as high as US$9 billion by 2032, representing 7 percent of GDP and 21 percent of total government revenues. However, these figures are subject to considerable volatility … To ensure that the government can efficiently spend a much larger resource envelope, it will be important to continue strengthening public financial management systems. (World Bank, 2014:20)

This experience shows how a failure of political discipline, bypassing planning and budgetary systems, can weaken the achievement of development goals and undermine the long process of internal institutional strengthening and trust building with external partners. One narrative is that this is ‘just another’ example of a corrupt African government; it is also portrayed as a consequence of Washington Consensus policies that weakened the state while promoting private sector interests (Bertucci & Alberti, 2005; Hanlon, 2016).

4.2. Aid funding, contingent liabilities and the arrival of the BRICS

Mozambique's experience does highlight the complexities of using an IIIP in a poor developing country which is heavily dependent on external financial support, making it difficult to achieve coordinated oversight over negotiations. More practically, public authorities in less developed countries often have to evaluate a more complex set of financial conditionalities from different donor sources than do their colleagues in richer countries. Identifying and assessing contingent liabilities such as the risks inherent in, for instance, revenue assumptions in PPPs, are a particular challenge.

Another generic factor contributing to the current crisis has been the entry onto the policy and financing stage of the BRICS countries as development partners. In the 1990s, the reduced role of the state prescribed by the Washington Consensus limited countries’ access to funds. But at the start of the twenty-first century, the acceptability of alternatives grew in response to the rapid growth achieved by China, India, Brazil and other middle-income countries. This sustained the commodities boom and saw the emergence of new financial options for countries like Mozambique.

Specifically, the rise of the BRICS countries as sources of finance for development transformed the decision-making space. It broke the funding monopoly of the Bretton Woods institutions and saw increasing competition on financial terms as well as on the nature and extent of conditionality (Estache, 2010). However, as became obvious in the hydropower projects, their involvement did not guarantee that objective project constraints would be overcome.

These two transitions, the weakening of the Washington Consensus and the rise of the BRICS, have added complexity to the political economy of development, particularly when it comes to decision-making about the management of public finances and, more specifically, about large investment projects in the public domain. This perhaps contributed to the hubris which led elements of the Mozambican government to disregard the carefully constructed systems that had been established over the previous decade.

5. Conclusions

The experience of Mozambique shows how the preparation of an IIIP might strengthen national investment performance, but also its limitations. As one instrument in a larger suite of planning and budgetary systems, it can play a useful role in identifying weaknesses in project proposals, encouraging better preparation and coordination and guiding investment in support of strategic development objectives. Initially promoted as an instrument to deal with a proliferation of opportunities as new resources became available, it may be just as useful to help prioritise investments in a period of constraint, occasioned by the very threat of capture by private interests that it was designed to curtail.

Mozambique certainly demonstrates the dangers of allowing investments to ‘escape’ analytical scrutiny and formal approval procedures. However, without further development of analytical capabilities internally and political discipline in the broader system, the IIIP is unlikely to function as a gateway to budgetary approvals. However, it may be able to help officials screen out obviously weak proposals. This will be complicated by the return to greater operational involvement by development partners in the use of their resources. What the IIIP has already demonstrated is the complexity of promoting a prioritised, strategic programme in a context where bilateral sectoral negotiations which may lead to financial commitments are conducted in other fora.

Given these constraints, the limited role for the IIIP, seen principally as complementary to other planning and budgetary processes, was arguably an appropriate starting point for its application. This became obvious as the economic and political context changed between 2013 and 2016. Its potential value as a tool for communication of the government's investment intentions had not been particularly well developed and will be undermined, in the short term, by recent developments.

The weaknesses of this first attempt to develop an IIIP have been acknowledged by its authors. These meant that it was always unlikely that this first iteration of an IIIP would significantly influence decision-making. The larger forces that were at play over the period of its development also militated against its effectiveness.

It is clear from this experience that an IIIP cannot achieve its objectives unless there is a reasonable degree of discipline in a government's investment planning and decision-making. In the case of Mozambique, the consequences of the indiscipline experienced in the period from 2013 to 2016 may yet prove to be an incentive to enforce such discipline in the future. The IIIP thus remains a potentially useful instrument in the armoury of public authorities responsible for investment planning and the allocation of funds.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Mike Muller http://orcid.org/0000-0002-4252-3200

Additional information

Funding

This work was supported by UNU-WIDER (United Nations University World Institute for Development Economics Research) which commissioned the original research under the project ‘Inclusive growth in Mozambique – scaling up research and capacity’ and published an earlier version in its Working Paper series.