On 1 November, Mozambique’s Minister of Mineral Resources and Energy Leticia Klemens stated that she is “very concerned at the signs of deviations and failure to comply with the duty of good administration in some areas in our sector.” She condemned the use of public power for personal gain, especially in regards to licensing procedures.
Her comments are aligned with President Filipe Nyusi’s strategy of improving perceptions about corruption in Mozambique, through both rhetoric and action. This is essential for the government to regain external actors’ confidence in the country. Indeed, in large part due to the sovereign debt crisis, Mozambique dropped from 112th to 144th in Transparency International’s Corruption Perception Index (CPI) – an unprecedented fall from grace.
There government has recently reported several successful anti-corruption cases. On the same day that Klemens made her comments, the Tax Authority (AT) announced that it had discovered and dismantled organized crime schemes defrauding tax payers (typically large companies) and the AT of about $3mn since 2013. Similarly, from January to September 2017, more than 320 police officers were indicted for corruption; their cases are currently proceeding through the courts. Additionally, during Nyusi’s term a number of officials in various ministries and Frelimo have been prosecuted for corruption. More importantly for foreign investors, at the end of October, the board of the Extractive Industry Transparency Initiative (EITI) declared that Mozambique had made meaningful progress in implementing the EITI Standard (although more can be done).
In this context, ENH head Omar Mitha’s continued push for companies operating in the Rovuma basin to use the Pemba Logistics Base (PLB) merits particularly scrutiny. On 31 October, he stated that work on the base will resume in November and that it has “special and exclusive rights” over a vast area of the Rovuma basin. In our view, this is a veiled threat that ENH will try to force IOCs to use the PLB, particularly since the base will require IOC participation in order to be profitable.
As we have highlighted previously, the PLB is fraught with risks for investors, principally regarding legal compliance with the US Foreign Corrupt Practices Act (FCPA). This is due to the opaque way in which the concession was awarded, the partners involved and the likelihood that senior government figures have benefitted from the deal. The Nyusi administration’s supposed zero-tolerance approach on corruption does not seem to apply to the PLB. Critics argue that the government is focusing on minor transgressors in an attempt to shift perceptions, while grand corruption cases such as the PLB and sovereign debt scandal remain unresolved.
As Klemens has highlighted, good governance in the extractive sector is a public duty. Furthermore, transparency and accountability are crucial for investors to reduce their reputational and legal risks when operating in the country. A lax attitude toward corruption in the extractive sector would increase these risks, ultimately undermining firms’ profitability by eroding their social license to operate. This is particularly true in Cabo Delgado, where inequality, perceptions of unfairness and economic marginalization risk exacerbating a religiously motivated insurgency. If the government genuinely wants to improve its good governance credentials, it must tackle grand corruption cases.