Dodgy Mozambique loans highlight need for G20 action on private finance in development projects
As world leaders prepare for the G20 Summit in Germany later this week, plans for new financing initiatives for Africa have been put in doubt by a US$2 bn loan scandal in Mozambique.
The German G20 Presidency intends to use the summit to promote the new Compact for Africa, which aims to attract private investment and private loans for development projects in Africa.
The Mozambique scandal exposes how risky this strategy is. It has pitched the highly aid-dependent country into financial collapse, brought on by US$2 bn worth of loans from Credit Suisse and the Russian bank VTB - loans which are now in default.
A report by international auditors Kroll confirms the Mozambican government secretly guaranteed the loans - ostensibly to finance a program of coastal protection and naval surveillance - in breach of its own laws. The report also reveals that large sums remain unaccounted for.
“The Mozambique scandal highlights how mixing private finance with development aid is a huge risk,” said Bodo Ellmers, Policy and Advocacy Manager at Eurodad, the European Network on Debt and Development. “The G20 leaders must make sure that any financing initiatives for Africa put development outcomes ahead of profits.”
“In addition, we want the G20 to promote the establishment of a fair and comprehensive sovereign debt workout mechanism for countries such as Mozambique. This situation is not just the fault of the Mozambican officials involved. The banks which made these irresponsible loans must also bear some share of the responsibility,” said Ellmers.
Thus far, only the Kroll report's executive summary has been made public. Debt campaigners and civil society organisations are calling for the immediate publication of the full audit report, in order to establish who profited from the dodgy deal. In addition, they want
- Legal investigations into all misbehaviour by both the lenders and the Mozambican government officials identified in the audit report.
- A formal recognition of the illegitimacy of the debt by the government of Mozambique and by the international community.
- The speedy recovery of all stolen and misappropriated assets.
- The full cancellation by the creditors of the remaining share of the illegitimate US$ 2 bn loans which cannot be repaid by recovered assets.