Mozambique may be full of opportunities, but companies must navigate a challenging stakeholder landscape to access them. The country is still an emerging market, and excitement over its potential relatively new. Its institutions are not yet strong enough to ensure the consistent application of standardised procedures, while much of the largely rural population remains unfamiliar with foreign investment and unsure of what to expect. Understanding Mozambique’s network of personal relationships, whether between powerful political figures or within remote rural communities, remains just as important as the formal approval processes in ensuring the success of an investment.

Understanding how the relevant actors interact and how they influence decision-making is vital for any investor. But this is far from simple. Stakeholder dynamics, from the highest levels of Maputo’s political class to the smallest villages in Cabo Delgado province, are exceptionally complex. The substantial overlap between the political and commercial elite means that local partners must be carefully selected, while local competitors can exploit political ties to claim unfair advantage. And these dynamics are subject to change. Under President Filipe Nyusi new sources of influence are making themselves heard. Politically connected local partners and competitors rise and fall from political favour. Traditional authorities, such as local chiefs, will struggle to retain their authority in a modernising Mozambique, but will nonetheless retain an important role.

Foreign investors must also recognise that they are not simply engaging with this complex landscape, but that they are a part of it. As discussed in our previous article in this series, the private sector is increasingly able to provide input into the legislative process as the government seeks technical expertise to address the technical challenges it faces. But local players are also seeking to exploit the opportunities that foreign investment brings, and have used their political influence to help them do so. Meanwhile, the injection of massive foreign investment into previously poor rural communities can substantially change local dynamics; whether for better or worse to a large extent depends on how investors engage with these communities.

Navigating the elites

The received wisdom in Maputo is that just 300 people control Mozambique. This number may not be completely accurate, but it is certainly the case that a relatively small number of figures – albeit subject to constantly shifting interactions – dominate both the political and economic landscape. As a result, the overlap between the business elite and political power brokers can be substantial. In just one example, a list of 60 local stakeholders in a major capital investment project looked at by Control Risks contained 11 members of the ruling Frelimo’s Central Committee, four members of Frelimo’s Political Commission, two former cabinet ministers and family members of former presidents.

For foreign investors this means that both local partners and local competitors invariably have political exposure. Sometimes these connections are well hidden. When Control Risks recently looked into a potential partner being considered by an international hospitality company, we discovered that the company was owned by an incumbent minister. Such clear conflicts of interest are not illegal under Mozambican law, but posed significant reputational risks to the international company. Local media had made numerous allegations that the minister had abused his position to hinder the ability of his commercial rivals to obtain licences. Regardless of the credibility of such allegations, anyone making such an investment must ensure that local customs, laws and business practices that may be at odds with domestic legislation can be explained and stand up to scrutiny.

Politically connected companies can also gain unfair advantages in public tenders, which are notoriously vulnerable to improper external influence. For foreign investors partnering with these local players this can pose significant integrity risks. Even the most well-intentioned company can fall foul of extraterritorial legislation such as the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act if they fail to carry out proper due diligence on their local partners. For foreign investors competing against these local players this can curtail even the best-planned ventures. An investigation we conducted for an international development bank provides a clear example of these dynamics. We identified a number of influential figures close to the president that were exerting influence over the management of the state-owned company with which our client was considering a joint investment. Infrastructure tenders were being awarded to contractors that did not deliver and decisions being made to benefit individuals rather than the company, findings that clearly impacted the attractiveness of the investment.

Engaging with local communities

Meanwhile, many companies have experienced significant challenges in the day-to-day running of their operations not because of actions by the government, but because of their failure to effectively engage with local communities. Companies that have failed to properly understand the communities in which they are based have faced protests, sabotage, stock theft, and other operational and security challenges.

The politics in rural villages across Mozambique lack the scale of those in Maputo, but are just as complex. Local government structures may have little political authority, but as the distributors of state welfare their ability to influence local sentiment is significant. In many parts of the country ‘traditional’ chiefs hold little legitimacy as they were brought in by the Portuguese colonial administration. In others their authority has deep historical roots, particularly among the Muslim communities of Cabo Delgado province. In Nampula province strong community organisations have grown out of donor programmes in the 1990s. By contrast, perceptions that established community leaders sold out to mining companies in Tete province led to the emergence of alternative leaders inexperienced in dispute resolution and pressured to take a militant stance.

Understanding these dynamics and planning engagement strategies around them does not fully mitigate risk. Plenty of companies have faced challenges despite good engagement strategies, and security precautions are still necessary. But failure to plan engagement strategies can cause real problems. While many of the coal-mining projects in Tete province have overcome early challenges, many of them spent the early 2010s struggling to find their role within local communities. Some companies relied too heavily on intermediaries such as government officials, only to find that failure to engage directly caused miscommunication and mismatched expectations. Others faced anger when the influx of well-paid jobs pushed up local prices for those unable to secure the new employment opportunities. These issues prompted targeted protests against mine sites and an alleged increase in crime.

Managing changing landscapes

In the early hours of 5 October between 30 and 40 men attacked three police stations in the district of Mocímboa da Praia (Cabo Delgado province). The attackers were not members of Somali militant Islamist group al-Shabab, as early reports had claimed. Nor does it appear that this was the first attack in a planned campaign of violence. Nonetheless, the most likely explanation – that the attack was carried out by a local extremist group motivated by a conflation of religious ideology and organised criminality – underscores the complex dynamics at play in this previously remote region that is soon to see a massive influx of foreign investment related to natural gas developments.

In Cabo Delgado the challenges posed by investment have the potential to be more serious than those that arose in Tete province. If assumptions about the perpetrators are correct, the 5 October attack demonstrated two key things. First, that organised criminal groups involved in illegal logging, poaching, mining or smuggling have the potential to turn to violent when growing scrutiny – which foreign investment will bring – threatens to disrupt their operations. Second, that there is some susceptibility in local communities – albeit still small – to radical Islamist ideologies.

Cabo Delgado’s Muslim community is overwhelmingly moderate, and the factors that have precipitated widespread radicalisation in other countries – legitimate economic or political grievances, disproportionate use of coercive state power, manipulation by local authorities, and foreign influence and armaments – are far from prevalent. But there is potential for them to take root. Failure to ensure natural gas developments benefit local communities could lead to economic disenfranchisement. Heavy-handed tactics by security forces anxious to protect investors could fuel grievances. And one does not have to look any further than Tete province to see how accusations that traditional authorities are ‘selling out’ can give rise to more militant community leaders.

Mozambique is familiar with high-profile political violence. Legislators from the main opposition Renamo may take their seats in the Assembly of the Republic every day, but the armed wing of their party is still officially engaged in an insurgency, albeit one in which a ceasefire has held since the end of 2016. During the height of violence in late 2015 and early 2016 vehicles travelling along highways in central Mozambique were routinely and indiscriminately attacked. Damage to commercial operations was relatively minor, but supply chains were disrupted and investment deterred.

"Among the reasons for Renamo’s return to insurgency in April 2013 was then president Armando Guebuza’s channelling of revenue from ever-growing extractive industries into an ever-shrinking circle of political allies. Although beyond the control of foreign investors, this driver of insurgency underscores the importance of carefully managing sudden influxes of investment. All players have a role in this, not only by understanding stakeholder dynamics but also by recognising that they are an integral part of this landscape.

Many of our clients in Mozambique see the great opportunities the country offers, but they underestimate its complexities. Local communities for example play a significant role in a company’s threat environment. Control Risks has helped many companies across the world understand and manage their risk exposure and we know what to look out for. Threat and risk management actively contributes to the achievement of our clients’ business objectives and improvement of performance in health and safety, legal and regulatory compliance, public acceptance, environmental protection, efficiency in operations and security management. By following a well-established methodology we are able to provide in-depth analysis and understanding of the impact and likelihood of risk events to keep people and assets and safe."
Simon Margrave, Director

By Clara Bonnor and Barnaby Fletcher, Control Risks 

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