China and Mozambique increase economic ties following retreat by Western donors

17 May 2016

The visit of Mozambican President Filipe Nyusi to China promises to deepen bilateral economic ties at a time when relations with key international donors in Mozambique are at one of the lowest points in their history.

In state visit to China, from 16-21 May, the Mozambican president will lead a delegation including six ministers, namely the ministers of Foreign Affairs and Cooperation, Trade and Industry, Public Works, Housing and Water and Culture and Tourism Resources.

This visit’s agenda includes several bilateral meetings, including one between the two presidents, Philip Nyusi and Xi Jinping, the president of the People’s National Assembly and the Prime Minister and with Chinese entrepreneurs.

Frelimo, the ruling party in Mozambique, stressed, in a statement Friday that the visit will be of “an essentially economic nature,” and it is expected that China will “strengthen the financial support granted” to the country.

The visit is taking place at a time of economic slowdown and rising public debt, for disclosing previously hidden debts, which created difficulties for budget execution, aggravated by the suspension of aid from the group of donors that contribute to the state budget, pending clarification by the government on the state of public finances.

On the same day that the aid was suspended, China and Mozambique signed an economic and technical cooperation agreement, under which the African country received US$16 million to finance the opening of 200 drinking water boreholes, the purchase of 80 buses for public transport, construction of the China/Mozambique Cultural Centre, among other projects.

At the signing ceremony, the Chinese ambassador to Mozambique, Sun Jian, expressed the aim of increasing aid “as a way to help the country to overcome this difficult time” in Mozambique, a country that “has been an example and one of the fastest growing economies in the region.”

The Director General of the Department of African Affairs of the Chinese Ministry of Foreign Affairs, Lin Songtian, recently said that Mozambique, along with Angola, is a priority partner in Africa for Chinese cooperation.

In making a decision to return to providing aid, the members of the Group of 14, which includes organisations such as the International Monetary Fund and World Bank and some European and North American countries will have to take into account the possibility of losing influence to China, over a country located in strategically important south-eastern Africa and is which in the 2020s is expected to become one of the largest gas producers in the world.

In its daily briefing commentary the Africa Monitor newsletter last week said that “besides being able to negotiate new credit lines and attract investment, (Filipe Nyusi) may signal, in the diplomatic field, that the country has strategic economic and financial alternatives to the East. This is a similar path to the one followed by Angola in 2002 when funding from financial institutions for bilateral and market development was scarce compared to investment needs and it was affected by what it considered intrusive measures to improve governance and transparency in the use of public funds.”

According to the same source, the “Chinese investors have shown greater flexibility in their investment intentions, compared to the West.”

Speaking to Deutsche Welle Africa, Mozambican economist Eduardo Sengo said that at this difficult time, there is the “chance to seek other forms of financing, given the urgent need that the country has for financial resources to continue to grow, and carry out some projects that may be cancelled.”

“The loans granted by China have, for the most part, more favourable conditions than commercial ones, and are therefore more accessible,” said Sengo, adding that a significant amount of this financing has allowed Mozambique “improve its infrastructure deficit a little.”

Recourse to external financing has allowed Mozambique to offset the declines in extraordinary income and donations, which has resulted in a higher state budget deficit.

Figures compiled by Portuguese bank BPI show that Mozambique’s debt to China was US$886 million in 2014, 160 percent more than in 2012, when the main bilateral creditor to Mozambique was still Portugal. (macauhub/CN/MZ)