Colonialism in the 21st century : the case of Mozambique

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Colonialism in the 21

st

Century

The Case of Mozambique

Olaf Mesman (10361170)

Thesis – University of Amsterdam Amsterdam, June 23, 2017

Programme: Political Economy (MSc)

Research Project: The African Renaissance and the Politics of Development Supervisor: Dr. M. Onyebuchi Eze

Reader: Dr. F. Boussaid E-mail: olafmesman@live.nl

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Introduction

Till the 1990’s Sub‐Saharan Africa was considered the marginalized and lost region ridden by corruption, wars and poverty. A decade later, however, Sub‐Saharan Africa is the emerging sub-continent facing strong economic growth, increasing foreign investments and exports, indicating a possible escape route from the pains of the past. “Yes, Africa Can” (World Bank, 2000; World Bank, 2004), “Lions on the Move” (McKinsey Consultancy, 2010), “The African Growth Miracle” (Young, 2012) and “Africa Is Our Future” (Lorgeoux and Bockel, 2013) are encapsulating the increasingly held views in the growing economic literature. With an annual average of 8.6 % GDP growth for over two decades, Mozambican economic growth is twice that of Sub-Saharan Africa. Thereby, after the global economic meltdown from 2007, Mozambique comparatively attracted large investments and is the second most attractive country of the sub-continent receiving foreign investments (African Development Bank, 2014; IESE, 2015b; World Bank Databank, 2017). Against this background Mozambique is conceived as the economic miracle of Sub-Saharan Africa, especially because the suffocating civil war just ended in 1992.

On the surface these economic measures indeed seem to affirm a country-wide economic miracle unfolding that is theoretically explained from the neoclassical institutional school of

economics (Rapley, 2002; North, Wallis & Weingast, 2009; Engel, 2010; Acemoglu & Robinson,

2012). This theoretical perspective increasingly gained explanatory credence at the end of the 1980’s Washington Consensus arrangement that marginally modified its principles ever since (Williamson, 1990; Williamson, 2000; Kentikelinis e.a., 2016). The central tenet that runs through this arrangement is tied to the fundamentals of neoclassical institutional economics. In which the relation is studied between capital, fairly open markets and price mechanisms of demand and supply. Until approximately halfway the 1990’s the focus was on the mere neoclassical explanation of capital as being a trigger to economic growth and development. In a nutshell, to economically develop the aim of an impoverished country was to open internal markets and attract foreign capital. This, in turn, would automatically create the institutions that facilitate the effects of capital on the development of the country. But nearing the end of the 1990’s this fundamental assumption transformed its causality by adding that an impoverished country has to concurrently develop and create institutions that positively mediate the effects of capital. More concretely, capital and fairly open markets are necessary but for capital to trigger economic development most equally and profoundly the whole set of institutions of good governance: rule of law, property rights, privatisation, free markets, an efficient bureaucracy, democracy and financial organisations, should

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4 be developed and monitored. Without the presence of this institutional framework there is a high proclivity of capital to endure a state of crooked economic development that is predominantly benefitting the tiny political and economic elites of the country. This theoretical transformation thus slowly incepted from halfway the 1990’s onwards to the neoclassical institutional school of economics, combining the fundamentals of both the neoclassical and institutional school.

The opposing theoretical explanations for the economic transformations in Mozambique come from post-colonial scholars (Fanon, 1961; Nkrumah, 1965; Amin, 1972; Rodney, 1973; Amin, 1974; De Bragança & Wallerstein, 1982; Kiely, 1998; Chang, 2002; Harvey, 2003) that analyse

neo-colonial economics. Rightly after the formal decolonisation of Sub-Saharan Africa, approximately

starting in the 1960’s this theoretical framework gained in explanatory power. It was until the rise of the Washington Consensus in the 1980’s, that the post-colonial school held academic sway but was hastily overtaken by neoclassical economics. Post-colonial scholars analyse neo-colonial economics by addressing that beyond superficial economic analysis from the neoclassicals, there is the need for understanding the structural traits of economic relations. Put different, the central tenet running through neoclassical economics: the relation between capital, fairly open markets and price mechanisms of demand and supply, is at the core of neo-colonial analysis but structural features and power relations are added, pertaining different outcomes and explanations. With regards to Sub-Saharan Africa the explanatory difference is footed on asymmetric relations of exchange. The fact that political colonialism inferred large inequities between the continental concentration of capital in the formerly colonising nations over the colonised, could not be washed away by mere de jure political decolonisation. De facto the economic asymmetric relations of exchange between the West and Sub-Saharan Africa still entailed economic control which translated into political control from the former over the latter. This deduced a relation between the Western continental centre of capital accumulation reaping surplus from the Sub-Saharan African continental periphery for Western economic development. Due to the structural asymmetric relations between the Western continental centre and Sub-Saharan continental periphery, Sub-Saharan Africa is doomed to peripheral capital accumulation. This fabric was subject to change after the Washington Consensus embarked and new economic power houses like Japan, China and India were on the rise. The theory then moved to centre and peripheral geographies of capital accumulation that cut across national borders. Against this background the “neo” in colonialism thus stands for a transnational process of colonialism from geographical centres of capital accumulation over the periphery. In neo-colonialism this latter process functions as an additional explanatory variable, to the mere continental centres and peripheries of capital

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5 accumulation that are defined by the nationally developed borders during political colonialism (Clarence-Smith, 1984; Chang, 2002; Harvey, 2003; Hardt & Negri 2009; Ostrom, 2010; Wallerstein, 2011; Chang, 2011). As a threshold one should add that this new conception only applies to formerly politically colonised nations because of the exploitative regimes of racism, slavery and natural resources that left a different institutional legacy behind then those of non-colonised nations. When, nevertheless, the neoclassical institutional school became dominant, the post-colonial school anticipated by arguing that in neo-post-colonial economics, the net surplus flowing out of the periphery to the centre has a primacy over the creation of good governance institutions. The reason boils down to the fact that neoclassical institutionalists only provided theoretical tools but did not provide any financial nor empirical tools on how to institutionalise good governance. Post-colonial scholars addressed this financial and empirical side and advocated that the net surplus flowing out of the periphery should be appropriated by the periphery to finance the building of institutions for capital. Whereas empirically it has been proved that economic development is the independent variable that effects institutional development as the dependent variable, not the other way around as perceived by neoclassical institutional scholars. This post-colonial analysis thus funnelled into the reformulation of asymmetrical relations of exchange between the centre and periphery. In this new configuration the asymmetrical institutional fabrics that triggers the ongoing asymmetrical relations of exchange between the centre and periphery is added to the picture. A set of instrumentalities that restrain surplus outflow from the periphery to the centre should thus be developed. It is here where in the 21st_{century the post-colonial school finally found an alternative}

to neoclassical institutionalism; it found its own version of post-colonial institutionalism. Here the way to reap the surplus for peripheral development is created through culturally and micro-societally specific institutions of “common” production, ownership, distribution, exchange and consumption. The means to liberate from the neo-colonial yoke is to increasingly commonise for the collective people and decreasingly governmentalize and privatise for a tiny national and foreign elite. Through commonisation in the periphery, foreign centre geographies are decreasingly able to own assets and resources that create surplus outflow for predominantly Western geographic economic development, over the development of the Mozambican periphery (ibid).

Due to the shifts in explanatory credence between the neoclassical institutional and post-colonial institutional school, the current optimism for Mozambique is so far singularly explained from the neoclassical institutional lens. This means that the recent development within the post-colonial academy can shed a new light on the alleged Mozambican growth miracle. More specifically, the economic literature on Mozambique is lacking explanatory power, meaning that

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6 this thesis is built upon a descriptive problem; filling the gap of currently insufficient knowledge about the economic situation in Mozambique. The research question that underlies this descriptive problem is the following: does the increase in foreign capital involvement in the 21st_{century from}

centre geographies neo-colonise peripheral Mozambique on the macroeconomic level? This question

is relevant in two ways. It is theoretically relevant because it reintroduces a theory that partly refurbished its fundamentals in order to become more explanatory. As a result it also diversifies the entire academic explanatory realm on economic development. The societal relevance of the question denounces a different set of factors that potentially perpetuate the low level of Mozambican economic development. This, in turn, maintains the rigid patterns of absolute poverty in the country. Shedding a new light on this situation could provide novel tools on how to resolve the inhumane consequences of poverty in Mozambique.

To distil an unambiguous answer to the research question the thesis is split into three sections. In section 1 the theoretical framework is elaborated in four chapters where the differing aspects of neoclassical institutional economics are contrasted to post-colonial institutional economics. Subsequently the 2nd_{section contains the methodology and data in need for the}

research answer. Herein the central concepts of the post-colonial theory on neo-colonial economics are conceptualised and indicators for the operationalisation are demarcated. The final section 3 executes the operationalisation of the neo-colonial explanation through a case study of Mozambique. Thereafter a conclusion on the findings is put forward so that a profound and unambiguous answer on the research question is provided.

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1. Theoretical Framework

In the theoretical framework it is aimed to outline the set of theories that are relevant for answering the research question. There is a clear direction in the research question where macroeconomic foreign capital involvement from centre geographies is the independent variable and peripheral Mozambique the dependent variable. The value-label within the research question that glues these variables together is neo-colonialism. Conducting an objective research, however, means that also opposing theories should be taken into account in order to end up with a nuanced answer. In other words, foreign capital involvement from rich countries/centre geographies might also implicate other effects then neo-colonialism and instead spur economic growth and development. Against this background the theoretical framework is split up into two opposing schools of thought. On the one side there is the neoclassical institutional school which professes that foreign capital involvement, controlling good governance institutions, has a positive effect on the economic development of an impoverished country/peripheral geography. The post-colonial institutional school, on the other side, argues against this observation and claims that foreign capital involvement from centre geographies of capital accumulation has a neo-colonising effect. This effect contributes to the economic growth and development of the centre geography over the peripheral geography. To get a profound understanding on the undergirding motives, the fundamentals from both schools are laid down. In section 1.1. neoclassical economic fundamentals are posited whereas in 1.2. these fundamentals are coupled to institutional economics, cementing the overarching neoclassical institutional school. A similar approach is put forward with regards to section 1.3. where the fundamentals on neo-colonial economics are scrutinised and contrasted to the neoclassical institutional school of thought. Accordingly, in section 1.4. the drawbacks of the neo-colonial economy are ingrained within the liberating institutional school of the “common”, providing the body for the post-colonial institutional school of economics.

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1.1 Neoclassical Economics and Capital Accumulation

The fundamental assumption for a neoclassical scholar is that an individual is rational, self-interested and bounded by “constrained choice”. Therefore the individual is understood as a choosing agent that has to decide about alternative courses of action. To elaborate this principal assumption on the level of the individual, a market of goods and services is introduced on the collective level. This market surrounds the collection of individuals that share the outlook on “constrained choice”, and mediates their actions through a price mechanism for the goods and services demanded and supplied. These goods and services, in turn, are created through the three factors of production: capital, labour and land and meet the array of individual alternative courses of action (Caporaso & Levine, 1992; Friedman, 2009; Mankiw & Taylor, 2014).

When this simple model is structured within the building blocks of society, the source for production and wealth creation comes from the individual in relation to the market, where through an interaction of prices, goods and services are sold. Evidently, a society with individuals, markets and financial organisations that fund the market only, is lacking several essential aspects for economic prosperity e.g. coordination, governance, conflict resolution, justice, laws and regulations and education. The most relevant question for a neoclassical economist is therefore to what level the logic of the market needs to be inculcated within these structures that, as a whole, form the edifice for societal economic welfare? The dominant view (Coase, 1937; Buchanan & Tullock, 1962; Lal, 1982; Mankiw & Taylor, 2014) is that the most optimal and efficient equilibrium point of market demand and supply should prevail where the least costs for the economy are made. Mostly, the boundary of this optimal point intersects with market failure and disequilibrium comes into being. Here social necessities such as public utilities, infrastructure and education are not provided, or significant externalities like pollution, risks and health problems materialise due to transactions between persons that have negative effects on third parties. Then these are the critical junctures where the market should stop and a role comes in for public coordination, in the form of an intervening government with concomitant judicial and rule of law systems. A somewhat more radical strand (Barnett, 1997; Friedman, 2009) within the neoclassical economic school argues that it should not be observed where the market fails, instead, the market fails because there is too much public intervention. Radical neoclassical economists thus state that one has to look at the government as the cause of disequilibria and problems. Which implies that the public domain should be restricted as much as possible, so that the market equilibrium can naturally be organised by the pressures of prices and markets. The involvement of the government therefore is only limited to defence, police and the implementation of a legal structure that guarantees private

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9 property rights.

So far the neoclassical ideas on society are modelled on the national level where markets interact with the government. Of course, markets cut across borders, meaning that a good neoclassical theory also needs to envelope a framework that embeds the interaction between markets and governments on the global, regional and national level. The defining principle for this transnational theory is based on comparative advantage (Samuelson, 1975; Findlay, 1995; Sachs & Warner, 1995; Krueger, 1997; De Mello, 1999; Bernard e.a., 2007). This notion implies that a country or region with a specific set of endowments, commodities or resources should specialise in these sets in relation to other countries or regions with dissimilar endowment, commodity and resource patterns. Put different, if every country specialises in which it can comparatively become the best producer and intelligently utilises the available resource sets, then globally and nationally the most optimal and efficient output is produced. Likewise, the prices for the production output are determined by the supply that results from competition between (international) firms and the demand from the consumers that are willing to buy the production output. Hypothetically this means that in an international neoclassical economy with free markets, prices push low developed economies, with subsistence agriculture and cheap labour supplies or many natural resources, to specialise in providing cheap labour and extraction of natural resources for the global economy. In contrast, high developed economies further specialize in value-added production and services. It is only within the cadres of this international neoclassical economic format that low developed economies can catch-up with higher levels of economic development. Here, economic development is not understood as acquiring higher value-added production per se, but as economic specialisation in the available endowments, commodities and resources, that entail higher levels of wealth when production efficiency increases. The escape route to economic development, however, comes from the factor of production: capital. Capital in the world economy is the most mobile factor of production that triggers economic growth and development across borders. Labour is less mobile in this respect and simply facilitates capital where necessary, while land as the third factor of production is immobile and can only be made of significant use through capital. Nevertheless, when capital is utilised to exploit the comparative advantage, then economic development will

automatically evolve from capital that accumulates within national or regional boundaries. Herein

capital is understood as predominantly private but also publicly owned nonhuman assets like money, real estate, plants, infrastructure, machines, patents, options, stocks and bonds, that can be exchanged in a certain market that corporations, government agencies and individuals use for the reproduction of commodities, minerals, energy, goods and services. There is thus a two-sided

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10 process where on the one side capital is subdivided in different tools that can, on the other side, trigger a new cycle of production which, in its turn, further accumulates the capital that initially triggered the cycle. This ongoing, recurring and inextricable process between capital and production, is thus the essential means through which economic growth and development is achieved and perceived in the theory of neoclassical economics.

1.2. Neoclassical Institutional Economics and Capital Accumulation

Although the neoclassical theory is in favour of free markets and price mechanisms, it should be remarked that markets are not neutral or wholly natural. This is made clear in institutional economics:

How does this [institutional] approach modify or extend neoclassical theory? In addition to modifying the rationality postulate, it adds institutions as a critical constraint and analyses the role of transaction costs as the connection between institutions and costs of production. It extends economic theory by incorporating ideas and ideologies into the analysis, modelling the political process as a critical factor in the performance of economies, as the source of the diverse performance of economies, and as the explanation for "inefficient" markets (North, 1995: 2).

The bridge to neoclassical institutional economics (North, 1995; Aron, 2000; Rapley, 2002; North, Wallis & Weingast, 2009; Engel, 2010; Acemoglu & Robinson, 2012) starts thus where transactions in markets are delimited by ethical and political considerations e.g. child labour, slavery, drugs and trade in organs, that have accrued over centuries. The market is thus not free but bounded by politically achieved rules and regulations. Neoclassical institutional economics, therefore, boils down to the political setting that is weaved around markets, which unleash production cycles that create more broadly shared patterns of economic growth and development for a particular society. Institutions are thus in service of markets and need to dampen market excesses and failures that negatively affect the society in which markets settle.

The most important factor that is added with regards to the neoclassical framework is the need for an economic theory to exhaustively map the historically and contextually specific institutions that have transformed over time but are sticky and path-dependent, making it difficult to assemble and change them on the short- to mid-term. When capital is flowing into a society with the aim to trigger economic growth and development, it should be clear that the institutions in play might totally disrupt the accumulation process. More specifically, if a society is akin to an institutional setting where only a small group is enriched while the majority lives in poverty, then a

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11 capital inflow will most likely further exacerbate this crooked enrichment process. The key question is thus: what institutions are needed to break with the structural allocation of private gains for a small group over losses of the common good? Generally, the implementation of the entire set of good governance market-oriented institutions; rule of law, property rights,

privatisation, free markets, an efficient bureaucracy, democracy and financial organisations, are

perceived to be the solution. Obviously, both schools do not differ on the need for some extra institutional building blocks e.g. property rights, rule of law and financial organisations, for society in an extension to markets, but both do differ on the causality. Neoclassicals see the growth of institutions as an outcome of capital accumulation in markets i.e. good governance institutions that facilitate and canalise capital automatically grow when capital flows in, whereas neoclassical institutionalists see the effort to build institutions as the primary focus so that after institutions are established, capital can properly settle in the market and create more widely shared levels of welfare. The ultimate task then is to build those institutions.

Institutions are the “rules of the game”, the patterns of interaction that govern and constrain the relationships of individuals. Institutions include formal rules, written laws, formal social conventions, informal norms of behavior, and shared beliefs about the world, as well as the means of enforcement

(North, Wallis & Weingast, 2009: 15).

Institutions of good governance are thus the “rules of the game” considered emancipatory for the economic growth and development of societies, where capital triggers this process more effectively, profoundly and equally if the good governance institutions are properly embedded in society. To convey the transition towards an inclusive institutional climate the road between a natural state and an order of open access should be unfurled. In a natural state elites cluster together, agreeing to respect each other’s privileges, property rights and access to resources and activities. The vast majority of the population is excluded from this dominant elite coalition, that endures a political system which manipulates the economic system of elite rent accretion. For a society to escape such a deadlock, a move to an order of open access needs to solemnise: (i) rule of law for elites, (ii) impersonalising identities of individuals that are part of society’s organisations like business, government, clubs etc. and (iii) consolidation of political control from the military so that elite factions are unable to harness parts of the military for private benefit (ibid). Due to an ongoing process of power struggles to cooperate, compete and coordinate decision-making, the opportunity to institutionalise these principles of open access is continuously looming. Impersonalising relations in this respect takes away the constant threat of escalation between personal struggles for power, since codified rules, laws and regulations now stand between the elites. This provides a more stable

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12 societal climate for the privileges, resources and activities of the elites, while an institutional open access order for the broader ranks in society is embedded through good governance. The neoclassical institutional economic theory thus professes that there is a balance between capital, production and institutions as tools for economic development. Herein good governance institutions are of primary importance, but logically development also entails capital for production, therefore, depending on the historical and institutional context, different mixes and weights of capital, production and institutions are determinate for economic development in order to align with the global specialisation of comparative advantages.

1.3 Neo-colonial Economics and Capital Accumulation

The theoretical veins of the post-colonial school (Fanon, 1961; Nkrumah, 1965; Amin, 1972; Rodney, 1973; Amin, 1974; De Bragança & Wallerstein, 1982; Kiely, 1998; Hardt & Negri, 2000; Harvey, 2003; Bond, 2006; Wallerstein, 2011; Bond, 2013; Keenan, 2013), in analysing neo-colonial economics, boil down to structural over superficial analysis. Herein the school addresses approaches that focus on new realities of continuation and domination after formal political decolonisation and de jure independence. In comparison to the neoclassical focus on superficial analysis by taking the individual being a choosing agent at the centre, post-colonial theory, instead, opens a domain that underlies the surface of the individual. Herein agency is tossed whereas structure is elevated to the explanatory variable for economic relations. Neoclassical institutional economics already aligns more with this entry, since institutions have structural features in the sense that restrictions on agency are put in place by the “rules of the game”. Nevertheless, it is exactly here where the problem arises. Namely, in addition to structure, the other determining feature for neo-colonial economic theory is that of asymmetric relations of exchange. The idea behind this feature is that the neoclassical institutional economist overlooks the disparities in institutional development between centres and peripheries of capital accumulation. More concretely, the fact that high-economically developed societies have more advanced institutions akin to a better use of capital, cannot be pulled into a vacuum vis-à-vis societies with less advanced institutions for capital. This notion entails three implications for the understanding of economic development in neo-colonial economics in comparison to neoclassical institutional economics. Firstly, the global economic structure of comparative advantage keeps peripheral geographies i.e. regions of low economic development, in the position of primary production and primary exports with minor contributions to global trade. Secondly, manufactured and high-tech products with

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13 higher value-added levels of production, creating more, diverse and skilled employment, are imported from centre geographies i.e. regions of high economic development. This means that low-developed economies need to export higher levels of low value-added products in order to purchase the same quantity of industrial products, which structurally declines their terms of trade, incomes and sectoral economic expansion. Thirdly, the low contribution to international trade and the consequently marginal input to the global rules of the game from the periphery, allows capital from the centre societies to buy up and to own the vast majority of resources in peripheral geographies. This restrains the global economic structure of comparative advantage to become more competitive, because regions of low economic development minimally establish globally competitive firms, organisations and institutions. There is thus an asymmetrically defined

dependent relationship between societies of the centre and periphery of capital accumulation.

Altogether, this bundles the structural with the asymmetric relations of exchange and discloses a blind spot of the neoclassical institutional theory. By taking into account the disparities in institutional and economic levels of development, it is argued that centre geographies of capital accumulation dominate the periphery. With regards to Sub-Saharan Africa, and its history of European (Western) colonisation, the institutional leftovers set the precedent for a new fabric of economic domination that indirectly translates into political influence i.e. neo-colonialism (Amin, 1972; Rodney, 1973; Amin, 1974; Kiely, 1998; Greig, e.a., 2007:87-150; Wallerstein, 2011).

Likewise, it is illuminating to draw up the difference between neo-colonialism and colonialism, in order to grasp the intersection where the one concept flows over into the other. Colonialism is understood as a system of direct foreign political rule over another territory which, when referring to Europe (centre continental geography) and Sub-Saharan Africa (peripheral continental geography), was organised through the exploitation of resources, slavery and racism for the economic benefits of the European coloniser. Scholars (Engelbert, 2000; Mamdani, 2001; Bertochi & Canova, 2002; Lange, 2004; Nunn, 2008; North, Wallis & Weingast, 2009; Taiwo, 2009; Onyebuchi Eze, 2010; Acemoglu & Robinson, 2012) argue that the cause of low economic development today can be traced back to the historical roots of the political system of rule: colonialism. The neoclassical institutional (Lal, 1998; Aron, 2000; North, Wallis & Weingast, 2009; Acemoglu & Robinson, 2012) reaction is that the colonial legacy left extractive institutions behind that should be remodelled. Which includes an important feedback loop: extractive political institutions enabled new elites to control political power in the natural state, and choose economic institutions with few opposing forces, which further enabled elites to structure future political institutions and their evolution. Extractive economic institutions on their side enrich the same

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14 elites and consolidate economic wealth and power to strengthen dominance over society. As argued by neoclassical institutional scholars, the way to eliminate this vicious circle is through the institutionalisation of good governance, which gradually envelopes an open access for political and economic organisations. What the post-colonial theory rejects and adds to this narrative instead, is that colonialism was merely a system of political rule that facilitated the expansion of capitalism as a

global economic system of rule. It is thus posited that colonialism as a system of rule can change over

time, but as long as the economic system keeps in place and geographically expands as a constant factor, colonialism will only reshape into different guises, but structurally holds the Sub-Saharan African periphery at relatively low levels of economic development. In that sense neo-colonialism is

not about direct political control over another territory for economic benefit, but it is about the economic control from centre territories over enclave-style led peripheral territories of capital

accumulation for economic benefit.

To complete the circle of analysis it is necessary to delineate how the process of capital accumulation is perceived within the neo-colonial theory of economics. Whereas neoclassical institutionalists conceive capital to be the force of economic development with good governance institutions as catalyst, post-colonial economists perceive capital as the means by which centre geographies attain control over peripheral geographies inciting neo-colonialism. There are three processes of enclave-style capital accumulation that explain this. Firstly, in the context of peripheral geographies, capital accumulation is mediated through dispossession when privatisation of peripheral resources is institutionalised. Wealth is then not necessarily created for the impoverished majority, but existing wealth e.g. lands, water, buildings, enterprises, factories, roads, is taken into possession from the “public” and the “common” and being attributed to the “private”. Wealth can thus be created but the profits are canalised to the centre geography via joint-ventures of multinational companies and oligarchic elites (Amin, 1972; Amin, 1974; Harvey, 2003; Harvey, 2007; Bond, 2006; Bush e.a., 2010; Wallerstein, 2011; Hall, 2013). Secondly, whereas the neoclassical institutionalist hammers on the importance of institutions being of prior necessity to create a hospitable environment for capital to trigger economic development, the post-colonial economist portrays this theoretical solution as a deceit. The development of institutions as such is costly for society, meaning that to build institutions, a society needs to have the financial means for institutional existence, evolution and reproduction. The neoclassical institutionalist thus suffers from an unexplained gap as it merely sketches the theoretical side of forming an institutional landscape from a natural state to an open access order, but does not draw up how to finance this transition, nor is it explained if the institutional theory survives the empirical touchstone. The

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post-15 colonial scholar addresses the financial side by adding that the created surplus within peripheral territories through labour, land and other resources is intrinsically apportioned to the centre geographically based investor as a result of capital accumulation. By implication, capital only needs a basic institutional setting where no violence or war is prevalent with a basic technological capacity that allows transactions of money, so that the created surplus from the land, labour and resources is extracted for investors’ profits. For the post-colonial economist, instead, creating strong institutions is thus about appropriating the surplus from the accumulation of capital in the peripheral geography and to prevent the outflow to the centre. This latter point fills up the empirical void that is left behind by neoclassical institutionalist: the level of institutional development in non-industrialised countries in Europe in the 19th_{century was of a lower good}

governance quality in terms of property rights, rule of law, anti-corruption, bureaucracy, financial organisations and democracy during industrialisation, than the institutional quality of the non-industrialised Sub-Saharan African countries in the present. In other words, income and industrialisation levels of formerly non-industrialised European countries were higher with lower institutional qualities than Sub-Saharan Africa now. Respectively, the income and industrialisation levels of Sub-Saharan African countries are now lower but institutional development is now higher than Europe in the 19th_{century. This implies that solely assembling an institutional infrastructure}

for an open access order, as is proposed by neoclassical institutionalists, is not the most important explanatory variable to halt poverty and inequality in Sub-Saharan Africa. Instead the level of economic development that can attain surplus for the development, reproduction and evolution of institutions is explanatory (Chang, 2002; Chang, 2011). Thirdly, capital moves away from the colonial thrust of national territories that are directly ruled by other national territories, and moves towards the neo-colonial thrust of capital that cuts across all borders being a transnational phenomenon. This allows for the analysis of geographies to either bifurcate into centres and peripheries of capital accumulation within or outside nationally defined territories. Hence, capital should not be understood in terms of a discourse where the continental West is recolonising Sub-Saharan Africa per se, but instead, it should be understood as the colonisation from centre geographies. There are, of course, strong historically accrued parallels with regards to the Scramble for Africa and the concomitant Western colonisation that aggregated up into contemporary relations of economic and political asymmetry between both Western (centre) and Sub-Saharan African (peripheral) continental geographies. This, however, does not explain the vast economic inequalities within national territories of the West and mainly Sub-Saharan Africa (Hardt & Negri, 2000; Harvey, 2003; Harvey, 2007; Fine, 2012; Amin, 2013; Olamosu & Wynne, 2015).

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1.4. Post-colonial Institutional Economics and Capital Accumulation

The task now is to identify those instruments that trigger institutional development and eventually emancipate from the structural asymmetrical relationship between centre and peripheral geographies of capital accumulation. Accordingly, a revival of the post-colonial theory on neo-colonialism can be put in motion by concocting its fundamentals with institutional theory. Academics, however, need to initially operationalise the central concepts1_{of neo-colonial}

economics in order to be able to fetch the institutional climate that incepts the emancipating process. In other words, if empirical analysis disproves the measurement of the central concepts of neo-colonial economics, then the institutional framework for the liberation of neo-colonial structures is misleading. Nevertheless, the main tenet that runs through the liberating veins is as follows: peripheral geographies of Sub-Saharan African decent gradually need to climb up the ladder of value-added production, ownership and internationally and nationally competitive enterprises and organisations. As a result, the concentration of capital and power in predominantly Western societies crystallises and asymmetrical relations become more symmetrical. With respect to the neoclassical institutionalist the post-colonial institutional scholar agrees that capital, land and labour are the factors of production. It is added, however, that an organic process of uneven power structures between the factors of production, gives primacy to capital over labour and land and has uneven impacts on social environments.

What matters here is not the particular mix of institutional arrangements (…) but that the unified effect address the spiralling degradation of common labour and common land resources (…) at the hands of capital (Harvey, 2011: 107).

To realise the liberating institutional vein for Sub-Saharan Africa it is not necessary to a priori map a fixed institutional arrangement, but a “rich mix of instrumentalities” should be isolated as to create the institutions of the “common”. These institutions are limitedly facilitating the neoclassical public and private means to organise production, ownership, distribution, exchange and consumption, but primarily “common” means. By implication, “common” production, ownership, distribution, exchange and consumption are the modes to incept the stratification of the concentration of capital and power.

By "the common" we mean, first of all, the common wealth of the material world—the air, the water, the fruits of the soil, and all nature's bounty—which in classic European political texts is often claimed to be the inheritance of humanity as a whole, to be shared together. We consider the

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common also and more significantly those results of social production that are necessary for social interaction and further production, such as knowledges, languages, codes, information, affects, and so forth (Hardt & Negri, 2009: viii) .

The “common” is thus a material and social composition of resources from the land in relation to humans that is freely shared and generates new forms of wealth e.g. food, housing, knowledge and culture. For the neoclassical institutionalist the “common” should be increasingly privatised and subjected to the pulses of capital and the market. Ostrom (1990; 2010), however, researched the “common” for over decades and discovered a toolkit that enhances commonisation: (1) user boundaries, (2) resources boundaries, (3) congruence between appropriation and provision rules and local conditions, (4) collective-choice arrangements, (5) monitoring, (6) graduated sanctions, (7) conflict-resolution mechanisms, (8) minimal recognition of rights to organise and (9) nested enterprises.

User boundaries are in certain respects counterintuitive to commonisation because it limits the usage of a “common” resource for some over others. The same logic is applicable with regards to resource boundaries. To establish a “common”, clear rules are needed on who appropriates resources and how this is done, contingent to time, place, technology and quantity. Likewise, rules on the provision of the “common” need to be established, taking into account labour, material for reparation, construction and maintenance of the resource. Herein the usage of money is incontrovertible. Important to emphasise is that the “common” is very fragmented over different material and social domains. In contrast to the institutions proposed by neoclassical institutionalists in need of financial means to be supported, instrumentalities that create institutions of the “common” are micro-level oriented, meaning that institutions can much easier be established between the more personalised relations of a collective group. On the macro-level of the government and corporations with many individualised and impersonalised actors involved and capital as the dominant factor of production, this institutionalising process is severely more complicated due to quantity and high dependency on financial means. However, even though user and resource boundaries are exclusive, the congruence between appropriation and provision in operational rules allows individuals involved in the organisation of the “common”, to facilely participate in the possible modification and reform of the operational rules in the micro resource environment. This, therefore, does not create a climate of privately or publicly managed production, ownership, distribution, exchange and consumption of resources but a collective organisation that transcends the private and public institutional cadres. Critics would instantly argue that the lack of an externally enforced institutional framework induces free-riding among the participants,

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18 eventually causing the operational system to collapse. Having conducted an exorbitant amount of meta-analyses (Ostrom, 1990; Ostrom, 2010) on a wide variety of underlying case studies this theoretical claim does not survive the empirical touchstone. In long-enduring cases, active investments in monitoring and (small) sanctioning activities were apparent and helped redirect ruptures back into the system of collective organisation. In addition, “quasi-voluntary compliance” is built into the system over time as well. The idea behind this concept is that when a participant is non-compliant, coercion will follow; a metaphorical example is that taxpayers are strategic actors who cooperate only when they expect the other citizens of the state to cooperate as well. In the long-run, when the collective identity and system is properly institutionalised the same logic applies to the commoners: when a commoner perceives the collective objective is achieved, then the perception is that other commoners also comply (Levi, 1988: 52). The commitment to the collective is therefore not externally enforced but internally anticipated by the commoners through monitoring and (small) sanctioning activities. To further reduce the possibility of free-riding, low-cost local arenas of conflict resolution among or between appropriators and individuals outside the “common” should be institutionalised. Evidently, authorities from the private and public sphere of organisation should create legal schemes in which “common” practices of organisation are recognised. This is of main importance because capital as an organising principle of production is far more powerful than the “common” principles of production: labour and land. When private and public entities do not legally entrench minimal rights of “common” organisation and recognition, capital will easily override and absorb processes of commonisation. This leads to the explanation of the final instrumentality: nested enterprises. All the former instruments on appropriation, provision, monitoring, enforcement, conflict resolution and remainder governance activities are organised in multiple layers of sometimes contradicting levels of rules and regulations. In the context of an economic system driven by capital it is impossible to completely detach “common” instrumentalities from the effects and influences of capital. More concretely, this means that to commonise is to start building a system within another system, where the “common” operational rules are nested within international and national constitutional legislation for the private and the public. It is the art to balance between these contradicting schemes and unfold an alternative method of production. Specifically with regards to Sub-Saharan Africa there is the need to gradually climb up the ladder of value-added production, ownership and internationally and nationally competitive enterprises and organisations. This means that the “common” factors of production labour and land are in an asymmetrical negotiating position to capital. A strategy should thus be developed where multinational companies and investors, the reflectors of capital, need to be

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19 allowed to come in, share knowledge, infrastructure, machines and technology. But very important, “common” regimes need to be institutionalised to eat up the private property from the foreign company and allow the commoners, specifically tied to a resource, to take over and own the production collectively in a “common” enterprise on the longer term. This then should instigate the economy to also diversify production towards higher value-added goods, instead of consolidating a weak economic extractive base around raw material and mineral extraction from lands for private gain. As a consequence, the created surplus is not flowing out to the centres of capital accumulation, but increasingly clusters within “common” enterprises that will gradually compete internationally and nationally, stratifying and crystallising concentrated capital and power in the centre of the private and public sphere. Lastly, the “common” means of production is cleaving to a historically and contextually accrued culture and mentality in Sub-Saharan Africa:

A crucial distinction exists between the African view of man and the view of man found in Western thought: in the African view it is the community which defines the person as a person not some isolated static quality of rationality (Menkiti, 1984: 175 emphasis added).

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2. Methodology and Data

The overarching aim of this research is to measure the defining concepts of the neo-colonial theory

of economics and study if the theory outlives the empirical touchstone. If the theory-testing

approach is approved, then the following step in the research chain is to analyse the possibility for

post-colonial institutionalism to overcome the neo-colonial state of affairs. However, due to the

limitations of this thesis, only the neo-colonial theory of economics will be subjected to empirical verification. The research method appropriated is a most-likely case study where Mozambique is the unit of analysis (George & Bennett, 2005: 83). The reason for this decision relates to the previous situation in Mozambique, where Portugal politically colonised the country matching the definition of colonialism as outlined in the theoretical framework. In 1974, eventually, Mozambique became

de jure independent. Hereafter it was attempted to install a socialist state, but a following civil war

failed this attempt and the institutionalisation of good governance was put in motion by the World Bank and the IMF. The post-colonial claim is that these good governance institutions, disguise the neo-colonial face of economic control from foreign centre geographies over Mozambique, and obstruct the needed economic development to eliminate absolute poverty. Being able to tie the neo-colonial theory of economics to this empirical context and operationalise it through a set of indicators, the theoretical explanatory power is tested. To analyse the effect, the 21st_{century more}

broadly defined as 1997 to 2015 – depending on the available data – will be under investigation, as it contains high economic growth, a wave of foreign centre geographic capital involvement after the war and a stable political environment. Before delving into the conceptualisations and indicators for research it is important to mention the strengths and weaknesses of the case study research design. This gives reviewing scholars the tools to assess the viability of the findings. Firstly, the depth and rich understanding of case specific developments in relation to the research question is an advantage. This bequeaths, however, the corresponding weakness of a low generalisability to other cases and situations due to the context specific variables and developments. The findings will thus be less likely generalised to other formerly colonised impoverished countries. Secondly, a case study properly uncovers the causal mechanism. This mechanism situates between the direct causal effect of the independent variable on the dependent variable. In this particular study more focus is on the causal mechanism between the independent variable (foreign centre geographic capital involvement) and the dependent variable (macroeconomic neo-colonisation of Mozambique). A direct effect between the two variables could be measured through a statistical study. Nevertheless, there is currently no dataset available that enables the measurement of the neo-colonial effect

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21 statistically. Lastly, when a theory-testing approach is appropriated in a most-likely case, then the isolation of continuations and discontinuations shows the causal mechanism over time i.e. a diachronic study. This implies that variation among other variables that could affect the operationalised variables is put aside. A drawback from the most-likely case study in combination with theory-testing is that through the richness of context and variables it is much easier to verify the theory. Therefore, adding a diachronic element in the data analysis is crucial to elevate the reliability of the findings. Hence, to increase the reliability and viability of the findings in this research the 21st_{century is studied (George & Bennett, 2005; Gerring, 2007; Bryman, 2012).}

Having outlined the justification for the case selection the actual conceptualisations and measurement tools can be assembled. Referring back to the research question: does the increase in foreign capital involvement in the 21st_{century from centre geographies neo-colonise peripheral}

Mozambique on the macroeconomic level? The research question contains three central concepts: capital involvement from foreign centre geographies, neo-colonisation of Mozambique and the macroeconomic level. This clearly posits a relationship between capital involvement from foreign centres of capital accumulation as the independent variable, effecting the macroeconomic level of Mozambique as the dependent variable, mediated through a process of neo-colonisation. If an answer is going to be distilled, it is key to conceptualise the central concepts in order to explicate several indicators that enable operationalisation. Altogether the eventual empirical findings can direct the analysis towards a definitive answer of the research question. Also, the fact that neo-colonisation purports a process, demands the need for a diachronic study that renders the causal mechanism between the dependent and independent variable. Nevertheless, with the theoretical framework as the backbone capital can be conceptualised according to Piketty’s metric:

Capital is defined as the sum total of nonhuman assets that can be owned and exchanged on some market. Capital includes all forms of real property (including residential real estate) as well as financial and capital (plants, infrastructure, machinery, patents and so on) used by firms and government agencies (Piketty, 2014: 46).

With this conceptualisation three metric elements of capital, being inseparably connected to ownership and exchange on the market, can be distinguished: (1) public and private property, (2) financial (loans, stocks, bonds, profits, incomes, sales flows etc.) and (3) professional (machines, plants, high-tech products etc.). The property element makes up the private and public – but excludes the “common” – institutional embeddedness of everything that can be legally owned. Financial capital is the element that includes money in a variety of guises as the opportunity of igniting a new real-world production process through investment. This production process for

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22 economic growth and development can be realised through the utilisation and application of professional capital. Interrelatedly these metric elements thus include the entire neoclassical institutional ideation, regarding the ongoing, recurring and inextricable cycle between capital and production as explained within the theoretical framework. For the case study to be lucrative it is important to zoom in on foreign centre geography capital involvement in Mozambique. Here the interface between capital on the one side and the concept of neo-colonialism on the other side becomes relevant and should expose an expanding pattern of capital surplus flowing to foreign centre geographies. These centre geographies are mainly based in the West due to the strongly developed institutional landscape and former colonial ties, working as an indirect vacuum cleaner on capital. More specifically, a foreign inflow of capital in Mozambique might look like a triumph for economic growth and development. But due to the institutional structures, the initial economic impulse envelopes a surplus pattern that is much higher than the capital inflow. Put differently, there is a net capital outflow that sucks surplus out of peripheral Mozambique to the predominantly Western geographical centre and directly functions as a constraint on economic development. This constraint bans the opportunity of redirecting the surplus internally to expanding economic sectoral, institutional and organisational development and higher levels of value-added production. To measure foreign capital involvement, within the confinements of this research, is therefore to link the metric to neo-colonisation. Foreign capital involvement in this context can hence be conceptualised as follows:

A multifaceted process of capital inflows from formerly politically colonizing nations or new centre geographies outside of the legally defined territory of a formerly politically colonized or peripheral nation-state that is primarily canalised through multinational corporations, banks, foreign investments, loans and aid/colonial reparation payments.

Neo-colonisation in this respect would then be demarcated as:

A multifaceted process that initially shows patterns of property, financial and professional capital inflows from foreign centre geographies that are mostly formerly colonising nations, inducing a higher outflow of surplus from the capital inflows to the centre geographies due to the enclave-style concentration of capital in extractive sectors. This extorts the potential of surplus to be internally invested, in broadening the economic base through value-added production, and the establishment of internationally competitive organisations and institutions.

The final concept of the research questions concerns that foreign capital involvement and neo-colonisation are studied on the macroeconomic level. This implies that there is no need to study microeconomic level developments more specifically tied to for example operations of one

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23 multinational company, but allows for the fact that capital flows are isolated as the unit of analysis. To clarify, a conceptualisation of both micro- and macroeconomics is posited so that it is more convenient to distinguish where microeconomics begins and macroeconomics starts.

Microeconomics is the study of how households and firms make decisions and how they interact in markets. Macroeconomics is the study of economy-wide phenomena, including [among others] inflation, unemployment, [investments, capital flows] and economic growth (Mankiw, 2014: 24 emphasis added).

This delineation of the macroeconomic level enables the research to solely focus on the movements of capital and what consequences this entails for the economy of Mozambique as the aggregate unit of analysis in relation to the foreign.

Now the central concepts are defined for measurement, the next step is to put forward a set of indicators that can empirically measure the effect of foreign capital involvement from centre geographies (independent variable) on the macroeconomic neo-colonisation of Mozambique (dependent variable). These indicators are:

1. Capital concentrates in primary mineral-energy-agro extraction (no value-added production linkages)

2. Debt and loan dependency from periphery on centre geographies related to the extractive core

3. Multinationals from the centre dominate the economy through megaprojects

4. Marginal employment, technological and educational spillovers from multinational megaprojects

5. High tax incentives to attract foreign capital 6. Capital inflow triggering land-grabs

7. Mozambican assets are predominantly owned by foreign centre geographies 8. Income flight (surplus flowing to foreign centre geography)

9. Capital flight (surplus flowing to foreign centre geography)

10. Enclave export sales extractive core flows to foreign centre (surplus flowing to foreign centre geography)

Throughout the empirical case study the interrelations between the indicators are explained. The relevance and meaning of the indicators vis-à-vis the measurement of the central concepts and the answering of the research questions will be illuminated in the differing empirical chapters. Specific boundaries on what exactly are marginal levels of employment creation, high tax incentives, centre

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24 geography ownership of Mozambican assets and so on, will also be denounced throughout the analysis. Evidently the indicators strongly align with the theoretical body and the defining principles of the concepts capital, neo-colonialism and macroeconomic level. Wherefore this set of ten indicators should provide the correct measurement tools.

Most data for measurement are secondary in the sense that academics collected the data from domestic government datasets or through research centres. Also primary data that is not interpreted but part of a dataset and primary data from field interviews are included. In both secondary and primary data personal calculations are added for interpretation. Secondary data come from Unicef (1989) World Bank (1995), IMF (1999), UTRE (1999), BHP Billiton (2003), Mitshubishi (2006), Hidroelétrica de Mphanda Nkuwa (2009), Kuegler (2009), Wikileaks (2010), UNDP (2012), Massingue (2012), Human Rights Watch (2013), Baobab Resources PLC (2014), GFI (2014), IMF (2014), Sylla (2014) and Castel‐Branco (2014), Green Resources (2015), IESE (2015a), IESE (2015b), Jindal Steel Power (JSDL) (2015), Oxfam (2015), Rio Tinto (2015), BHP Billiton (2016), Castel‐Branco (2016), IESE (2016a), IESE (2016b), IMF (2016), Kenmare Resources PLC (2016), KPMG (2016), Navigator Company (Portucel) (2016), Sasol (2016), Vale (2016), Nogueria e.a. (2017). The primary data are attained from several datasets: World Bank databank, UNCTAD, UNcomtrade, Banco de Moçambique, OECD, Instituto Nacional Estadisticas (INE) and the IMF databank, but also through two self-conducted field interviews, wherefrom one with a Mozambican investigative journalist and the other with a diplomat from the Netherlands Embassy in Mozambique.

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3. Case Study: 21

st

_{Century Foreign Capital in Mozambique}

In this section the empirical quest and measurement of neo-colonialism is unfolding along the lines of the ten indicators provided in the methodology chapter. The final is aim is to distil an unambiguous answer to the research question. It should furthermore be repeated that the case study is merely descriptive in analysing colonial economics. If it can be concluded that neo-colonialism in Mozambique is an empirical truth, then for a follow up research, the context for post-colonial institutionalism as a liberating toolbox from the neo-post-colonial strains could be embarked upon. In section 3.1. an historical overview on the Mozambican market in relation to foreign capital before the start of the 21st_{century is provided. Accordingly, in section 3.2., the analytical lens will}

be on the most abstract macroeconomic level of cross-border capital flows and the settlement of capital in Mozambican extractive sectors. The analytical lens primarily zooms in on the national level of Mozambique in section 3.3. where multinational megaprojects are contextualised in terms of its economic spillovers and tax incentives. The following section 3.4. cascades down to the most specific macroeconomic level, isolating the effects of mining in the Tete province from two multinational companies. Section 3.5. refocuses again to the most abstract macroeconomic level. With the observed data from the previous sections as the backbone, a net account is calculated that shows financial surplus created in Mozambique, flowing to foreign centre geographies for the usage of economic development for the centre over peripheral Mozambique. The final section 3.6. links up the theoretical chapter with this empirical chapter and discloses the causal-effect model of 21st

century foreign capital in Mozambique.

3.1. Historical Overview: Freeing the Mozambican Market for Foreign Capital

Shortly after Mozambique liberated from the Portuguese colonial occupier in 1974, a new conflict incepted. Mozambique was bordered by two countries of white minority rule: Rhodesia and South Africa. The Frelimo (Frente de Libertação de Moçambique) government, that liberated the country from the Portuguese, allowed Rhodesian independence forces to have bases within Mozambican territories. Rhodesian Prime Minister Ian Smith strongly agitated against this political development and launched a military attack on Mozambique in 1976. Frelimo in its turn decided to sanction the Rhodesian government, whereas the Smith administration responded by the financing and creation of an anti-Frelimo guerrilla force that was eventually named Renamo (Resistência Nacional

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26 ousted in 1980 with the independence of Zimbabwe as a result, Renamo was alive and aware of its dependency on external sponsoring. With the tacit approval of the British government, the white minority apartheid regime in South Africa saw an interest in funding Renamo, mainly as a reaction to the hostile political views that Frelimo adhered to vis-à-vis the ongoing injustices black South Africans faced from apartheid (Hanlon, 1991). In addition, the schisms of the Cold War between the United States as the beacon of capitalism as opposed to Soviet communism, had implications on Africa as a continent and Mozambique in particular. In 1981 Ronald Reagan acceded to power in the United States, which resulted in the materialisation of several US-Soviet proxy wars and supportive regimes in Angola, the Congo and Mozambique. The United States thus provided another channel for the covert financial, military support and training of Renamo, against the openly Marxist-Leninist inspired Frelimo government, that mainly found an ally in the Soviets (Hanlon, 1986). An eventually decade long-war between Frelimo and Renamo forces had disastrous consequences for the social and economic lives of Mozambicans. One million people died from a mid-1980s population of around 13 to 15 million, whereas an additional 5 million people were displaced or made refugees in neighbouring countries. Damage was estimated to be around US$ 20 billion, while economic activity was almost non-existent resulting in nihil GDP growth (UNICEF, 1989; Hanlon, 1996).

Against this backdrop the Frelimo government desperately sought to spur economic growth and eventually succumbed to the international pressures from the Washington-led World Bank and IMF. Frelimo had to leave the Marxist-Leninist state-centred economy behind and move towards a market-oriented economy. The inhumane situation in which Mozambique was in, made all forms of assistance a perceived blessing. In 1984 the talks with the World Bank and IMF started. The World Bank accurately summed up the policy tenet from the structural adjustment programme, in which the World Bank and IMF provided loans to Mozambique in exchange for economic policy-making:

Mozambique began to introduce market-oriented reforms in the late 1980’s, before the war was over. Early reform efforts, during 1987-1989, achieved significant fiscal improvements; inflation was reduced, the exchange rate depreciated and prices were substantially liberalized. Enterprise reform was also initiated, large numbers of small and medium size state enterprises were privatized and budgetary subsidies to other state enterprises were significantly decreased. Since 1990, prices and trade have been further liberalized; a market-based foreign exchange system has been established; tax tariff and financial sector reforms have begun; and public expenditure management has been improved. Significant liberalization of the economy has taken place (World Bank, 1995: 3 emphasis added).

Colonialism in the 21st century : the case of Mozambique