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The World Bank Group in Mozambique, Fiscal Years 2008–21

Chapter 2 | Evolution of World Bank Group Strategies and Operations in Mozambique

Highlights

The overarching objective of the World Bank Group’s support to Mozambique during the evaluation period was sustained and inclusive economic growth. The three strategies covered in this evaluation pursued this goal through four focus areas: (i) governance; (ii) human development and basic services; (iii) growth; and (iv) sustainable development and resilience. Bank Group support adapted to changing country conditions and shocks, such as the discovery of large gas deposits, the 2016 hidden debt crisis, and natural disasters.

Bank Group–supported strategies recognized the drivers of fragility, such as those related to resource management, accountability, decentralization, and access to basic services. But individual operations initially downplayed fragility against a general atmosphere of optimism fueled mainly by decade-long growth and the discovery of significant gas reserves.

During the evaluation period, the Bank Group committed $5.7 billion from the International Development Association and $1.3 billion from the International Finance Corporation. The country benefited from significant budget support, with most of the associated prior actions supporting reforms in public administration, the financial sector, and energy and extractives. Investment projects focused on water, sanitation, and waste management; education; agriculture; and public administration. Just more than half of World Bank projects and operations were rated moderately satisfactory, and one-fifth were rated satisfactory.

Over the evaluation period, Bank Group support was guided by three strategies: Country Partnership Strategy (CPS) FY08–11, CPS FY12–16, and Country Partnership Framework (CPF) FY17–21. All three strategies were in support of the overarching objective of making Mozambique’s growth more sustainable and inclusive. Appendix A (table A.1) presents the objectives of these strategies in detail.

Bank Group support was consistent with the development priorities identified in the 2016 SCD (figure 2.1). Throughout the evaluation period, the Bank Group pursued objectives in four focus areas: (i) governance; (ii) human development and basic services; (iii) growth; and (iv) sustainable development and resilience (appendix A, table A.2). The governance focus area was supported via interventions in public sector reform, decentralization, transparency and citizen engagement, public financial management, legal and judicial services, and economic management. In human development and basic services, the Bank Group supported interventions in health, education, water and sanitation, electricity, and social protection. To support growth, the Bank Group undertook interventions to improve the business environment; increase access to finance; and develop enabling infrastructure for private sector development, agriculture, and tourism. To promote sustainable development and resilience, the Bank Group supported interventions to improve natural resource management, resilience and adaptive capacities to climate-related issues, and disaster risk management.

Bank Group strategies adjusted to changes in country context and external shocks. Under the CPS FY08–11, the Bank Group doubled its original indicative lending volume to help the country cope with indirect fallout from the 2008 global financial crisis (World Bank 2007). In 2012, large gas deposits were discovered off the coast of Mozambique. To respond to this potential game changer in Mozambique’s development trajectory, the CPS FY12–15 placed an emphasis on improving the management, transparency, and oversight of natural resources, focusing on the burgeoning gas sector (World Bank 2012a). In 2016, the hidden debt crisis led many development partners (including the World Bank) to withdraw budget support, severely affecting Mozambique’s macroeconomic framework. Against this backdrop, the CPF FY17–21 emphasized support for macroeconomic stabilization and restoring donor confidence (World Bank 2017b). Finally, Cyclone Idai in March 2019 and Cyclone Kenneth in April 2019 caused extensive human, physical, and economic losses. The CPF FY17–21 was adapted at the Performance and Learning Review stage to include an additional objective on recovery and rehabilitation (World Bank 2020a). The World Bank also gradually targeted its support to lagging regions to reduce unequal access to services. The development constraints identified in the 2021 SCD update have expanded to cover virtually all fragility drivers identified by the 2020 Risk and Resilience Assessment, except for security and shortcomings in the justice sector (appendix A, figure A.1).

Over time, Bank Group–supported strategies consistently and more explicitly addressed drivers of fragility and conflict. The CPS FY08–11 and the CPS FY12–16 included support to address weak resource management, lack of accountability, stalled decentralization, limited access to basic services, weak institutions, and other development constraints subsequently identified as drivers of fragility and conflict in the 2020 Risk and Resilience Assessment. The CPF FY17–21 identified regional disparities and disputes over natural resources as development constraints with a significant impact on conflict and fragility (World Bank 2017b). To address regional disparities, the CPF FY17–21 sought to deliver multisectoral support for regions with high poverty levels. To address challenges in natural resource management, the CPF FY17–21 included interventions to support land administration and user rights. In addition, to allow for the identification and diffusion of conflicts, it called for the inclusion of solid and transparent grievance redress mechanisms in Bank Group interventions.

Despite rising fragility, an atmosphere of optimism prevailed in the World Bank’s engagement in Mozambique. Since the end of the civil war, Mozambique has enjoyed strong growth and poverty reduction, making it a postconflict success story in the eyes of donors who were keen to provide support and financing. World Bank staff and development partners invariably described a “positive,” “optimistic,” and “forward-looking” atmosphere in which the country was seen as a “rising star” and “donor darling.” Although the World Bank was preparing for a postconflict era, this understanding led to an implicit assessment that conflict was “not a big problem” and “something of the past,” thus discounting the intensifying fragility and persistent conflict challenges.

Figure 2.1. Mapping of World Bank Group’s Support Areas to Mozambique’s 2016 Systematic Country Diagnostic Priorities, Fiscal Years 2008–21

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Figure 2.1. Mapping of World Bank Group’s Support Areas to Mozambique’s 2016 Systematic Country Diagnostic Priorities, Fiscal Years 2008–21

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Sources: World Bank 2007, 2012a, 2016c, 2017b.

Note: CPF = Country Partnership Framework; CPS = Country Partnership Strategy; FY = fiscal year; SCD = Systematic Country Diagnostic; SMEs = small and medium enterprises.

Both the government and the World Bank incentivized or sustained the atmosphere of optimism. The balance of evidence indicates that the government showed little appetite for addressing conflict drivers or even poverty if it did not directly benefit regions in which the government’s support was concentrated. Flush with donor funding, the government encouraged development partners to focus on attracting private sector investment and anticipating Mozambique’s bright future rather than concentrating on the “difficulties of the past.” This perspective was particularly encouraged after the 2010 discovery of large gas reserves off of Mozambique’s northern coast. In parallel, factors internal to the World Bank also helped maintain optimism even as conditions in the field deteriorated. As a result, World Bank support often focused on the technical aspects of development challenges, with an implicit expectation that this aspect would itself overcome political economy barriers.

The considerable donor support tied to World Bank disbursements put pressure on the World Bank to disburse, disincentivizing it from advocating more forcefully for critical reforms and implementation. Further issues cited as perpetuating optimism were the fact that Mozambique was not on the World Bank’s list of countries with fragility, conflict, and violence; the frequent rotation of Maputo-based staff; and the challenges of Mozambique’s northern regions, which were more difficult and expensive to visit. It is notable that signs of social conflict were often misinterpreted as exponents of an economic-political conflict between FRELIMO and RENAMO. As a result, there was less attention given to deeper conflict drivers in society. At the same time, a number of World Bank staff members working on Mozambique were concerned about the regional divergencies and unequal benefits from the peace dividend.

Opportunities to “right size” the prevailing optimism through analytical work were missed. Across the evaluation period, only a small share of advisory services and analytics (17 percent) directly described conflict risk, doing little to influence the general atmosphere of optimism. Even a pivotal report such as the Mind the Rural Investment Gap did not point to the link between comparative regional underinvestment and the resulting grievances and conflict risks (World Bank 2019a). Conflict-focused advisory services and analytics were not conducted until the publication of the Risk and Resilience Assessment in 2020. The 2016 SCD similarly presents a missed opportunity. A member of the World Bank’s fragility, conflict, and violence unit was only brought on board late in the drafting process. Not surprisingly, the SCD lacked a structured conflict analysis that would have been expected in a postconflict country, and it underemphasized the importance of conflict drivers while overestimating the country’s capacity to resolve conflict. Overall, the SCD characterizes fragility as an exponent of economic-political conflict between FRELIMO and RENAMO rather than as emblematic of the deeper conflict drivers present in society. According to staff, optimism persisted until 2020, when large-scale warfare escalated, a new country director was appointed, and Mozambique became eligible for the financing under the Prevention and Resilience Allocation.

Engagement in decentralization was comprehensive at the beginning of the evaluation period, but—despite the roots of conflict in regional disparities—it stalled midway through the evaluation period and was limited to analytical support and subnational capacity building because of insufficient traction with the government. Investment in the lagging (and northern) regions did not increase significantly until the latest strategy period. Security and justice—key drivers of fragility—remained unaddressed throughout the evaluation period. The CPS FY12–16 and the CPF FY17–21 cited youth disenfranchisement as a conflict driver, and the Fragile States Index listed demographic pressures as the second-fastest deteriorating indicator of fragility. However, between 2008 and 2020, few projects targeted youth or included explicit measures to promote the inclusion of youth among their beneficiaries.

Before the conflict in the north, the World Bank had made limited adaptation to operating in a conflict-affected environment. When engaging in a conflict-affected environment, it is important to take into account the drivers of conflict and adapt operations to the context. Recent Independent Evaluation Group (IEG) work noted that almost half of World Bank projects in conflict-affected areas that operated without a conflict lens suffered from implementation challenges (World Bank 2021o). For most of the evaluation period, there was limited conflict-focused advisory services and analytics to inform investment projects or understand how to adapt to evolving risks. The setup of early-warning systems or collection of disaggregated data on real and perceived grievances, for example, could have supported better risk monitoring and the identification of appropriate mitigation measures. Similarly, World Bank infrastructure reconstruction investments in the central and northern regions were largely conflict blind. Project teams did not include conflict specialists or monitoring. Although the teams helped strengthen service delivery, there was no explicit strategy to monitor or attempt to strengthen the social contract between citizens and the state.

International Finance Corporation Strategic Engagement in Mozambique

During the evaluation period, the International Finance Corporation (IFC) strategy for Mozambique evolved significantly to become fully integrated with the Bank Group process. In the first half of the evaluation period, the IFC strategy development process for Mozambique was largely informal, which led to the absence of a strategic approach and little coordination with the World Bank. The first two Bank Group strategy documentscovering the periods FY08–11 and FY12–15had few references to IFC support, and IFC’s proposed engagement in these documents was not well integrated with the World Bank’s strategy. This led the FY08–11 CPS to state that support to private sector development in Mozambique “could have benefited from closer collaboration within the WBG [Bank Group]” (World Bank 2007, 67).

Things started to change in 2015, and significantly so after 2018, when a more formal process of strategy development was put in place in IFC. Two factors contributed to this shift: (i) a clear, high-level corporate mandate to work together; and (ii) a strong relationship between the IFC country manager and the World Bank country director at the time, who had worked together earlier at IFC and hence understood and appreciated IFC’s role and value added. The emergence of the hidden debt crisis also provided an impetus for greater collaboration. The hidden debt crisis made IFC realize the impact of the policy environment on private sector development and the need for closer coordination and collaboration with the World Bank on policy reforms.

World Bank Lending Portfolio

Over the evaluation period, the World Bank committed $5.7 billion to Mozambique. Of this commitment, $4.4 billion was investment project financing, $1.1 billion was development policy financing, and $220 milion was Program-for-Results operations. Trust funds provided financing of $312 million. Four sectors accounted for more than half of World Bank support during the evaluation period; just less than one-fifth of financing focused on public administration. The portfolio also included considerable investment in water, sanitation, and waste management (13 percent); education (13 percent); agriculture (12 percent); and energy and extractives (10 percent).

Mozambique received significant budget support from the World Bank throughout the evaluation period. The World Bank approved 15 development policy operations (DPOs) during FY08–21. Most of the prior actions associated with these DPOs supported reforms in the public administration sector (41 percent), followed by the financial sector (26 percent) and energy and extractives (12 percent; appendix B, table B.1). The main themes supported were public finance management (24 percent), public administration (14 percent), financial stability (9 percent), and rural development (9 percent; appendix B, table B.2). The centerpiece of World Bank budget support was 8 DPOs contained in three programmatic series of Poverty Reduction Support Credits (PRSCs).

The PRSCs were part of the overall programmatic budget support provided by the Group of Nineteen Donors (G-19). Coordinated budget support was provided in the context of a memorandum of understanding for the provision of direct budget support dating back to 2004. Under this memorandum of understanding, prior actions and triggers with their corresponding indicators were drawn from the Performance Assessment Framework, a monitoring framework developed by the G-19. In interviews with IEG, World Bank staff acknowledged that the G-19 quickly lost relevance and the ability to push for meaningful results. World Bank staff noted that, for the most part, Performance Assessment Framework indicators lacked ambition and the World Bank became “locked” into a mechanism that was unable to achieve meaningful results. The rationale for participating, World Bank staff noted, was that the process was owned by the government and had a framework with monitorable targets. But many of the targets lacked ambition, making it easy for the government to show a “glass half full” while allowing for key goals such as decentralization, debt management, and oversight of SOEs to fly under the radar.

The World Bank approved 64 investment project financing projects, 3 Program-for-Results operations, and 27 trust-funded projects during FY08–21. Investment project financing focused on water, sanitation, and waste management (17 percent), followed by education (15 percent); agriculture, fishing, and forestry (13 percent); and public administration (12 percent; figure 2.2). Program-for-Results projects supported reforms in health (43 percent), public administration (39 percent), and education (18 percent). The trust-funded projects targeted health (29 percent) and education (21 percent).

Figure 2.2. Investment Project Financing Commitments to Mozambique by Sector, Fiscal Years 2008–21

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Figure 2.2. Investment Project Financing Commitments to Mozambique by Sector, Fiscal Years 2008–21

Source: World Bank Business Intelligence database, September 2021.

Note: ICT = information and communication technology.

World Bank–supported projects and operations that closed during the evaluation period were rated as moderately satisfactory, on average, on overall development outcomes. IEG evaluated 32 (55 percent) of 58 closed projects. Of these, just more than half were rated moderately satisfactory, and one-fifth were rated satisfactory, which was similar to Eastern and Southern Africa, which had 53 percent of projects rated as moderately satisfactory and 21 percent rated as satisfactory during the same period. Roughly one-quarter of projects were rated moderately unsatisfactory or below (figure 2.3). At a sector level, higher-rated outcomes were in the health, finance, and education sectors (appendix B, figure B.6). Social protection and energy and extractives were the sectors that performed less well.

Figure 2.3. Overall Outcome Ratings, Fiscal Years 2008–21

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Figure 2.3. Overall Outcome Ratings, Fiscal Years 2008–21

Source: Independent Evaluation Group.

During the review period, there were 19 IFC investments and 27 IFC advisory activities, totaling $1.3 billion and $32 million, respectively. Main sectors of activity were agriculture and forestry (26 percent) and oil, gas, and mining (21 percent). Weighted by value, electric power and finance and insurance were the main areas of focus (appendix B, figure B.7).