Mozambique remains beset by an ongoing and devastating insurgency from the Islamist group Ahlu-Sunna Wa-Jama’a (also known as al-Shabaab). Despite bilateral and regional military interventions from Rwanda and the Southern African Development Community (SADC), the group is forging ahead in consolidating its presence in the north of the country.
At the end of September, it resumed organised attacks against civilians and cross-border raids from Tanzania. Speaking at a press conference in Pemba, Mozambican President Filipe Nyusi appeared to reject criticism that the insurgency was fuelled by grievances, claiming that Mocimboa da Praia, the town in which it originated, was prosperous relative to other unaffected regions.
And yet it is clear that low levels of development have played a role in the escalation of the conflict. Thus far talk around a reduction of the conflict centres around military intervention. However, as research by the Institute for Justice and Reconciliation (IJR) shows, a highly securitised mindset is unlikely to address Mozambique’s challenges. Rather, a longer-term focus on inclusive development and communities is needed to counter recurring cycles of conflict.
A number of interventions can be considered to address critical deficits that drain the country’s resources and, by extension, its prospects for inclusive development. One of these is to contain illicit financial flows. Mozambique is thought to lose significant amounts of its GDP annually to illicit financial flows, relating to corruption, illegal markets, tax misinvoicing and a large informal sector.
In 2018, Afrobarometer data showed that 88% of people in the northern Cabo Delgado province did not have a bank within walking distance, and that 59% did not hold a bank account. Low levels of formal banking and trade in Mozambique provide opportunities for financing of the insurgency through existing informal channels. Often, money is transferred through informal or mobile money-transfer systems, some of which ensure anonymity.
For example, hawala networks (a popular and informal value transfer system based on the performance and honour of a huge network of money brokers) often operate in remote outposts where formal banking is either absent, expensive or hard to access. These networks are often favoured because of efficient transfer windows, competitive exchange rates, low transaction fees, accessibility for illiterate people, acceptance under sharia law and all-year-round availability.
Hawala networks are entrenched in many societies, and in some instances have been exploited by extremist networks like Islamic State and al-Shabaab. As such, the strong reliance on hawala in Cabo Delgado, a province characterised by relative underdevelopment and high volumes of informal trade, leaves a grey area for insurgents to exploit.
The nature of the settlement process between hawala agents (hawaladars) makes the transactions particularly difficult to regulate, and ultimately law enforcement cannot “follow the money”. The illegitimate use of hawala has been widely documented by the Financial Action Task Force, an intergovernmental organisation created to develop policies against money laundering.
Recently, stakeholders in a closed-door consultation with the IJR noted that the potential abuse of hawala as a source of terror financing should be raised in the context of Mozambique. Reports from SADC’s technical mission in April 2020 and the Eastern and Southern Africa Anti-Money Laundering Group have also identified hawala’s mobile money transfers and cash couriers to be conduits for terror funding in the area.
In the instance of cash couriers, physical cash transfers are especially difficult to trace. High volumes of informal trade are underpinned by a cash-based economy that includes trade across the porous Tanzanian border, all working to facilitate the movement of cash between middlemen.
Hawala networks are a local lifeline
However, with little access to formal economies and formal banking, informal trade and hawala networks are a lifeline for local communities. They find themselves reliant on informal trade to sustain their livelihoods and hawala networks to receive remittances and aid, which for many is their main source of income. Any intervention, especially de-risking, must consider first the impact it might have on those already living on the economic margins of society.
Any top-down attempts to regulate these informal systems would also require enormous investments into infrastructure and capacity. Even though Mozambique passed an anti-money laundering and combatting the financing of terrorism law in 2013, the country ranks fifth out of 141 countries in the Basel AML index, meaning that it is at an extremely high risk of terrorist financing and money laundering. In addition, despite the financial intelligence produced by the Financial Intelligence Unit, there is no evidence that law enforcement is using this effectively.
As such, a top-down law enforcement approach is unlikely to address the challenges faced in the country. Any strategy to address the group’s funding must find its roots in community engagement. This will help ensure a proactive rather than reactive approach. From the outset, stakeholders must first prioritise trust-building with communities.
Communities should be engaged on the issue of terrorist financing and can then provide intelligence on how money is being transferred for such activities, including through illicit activities and informal trading across borders. They can also share insights into the hindrances of accessing formal banking and explain their main developmental challenges.
Additionally, practical steps need to be considered in both the formal and informal banking arenas, including strategies to bring more of the population into the mobile money sector, ultimately allowing for better-regulated systems.
Simultaneously, supporting inclusive economic development in Mozambique is vital. Remittances are key to strengthening development but have often faced the challenges of adhering to “know-your customer” documentation requirements when many migrants are themselves undocumented. To address this, licencing and registration regimes that can facilitate access should be considered.
The illicit financial flows also have a cross-border dimension in terms of the utilisation of financial transfer processes, and therefore the SADC region needs to consider how to address the issue of this financing in its strategy to combat organised crime, which is currently being finalised.
At a regional level, the African Continental Free Trade Area (AfCFTA), which came into effect in January 2021, offers opportunities for strengthening inter-African trade by promising a single market for African goods and services and by promises of tariff elimination. This may reduce the potential to capitalise on different tariffs through tax avoidance (such as cash-based informal cross-border trade).
The AfCFTA, through greater connectivity in the form of financial flows and human mobility, presents the continent with potential for sustainable inclusive growth. However, the same connectivity could make it vulnerable to abuse by malevolent actors, such as radicalised groups.
As such, the critical weaknesses that strengthen the cause of these groups need to be identified and neutralised. The countering of illicit financial flows could be an important, if not the most effective, weapon in this fight against radicalisation.
For the full policy brief by the IJR, click here.