Applying New Institutional Economics to the Mozambican water and sanitation sector

by Noud
I wrote my Industrial Ecology thesis as part of the this project, wherein I focussed on the (informal) institutions that govern the relations between the actors present in Maputo’s sanitation sector. My research found its origin in the school of New Institutional Economics (NIE), which is an economic perspective that attempts to extend economics by focusing on the institutions, i.e. the social and legal norms and rules, that underlie economic activity and with analysis beyond earlier institutional economics and neoclassical economics. NIE assumes that individuals are rational and that they seek to maximise their preferences, but that they also have cognitive limitations, lack complete information and have difficulties monitoring and enforcing agreements.


Sanitation is a public good that can only be produced by a well-functioning government as depicted in Figure 1, which is what makes the case of sanitation in Maputo, Mozambique, relevant for an NIE perspective — the workings of the institutions for sanitation provision in Mozambique reveal answers to the question why Mozambique struggles as a country with sustained economic development.

Figure 1: A well-functioning government produces net-value with its citizens by exchanging private goods for public goods, and vice-versa. The system can only be a net-value producer if the government adheres to the demands of its consumers, and vice-versa.

Sanitation is profitable but unevenly produced in Maputo, Mozambique

Sanitation interventions in development countries have favourable socio-economic returns to households and society, contributing to improved health, a clean environment, dignity and quality of life, among others. Nevertheless, many African developing countries struggle to provide proper sanitation to its people. Among them is Mozambique — it has struggled with sanitation for all its history, and so has its capital, Maputo.

Lourenço Marques, the capital of colonial Mozambique, fell victim to the third great pandemic of the bubonic plague from 1907 until 1908. The measures against the plague applied in Lourenço Marques consisted of pulverisation, the killing of mice, destruction by fire of natives’ huts and cremation of corpses of those who fell victim to the disease. A border that delimitated the Portuguese settlement against that of the indigenous established, and it marked the social and cultural construction of space for each race. The Portuguese settlement — nicknamed Cidade de Cimento (Cement City, Figure 2, top) – had public gardens, parks, paved sidewalks, marble-faced public buildings, wide boulevard avenues and clean streets. The indigenous settlement was located in the ‘reed-built’ shantytowns – nicknamed Cidade de Caniço (Reed City, Figure 2, bottom). It was subject to frequent flooding and cholera outbreaks.

Figure 2: The contrast between the Cement City (top) and the Reed City (bottom). A healthy environment, such as the Cement City, catalyses economic development, while a disease-ridden environment, such as the Reed City, does the exact opposite.

The effects of the plague outbreak are still visible to this day; the Cement City enjoys a sewer, while the Reed City relies mainly on latrines. However, for Mozambique to develop as a country, sanitation plays a vital role in mortality rates and diseases that limit the development of younger – and often poor – generations.

Institutional development in Mozambique has not led to more equality in sanitation

To understand how the current sanitation situation in Maputo is in equilibrium and how that equilibrium is sustained by the actors involved in sanitation provision, we first have to understand the history of institutional development in Maputo’s sanitation sector, which is briefly described in Figure 3.

Figure 3: The major historic events that shaped institutional change in Maputo’s sanitation sector.

Figure 3 tells us that Donors have imposed institutions on Mozambican politics that are functional in a Western context. However, when we look at Mozambique’s economic development since those institutions were introduced, then we find that economic growth has become less and less inclusive (and Mozambique’s Gini coefficient – a measure for inequality – has increased). Therefore, Western institutions are dysfunctional in a Mozambican context. At the other end of the spectrum, Donor investment in Mozambique’s sanitation sector has steadily increased, which has made Donors responsible for, on average, 80% of Mozambique’s water and sanitation sector’s total expenditure over the past years. Although contradictory on first sight, the institutions of Maputo’s sanitation sector explain how this situation sustains.

The institutions of sanitation in Mozambique are governed by the interests of Donors

The role that sanitation plays in Maputo is often determined by international Donors and NGOs, which have the funds to execute projects for attaining their foreign policy goals. However, from the Government of Mozambique’s (GoM, which consists of the council of ministers) perspective, projects in sanitation should only be executed if they prove to generate economic returns. Thus, Donors and NGOs supply the resources for sanitation projects, including budget for staff of government agencies, while making their project-based demands. For sanitation, the GoM is dependent on these forms of income, otherwise no incentive for sanitation projects exists.

The relationship between the GoM and the municipalities is governed by the formal need to decentralise as introduced under the pressure of Donors in 1997 but the informal resistance to do so. Although the Municipality of Maputo (CMCM) has had the mandate to supply sanitation since 1997, in 2010, the GoM created its own sanitation asset holder, AIAS (Administração de Infraestruturas de Água e Saneamento), which has the mandate to build sanitation assets, rent them out to municipalities (CMM in the case of Maputo), and reimburse loans of the GoM with the collected rent. The pressure to provide sanitation services lies with the municipalities, but part of their income flows to the GoM.

AURA (formerly known as CRA), the water and sanitation regulator, was introduced as a regulator under the proposal of Donors in 1997 as part of their decentralisation and privatisation scheme – it exists to ensure the focus of the government on its civilians instead of the private sector. However, it is sidestepped by the negotiations between the GoM and Donors, which decide on projects without consulting CRA about the demands of consumers.

The institutional system has become increasingly complex; it is practically impossible for the consumer to hold one government agency accountable for its outcome. Overlapping mandates and informal rules that overrule the formal ones create the opportunity for bending the rules towards one’s gain. However, in order to have a well-functioning institutional system as depicted in Figure 1, accountability is key.

The interests of Donor countries are not aligned with those of Mozambique, and vice-versa.

The GoM finds that investment in sanitation can be justified if such an investment has proven economic returns in the future, which is difficult to determine, because sanitation is not a product that can be consumed privately – it is a public good. The Donor finds that investment in sanitation can be justified if it adheres to its foreign policy goals, which are driven by its national interests, such as the formation of alliances, the creation of business, and the extraction of external resources.

In Mozambique, Donors fund the sanitation sector on project-based incentives. The assets that are built, such as waste-water treatment plants, are cost-intensive. Local knowledge on how to build such assets is scarce and engineering companies are hired from Donor-like countries to execute Donor projects (which redirects the “donation” towards the Donor country while the Donor gains political leverage on the GoM to execute its foreign policy goals). When a Donor funds such a project, then the GoM’s agencies have a source of income on which they rely to survive. Once the project ends, the resulting asset becomes costly instead of profitable as it has to be maintained and operated on government funds. As such, the GoM holds the municipalities (CMM in the case of Maputo) responsible for operation and maintenance over the sanitation assets, which remain the GoM’s property. The municipality pays rent to the GoM over these assets, which makes the asset profitable once again for the GoM but costly for the municipalities and its citizens (as the municipalities extract rent from them to fund these activities). When municipalities lack the ability to undertake their sanitation activities adequately, an asset depreciates rapidly, which creates a new opportunity for the GoM to make a claim on Donors for extra funds to fix the asset – it’s a perverse incentive.

The Mozambican government is captured by Donors instead of its citizens

In the current institutional system, sanitation is a profitable business for the GoM and Donor countries. Incentives to provide sanitation are created by international Donors and NGOs — with their own foreign policy goals — on a project-basis, which are temporary and short-term. For government agencies involved in sanitation, acting upon those temporary incentives equals survival. As a consequence, the GoM’s survival does not rest on the quality of sanitation service that is provided to the consumer — it rests on its ability to adhere to the Donor’s demands. Therefore, the system’s goal is to sustain the game that is played between foreign parties and government agencies. Providing sanitation to Mozambican citizens is an externality of that process.

A solution to the diagnosed problem lies in the method that was applied to gather the data for my thesis. Considering the weight of that method, I am writing a second blog post to delve deeper in those aspects of my thesis.


First, I would like to thank André for the opportunity of working with him in Mozambique – I had a great time – and his support in writing my thesis. Second, I would like extend my thanks to Gijsbert Korevaar and Luuk Rietveld for their support as my thesis supervisors. Finally, to all of the people that I have interviewed and that have made my thesis possible; thank you. I dedicate my work to you.

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