Mozambique still struggling with huge debt

In addition to the well-known loan of 850 million dollars arranged via the European bond market for the Mozambique Tuna Company (EMATUM), the Guebuza government secretly guaranteed loans for two other companies, Proindicus (622 million dollars) and Mozambique Asset Management, MAM (535 million dollars).

Proindicus is supposed to sell maritime security facilities to oil and gas companies operating in the Rovuma basin, but so far has not signed a single contract. MAM was intended to provide repair and maintenance for Proindicus, Ematum and other shipping in the Mozambican Channel but is currently inactive.

Not only was the Mozambican public unaware of the Proindicus and MAM loans, but so were key figures in the government. In April, the governor of the Bank of Mozambique, Ernesto Gove, peremptorily declared that he had never heard of Proindicus.

When the hidden loans were finally revealed, key partners cut off financial assistance to Mozambique. The IMF suspended the second instalment of a 282 million dollar loan from its Standby Credit Facility (SCF), and the 14 donors and financial agencies who used to give direct support to the Mozambican state budget (including the World Bank, the African Development Bank, Britain and France) interrupted disbursements indefinitely.

This cut in foreign aid coincided with a sharp fall in the world market price of some of Mozambique’s key exports such as coal and natural gas, and a decline in foreign direct investment. The result is a severe shortage of foreign currency, putting serious pressure on the Mozambican currency, the metical.

Not so long ago there were 2.8 meticais to the South African rand, but Tuesday’s exchange rate from the country’s largest bank was slightly more than four meticais to the rand. Given the amount of basic foods imported from South Africa, this decline in the exchange rate will inevitably push up Mozambican food prices.

A debate is now under way as to whether the current Mozambican government should pay the secret debts inherited from its predecessor, or should default, on the grounds that the debts were contracted illegally.

There seems no doubt that the Guebuza government broke the budget law in two consecutive years. The budget law always contains a clause limiting the amount of guarantees the government can give to loans. In 2013, the year of the Ematum bond, that limit was the equivalent of 6.2 million dollars. In 2014, the year of the Proindicus and MAM loans, the limit was raised to 515 million dollars. But the amount the government guaranteed for Ematum, Proindicus and MAM together was slightly more than two billion dollars.

Mozambique has already defaulted on the MAM loan. The first repayment (to the Russian bank VTB), of 178 million dollars, should have occurred on 23 May. There was no payment, and Finance Ministry sources said that attempts were still under way to “restructure” the MAM loan.

In theory, Ematum, Proindicus and MAM are private companies – but, in reality, their shareholders are all state bodies. The most significant of these is the Mozambican Security and Intelligence Service (SISE). GIPS, a company owned by the social services of SISE, holds 33 per cent of Ematus, 50 per cent of Proindicus and 98 per cent of MAM.

The Guebuza government thus allowed the security service to set up companies with little or no economic rationale, and to increase the country’s foreign debt by 20 per cent in just two years.

The Finance Ministry is quite prepared to let the three companies sink. Finance Minister Adriano Maleiane has declared that the prime responsibility for paying the debt lies with the three companies, and if they cannot pay, then maybe their assets should be sold.

The problem with this is that the main visible assets are Ematum’s 24 grossly overvalued fishing boats and six patrol vessels. Putting them on sale would certainly not raise the 850 million dollars that were paid for them.

Maleiane also revealed that the fishing boats are not fit for purpose. He told a parliamentary commission that they are being refitted by a South African company because they did not measure up to European Union specifications and so could not export tuna to the EU.

More than two weeks after Maleiane’s remarks, Ematum reacted on its website, claiming that the Minister was “misinformed”, and that the company was very satisfied with its trawlers. Accusing the Finance Ministry of spreading falsehoods does not seem a very intelligent strategy for a company which is largely dependent on the goodwill of the treasury.

This week, the Mozambican parliament is holding an emergency debate on the public debt. The Attorney General’s Office has already launched investigations into Ematum, Proindicus and MAM, and opposition parties have called for Guebuza’s arrest.

It remains to be seen whether parliamentarians of the ruling Frelimo Party, who used to call Guebuza “the most beloved son of the Mozambican people”, are now prepared to abandon the former President.