Mozam­bique from Boom to Bust - A Cau­tion­ary Tale

The Star (Kenya) - - News - ALY KHAN SATCHU

Mozam­bique popped onto the global radar in 2011 when huge gas reserves were dis­cov­ered off-shore. We vis­ited in 2012 and I re­call the wife be­ing se­ri­ously as­ton­ished when we jumped in a taxi and the driver turned out to be Por­tuguese.

I said ‘’Mozam­bique could be the next Qatar.’’ as we stuffed our­selves with won­der­fully flavour some tiger prawns.

In­ter­est­ingly, I was a guest of The State of Qatar at their Doha Fo­rum ear­lier this year and caught up with Pres­i­dent Gue­beza in per­son. I am sur­prised that Qatar has not seized it­self of the Mozam­bique op­por­tu­nity at these rock-bot­tom prices.The IMF pre­dicted a 24% GDP ex­pan­sion for 2021 when gas pro­duc­tion was ex­pected to be­gin.

I re­turned in May 2014, for the IMF’s flag­ship Africa Ris­ing con­fer­ence. By that time, Ma­puto’s sky-line was a sea of cranes. Fur­ther North, Tete was boom­ing.

Then I no­ticed that Credit Suisse and VTB sold some ‘’Tuna’’ Bonds on be­half of Mozam­bique. The story around these bonds was opaque.

“$850m was bor­rowed to buy a fleet of tuna fish­ing boats so that Mozam­bique could ex­port fish to the Euro­pean Union (EU) and else­where, but the boats do not ful­fil EU spec­i­fi­ca­tions,” said one NGO worker based in Ma­puto.

At the most, this is gross mis­con­duct by the gov­ern­ment. “$850m was taken out, but from what I can see there is only around $50m worth of as­sets as a re­sult,” said a lawyer based in Ma­puto. Things be­came murkier and murkier.

Not only did Ema­tum [The Tuna Fish­ing Com­pany] fall short of its tar­gets, but $500-mil­lion of the “tuna bond” was found to be for mar­itime se­cu­rity and had to be re­al­lo­cated to the de­fence bud­get. Even when they did sail in Ema­tum’s early days, the fleet never caught the amount of fish needed to pay off the debt. Ema­tum’s re­sults pointed to the fleet catch­ing just $450 000 of tuna a year, com­pared with sales of $18-mil­lion fore­cast at that stage of its life in a 2013 fea­si­bil­ity study cir­cu­lated by the gov­ern­ment.

Fur­ther loans were un­cov­ered span­ning not only Em­presa Moçam­bi­cana de Atum (Ema­tum), but other com­pa­nies Proindi­cus and Mozam­bique As­set Man­age­ment (MAM). The To­tal is around $2 bil­lion.

Africa Con­fi­den­tial re­ported that Chan­cel­lor An­gela Merkel asked Pres­i­dent Nyusi when he met her in Ber­lin on 19 April 2016, ‘Where is the money?’ and also, ‘Are you in charge?’ Things have ac­cel­er­ated to the down side fur­ther. Mozam­bique’s Eurobonds [which were ‘’re­struc­tured’’ Tuna Bonds] have fallen by as much as 24 cents on the dol­lar to 57.18 cents in the dol­lar, the yield is above 20%.

Fi­nance Min­is­ter Adri­ano Maleiane told in­vestors Oct 25 that the coun­try was in “debt dis­tress” and wouldn’t be able to make an in­ter­est pay­ment on the debt due in Jan­uary. The Met­i­cal has crashed over 60% this year. Debt to GDP is es­ti­mated to be 131% by the Fi­nance Min­istry.

The In­ter­na­tional Mone­tary Fund will with­hold any fur­ther fund­ing to Mozam­bique, which told cred­i­tors this week it wants to re­struc­ture its com­mer­cial loans, while the coun­try is still clas­si­fied as debt-dis­tressed, a spokesman for the lender said.

“In line with Fund poli­cies, we can­not dis­burse funds in a sit­u­a­tion where we think the debt is not sus­tain­able,” Gerry Rice told re­porters in Wash­ing­ton Thurs­day, ac­cord­ing to a tran­script of the brief­ing posted on the IMF’s web­site. “As with any coun­try, to be able to dis­burse we need to know that the debt is sus­tain­able. ”There are plenty of lessons to be learnt from this tale. The first is around lever­ag­ing the bal­ance sheet. If you are lever­ag­ing the Bal­ance Sheet [this is some­thing SSA has been do­ing ag­gres­sively] then you are mort­gag­ing the fu­ture.

If you are mort­gag­ing the fu­ture, you need to make sure can first af­ford the mort­gage pay­ments and sec­ond that the in­vest­ments you are mak­ing are go­ing to pro­vide a mean­ing­ful re­turn on your in­vest­ment. There is very lit­tle ROI on in­creas­ing salaries for Civil Ser­vants.

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