Sun hasn’t yet set on MOZAMBIQUE

De­spite the coun­try’s debt cri­sis and credit rat­ing down­grades, SA in­vestors have de­cided to weather the storm

CityPress - - Business And Tenders - GOD­FREY MUTIZWA and JUSTIN BROWN busi­ness@city­

South African in­vestors in Mozambique are stay­ing put, de­spite a debt cri­sis in the coun­try that is threat­en­ing cap­i­tal projects, caus­ing for­eign ex­change short­ages and the cur­rency to de­pre­ci­ate.

“This is a tem­po­rary set­back and Mozambique is com­mit­ted to de­vel­op­ing a diver­si­fied econ­omy,” said David Rob­betze, CEO of the SA-Mozambique Cham­ber of Com­merce.

“Donors and multi­na­tion­als have in­vested too much time and money in Mozambique to throw their hands up in the air over this. We don’t see them with­draw­ing their sup­port go­ing for­ward, and they will be en­cour­aged that, at least, ev­ery­thing is now in the open.”

Ton­gaat Hulett CEO Peter Staude this week said Mozambique was in talks with the In­ter­na­tional Mone­tary Fund (IMF), and Ton­gaat, which has sugar cane op­er­a­tions in the coun­try, was con­fi­dent that the is­sues would be re­solved soon.

Staude said that the re­cent events were likely to be a “hic­cup”.

Rob­betze said that the big­gest ef­fect so far had been felt by man­u­fac­tur­ers and traders. While not­ing in­creased “eco­nomic anx­i­eties” among busi­nesses and some de­ferred projects, he said many had adopted a wait-and-see at­ti­tude.

The breakdown in trust fol­lowed the gov­ern­ment’s ad­mis­sion that it hid as much as $1.4 bil­lion (R21.4 bil­lion) in state guar­an­tees to state-owned com­pa­nies. In­ter­na­tional donors and the World Bank sub­se­quently cut aid to the south­ern African na­tion, de­mand­ing the full dis­clo­sure of a for­eign debt bur­den, which is es­ti­mated by some economists to be more than 90% of gross do­mes­tic prod­uct.

Then, state-owned Mozambique As­set Man­age­ment last month missed a $178 mil­lion pay­ment to Rus­sia’s VTB Bank and talks to resched­ule the pay­ment failed.

This caused S&P Global to lower its rat­ing to CCC, Fitch to cut its rat­ing to CC and Moody’s placed Mozambique’s Caa1 rat­ing on re­view for down­grade. These are the weak­est subin­vest­ment grade rat­ings with a risk of de­fault.

Mozambique’s stum­ble could still be con­tained through full dis­clo­sure by the coun­try’s state-owned en­ter­prises in par­tic­u­lar, ac­cord­ing to Alex Vines, re­search di­rec­tor and head of Africa at Chatham House in Lon­don.

“If there are no fur­ther loan sur­prises and the gov­ern­ment comes up with a cred­i­ble, ac­count­able and trans­par­ent road map for re­pay­ment of these loans ... donor sus­pen­sions will be lifted over time and the rat­ings agen­cies will also con­sider up­grad­ing Mozambique,” Vines said.

John Ash­bourne, Africa economist at Lon­don-based Cap­i­tal Eco­nomics, said: “It’s not in cri­sis mode yet as the econ­omy is still grow­ing. But what might be dif­fi­cult in fu­ture is con­vinc­ing for­eign in­vestors to deal with the gov­ern­ment.”

In the past week, Sa­sol, Stan­dard Bank, Net­care and South32 all main­tained they were in Mozambique for the long term, de­spite the eco­nomic cri­sis, which may halve the coun­try’s eco­nomic growth this year to be­tween 3% and 4%, ac­cord­ing to the IMF.

John Sichinga, Sa­sol Ex­plo­ration and Pro­duc­tion In­ter­na­tional se­nior vice-pres­i­dent, said Sa­sol’s nat­u­ral gas op­er­a­tions in Mozambique had not been af­fected by the debt cri­sis.

“We are in Mozambique for the long haul,” he said.

How­ever, in­dus­try sources say that the fi­nan­cial crunch could ham­per the abil­ity of state en­ter­prises to ac­cess fund­ing.

This could threaten a new 400 megawatt gas­fired power plant planned in Mozambique’s cap­i­tal, Ma­puto, which Sa­sol could sup­ply with gas as part of a $1.4 bil­lion ex­pan­sion of its op­er­a­tions in the coun­try.

Last month, Tiger Brands, which ex­ports prod­ucts to Mozambique, said the de­val­u­a­tion of the met­i­cal and for­eign cur­rency short­ages in the coun­try could hurt its profit.

For­eign cur­rency short­ages in­crease costs for cor­po­rates look­ing to buy hard cur­rency, par­tic­u­larly im­porters, be­cause they force them to buy at a black mar­ket pre­mium.

Rosario Cumbi, manag­ing di­rec­tor of Ton­gaat Hulett’s sugar busi­ness, said that Mozambique cen­tral bank reg­u­la­tions al­lowed a com­pany to keep half of its for­eign ex­change pro­ceeds from ex­ports as hard cur­rency.

This meant that, for now, Ton­gaat’s sugar op­er­a­tions had suf­fi­cient for­eign cur­rency to im­port crit­i­cal items to con­tinue trad­ing.

Cumbi said he didn’t ex­pect the debt cri­sis to re­sult in so­cioe­co­nomic un­rest be­cause the gov­ern­ment was pri­ori­tis­ing key is­sues such as food and fuel prices.

“An­other two or three months, and ev­ery­thing should be re­solved,” Cumbi said.

He ex­pected the Mozambique gov­ern­ment to cut spend­ing and boost tax rev­enue to bal­ance its books.

Stan­dard Bank said there might be de­lays in some projects, but the long-term prospects for the coun­try re­mained ap­peal­ing.

Diver­si­fied min­ing com­pany South32, which owns 47% of Mozambique’s Mozal alu­minium smelter, said the smelter was op­er­at­ing at full ca­pac­ity.


THERE’S STILL HOPE The sun rises over a sugar cane field in Xi­na­vane, Mozambique. The field be­longs to Ton­gaat Hulett, which has reaf­firmed its com­mit­ment to stay in the coun­try

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