Maputo again postpones debt crisis audit report

Failure to tackle $2bn scandal dents confidence

ATTEMPTS by Mozambique’s government to boost flagging confidence in the country took another blow this week with the third postponement of the release of an audit report on how three state-owned firms raked in about $2-billion in undeclared debt.

Mozambique first sold bonds four years ago to finance its state-owned fishing company, Ematum, but was later found to have spent the bulk of the funds on naval vessels and other security equipment. The scandal, during former president Armando Guebuza’s rule, led the International Monetary Fund to suspend funding.

When the level of debt was publicly revealed last year, John Ashbourne from London-based Capital Economics said there was a huge change in sentiment towards the country.

The key cause of the country’s debt problem was the government’s failure to be transparent.

What made things worse was that “the debt is all denominated in dollars and so the country faced a much bigger debt than anyone thought they had and a much smaller economy when measured in dollar terms”.

The debt overhang is still being felt across the economy, with the country missing two loan repayments which fell due in January and March.

The $2-billion debt represents a third of Mozambique’s GDP of about $6-billion.

FocusEconomics, an economics intelligence firm, said in a note the country was in “a sticky situation” and “sliding deeper” into default.

Further weighing on the country, Africa’s biggest gas producer, is uncertain food security after devastating floods and a decline in exports.

Mozambique’s debt woes are “not quite on the scale of Greece, but similar in that there was poor accounting that led to lack of understanding of the scale of things until a sudden dramatic reveal later”, Ashbourne said.

“The first big step has to be a really comprehensive and widely trusted audit, because at the moment people should be a little bit sceptical of the number we are seeing because this whole crisis was started by there being that hidden off book.”

The IMF is waiting for answers from an audit report into how ProIndicus, Mozambique Asset Management and Ematum plunged the country into its present economic quandary by accessing nearly $2-billion in unbacked loans between February 2013 and May 2014.

Since funding from the Washington-based IMF ceased, Mozambique’s currency has plunged 27% against the US dollar.

Of the 23 African currencies tracked against the dollar by Bloomberg, the metical is the fifth worst-performing currency over the past 12 months.

Inflation is estimated at 15.5% by year end, amid a slower economic growth rate of 4% from previous averages of 7% annually.

Despite the economic struggles, Sasol, which has invested more than $2-billion with its partners in Mozambique since 2004, remains committed to the country.

Sasol will “continue to partner with the Mozambican government, and other institutions, on projects that will help stimulate growth”, Bongani Nqwababa, the company’s joint CEO, said on an analyst call in February.

The pressure on the Mozambican economy has been brought to bear on President Filipe Nyusi, Guebuza’s successor.

Apart from economic challenges, the incumbent faces a party congress in October this year.

Nick Branson, a senior analyst at the Africa Research Institute, said the audit report was likely to implicate Frelimo elites and that the disclosures could be “politically hazardous” for Nyusi.

“In recent weeks, party factions aligned with Guebuza have sought to implicate Nyusi in the purchase of maritime security equipment during his time as defence minister. This will have served to warn Nyusi that pursuing the audit to its logical conclusion will not be in his best interests, particularly as Frelimo prepares for a party congress,” he said.

Branson said Nyusi was faced with competing interests from Frelimo elites “seeking protection” and from Mozambique’s international partners and creditors “demanding accountability”.

In what is widely seen by analysts as a pre-emptive move to exonerate itself from wrongdoing, the ruling party, which has the majority of seats in parliament, passed a bill providing retrospective state guarantees to the loans accessed by the three companies.

It means that the loans, previously deemed illegal by an administrative court, are now above board.

Mozambique’s woes is another example of former liberation movements in southern Africa that have become tainted in the eyes of foreign investors, Branson said. “Mozambique’s experience should serve as a warning of the consequences associated with unaccountable sovereignbacked borrowing.” — Additional reporting by Pericles Anetos

The first big step has to be a really comprehensive and trusted audit