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Mozambique: On the hook

By Tom Bowker in Maputo
Posted on Thursday, 20 August 2015 12:31

While the Greek economic drama hogged the world economic headlines in June, another debt crisis is playing out in Africa, leading to a sovereign downgrade and warnings of a government default.

Ostensibly, the story is about Mozambique overreaching in its attempts to create a company capable of monetising the vast shoals of tuna in its waters. Under the surface, however, the story is one of a shady arms deal that has jeopardised a country’s macroeconomic stability.

Under former president Armando Guebuza, three state agencies including the investment arm of the intelligence and security services created the Empresa Moçambicana de Atum (Mozambique Tuna Company – EMATUM) in September 2013. The company raised $850m from Credit Suisse and VTB Capital, which was then parcelled out to bond investors at a yield of 8.5% per annum.

The money was, investors believed, to fund the purchase of a fleet of 24 fishing boats and to train staff and operate the company. Most importantly for them, it came with a government guarantee, which was all most investors needed to hear.

It soon emerged, however, that a large chunk of the money was to be used to buy six patrol boats, doubling the size of the Mozambican navy. The donor community and the International Monetary Fund voiced their displeasure.

The Mozambican political class said they had not been properly consulted about the deal, which makes up 13% of the country’s government debt and has to be paid it off in just seven years, following a two-year grace period.

Almost two years on, Mozambique’s new government is trying to determine how it will pay back this huge loan. The treasury wants to make the debt sustainable by extending the tenor and reducing the interest rate. The only problem is getting creditors to agree.

In July, ratings agency Standard & Poor’s responded to finance minister Adriano Maleiane’s musings about restructuring with a downgrade in the country’s long-term foreign credit rating to B-, warning that any attempt to restructure the bond could be “tantamount to default”.

While it is a nightmare for Maleiane, however, the fiasco comes as a gift to others. The opposition Movimento Democrático de Moçambique (MDM) is calling for an investigation into the deal and for Guebuza and then finance minister Manuel Chang to face charges.

Venancio Mondlane, an MDM deputy in parliament, tells The Africa Report that he believes the funds were used to buy weapons for the army and that it was no coincidence that the deal was done at a time when Guebuza’s government was seeking to finish off its long-time enemies in the Resistência Nacional Moçambicana political party by force.

President Filipe Nyusi was defence minister at the time of the EMATUM deal, meaning his hands may not be not clean either. Nevertheless, he seems broadly untarnished in the eyes of the public. As president he is immune from prosecution.

Maleiane’s plan is to convert $500m of the loan – which he says covers the gunboats – into longer-term government bonds. EMATUM, which is yet to turn a profit, would be on the hook for the remaining $350m. Maleiane will have to go through parliament, which has the final say on any borrowing that will not be repaid during the current mandate.

Investors say they are frustrated that Maleiane is insisting on having a final sign-off on any deal of a significant size. EMATUMgate is dominating political life in Mozambique and a solution is urgently needed but is far from obvious.

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