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Mozambique: Debt Crisis & the Panama Papers

AfricaFocus Bulletin
May 13, 2016 (160513)
(Reposted from sources cited below)

Editor's Note

The paragraph that originally appeared here, citing AIM, and the cited article from AIM, reposted by AfricaFocus on May 13, 2016, have been removed from this AfricaFocus web archive on this page pursuant to a request from AIM, as a result of complaints to AIM on behalf of Privinvest by its public relations firm Woodstock Leasor Limited and its legal representative Michael Simkins LLP, both in London. For more details on the AIM retraction, see below.

The debt crisis is most directly a crisis for the economic and political future of Mozambique, where it comes together with the resurgence of conflict between the opposition party and former insurgent force Renamo, which has never fully disarmed. But it is also a dramatic illustration of the transnational interconnections between debt, corruption, and illicit financial flows. As such, it is no surprise that a number of the international actors involved turn up in the Panama Papers, including companies based in Switzerland and Abu Dhabi and nationals of Lebanon, Britain, New Zealand, and the United States.

This AfricaFocus Bulletin contains several recent articles on different aspects of the debt crisis, including two from the Mozambique News Agency (Agencia de Informação de Moçambique), one by Joseph Hanlon, and one by University of Copenhagen economist Sam Jones. As always, AfricaFocus selections are only a small selection, and readers interested in more details and deeper analysis are invited to dig deeper through the links provided. See also, for additional detailed revelations, today's new Africa Confidential article at

For regular English-language updates on this topic, see in particular,

(1) Mozambique's Secret Debt Triggers Economic Crisis

(2) Mozambique News Reports & Clippings, 2016, Edited by Joseph Hanlon

(3) Mozambique News Agency AIM Reports

For previous AfricaFocus Bulletins on Mozambique, see

For AfricaFocus coverage of illicit financial flows, debt, and related issues, see

++++++++++++++++++++++end editor's note+++++++++++++++++

Mozambique: Loans From Credit Suisse Involved Conflict of Interests [See AIM statement below]

Agencia de Informacao de Mocambique (Maputo)

11 May 2016
No longer available at this address.

Update from AfricaFocus Editor, May 17, 2016

The text of this article from AIM, reposted by AfricaFocus on May 13, 2016, has been removed from the AfricaFocus web archive on this page at the request of AIM today, as a result of complaints to AIM on behalf of Privinvest by its public relations firm Woodstock Leasor Limited and its legal representative Michael Simkins LLP, both in London.

AfricaFocus also previously received complaints from these firms and subsequently posted corrections on-line to the sentences that these representatives of Privinvest identified as inaccurate. After the request from AIM, AfricaFocus decided to remove the file as requested, pending further consultations, including with legal advisers.

The majority of the content of the article by AIM is, as of today, still available on the site of Zitamar News, the original source cited by AIM.

Additional note, May 18, 2016, 9:25 am U.S. east coast time

Those who want to view the original story, without any corrections, can find it in the Internet Archive at
The Internet Archive, also known as the "Wayback Machine," is a project intended to preserve the history of the Internet. For more information about this project see

Corrections provided by Zitamar, May 14, 2016

"A previous version of [the original article by Zitamar on which the AIM report was based] incorrectly stated that Andrew Pearse is in the pay of, and working directly for, Privinvest and its owner, Iskandar Safa. In fact, Pearse is a co-investor with Privinvest in Palomar.

We also said that Privinvest is owned jointly by Iskandar Safa and the Abu Dhabi royal family. In fact, 'Privinvest bought out their co-investor some years ago,' a Privinvest spokesman told us."

Statement by AIM, May 15, 2016

84 words
15 May 2016
Mozambique News Agency
Copyright 2016. AIM

Maputo, 14 May (AIM) - On 11 May 2016 we published an article titled “Loans from Credit Suisse involved conflict of interests”. It has been brought to our attention that the Article contained various material inaccuracies.

In particular, we wish to make it clear that there exists no evidence to allege either that there was (i) a conflict of interest; or (ii) corruption.

Given the position above, the above-mentioned Article has been withdrawn. Please place no reliance upon it.

Document MOZNAEN020160516ec5f00002

Mozambique: Mozambican Public Debt Now 'Unsustainable'

Agencia de Informacao de Mocambique (Maputo)

3 May 2016

Maputo — The Mozambican Debt Group (GMD), a civil society organization that has been working on debt issues for many years, has denied the government's repeated claim that the country's public debt is still sustainable.

On Friday, according to a report in Tuesday's issue of the independent newssheet "Mediafax", the GMD held a conference on the debt, at which the main guest was Finance Minister Adriano Maleiane, and, using the official figures, calculated that the debt was now way over the sustainability levels.

The government had claimed that in 2015, the debt had reached 39.9 per cent of Gross Domestic Product. The limit of sustainability is regarded as 40 per cent, and so Mozambique was just 0.1 per cent away from this threshold.

But those figures were calculated before the revelations last month that the previous government, led by President Armando Guebuza, had not disclosed government guaranteed loans contracted by two state companies - Proindicus (622 million dollars) and Mozambique Asset Management (MAM - 535 million dollars).

The GMD pointed out that the government's own figure for total public debt, of 11.64 billion dollars, given by Prime Minister Carlos Agostinho do Rosario at a press conference last Thursday, meant that the debt now stood at 69 per cent of GDP. The foreign debt is over nine billion dollars, and is equivalent to 53 per cent of GDP.

This is a conservative estimate: the ratings agency Fitch last week put the debt at 83 per cent of GDP, and warned that, if the Mozambican currency, the metical, continues to depreciate, the ratio could go to over 100 per cent of GDP later in the year.

The sustainability variables are clearly out of control, warned the GMD. Its document to the conference, cited by the paper, said "74 per cent of the debts contracted since 2012 are not concessional. The grant element (in foreign aid) has fallen from 80 per cent in 2005, to 52 per cent in 2012, and to less than 40 per cent in 2015. The period of grace has also fallen - from an average of 10 years in 2005, to an average of six years in 2012, and to less than five years in 2015".

The GMD added that the period of maturity had shrunk dramatically - from an average of 37 years in 2005, to an average of 22 years in 2012, and to less than 20 years in 2015.

The GMD warned that this unsustainable level of public debt would have damaging effects, particularly on the poorest strata of the population, because the weight of debt servicing in the budget will lead to a substantial reduction in the amount of money available for public investment.

The GMD asked if the current government has any intention of holding anyone responsible for the undisclosed loans and the consequent dramatic expansion in public debt. Maleiane replied that there are strong legal provisions to punish those responsible, if it can be shown that they acted illegally.

It was in the interest of the government, he added, to explain as clearly as possible the question of the public debt and, if anyone is found guilty, he will receive "exemplary punishment". But for this to happen it was important to allow the institutions of the administration of justice to do their job.

It was these institutions that must decide whether any crime had been committed and must then sentence the guilty parties. The Attorney-General's Office has already announced that it is investigating Proindicus and MAM. A separate investigation began last year into the Mozambique Tuna Company (EMATUM), which acquired a government guaranteed loan of 850 million dollars in 2013.

Frelimo under pressure on debt: parliament, party elders, US, other donors

Mozambique News reports & Clippings by Joseph Hanlon

319, 11 May 2016

[Received by email. Archive will be available soon at]

Two parliamentary commissions will quiz the government on the secret debt. The parliamentary Standing Commission agreed Monday (9 May) that the both Plan and Budget Commission and the Defence and Public Order Commission would question the government. The parliament session is scheduled to resume in June, but commissions meet during recesses so the hearings could be soon. The secret debt was taken without parliamentary approval (thus the Budget Commission) and is said to be for patrol boats and others arms (thus the Defence Commission). Renamo boycotted the Standing Committee session.

This is a total reversal of the position of Frelimo in parliament, which last month rejected a debate on the debt. More than $2 billion in secret loans and bonds were taken on in 2103-14 by a small group around the then President Armando Guebuza. Many MPs are seen as aligned to Guebuza, and the reversal of position is an indication of increasing pressure on Guebuza and Frelimo.

On Saturday the politically influential Veterans Association (Associacao dos Combatentes da Luta de Libertacao Nacional, ACLLN) said the government should investigate possible conflicts of interest of the still secret individual investors in the three companies whose debts were guaranteed by the state- Ematum, ProIndicus and MAM. It also said that the state should only accept the military part of the debt and not that of the three companies. Last month the Frelimo Central Committee had demanded a public explanation of the secret debt.

In a speech to the Mozambican Bar Association on 4 May, Rui Baltazar said the country is going through "a profound political, economic and social crisis." In an obvious reference to the Guebuza government, he said Mozambique has gone through "a prolonged period of exercise of political power with an authoritarian nature and great opacity." He cited "deepening corruption, misuse of state property, nepotism, [and] an assault on public goods that should be exploited for the benefit of the people. ... Politics seems to be only about the conquest and preservation of power as a means to have unauthorized access to resources, promoted by a premature and dangerous euphoria based on energy El Dorados, encouraging wastefulness and megalomania, with all the harmful consequences that now we will have to face."

AIM (6 May) calls Baltazar "a moral beacon for Mozambican society". An anti-fascist in the late colonial period, he was one of the few lawyers who defended Mozambican nationalists. After independence he became Justice Minister and then Finance Minister. Eventually he became the first chair of the Constitutional Council.

Donors and lenders tighten the screws

The United States said on Monday that it "endorsed the recent decision by the group of 14 countries (G14) providing general budget support to suspend such assistance until they are provided more clarifications and accountabilities." It also said it was "reviewing our aid, in particular any aid to the government." The US has never been a budget support donor, and provides its largest support to the health sector. "Most of this assistance directly benefits the people of Mozambique, and the United States does not wish to reduce this assistance." The US says it is the largest bilateral donor to Mozambique.

Donors and lenders met with the government last week and laid down a hard line. They stressed that it is for the government to present a clear roadmap or preliminary action plan, built around three key phrases: transparency, corrective measures and accountability. The first two of these were emphasised by the US in its statement Monday: "the government must now act quickly to publicly account in a full and transparent way for these loans and how the funds were used, as well as outlining a plan to mitigate its impact on the economy of Mozambique."

Transparency means providing a complete list of government guaranteed debts - it is believed that there are more which have not been revealed - and documenting in detail what the money has been used for. With Ematum, donors were satisfied when the IMF forced the loan onto the government books, without actually asking for an accounting of how the money was used. But with two new secret loans revealed, this is no longer enough, and donors are demanding that government at least reveal in some detail what the money was used for.

Corrective measures mean filling the financial hole (of which more below), and a range of measures to make public enterprises more accountable, make sure procurement follows the rules, and ensure that there are more public and detailed evaluations of future investments.

Accountability is more complex. Some donors and lenders want forensic audits, which would identify corrupt payments and where they money went. In past corruption cases, Mozambique has only allowed one forensic audit and it was never allowed to be used (of which more below). Some donors want Guebuza named, shamed and prosecuted, while others realise this is unlikely. There are rumours that some in Frelimo want to offer former Finance Minister Manuel Chang as the scapegoat.

Some donors now argue that there has been such good will toward Mozambique that the country has been allowed to get away with past corruption scandals. One admitted: "donors have not wanted to accept that this is not a success story. So much has been invested that they do not want to lose face - or their own hopes." But many donor representatives feel personally offended - government ministers and officials lied to them about low levels of military spending and about investments. They say the Mozambique leadership does not yet realise how serious has been the smashing of trust, and how this will have in impact in their home capitals.

A full renewal of aid will be dependent on Mozambique having an IMF programme. The previous one was based on misleading data from the government, so the IMF will want to start from scratch, and this could take more than a year. But the IMF will surely demand harsh austerity measures and tight controls of both government spending and the money supply. Investment will be frozen, wages might be cut, and devaluation will continue, raising Maputo food prices (which in the past has caused riots).

How Mozambique can contain its debt crisis and avoid long-term damage

May 12, 2016

Sam Jones, Associate Professor in Development, Economics, University of Copenhagen - direct URL:

[Disclosure statement: Sam Jones works for the University of Copenhagen, which provides technical assistance in economic research and analysis to the Ministry of Economy & Finance in Mozambique. The present article is written in his personal capacity only.]

[Note: original version at link above includes further links to additional sources]

Mozambique's return to the international limelight reads like a John le Carré novel. The elements of a bestseller are all present: growing internal instability, unexplored natural gas deposits, international loans to purchase weapons disguised as lending to fund tuna boats, and hidden public loan guarantees to private companies owned by the secret services. And, of course, there are legions of international bankers and diplomats wringing hands in late-night meetings.

Unfortunately, this is not fiction. The debts are real and the costs of these decisions will hang over Mozambique for decades. This article provides a summary of what we know about Mozambique's external debt situation and proposes measures to contain the current situation and avoid longer-term damage.

The scale of the debt burden

After weeks of rumour, some clarity about Mozambique's external debt position recently emerged following an emergency visit of the government to the International Monetary Fund in Washington. [table of rough estimates by author available as image in original article]

The country's officially reported external debt stock at the end 2014 was more than US$6.5 billion, excluding $500 million taken on to government accounts in 2014 associated with the infamous Ematum deal for the tuna fleet.

Even before the current crisis this was a cause for concern. Mozambique had been a major beneficiary of various debt relief initiatives in the late 1990s and 2000s. At the beginning of this century the country's debt stock was about $1 billion. In 2010 the same stock was $3.3 billion. By 2014 it had doubled.

Then there's what is owed on the controversial "new" debts:

Ematum, for the controversial tuna fleet;

ProIndicus, which is aimed at providing security, especially for gas and oil operations; and

Mozambique Asset Management, which was set up for maritime maintenance and repairs.

Due to the heavy financial burden of the Ematum deal, originally due in 2020, it was recently restructured. The repayment period was extended from 2020 to 2023, increasing the annual interest rate from 6.305% to 10.5%, and switching to a "bullet" repayment. This means that the full principal amount is only repaid at the end of the period.

The two other loans, ProIndicus and Mozambique Asset Management, are standard private loans and must be repaid in the next five years.

Together, the immediate annual costs of these three debts are expected to be more than $300 million per year, double the total external debt service costs in 2014.

Another point that has been neglected in the debate around these three controversial loans is additional public debt taken on since 2014. According to government declarations, the external debt stock stood at $9.89 billion in May 2016. Basic arithmetic means that, even excluding the controversial loans, a further $1.4 billion of public external debt has been incurred since 2014. This continues a worrying trend of rapid indebtedness.

What it all adds up to

Putting all this together, annual debt service costs are likely to be in the region of $500 million over the next few years, of which more than $200 million are in interest costs alone. These costs could be higher, depending on the structure of these other more recent debts.

A total of $500 million is equivalent to about 33% of conventional merchandise exports – excluding the contribution of mega-projects such as aluminum and coal – or 25% of net international reserves. This will create significant pressures on public finances.

Moreover, news that a set of major donors, including the International Monetary Fund and World Bank, are reviewing their lending to Mozambique means that access to hard currency will become even more scarce in the short term. Further depreciation of the currency is likely, which would only add to the local currency cost of the debt burden.

What action can be taken

How can Mozambique contain this situation and avoid a downward spiral?

There are no simple solutions. But calls by donors for full transparency and accountability around the debt situation must be taken more seriously. The government could start by opening its books to a credible and thorough external audit of the external debt, as well as of its relationships with private companies through loan guarantees and private-public partnerships.

Admittedly, a legal investigation into the controversial loans has begun. This is welcome but needs to be more than a pro forma exercise and must be free from political interference.

Substantive actions in these two domains would go some way to restoring donor confidence.

A further set of immediate actions should be to deal with the companies associated with the controversial loans. Under current circumstances, it is difficult to envisage any plausible scenario under which these companies become viable. A sensible option is to avoid further losses now.

One strategy here starts by recognising that some of the rights owned by these companies are valuable, as are the existing assets of Ematum. An international auction to these rights or to an exclusive management contract would serve two purposes. First, it would raise money to pay off the loans, thereby reducing their social costs. Second, it would provide a transparent commercial valuation of the businesses opening the way for renegotiation with creditors.

In my view, if the private lenders to ProIndicus and Mozambique Asset Management were excessively optimistic in their valuation of these businesses, they should bear some losses.

Temptations to be avoided

An unavoidable consequence of the current crisis will be some form of austerity. Here the government needs to maintain a cool head and avoid rash decisions that undermine long-term growth and fiscal health. It will be tempting to seek a new round of loans from abroad, perhaps from China where Mozambican President Filipe Nyusi will be making an official visit in May.

Of course, some short-run relief would be handy. But there is a major risk that this is not transparent and will incur new fiscal liabilities or high long-run opportunity costs. Moreover, this approach could alienate other donors and therefore jeopardise critical sources of financing for social sectors.

The general point is that a more serious and rational approach to public debt is needed, in which loan decisions based on vanity or political preferences are avoided. Rather, rigorous analysis of project viability and the profile of their net benefits is needed. It would be helpful to enact in law stricter requirements and transparency around all new debt issues and guarantees.

Another temptation is to hand out attractive tax breaks to foreign companies to kick-start delayed natural resource investments. Again, this might provide temporary relief but this would be the public finance equivalent of selling the family silver to a pawn shop. It is critical that the long-run public value of these assets is not squandered due to poor policy decisions by a previous government.

Finally, it is essential that the government continues to invest in the foundations for sustained growth. This means that public investment in infrastructure, agricultural development and human capital (education, health) should be the main priorities. So these budgets need to be ring-fenced in some way. This is easier said than done, especially given ongoing internal conflict. Solving this political standoff is vital to get out of the current economic mess.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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