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February 20, 2019

Mozambique from Boom to Bust - A Cautionary Tale

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 flavoursome 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,” 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 $2b.   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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