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Mozambique: Debt Crisis & the Panama Papers
May 13, 2016 (160513)
(Reposted from sources cited below)
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 http://tinyurl.com/zong2oo
For regular English-language updates on this topic, see in
(1) Mozambique's Secret Debt Triggers Economic Crisis
(2) Mozambique News Reports & Clippings, 2016, Edited by Joseph
(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 http://www.africafocus.org/intro-iff.php
++++++++++++++++++++++end editor's note+++++++++++++++++
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
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 https://blog.archive.org/about/
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
CLARIFICATION: PRIVINVEST AND ISKANDAR SAFA
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
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
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
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
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
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
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
May 12, 2016
Sam Jones, Associate Professor in Development, Economics, University
http://theconversation.com - direct URL: http://tinyurl.com/z9ubo34
[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
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
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
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
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
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.
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