MOZAMBIQUE MAINTAINS INVESTMENT PULL channelled to fund the purchase of naval patrol vessels. In addition, the government’ s revelation to the International Monetary Fund( IMF) that it failed to disclose about $ 1.4bn of public sector external debt( equivalent to about 9 % of gross domestic product [ GDP ]) has seen a number of key donors, including the UK, the US and the World Bank, suspend much-needed disbursements to the government.
“ In late June, the Mozambican authorities admitted to the IMF that the situation of the country requires an urgent implementation of decisive measures to avoid the deterioration [ of the economy ],” says José Reino da Costa, vice-chairman of the board of directors at Millennium bin, Mozambique’ s largest bank.
But the perceptions of Mozambique abroad mask an altogether different reality in the country. In the capital, Maputo, the mood among private sector leaders remains buoyant, even if most recognise that the current outlook is far from favourable. Seasoned players in banking and business point to the relative youth of the country’ s economy, while most have grown accustomed to the ups and downs of a fast-growing but volatile economic trajectory.
“ Mozambique is not a country on the verge of collapse. The headlines being generated outside of the country are more alarmist than the reality on the ground,” says Sergio Magalhães, the executive director of BiG Mozambique, the local subsidiary of Portugal ' s Banco de Investmento Global.
Indeed, some banks and businesses are looking at the current downturn as an opportunity to acquire assets on the cheap. Particularly for newer entrants to the banking space, with good liquidity positions and a lack of bad legacy assets, the current cycle is seen as a good chance to stake key positions
“ IN LATE JUNE, THE MOZAMBICAN AUTHORITIES ADMITTED TO THE IMF THAT THE SITUATION OF THE COUNTRY REQUIRES AN URGENT IMPLEMENTATION OF DECISIVE MEASURES TO AVOID THE DETERIORATION [ OF THE ECONOMY ] in the market before the inevitable upswing follows.
“ The challenge facing Mozambique’ s private sector is that it needs to communicate this reality to key investors and decision makers in London, Johannesburg and Lisbon,” says Mr Magalhães.
Persuading investors
But before any material change in the economy can occur, there is a widespread feeling that the government must take meaningful steps to address a lack of transparency in the public finances. This will be required to restore investor confidence, as well as key relationships with bilateral donors such as the IMF, the UK and the US, which provide substantial budgetary support.“ The suspension of the support from the IMF to the state budget had a natural influence on the retraction of investors. This has led to a major reduction on the foreign direct investment. However, it is still expected that economic growth will remain sustainable for the current year,” says Mr Reino da Costa.
The country’ s immediate troubles began under the last administration when a stateowned company, Empresa de Mocambicana de Atum( Ematum), issued an $ 850m bond to finance a tuna fishing fleet. Instead, about $ 500m of this sum was used to buy naval patrol vessels. A little over two years later, the bond has been restructured after Ematum failed to generate sufficient revenues.
Naval necessity
Though the restructured transaction was accepted by more than 80 % of bondholders, it was characterised as a‘ selective default’ by rating agency Standard & Poor’ s, while the tuna fishing enterprise has all but collapsed. But speaking to The Banker, private sector figures in Maputo point to the fact that Mozambique has discovered one of the world’ s largest offshore gas fields but has no naval vessels to provide any form of maritime oversight or security. However, procuring defence equipment on a budget that is supported by international donors is politically sensitive, so while purchasing
2016 | Business Times Africa 51