Bosses warn government of suffocation and “mass bankruptcy” of Mozambican companies

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Bosses warn government of suffocation and “mass bankruptcy” of Mozambican companies

11:46 CAT | 13 Mar 2018

Photo: Facebook CTA

Agostinho Vuma, the chairman of Mozambique’s largest business federation, warned the government and the central bank yesterday of a “mass suffocation and bankruptcy” situation.

“We have recurrently been presenting the issue of the suffocation of Mozambican companies due to the current economic situation we are experiencing, but also due to the way the state has consistently delayed paying private sector invoices,” the leader of the Confederation of Economic Associations of Mozambique (CTA) said.

In the context of a crisis in the country, the situation is worsened “because the state is low in investment”. “Worse still is the issue of VAT refunds,” also in arrears, he added.

“It is necessary for the government to work closely with the private sector to manage these invoices, but it is also necessary for the government to present us a plan on how to deal with this situation, given the mass bankruptcy of many small and medium-sized companies in our market,” Vuma told reporters on the sidelines of the XV Private Sector Annual Conference (CASP) in Maputo.

Asked by Lusa about how many companies have closed in the country, in the last year, Vuma alluded to a CTA study by a consulting company that is in the final stages of its execution and will be released soon.

Likewise, he did not reveal the amounts the state allegedly owes the private sector.

The alert had already been made in the CTA leader’s address at the opening of yesterday’s conference, before the President of the Republic (and leader of the government), Filipe Nyusi, with an audience of about one thousand people.

In the same speech, Agostinho Vuma said that the Bank of Mozambique “could go further in the reforms and macroeconomic adjustments needed, in order to alleviate the suffocation that small and medium enterprises face”.

The central bank’s indicative interest rate “could be reduced by 14.16 basis points, which although not being the solution to the problems of SMEs, could help,” he said.

The large financing needs of the [Mozambican] Treasury mean that indicative interest rates plus spread are high, starting at 28 percent for any kind of commercial bank loan, obliterating any profit margin for companies resorting to credit.

In a scenario where “the public sector uses the banks for financing and the private sector does the same, obviously the priority for commercial banking goes to the public sector, which offers more security,” said Vuma.

Changing the interest rate “is a measure, but it must be a combined measure” with other actions, because bottlenecks in business activity render companies likely, for example, to fail to “comply with obligations to commercial banks”, thus raising the amount of bad debt.

Prior to his speech, Vuma asked the government to work to end the fiscal deficit in the medium term and to accelerate the reforms necessary to enable Mozambican companies to supply large foreign investment projects, especially in the natural gas and mining sectors.

“We do not want just to present a list of complaints, but the government plays a crucial role” in matters that affect the business environment, Vuma concluded.

President Filipe Nyusi was due to speak after Vuma, but he ceded the floor to the remaining speakers on the CASP panels and was scheduled to speak at the closing dinner.

The 15th CASP brought together businessmen, members of the government, diplomatic corps and cooperation partners in Mozambique.

The conference is composed of four panels and debates topics such as the business environment in the country, financing of small and medium-sized enterprises, land use and participation in major extractive industry projects.

Mozambique’s economic growth has been slowing from 6.6% per annum in 2015 to 3.7% in 2017, with the IMF forecasting that it will drop to 3% this year, along with public debt rising to unsustainable levels and a risk of worsening the fiscal deficit, the Fund noted last week.

Most foreign direct aid to the Mozambican state budget has been frozen since 2016 after it was revealed that the previous government secretly contracted debts of about two billion dollars (about one-eighth of gross domestic product) in 2013 and 2014, without any clarity to date on where the bulk of the money went.

Source: Lusa