Mozambique: Passenger train services to Zimbabwe start on Monday - Watch
The recent “tuna fleet” scandal in Mozambique raises questions about whether another African success story might be heading for choppy waters.
The country is facing censure over evidence that the government may be using a big chunk of $850m raised on international capital markets three years ago to buy arms and not the large fleet of fishing boats the money was earmarked for.
Earlier this month, the International Monetary Fund (IMF) cancelled the second tranche of a $285m emergency loan it had granted at the end of last year and cancelled an IMF mission to the country scheduled for later this year.
Mozambique’s credit rating has also been cut in the wake of the evidence of misuse of the money.
The capital-raising exercise was initiated by the government, which said in its investment prospectus it wanted to raise money for the expansion of the country’s newly launched and totally unknown tuna fishing company, Ematum.
The deal immediately raised eyebrows, with donors asking questions about why a country with significant development challenges would raise its debt profile to this extent just for fishing boats.
The critics of the deal were proved right when it later emerged that most of the money was, in fact, spent on security.
Africa Confidential reported subsequently that the Mozambican government raised debt to the tune of closer to $1.5bn in a series of undisclosed deals — information that has apparently shocked the IMF, which has just lent Mozambique funds to help it with its current economic woes.
The evidence has come to light in the wake of Mozambique’s attempt to restructure the bond, which it is battling to repay.
This has raised fears of a default ahead of the seven-year payment term. Reports say the bond was sold on the back of the fact that Mozambique was catching 200,000 tonnes of tuna a year worth $200m, but there are claims that the annual catch is closer to 6,000 tonnes.
The IMF has expressed high hopes for Mozambique, saying the country can expect growth of up to 24% from 2020, once it becomes an exporter of natural gas, with annual revenues of $20bn expected from these exports.
But in light of the disclosure of what the IMF calls an unsustainable debt profile, the organisation has revised its assessment of the macroeconomic outlook.
The country is focusing on tackling a worsening security situation as the main opposition group, Renamo, steps up its attacks on civilian and government targets.
It is also battling with a declining currency and lower commodity revenues from coal in particular.
Although revenues from gas exports will easily tackle Mozambique’s debt problems, the question is whether Mozambique will dig itself into a deep hole before production begins.
Industry observers say the start date of 2020 for exports, which has already been delayed from a 2018 start, may be pushed out further due to the decline in commodity prices and demand.
The experience of Ghana may be instructive for Mozambique, providing an example of how not to spend or borrow heavily on the back of the expectation of resource revenues.
Ghana had unexpected problems at the start of oil production and did not get the initial expected revenues, which left the West African country with a large debt that it is still trying to attend to.
There are concerns that not only does the country not have the institutions, capacity and systems to manage expected future gas revenue inflows, but that it has also not shown a tendency for responsible spending, as this latest scandal shows.
The government is now trying to make things right with the IMF, but it has significant reputational damage to deal with.
Mozambique needs to get serious and realise that it should not squander the opportunities that lie ahead by ill-thought-out behaviour and short-term thinking.
• Games is CEO of advisory Africa @ Work
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