New state companies law is ‘rudimentary and redundant’ – EIU

Login

Register

http://www.clubofmozambique.com/

New state companies law is ‘rudimentary and redundant’ – EIU

8:24 CAT | 03 Apr 2018

Maputo. File photo: Lusa

The Economist Intelligence Unit (EIU) said on Monday that the new Mozambican law for the State Enterprise Sector (SEE) is “rudimentary and redundant,” warning that public companies pose a huge threat to the banking sector.

According to the EIU, the new regulations aim to improve the corporate governance and financial transparency of the state sector, but the measures that the new law brings in are rather rudimentary. They include a requirement to elect a board of directors, appoint an external auditor and develop risk management procedures, the EIU analysts said.

In the report, sent to investors and to which Lusa had access, the EIU analysts said that some of the measures in the law approved on 21 March, such as taking on loans only with teh authorisation of the Finance Ministry, are already included in the law but have been ignored in the past by public companies and government authorities.

In addition to the new law, the EIU also identifies another problem with public companies and their relationship with the Mozambican financial system.

Beyond the budgetary weight of these companies, if the government is forced to recapitalise them, public enterprises pose a huge threat to the stability of the local financial system, the EIU said, as banks are exposed to both the direct debt of public enterprises and debt of private companies that rely on contracts with state sector companies.

Mozambican state-owned enterprises, according to the report, have traditionally been large, well-funded companies that guarantee the Government a way to control the economy and reward its allies. However, they have a particularly bad track record, since most of these companies have no profits, are based on high debt and are inefficient, it said.

The economic and budgetary crisis in Mozambique has been aggravated since April 2016 following the disclosure of large debts taken on by two state-owned enterprises without informing national institutions or international partners.

Source: Lusa