World Bank Is Suspending Direct Financial Aid to Mozambique

By 

JULIE WERNAU and MATTHIEU WIRZ

April 27, 2016 12:37 p.m. ET

The World Bank is suspending direct financial aid to Mozambique, joining the International Monetary Fund in cutting off budgetary assistance after learning of more than $1 billion in previously undisclosed loans, a person familiar with the matter said.The bank will continue to fund individual investment projects, but it is holding back payments of approximately $40 million this year for direct budgetary support, the person said. The World Bank had more than $1.6 billion committed to Mozambique across 23 different projects as of October and was expected to provide approximately $110 million this year for direct budgetary support, $70 million of which has been disbursed.The move is another blow to one of the world’s poorest countries, which relies heavily on international donors that make contributions for food, medicine, schools and other essentials. Mozambique is ranked 180th out of 188 countries in the United Nations Human Development Index, a composite statistic of life expectancy, education and income per capita.“The government can’t pay for education, it can’t pay its hospitals, and it can’t pay for its social issue problems,” said Nigel Morgan,director of Rhula Intelligent Solutions, a Mozambique-based risk management consultancy.

The Wall Street Journal previously reported that Credit Suisse Group AG, Russia’s VTB Group and others had loaned more than $1 billion to Mozambique’s government starting in 2013.

Advertisement

The loans came with a guarantee from the government to lure investors. In 2013, when most of the loans were made, Mozambique’s official budget included $6 million in government-guaranteed debt. Yet the country loaded up with nearly $1.5 billion in government-guaranteed debt, vastly more than its parliament had approved.Following the Journal report, the IMF said it had stopped disbursement of a $55 million loan and had suspended lending, because the country had violated the terms of its agreement by failing to disclose the loans.The IMF approved in December a $283 million rescue loan package for Mozambique. The agreement with the IMF requires the southern African country to fully disclose all borrowings and to meet regularly with the multilateral agency to provide updates on its progress.Donors and other lenders rely heavily on information from the IMF when deciding where and how to give to developing countries such as Mozambique.The IMF said that Mozambican officials have now acknowledged the debt, which the agency called “an important first step toward full restoration of trust and confidence.”With the World Bank also pulling back, Mozambique is getting pinched by both its long-term and immediate sources of aid. The loan disbursements from the IMF are short-term emergency assistance to help shore up its finances. The World Bank’s funding, which includes grant and loan programs that can run for up to 40 years, is for the country’s longer-term development.Before the loans were disclosed, Mozambique’s debt risk profile was considered “moderate” by the IMF. The newly disclosed debt is expected to shift the country’s debt risk to “high.”The person familiar with the discussions between the World Bank and Mozambique said a downgrade would trigger a series of changes to the World Bank’s support in the country, reducing the overall amount of aid to the country and increasing grants as a percentage of aid.The World Bank’s general budget support payments will be on hold until the IMF finishes its analysis, a process that could take months, according to the person familiar with the matter.Lucie Villa, a vice president and senior analyst with Moody’s Investors Service’s sovereign risk group, said the ratings firm is closely following Mozambique’s status in the IMF program because without IMF support, the country’s ability to raise cash from either donors or investors will be limited, fueling liquidity concerns.Top budget donors include Sweden, the European Union, the United Kingdom and the African Development Bank, according to a 2014 breakdown analyzed by Moody’s. Additionally, the World Bank and other donors provide hundreds of millions of dollars in support through low-interest loans and supportive programs. The country’s largest lender in 2014 was China, the document shows.It wasn’t immediately clear whether those donors’ aid programs would be affected. Representatives of these donors didn’t immediately respond to questions posed by the Journal.“We support the IMF’s call for full disclosure of loan transactions and debt to the people of Mozambique. The U.K. follows strict rules and procedures when providing aid. We are considering our response and are working closely with other international partners on the next steps,” the U.K.’s Department of International Development said in a statement.All told, donors account for approximately 30% of the state’s budget, according to Eurasia Group, with approximately 25 billion meticals ($468 million) in grants in the 2016 budget and approximately 32 billion meticals in multilateral and bilateral loans, according to a Moody’s analysis.

—Ian Talley contributed to this article.

Write to Julie Wernau at Julie.Wernau@wsj.com and Matthieu Wirz atmatthieu.wirz@wsj.com

MOZAMBICAN PUBLIC DEBT NOW 11.64 BILLION DOLLARS

Mozambique’s total public debt stood at 11.64 billion US dollars, as of 31 December 2015, Prime Minister Carlos Agostinho do Rosario announced on Thursday.Speaking at a Maputo press conference called to explain the country’s current economic situation, he said that the overwhelming majority of the debt, 9.89 billion dollars, was foreign debt. The confirmed domestic debt was 1.75 billion dollars, while a sum of 233 million dollars was still being reconciled.From the figures released by Rosario it is clear that the foreign debt ballooned enormously under the previous government, led by President Armando Guebuza.

The Guebuza government guaranteed loans taken out by three publicly-owned companies in 2013-2014 amounting to just over two billion dollars. That is over 17 per cent of the total foreign debt.Of these three companies, the only one known to the Mozambican public, or to the International Monetary Fund (IMF), prior to this month was the Mozambique Tuna Company (EMATUM), which issued bonds for 850 million dollars in 2013, fully guaranteed by the government.The two large undisclosed loans were to companies called Proindicus (622 million dollars) and Mozambique Assets Management (535 million dollars).Rosario said that the purpose of Proindicus “is to provide security services to hydrocarbon companies, to protect maritime traffic and vessels and to provide search and rescue services in Mozambican territorial waters”. As for Mozambique Assets Management (MAM), its purpose was to provide maintenance and repair services to Proindicus and other companies, so that they did not send foreign currency out of the country in order to purchase these services.Proindicus is owned by the same three public concerns that own EMATUM – the Institute for the Management of State Holdings (IGEPE), the public fishing company Emopesca, and GIPS (Investments, Holdings and Services Management). Although the latter is a limited company, it is mostly owned by the social services of the State Intelligence and Security Agency (SISE). 

As for MAM, Finance Minister Adriano Maleiane told the press conference that it is 98 per cent owned by GIPS, one per cent by EMATUM and one per cent by Proindicus.

Maleiane said that the Proindicus loan is to be repaid in the next five years at an interest rate of 3.75 per cent. The first payment is due in May, and that is for just 24 million dollars. But over the five year period, the repayments will be running at an average of 119 million dollars a year.As for MAM, the repayment period is four years at an interest rate of 7.7 per cent. As with Proindicus, the first payment falls due in May. But it is for 124 million dollars. 

Maleiane said MAM “is looking for a solution for the first payment”. It was “trying to find the resources”. But if it failed, then the state would have to pay.“The State has issued guarantees and these are to be honoured if the companies cannot honour their payments”, he admitted.

Rosario divided these debts into public and commercial components. “We want to make it clear that the State will pay the public interest part of the debts, while the commercial component must be paid by the respective companies”.Proindicus and MAM are supposed to run at a profit by selling their services to oil and gas companies and other maritime enterprises - this had not happened so far, Rosario said, because it had taken longer than expected for the main hydrocarbon prospection companies, the American Anadarko and ENI of Italy, to reach their final investment decisions.

“It was assumed that by now Anadarko and ENI would be operating”, he said. That would go towards covering the commercial part of the debt. But currently there was no revenue coming in from Anadarko or ENI paying for the services that could be provided by Proindicus and MAM.One of the aims of MAM is to set up a floating dock to repair vessels at sea. Maleiane believed that other private companies could take a stake in this dock.He denied that MAM had anything to do with the Logistical Base being set up in Pemba, capital of the northern province of Cabo Delgado, to provide services for the oil and gas industry. MAM was not linked to the public company Ports of Cabo Delgado (PCD), which has the lease on the Pemba base.Yet, according to government spokesperson and Deputy Health Minister Mouzinho Saide on Tuesday, MAM will operate a shipyard in Pemba. Not only is there no new shipyard other than the Logistical Base, but the whole Cabo Delgado coast, from Palma (the nearest district to the natural gas discoveries in the Rovuma Basin) to Pemba has been leased to PCD.

Rosario admitted that the information on the Proindicus and MAM debts “should have been shared in good time with the Mozambican people and with the international cooperation partners, including the IMF and the World Bank”.But “the sensitive moment, characterised by instability, together with the transition from the previous government to the new cycle of governance which began in 2015, meant that we had knowledge and gradual contact with the dossiers on these debts as we went into greater depth about what was already known”.This is a polite way of claiming that Guebuza’s outgoing government did not inform the new government of the true state of the country’s debts. “We could have done better”, admitted Rosario. But it had been difficult to discuss debts that concerned “state security” in the “atypical situation” when the main opposition party, Renamo, had one foot in parliament, and the other in a bush war against the government.As for the deal struck with the EMATUM bondholders whereby the EMATUM bond was transformed into a sovereign government bond, Rosario thought this was good for the country, despite the higher interest rate (10.5 per cent).

Under the original arrangement the government was paying the bondholders around 200 million dollars a year. But now the payments were staggered over a longer period. As from 2017, interest on the bond of 78 million dollars a year will be paid (in six-monthly payments of 39 million dollars).

This is a “bullet bond”, meaning that the capital will be paid in a lump sum at the end. That single payment will come in 2023, and Rosario put it at 731 million dollars. Efforts would be made to make EMATUM a going concern.

 “To ensure that EMATUM pays its part, a strategic partner is being identified who can bring experience and technical capacity to make the company profitable”.Asked why the government had opted to buy the 24 EMATUM fishing boats from a shipyard in Cherbourg, France, rather than issuing an international tender, since there are many shipyards across the globe that can build fishing boats, Fisheries Minister Agostinho Mondlane claimed this was a matter of economy.He said the order also contained military vessels, and in general military equipment is not put out to tender. It had been decided to put the six military speedboats and the 24 fishing boats in the same order, and so they had to come from the same shipyard. He was confident that a single order for the 30 boats had lowered costs.

KENMARE RESOURCES PLANS TO RAISE 275 MILLION DOLLARS

The Irish company Kenmare Resources that operates a dredge mine in Moma district, on the coast of the northern Mozambican province of Nampula, announced today that it hopes to raise 275 million US dollars.As part of this equity fundraising, it has entered into a conditional agreement with King Ally Holdings under which it will receive a hundred million dollars for ownership of not more than 29.9 per cent of the enlarged company.The company also hopes to receive a hundred million dollars from the Omani sovereign wealth fund and a further 75 million dollars from new and existing shareholders.The company still has a long way to go before the plan can be put into operation. Kenmare’s statement conceded that “a significant number of uncertainties remain and there can be no certainty that the capital restructuring, including the investment by King Ally, will be completed”.

The Moma mine extracts ilmenite, rutile and zircon from titanium-bearing heavy mineral sands. However, falling prices and a nineteen per cent drop in output last year has put the company in deep financial difficulty. Raising funds to pay its creditors has been slower than hoped and the company defaulted on its loans at the end of January.Shares in the company fell almost twenty one per cent on the London Stock Exchange following today’s announcement of the latest capital restructuring plan.Ilmenite (iron titanium oxide) and rutile (titanium dioxide) are used to make white pigments for paints, paper and plastic. Titanium can be extracted from these ores and used to manufacture metallic parts where light weight and high strength are needed. Zircon (zirconium silicate) is used for abrasive and insulating purposes.

BRITAIN SUSPENDS FINANCIAL AID TO MOZAMBIQUE

The British government on Thursday announced that it is suspending financial aid to Mozambique, in the wake of the scandal over undisclosed loans.Earlier this month, it became clear that almost 1.4 billion dollars worth of loans, guaranteed by the Mozambican government, had not been disclosed, either to the Mozambican public or to the International Monetary Fund (IMF).The loans date from 2013-2014 and were contracted by the previous government, headed by President Armando Guebuza. Judging from the statement given by Prime Minister Carlos Agostinho do Rosario at a Maputo press conference on Thursday, the Guebuza government did not inform its successor about these loans.A spokesperson for the British Department for International Development (DFID), cited in the British government statement, said “the existence of the loans, and the lack of transparency around them, is deeply disappointing”, and warned of “serious implications for Mozambique’s economy for the medium-term”.“This appears to be a serious breach of trust, so we are working closely with other international partners to establish the truth and coordinate an appropriate response”, the spokesperson added. “We support the IMF’s call for full disclosure of loan transactions and debt to the people of Mozambique. Any undisclosed debt-related transactions, irrespective of their purpose, need to be reported transparently and publicly”“The UK follows strict rules and procedures when providing aid and our priority continues to be supporting the people of Mozambique to lift themselves out of poverty and build a more prosperous country”, he said.The British aid has not been cancelled, but delayed until further notice. This will mainly affect British support for the Mozambican budget. For many years, Britain has been one of the main donors of direct budget support.The DFID statement added “there is no evidence to date that there has been any misuse of UK funds”.The British suspension of aid follows a report from the World Bank that it too is suspending budget support.

African Renaissance pipeline

Plans to build a gas pipeline from the northern Mozambican district of Palma (Pemba) to the South African province of Gauteng took a step forward when a partnership agreement to build the pipeline was signed in Maputo on Friday, according to a report in Monday’s issue of the independent daily “O Pais”.The new agreement builds on a memorandum of understanding between the partners signed in February.

The companies that signed Friday’s agreement were Profin Consulting (represented by its Chief Executive Officer, Olivia Machel); Mozambique’s National Hydrocarbon Company, ENH (represented by Martinho Tavares, of its Board of Directors); the China Petroleum Pipeline Bureau, CPP, and the China Petroleum Technology Development Corporation (both represented by their deputy chairpersons, Chen Qingxun and Yun Wei), and the South African company Progas Investment (represented by Nhlanhla Magubane).Between them the two Mozambican partners hold 56 per cent of what will be called the African Renaissance pipeline. The Chinese partners hold 20 per cent, and the South Africans 24 per cent.The project viability studies, estimated to cost 45 million US dollars, will be financed by CPP. The total cost of the 2,600 kilometre pipeline is put at six billion dollars, and China will provide credit for 70 per cent of this (4.2 billion dollars).At a press conference presenting the project, Olivia Machel said its key goal is “to promote the strategic development of the natural gas sector in Mozambique, so as to ensure Mozambican control of the sector, and to allow the government to maximize revenue from the hydrocarbon resources in the Rovuma Basin”.It is hoped that the project will create 50,000 direct and indirect jobs, ensure technical and professional training and transfer technology to Mozambicans.Profin Consulting was set up in July 2015, specifically to ensure Mozambican participation in the pipeline. The best known figure in the company is the chairperson of its general meeting, former defence minister Alberto Chipande, the man who fired the first shots in Mozambique’s independence war in 1964.

RBR subsidiary PacMoz

RBR Rubicon Resources Group Ltd has closed the acquisition of its Australian Registered Trading Organisation (RTO).It also has a Mozambican business administration subsidiary, PacMoz, which is cash flow positive and self-funding.PacMoz acquired a labour broking licence in November 2015, which was a critical step in RBR’s strategy to become a holistic labour services provider to its clients.RBR is focusing on providing industrial skills training services through its subsidiary Futuro Skills, which is conducting training programs in Mozambique, Australia, South East Asia and Europe.Futuro Skills is in the final stages of a submission to deliver a ‘Welding and Fabrication Skills (WFS)’ training program for up to 1000 disadvantaged Mozambicans.The program is part of a wider initiative called JOBA which is funded by the United Kingdom’s Department for International Development (DFID), with an estimated value of US$2 million.The company is involved in other programs in Mozambique, including providing training for 60 new employees for a leading multinational integrated energy and chemical company.Another project is in the coal mining region of Tete, Mozambique, where the client has requested a range of programs to be delivered onsite as part of the commissioning of a new processing plant.As part of Futuro Skills’ focus on providing training services, the company is building the Matola Training Facility in Mozambique, where programs can be customised to meet client requirements.Office facilities and a single classroom have been completed at Matola, with catering facilities, amenities, and additional classrooms being constructed.In addition to Mozambique, Futuro Skills is in various stages of discussion to provide training services for clients in Australia, Indonesia and Kosovo near Serbia.

Mozambique Futsal national team qualifies for Colombia 2016

Mozambique, Egypt and Morocco will represent Africa at the FIFA Futsal World Cup Colombia 2016 after claiming the podium places at the 2016 CAF Futsal Africa Cup of Nations.Morocco were the first African nation to qualify, defeating Mozambique 4-1 in the semi-finalsat the Ellis Park Indoor Arena in Johannesburg, South Africa. A brace from captain Adil Habil led the Moroccans to a comfortable victory over the eventual third-place finishers, which was their only loss of the tournament.“I set myself a target of qualifying for the World Cup, and thanks to God, we achieved it. I had promised to resign if we fail to qualify for a new trainer to takeover. It was not the requirement of the federation though. Now, victory in the final will be the icing on the cake,” Morocco coach Hicham Dguig told CAFonline.com after the final whistle.In the other semi-final, three-time Africa Cup of Nations winners Egypt beat Zambia 5-4 in a thrilling match. Mostafa Eid scored three goals for the Pharaohs, but Zambia put forth a valiant comeback effort after being 4-1 down. However, they didn’t have enough to level at the end and will need a bright performance in the match for third place on Sunday in order to qualify for Colombia.Mozambique secured their place after a 5-5 draw in the play-off for third place with Zambia went to penalties. They came out on top 2-1 to book their first trip to the finals.