Ruling Party Frelimo’s ostrich plan

A supporter of the ruling Frelimo party rides a motorcycle with an election poster in tow in the capital Maputo

Faced with an economic emergency, the country’s leaders pray for indulgence from donors and hope hungry citizens do not revolt

President Filipe Nyusi still refuses to take special measures to deal with the economic crisis and is butting heads with donors over what is to be done. Meanwhile, he and his government are under extreme pressure from hardliners not to investigate fully the secret loans scandal.

The government has agreed with the IMF on a revised budget, we hear, but it is unclear how it will implement it. In a tough but carefully worded press release, the Fund said the authorities had ‘agreed’ that stringent policy measures were needed to rescue the economy and that the IMF had been ‘identifying’ what these might be. Nowhere does it mention any commitment to those measures, without which any agreement on the numbers is largely meaningless. Since the government failed by a long way to implement the last budget and since this one will be even tougher, it’s unlikely that Maputo will take such measures. Observers speak of a government under the thumb of ex-president Armando Guebuza and his cohorts and which is incapable – or simply afraid – of breaking with them.

To the international financial community, President Nyusi seems unable to take any but cosmetic measures to deal with the fiscal crisis caused by repayments of the US$1.4-billion in secret loans. Despite the pleas of international financial institutions, the government appears unaware that it is in the midst of Africa’s single biggest economic emergency relative to the country’s size and it cannot grasp the nettle, say financial sources in the capital. Rather than make a clean breast of past errors, the government continues to attempt to justify publicly that which it has privately admitted to the IFIs is wrong.

Russia’s VTB, the bank which, along with Credit Suisse, issued the US$850-million Eurobond and US$622-million loan for the inflated Ematum and maritime security project Proindicus recently spoke about the colossal US$35-million – or 7% – arrangement fee for VTB’s third loan to MAM of US$500-million. With the fee the total came to US$535-million. The sum included an upfront interest payment, it told Reuters on 11 June. This is highly unusual. At the same time, Privinvest issued a press release claiming that Mozambique plans ‘to set up a shipbuilding and ship maintenance industry’, even though none of the boats are crewed and remain idle.

MAM’s Chief Executive Officer, António Carlos do Rosário, an official with the intelligence service, the Serviço de Informação e Segurança do Estado (SISE), is inviting journalists and foreign dignitaries to view the boats. The visitors note that he is anxious to show that the money was spent on real things but simple arithmetic using Ematum’s accounts puts the price of the fishing boats at around US$22-million each, an impossible figure for such small, basic craft. Almost half of the Proindicus loan – about US$370-million – remains unaccounted for, according to investment sources who have seen the documentation and the Credit Suisse feasibility study.

Exasperated by Maputo’s intransigence and shocked at the scale of deception, the IMF is pressing for a full independent audit of the loans. The members of a Fund mission made the call in public on 24 June as they wrapped up a 10-day visit. The United States and Britain have backed the call, and the US Federal Bureau of Investigation has been dispatched to Maputo to investigate the possible misuse of US currency.

Behind closed doors, however, President Nyusi has refused an audit, donor sources said. He appears far less resilient than many observers believed at the time of his election in October 2014, and the audit refusal, combined with his behaviour during the loans saga, shows insiders that he is unable to resist pressure from the senior figures in SISE and the governing Frelimo who were responsible for the debacle. They want the cover-up to continue. A series of assassinations of critics has helped to keep lower-level members of the government in line. Nearly all Maputo believes that, ultimately, one very senior former state official is responsible and he has at his disposal a secret branch of SISE for such tasks.


As the IMF released its statement predicting a high risk of debt distress and of economic growth slowing to just 4.5% in the wake of the loans, the government made its own statement. Instead of a mea culpa, it blamed the economic crisis on everything but itself. President Nyusi says that domestic institutions can carry out any audit, seemingly forgetting that the purpose of an independent audit is to remove it from the pressure to conform to the party line under which all the state apparatus labours.

Finance Minister Adriano Maleiane, who struggles on despite losing considerable credibility, has even suggested that the Banco Nacional de Investimento (BNI) conduct the audit, say sources close to the Finance Ministry. BNI is owned by the Institute for the Management of State Shareholdings (Instituto de Gestão das Participações do Estado, IGEPE), which owns large stakes in the companies that took out the secret loans and so would have a clear conflict of interest. IGEPE and other state entities also own 25% of local bank Millennium BIM (Banco Internacional de Moçambique), which bought a significant amount of the Proindicus debt, sources close to the bank confirmed. MozaBank also holds Proindicus debt and BCI’s annual accounts show that it bought more than US$30-million of the original Ematum bond. This exposure could be risky for the local banking sector and affect the supply of credit.

The government is still making little progress on restructuring the MAM and Proindicus debt, though it’s attempting to raise some funds through selling state assets. VTB is losing patience, say sources, and is coming under pressure from investors to call the sovereign guarantee for MAM, though Mozambique has told it that it cannot pay.


Frelimo was accustomed to being forgiven for its misadventures by historically sympathetic donors and so was shocked by the IMF’s assertiveness when the extent of the secret loans dribbled out. However, even now it is not certain that the government has disclosed all hidden debt, much less what it was used for. It still refuses to explain some US$221-million in mysterious bilateral loans or even the name of the lending country.

Of the US$2-billion, discernible assets are not worth more than US$350-million, say experts. The companies claim no money was spent on weapons, though a source close to SISE told us otherwise, and the use of the US$500-million re-allocated to the Ministry of Defence has not been explained. As for MAM’s millions, supposedly for shipyards, the secrecy continues.

For such large sums, you would expect to see far more equipment, alongside large-scale training and recruitment programmes. These appear absent, and on current evidence the best estimate is that about US$1-billion remains unaccounted for.

Economic fiddles continue while Rome burns:

The Banco de Moçambique is regarded as relatively competent but vulnerable to the whims of the governing Frelimo and the interests of its elite. The bank’s handling of the US dollar shortage is erratic. While it is preventing local banks from selling dollars at the high rates some customers are willing to pay, which would devalue the metical, it is showing preference in issuing US dollars to companies with the most political clout. This practice was supposed to have stopped but has in fact worsened as dollars have become more scarce.

Influence is all and Frelimo sources say the companies with the best connections to the elite get the best treatment. Although the few dollars around are supposed to be going to importers of essential goods, Maputo shops are still well stocked with luxury goods, for which demand is still strong. The elite also wins from the recent 50% increase in excise taxes on non-essential items, since their companies generally don’t pay them.

Fearing the rioting that often accompanies major price rises while the poor fight to feed their families, the government has prevented bakeries from raising the price of bread in line with their costs. This will mean re-introducing the bread subsidy, and the same is likely for fuel as the government tries to prevent its price increasing. The Minister of Mineral Resources, Pedro Couto, has tried to address the suspicious inefficiencies in the fuel import system but so far without result.

At times of such extreme financial strife, governments normally tighten belts across the board, cutting public sector salaries and perks, bonuses, first-class travel, luxury cars and so on. Not in Mozambique. The government steadfastly refuses to contemplate such measures, apart from the famously frugal Minister Couto, who has always voluntarily foregone all his perks and now expects the same from staff in his ministry. His reward has been the wrath of his civil servants.

It would take more than personal parsimony to stem the tide: the government could well run out of money to pay salaries. It has been taking out domestic loans to meet the wages bill, but has now promised the IMF that it won’t take on more domestic debt this year, said a donor source. Yet government salary cuts are politically near impossible because the loyalty of its public servants is practically the only thing standing between Frelimo and total political bankruptcy.

Against a background of no real social progress, no reduction in poverty, and extraordinary waste and corruption, civil servants and party members are necessary to disseminate Frelimo’s message, to peddle conspiracy theories and misinformation that put responsibility for the crisis on self-interested outsiders, natural disasters and the global markets. Anyone who contradicts this story faces the anger of a sinister state security apparatus, which has increased its role, violence and impunity strongly, especially since 2011, when the programme of massive secret loans began in earnest. Printing money won’t do it but, as sources at the airport report, newly minted meticais are already arriving.

Meanwhile, the sense of entitlement among the Frelimo well-to-do is unaffected. President Filipe Nyusi’s sons follow the example of the children of his predecessors, Joaquim Chissano and Armando Guebuza, driving around in luxury cars and attempting to get into business by using their family name.

Source: Africa Confidential
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