Revelations about more hidden loans will reinforce demands for a comprehensive investigation of state finances.
With the world’s fastest falling currency and one of its most damaging debt burdens, Mozambique faces a still harsher regime of economic austerity as claims of another US$900-million of secret security loans emerge, this time for companies owned by the Frelimo elite to broker arms deals for the State. Top Frelimo officials face mounting pressure to explain why government hid its multi-billion borrowing programme and to unveil the beneficiaries of these deals.
Some senior government figures have tried to hide hundreds of millions of dollars of loans to buy guns, including assault rifles and armoured cars from, say sources, Israel, Africa Confidential has learned. Hundreds of millions of dollars more were wasted on grandiose plans to set up a local shipbuilding industry.
Revelations about another batch of hidden loans will reinforce demands for a comprehensive investigation into the country’s precarious finances. It also sends a warning to foreign banks about political risk. Already two of the banks involved in the deals, Credit Suisse and Russia’s VTB Group, face investigations by regulators in Britain and Switzerland.
On his trip to the United States in mid-September, President Filipe Nyusi tried to dilute demands for a forensic audit of the state finances by the International Monetary Fund (IMF). We hear from those present at meetings with IMF Managing Director Christine Lagarde, World Bank President Jim Yong Kim and senior US officials that this was never on the cards. The clear message in Washington in the week ending 17 September was that any financial rescue package for Mozambique would be contingent on President Nyusi’s government accepting the most rigorous audits of its financial operations and those of its predecessor under president Armando Guebuza.
With the depreciation of Mozambique’s currency, the metical, which is now around MT80 to the US dollar, Mozambique’s debt is now over 100% of gross domestic product (GDP) and still rising.
Under those loans, Credit Suisse and VTB Group arranged some US$2-billion. for companies owned by the intelligence service, the Serviço de Informação e Segurança do Estado. The local companies involved are the Empresa Moçambicana de Atum (Ematum) ostensibly set up for tuna fishing; Mozambique Asset Management (MAM) and Proindicus. The obligations of the firms and the government which guaranteed them have ballooned this year.
After the initial scandal broke in 2013 over state fishing company Ematum and its mysterious US$85-million state-guaranteed loan, followed this April by revelations about even larger sums guaranteed for Proindicus and MAM, it seems likely that more expensive irregularities, such as contract mispricing, will emerge as financial investigations get under way. Attention is focused on the extraordinary spending spree before president Guebuza officially left office in January 2015.
Although officials in Ematum, MAM and Proindicus strenuously deny the existence of such deals, senior Frelimo officials now privately concede the government was using these secret structures for an extensive arms procurement programme. Officials fear more details will emerge in the audit.
Though it seems that weapons were purchased by companies owned by private individuals, these companies are linked to the three main companies which received the state guarantees. Of the US$900-million in financing, sources say, one tranche was spent on guns and another smaller tranche spent mainly on armoured vehicles. This may be the final part of the original deal, which a senior director of one of the companies says was initially intended to be a US$3-billion package.
Among the toughest tasks facing auditors and investigators would be to track down the unaccounted payments, which could total as much as US$1-billion. Some of these funds appear to have been on-loaned to private companies for purposes not declared to the original lenders, or placed in offshore bank accounts to act as collateral for companies owned by senior Frelimo officials.
Evidence for the military spending was already strong before these latest revelations. For example, in the US$850-million state-backed loan that Ematum took from Credit Suisse and VTB, a US$500-million ‘military component’ was transferred to the Defence Ministry budget. In theory, this was for military patrol boats purchased under the contract but those boats cost a fraction of that sum and there is no explanation on how the surplus was spent.
Both the Ematum accounts and ‘documents relating to procurement’ seen by Africa Confidential show that military elements in the project consist only of three Ocean Eagle 43 trimarans, bought from the Construction mécaniques de Normandie (CMN), a troubled subsidiary of Privinvest, owned by French-Lebanese businessman Iskandar Safa.
After it secured the Mozambique contract, Privinvest’s revenue jumped to some US$120-million in 2014, more than double its average revenue for the five previous years. These three ocean patrol trimarans, which are valued at slightly under US$100-million each in official documents, are worth far less than US$100-million in total, say experts. That leaves more than US$400-million unaccounted for.
Sources close to the Defence Ministry say that funds obtained by Ematum via loans from Credit Suisse and VTB Bank were used to bolster the arsenal of the state security forces, for its shooting war with the opposition party, Renamo.
There is no question that the maritime security programme was always going to involve armed vessels. Company documents state that to fulfil the Ematum and Proindicus requirements contractors would need ‘permissions according to Arms Control Acts established in the Contractor’s and its sub-suppliers’ countries’. There is no suggestion that the contractor supplied weapons but the vessels supplied were designed to be armed.
The other key issues which investigators and auditors will focus on include:The use of funds by Proindicus: it paid US$366-million for its maritime security programme but what happened to the remaining US$256-million.
Top-up loan arrangements with Credit Suisse and VTB: what were the commissions on these loans? What is the exposure of other foreign and local banks such as Moza Banco, which is now in emergency administration?
The structure of Ematum’s contracts: how and why did Ematum’s loan balloon from the original US$300-million to US$850-million? Why did the contract price increase at the last minute by US$51-million for no apparent reason? And why are commissions, taxes and other charges running at more than 11% of the contract price, according to confidential information from the audit court?
There are big inconsistencies in equipment specifications between the three main companies involved: Ematum, MAM and Proindicus. To assess the real value of the equipment, there will have to be a wide-ranging inventory of all substantive purchases and commissions.
The price that Ematum paid for its fishing vessels was more than 20 times the market value. Why and who benefited from these discrepancies?
Industry sources question the US$75-million paid by Proindicus for two French-built Reims-Cessna
F406 maritime patrol aircraft and two offshore vessels. They suggest market prices would be closer to US$20-million.
There will have to be a thorough financial analysis of the US$500-million that MAM allocated to build maritime bases for Ematum and Proindicus and establish a shipyard in Pemba to manufacture highly sophisticated interceptor vessels.
Work on the Pemba shipyard has barely started and none of the 18 locally made vessels, as part of the contract, appear to have been delivered. A preliminary assessment of the MAM contract, overseen by Privinvest or sub-contracted to its local subsidiary, Privinvest Shipbuilding Mozambique, suggests phenomenal losses to the government, which guaranteed payments, as the training and support package has now expired and there is no evidence of a thriving shipbuilding industry to show for the US$500-million.
Source: Africa Confidential
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