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Mozambique’s illegitimate hidden debt
by Claude Quémar
6 September 2017

The report on the audit on Mozambique’s “hidden” debt (2 billion dollars) made at the request of the Attorney General of Mozambique, began to circulate in late June 2017, several months behind schedule. Only the findings are currently available. They are clear: beyond the limits specified by the US cabinet Kroll: a large part of these loans are illegitimate.

This audit was required by the International Monetary Fund (IMF) to resume its budgetary support to the Mozambican authorities, interrupted in April 2016, when this ’hidden’ debt was discovered.

Summary of previous episodes

In August 2013 the company Ematum (Empresa moçambicana de Atum - Tuna Company of Mozambique) was created on the initiative of the State Security Services. A month later, the company placed an order with the Constructions Mécaniques de Normandie (CMN), subsidiary of Privinvest, for 30 boats, 24 boats for tuna fishing and 6 patrol boats, for a contract valued at 200 million euros.

To finance this order, Ematum borrowed, in the form of Eurobonds, 500 million dollars from Credit Suisse and 350 million dollars from the Russian bank VTB (public bank), with the guarantee of the Mozambican government, then led by Armando Guebuza. The total of these loans represents approximately 6% of the country’s GDP.

On 5 September, 2013, three French ministers, including Arnaud Montebourg, Minister of ’Productive recovery’ were present in Cherbourg for the signing of the contract, which was presented as “life-saving for the Cherbourg shipyard, which had been lacking orders and which was preparing to introduce new measures of partial unemployment”. In November, the CMN announced that they would outsource the construction of 16 of the 30 boats to Romania. “Their cost is half as expensive as it would be in France (...) Subcontracting to Romania enabled us to propose a competitive global price and thus ensure the employment of our 350 employees” (sic), declared the CEO of the CMN, Pierre Balmer, that which Montebourg had called “the triumph of the made in Cherbourg and therefore of the made in France”.

On September 30, 2013 President Francois Hollande and his Mozambique counterpart Armando Guebuza launched in Cherbourg the works for the 30 boats to be delivered, together with CMN’s main shareholder Iskander Safa. Photo Jean Lavalley/Le Marin

Nobody toke issue with the financing (a loan of 850 million dollars for an invoice of 200 million euros), nobody pointed out that the CMN were specialised in the construction of military boats and not trawlers.

This loan, executed through Privinvest, a company domiciled in the United Arab Emirates, managed by the Franco-Lebanese businessman Iskandar Safa, was split into several shares, successfully placed with major bond investors attracted by the 8.5% return rate.

Between 2013 and 2014, a total of five loans totalling 2 billion dollars were underwritten by the same banks for three companies, Ematum (850 million dollars), Mozambique Asset Management for 535 million dollars and Proindicus (622 million dollars), all of them created on the initiative of State security, who have no experience of these types of practices. These purchases involved elements of coastal defence: radars, drones... Privinvest said that no weapons were included.


The Mozambican government was forced to reinstate in its budget the military part of the Ematum loan (350 million dollars), thus creating a first blunder with the country’s financial donors (IMF in particular). For them, if the country made large military expenditures, it was no longer necessary to provide it with assistance, initiated during the HIPC (heavily indebted poor countries) initiative for which Mozambique was one of the first countries to reach the completion point. The country had thus benefited from a reduction in its public debt. France, the only European country close to Mozambique, via Mayotte, is strongly interested in the country’s enormous gas and oil wealth, including the need for coastal protective equipment. It is no coincidence that Mozambique was the first country to sign a debt relief-development contract (C2D) with France. [1] Since then French investments have been rising sharply. A French company (Tereos) shares the sugar sector with South African companies, the second largest provider of employment after the public sector.

In 2016, the Mozambican authorities had to restructure Ematum’s debt in order to meet the deadlines. 85% of the creditors accepted a very attractive exchange of securities, their former securities were replaced by 10-year government bonds, with a return rate of 14.4%. Just a few hours after this agreement, they learned about the hidden loans of Proindicus and MAM. Since then, in the secondary market, these securities have been sold at around 75% of their face value, or with a real interest rate of 19%. With a maturity of 10 years, these securities will be liquidated in 2026, when the country will benefit from the enormous investments made in the gas sector. In 2010, 5,000 billion cubic meters of gas were discovered off the coast of the country, now called ’little Qatar’ in the industry. The trials and tribulations of sovereign debt have not calmed the ardour of investors in this sector, all the transnationals of the sector are involved (Total included). The first signed agreement involved more than 7 billion euros, more than half of the country’s budget. And the economic spin-offs for the country are ultimately estimated at tens of billions, which led to the announcement by the Mozambican authorities of the creation of a sovereign wealth fund with a starting capital of 350 million dollars.

What are the findings of the Kroll audit?

Without being able to access the whole audit, not supplied by the incriminated companies, Kroll points to two major problems: gross overcharging and a lack of justification for the sums borrowed.

Thus the trawlers delivered by the CMN, charged at 20 million euros each, are valued at 1.8 million euros. Delivered but not used, they rust in the port of Maputo, for lack of trained sailors. An independent expert, mandated by Kroll, estimates the difference between the actual value of deliveries and the budgeted amount to be 713 million dollars.

By adding the value of the equipment delivered, estimated by Kroll to be 505 million dollars, and commissions of 200 million... only 1.3 billion dollars would go unaccounted for in an attempt to justify the sum of money borrowed! Where did the money go? Probably shared between sales of weapons and what the report calls the ’small group’ of State security services, whose names are hidden in the audit report (although names circulate among the security services).

The auditors directed their research to the accounts of the former President of the Republic, Armando Guebuza. But the current president, Felipe Nyusi, was formerly Minister of Defence and therefore one of the trustees of Ematum.

The report also highlights the amount of commissions pocketed by the banks and the supplier, a total of 200 million dollars (10% of the total borrowed). During the restructuring of Ematum’s debt in 2016, another 4.1 million dollars was paid to Credit Suisse as a commission.

[en] Campaigners from Jubilee Debt Campaign protesting against Credit Suisse’s secret loans to Mozambique, outside their office in Canary Wharf, London [es] Activistas de la Campaña Jubileo de la Deuda protestan contra los préstamos secretos del Crédit Suisse a Mozambique delante de las oficinas londinenses del banco

Complacent banks

The banks involved in this case are not victims, they are accomplices. According to the procedures it has adopted, the Credit Suisse must obtain the green light from the Bank of Mozambique and the Administrative Court. In addition, the bank must inform the IMF before signing the contract.

None of this had been carried out, and yet... the loan was granted. The commissions received obviously convinced the bank not to be too interested in the legality of the matter.

As for the IMF, if it suspended its assistance to the country, it merely required during its visit in July the full publication of the Kroll report.

An illegitimate debt

For Joseph Hanlon of the Open University, “this panoply of failures is so grotesque that it should have been obvious to Credit Suisse, VTB and the other lenders that this project was not viable”. For him, clearly, this debt is illegitimate. Creditors have an obligation to be vigilant, that is, to refuse to lend for reasons that are not related to public matters, when loaning to state institutions.

The guarantee provided by the authorities at the time was illegal. The Mozambican constitution stipulates that only the parliament can provide this guarantee. Moreover, the amounts guaranteed exceeded the limits authorised by the 2013 and 2014 Finance Acts. In addition, the person responsible for giving an opinion on the government guarantee of the Proindicus and MAM loans worked a month earlier as the non-executive director... of Ematum, paid 5,000 dollars per month, from August 2013 to July 2014.

The Financial Times, in its editorial of 2 July, also characterised these hidden debts as despicable.

Parliament validated these loans, a posteriori, during 2017. This decision is likely to make it more difficult to renegotiate these illegal and illegitimate debts.

Since then, Mozambique has been plunged into an unprecedented financial crisis. Public debt now stands at 120% of GDP. Unable to make their repayments, the country has been in default of payment, to the tune of 60 million dollars, since January 2017. The Governor of the Central bank announced that bilateral and multilateral debts would be covered, but that creditors of hidden debts should agree to a restructuring.

If it is of the type proposed to the creditors of Ematum, committing future gas resources, it would be against the interests of the population which is excluded from these profits. The non-agricultural minimum wage is approximately 60 dollars per month. And yet it is they who, once again, must assume the payment of this illegitimate debt, even if it is restructured. The responsibilities of creditors are such, the complicit silence of the donor countries, including the IMF, so obvious, that the only solution that could be called legitimate, is the repudiation of this debt.

Translated by Jenny Bright. Edited by Fausto Giudice

Source: Tlaxcala

Footnotes :

[1C2D is the method used by France to manage bilateral debt relief, in particular to favour French companies.

Claude Quémar

est membre du CADTM France