23 August 2016

Mozambique: Debt and Economy: Will Capital Gains Tax Plug the Hole?

analysis

Government is hoping that the sale of part of the Cabo Delgado gas fields will be concluded soon and generate more than $1 bn in capital gains taxes, to plug the budget hole caused by cuts in aid and repayments on the secret debt. It has been widely reported that ENI is selling part of its gas fields to ExxonMobil, the largest publicly traded international oil and gas company; Anadarko also wants to sell part of its field and is talking to ExxonMobil. Zitamar (16 Aug) reports that when ExxonMobil CEO Rex Tillerson met President Filipe Nyusi last month, Tillerson assured the President that capital gains tax would be paid. Last week it was announced that Nyusi will visit the United States, going to Washington 15 September, Houston 16-17, and then New York for the UN general assembly opening. In Houston he will see Anadarko CEO Al Walker; ExxonMobil is also based in Houston.

The key question is if Mozambique can get enough money soon enough to fend off IMF and donor pressure and continue to protect former President Armando Guebuza. Pressure is also coming from the Japanese, a major donor which is normally quiet on these issues. Ambassador Akira Mizutani told Savana (12 August) that "Japan is concerned by these debts which were not disclosed. We hope that Mozambique shows its sincerity in trying to regain credibility with international partners, for example by an international and independent forensic audit." The IMF, UK High Commissioner to Mozambique Joanna Kuenssberg and US Ambassador Dean Pittman have all called for an independent forensic audit. "We need to have clarity on how the loans were made, what the money was used for and if there's a possibility to recuperate those funds," said Pittman. "These were bad decisions, they were made in secret and they will have consequences."

Meanwhile, the Wall Street Journal (11 Aug) said that Credit Suisse, which made substantial profits on the secret loans, is now getting worried and the loans "have become an albatross for the bank. The transactions also cast a rare spotlight on the ties between banks, defense contractors and the countries they supply. … Privately, Credit Suisse's top executives have recently expressed concerns about the deals, calling them the wrong type of business for the bank." The newspaper quotes Anne Frühauf, head of southern Africa research at political risk consultant Teneo Intelligence, saying "You're talking about a country with extreme health and poverty needs. … If there had been a proper prioritization of public-investment needs, neither of these projects would have seen the light of day." http://www.wsj.com/articles/behind-credit-suisses-soured-mozambique-deals-1467214300

8% and 16% devaluations in 1 month

The Metical fell 8% against the US dollar and 16% against the South Africa Rand in the past month. US$ devaluation is 62% since mid-January; there are now 72.2 Meticais to the US $. This is important because most debt is denominated in dollars. But the South African Rand is more important in Maputo because much food and many consumer goods are imported from South Africa. There are now 5.4 Meticais to the Rand, compared to 4.67 just a month ago and 2.68 in mid-January.

Economy stagnates, says INE

There is a "stagnation of economic activity" in the second quarter compared to the first quarter, according to the National Statistics Institute (Instituto Nacional de Estatística, INE). The Mozambican economy grew by only 3.7% year-on-year in the second quarter of 2016 - the lowest growth rate in recent years. Economic instability exacerbated the fall in the turnover of Mozambican companies in the first half of the year, according to data from the INE. A fall in demand and rising production costs were the main cause.

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