The UK’s role in Mozambique’s debt crisis

In 2013 and 2014 three loans, worth a total of $2 billion, were given to three state owned companies in Mozambique by the London branches of Credit Suisse and VTB. The loans were guaranteed by then Mozambique Finance Minister Manuel Chang. Many of the loans were subsequently sold by the banks to other speculators.

None of the loans were agreed by the Mozambique parliament, making them illegal in the country,[1] and two were kept secret. The loans were given when commodity prices were high and Mozambique was one of the fastest growing economies in the world.

Some of the money was spent on a tuna fishing fleet and speed boats, which sit unused in Maputo harbour, along with associated equipment. However, an independent audit has revealed that at least $700 million is unaccounted for.[2] A US Department of Justice indictment claims that at least $200 million of bribes and kickbacks to bankers, suppliers and Mozambique government officials were paid as part of the deals.[3]

In 2016, just after the one public loan was restructured, the existence of the other two loans was publicly revealed. The revelations contributed to an economic crisis in the country, which was also influenced by the fall in global commodity prices from the middle of 2014.

Between August 2014 and end-2016, the local currency, the metical, lost 60% of its value against the dollar.[4] This caused inflation to hit 20% in 2016, with the World Bank saying food price rises led to an increase in poverty in rural areas from 55% to 63% of the population.[5]

Form late 2016, the companies began defaulting on the debt. The guarantees given by former Finance Minister Chang are under English law, which means that any creditor who wants to sue Mozambique for non-payment can do so at the High Court in London.

So far, not one creditor has sued, which indicates that either creditors do not want further information about the scandal to come to light through Court documents, or they recognise, as legal experts have claimed, that the lack of due process around the loans means the debt may not be enforceable against the Mozambique government anyway.[6]

Even though the three loans at the centre of the scandal have been defaulted on, Mozambique’s debt payments have still shot up because the fall in the value of the currency has increased the relative size of debts owed in foreign currencies such as dollars.

The Mozambique government’s foreign debt payments are now over 20% of revenue.[7] Public spending per person has fallen by 30% between 2014 and 2019.[8]

At the start of 2019, three former Credit Suisse bankers were arrested in London as part of a US investigation into the case, along with a former employee of the United Arab Emirates company which supplied the boats, Privinvest, and former Finance Minister Manuel Chang, who was arrested in South Africa.[9] Shamefully, despite the fact the loans were given by London banks under English law, the UK authorities have taken no action, with the Financial Conduct Authority dropping its criminal investigation in November 2018.[10]

The arrests prompted the Mozambique government to finally take action. The Attorney General has indicted 18 people “on charges of abuse of power, abuse of trust, swindling and money laundering”[11] and in February six were arrested, including the former Head of Intelligence, and the son of past President Guebuza.[12]

At the end of February, Mozambique filed a case against Credit Suisse at the High Court in London, seeking a judgement that the government has no requirement to pay one of the three loans, and seeking compensation from Credit Suisse.[13]

Throughout the scandal, campaigners in Mozambique have been calling for the loans to be declared illegal, so that the people of Mozambique do not have to pay for debts they had no say over and no benefit from. And for all those involved in the scandal, including the banks and former Mozambique government ministers, to be fully held to account for their actions.[14]

The case has also prompted discussion within the G20 on the need for new rules to make loans to governments transparent.

[1] https://jubileedebt.org.uk/press-release/campaigners-in-mozambique-call-for-non-payment-of-hidden-debts

[2] https://jubileedebt.org.uk/blog/release-audit-raises-huge-questions-2-billion-loans-mozambique

[3] https://jubileedebt.org.uk/uncategorized/what-we-have-learned-from-the-us-indictment-on-odious-loans-to-mozambique

[4] https://www.xe.com/currencycharts/?from=MZN&to=USD&view=5Y

[5] http://documents.worldbank.org/curated/en/132691540307793162/pdf/131212-WP-P156495-PUBLIC-FRI-10-26-7AM-DC-DIGITALMEU.pdf

[6] https://www.bloombergquint.com/onweb/mozambique-loan-bribe-claims-may-void-debts-law-professor-says

[7] Calculated from World Bank International Debt Statistics 2019. And IMF World Economic Outlook October 2018.

[8] The figure was calculated in 2014 prices. It excludes interest payments Calculated from https://www.imf.org/en/Publications/CR/Issues/2016/12/31/Republic-of-Mozambique-Staff-Report-for-the-2015-Article-IV-Consultation-Fifth-Review-Under-43588 and https://www.imf.org/en/Publications/CR/Issues/2018/03/07/Republic-of-Mozambique-2018-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-45701 and IMF World Economic Outlook October 2018.

[9] https://jubileedebt.org.uk/uncategorized/what-we-have-learned-from-the-us-indictment-on-odious-loans-to-mozambique

[10] https://jubileedebt.org.uk/blog/mozambique-campaigners-launch-scathing-criticism-of-uk-fca

[11] https://www.reuters.com/article/us-mozambique-credit-suisse/mozambique-indicts-18-people-in-connection-with-2-billion-loan-scheme-idUSKCN1P11YY

[12] https://www.biznews.com/africa/2019/02/19/mozambique-debt-scandal-frelimo-scrambles

[13] https://www.bloomberg.com/news/articles/2019-03-01/mozambique-seeks-proindicus-loan-guarantee-cancellation-in-suit

[14] https://jubileedebt.org.uk/news/mozambican-campaigners-demand-cancellation-secret-debt-imf-lends

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