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Nigeria – Borrowing Limit

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Diversification efforts fail to bear fruit as the country can no longer afford to keep borrowing.

According to Finance Minister Kemi Adeosun, who was speaking during a quarterly business forum in Abuja on July 11th, the country can no longer afford to keep borrowing and must find alternative fundraising mechanisms.

Adeosun said that the country should seek to continue to diversify its economy to generate more revenue.

“We have got to get our budget bigger and to do that we cannot borrow anymore. We simply have to generate more revenue, we have to plug the leakages, we have to improve tax collection so that we can manage our borrowing,” she said.

“The problem is that we have been relying on oil and oil gave us a big budget size,” the minister added.

Nigeria has been in talks with the World Bank and the African Development Bank (AfDB) for at least US$2bn in loans, with another $1.5bn proposed from international sources. President Muhammadu Buhari has also proposed borrowing of up to $30bn to finance major infrastructure projects across the country, although this continues to remain stalled.

The Naira (N) 7.44trn (about $24.39bn) 2017 budget has a deficit of N2.2trn, according to the Premium Times. Meanwhile, Nigeria’s external debt increased to $13.8bn in the first quarter of 2017 from $11.4bn in the fourth quarter of 2016, reported Vanguard.

The government had planned to borrow extensively from overseas to fund this record budget, aimed at enabling the country spend its way out of its first economic recession in around 25 years.

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Finance Minister Kemi Adeosun – Premium Times

However, some lawmakers, sceptical about the proposal, expressed fears that it might not be favourable in the long run, especially as the government presented no clear plans of how it will utilise the proposed loans.

When Buhari was elected in 2014 he was hailed as the saviour, a transformer of the economy, and the man to lead the country away from fossil fuel reliance and susceptibility to oil price volatility.

Since then little has changed and he has spent much of the past year being treated for a unspecified illness. According some commentators and analysts his financial and economic policies have been largely incoherent.

The push for economic diversification and boosts for manufacturing have not materialised. Many manufacturers were banned from receiving important foreign exchange and in 2016 the manufacturing sector shrank, reported the Financial Times.

However according to reports from BBC News, Buhari is now “recuperating fast” and will soon return to Nigeria from London, where he has been receiving treatment since May. His absence has led to speculation about whether he will be able to resume his position. In his place Buhari has given Vice-President Yemi Osinbajo full powers to act.

Find out more in the Africa Research Bulletin:

NIGERIA: Emergency Aid Shortfall
Economic, Financial & Technical Series
Vol. 54, Issue. 5, Pp. 21707C–21709A

NIGERIA: Dim Light at End of Tunnel
Economic, Financial & Technical Series
Vol. 54, Issue. 4, Pp. 21675A–21676A

NIGERIA: Forex Boost
Economic, Financial & Technical Series
Vol. 54, Issue. 3, Pp. 21649A–21651C

Subscribe to the Africa Research Bulletin today. 

Mozambique – Debt Troubles Continue

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The IMF commends recent efforts but states that financial support will not resume until debt levels are made sustainable.

The Deputy Director of the Africa Department of the International Monetary Fund (IMF), David Owen, said on November 14th that Mozambique had taken promising steps to deal with hidden debts that have impacted heavily on the economy.

The debts relate to loans of over US$1.1bn from Credit Suisse and Russian bank VTB to quasi-public firms Proindicus, Mozambique Asset Management (MAM) and the Mozambique Tuna Company (Ematum), under then President Armando Guebuza in 2013/14.

The IMF, during a mission visit from September 22-29th, praised the “significant tightening of macro-economic policy,” and the raise in interest rates announced by the Bank of Mozambique in October, which had led to the stabilisation of the exchange rate, reported AIM.

However the head of the mission Michel Lazare said that resumption of financial support was still a long way off.  “The authorities have requested the Fund to resume discussions on financial support as soon as possible. A solid track record of implementation of sound macroeconomic policies and an effective initiation of the audit process in the near term would help to create the conditions for a possible resumption of program discussions with the IMF,” Lazare said.

Lazare continued by stating that Mozambique “is facing a challenging economic environment”, with economic growth now in decline. The forecast growth for this year is 3.7% in 2016, down from 6.6% in 2015, which is “is significantly below levels observed in recent years.”

“At the same time, a significant decline in imports has been more than offset by a weakening of exports, foreign direct investment, and donor financing…This has maintained pressure on international reserves, which have continued to decline,” Lazare added, reported AIM.

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Ex-President Armando Guebuza – CC 2012

However more than half of the secret loans related to Ematum and maritime security have never been explained. According to Africa Confidential, around $900m was passed on to companies owned by the ruling Frelimo elite for the purchase of assault rifles, armoured cars and other weapons from Israel, for use in the war against Renamo, reported UK-based Mozambique News Reports.

There have also been accusations that Frelimo officials have wasted huge sums on setting up a shipbuilding industry, for which little work had been completed. Though many of the weapons seem to have been bought by companies owned by private individuals, these companies are linked to the three implicated in the debt scandal. Many of the funds were placed in offshore bank accounts to act as collateral for Frelimo-owned companies.

Two banks involved in the deals, Crédit Suisse and Russia’s VTB Group are under investigation by authorities in the UK and Switzerland.

The two main political parties remain at loggerheads as the country continues to be in crisis. Frelimo, which has held power since independence from Portugal in 1975, is fighting to maintain its grip on the country. In the wake of the scandal economic and political unrest troubles have only worsened, reported Africa Confidential.

Find out more in the Africa Research Bulletin:

Mozambique – Price Falls Lead To Closures
Economic, Financial & Technical Series
Vol.53, Issue. 8, Pp. 21404A

MOZAMBIQUE: Liquidity Problems
Economic, Financial & Technical Series
Vol.53, Issue. 5, Pp. 21289A–21290C

MOZAMBIQUE: Economic Update
Economic, Financial & Technical Series
Vol.53, Issue. 4, Pp. 21231A–21233C

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Mozambique – Secret Debts

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International financial support for the national budget is suspended after revelations that the government failed to disclose substantial debts.

Recent findings have revealed that the government of Armando Guebuza, who was President from 2005-2015, managed to take on more than US$2 billion in secret debts, prompting an economic crisis in the country. The Group of 14 (G14) support donors suspended their contributions on May 4th and the International Monetary Fund (IMF) has also stated that it will not release any more funds aside from standby credit.

Following these decisions the Economic and Finance Minister Adriano Maleiane on May 4th announced the first cuts including a hiring freeze, although Maleiane guaranteed that health and education would not be affected. Total donor support amounts to $467m annually, around 12% of the state budget.

The debts were caused by at least three parastatal loans to companies in 2013, including the Mozambique Tuna Company (EMATUM) for $850m, Proindicus for maritime security at $622m and the Mozambique Asset Management (MAM) for $535m. In total an estimated $321m in debt repayments will be due in 2017, adding to other government debt; it is widely feared that there are further unrevealed debts.

The government has also admitted to secret loans to the Ministry of the Interior, including $221m between 2009-2014 for armoured vehicles and riot police equipment used in fighting against the Renamo rebel group, reported Mozambique News Reports.

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Ex-President Armando Guebuza

The Mozambican Debt Group (GMD) has claimed that the debt levels in the country are unsustainable, despite government claims to the contrary. In 2015 debt had reached 39.9% of Gross Domestic Product (GDP), just 0.1% away from unsustainable levels above 40%, although the figures were calculated before these recent revelations. According to reports from state-owned AIM the debt now stood at 69% of GDP, although rating agency Fitch put the amount higher at 83% of GDP with the possibility of rising to over 100% by 2017.

The GMD warned that this level of debt would have adverse impacts of the poorest strata of the population, leading to a substantial reduction in public funds.

Prime Minister Carlos Agostinho do Rosario had flown to Washington, United States, to meet the IMF Managing Director Christine Lagarde to confess the secret loans. An IMF statement read, “following a meeting held earlier this week…a technical team led by the Vice-Minister of Finance, Ms. Isaltina Lucas, worked intensively with the IMF Mozambique staff team.”

“Looking ahead, the Fund and Mozambique will continue to work together constructively to evaluate the macroeconomic implications of this disclosure of information and identify steps to consolidate financial stability, debt sustainability and enhance governance and oversight of public enterprises,” reported AllAfrica.

Workers have stated that they do not want to be forced to pay for the commercial debts, said General Secretary of the Organisation of Mozambican Workers Union (OTM) Alexandre Munguambe, speaking during May Day celebrations, reported AIM.

Already counted as one of the ten poorest countries in the world, Mozambique has been hit hard by falling commodity prices, ongoing drought and a recent flare up in violence between the ruling Frelimo party and the Renamo rebel group; these further debt burdens on the economy are likely to place increasing strain on the poorest and most vulnerable segments of the population.

Find out more in the Africa Research Bulletin:

MOZAMBIQUE – EU: Budgetary Support
Economic, Financial & Technical Series
Vol.53, Issue.1, Pp.21129A.

MOZAMBIQUE: Budget 2016
Economic, Financial & Technical Series
Vol.52, Issue.12, Pp.21102c-21103A.

Mozambique – Interest Rates Raised (Free to Read)
Economic, Financial & Technical Series
Vol.52, Issue.11, Pp.21070C.

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Africa – UN Economic Development Report

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Report highlights the potential for the service sector to catalyse growth but the Greek crisis harks back to African IMF-imposed structural reforms and the continents’ continued indebtedness. 

The United Nations (UN) Conference on Trade and Development (UNCTAD) report, ‘The Economic Development in Africa Report 2015: Unlocking the Potential of Africa´s Services Trade for Growth and Development’ (available here), launched on July 8th,  provides extensive analysis of different policy issues facing Africa’s service sector and recommendations to enhance regional integration and inclusive development on the continent.

Starting with the basis that the services sector is a “critical source of income and employment…and the most dominant sector” in 30 out of 53 African countries, contributing almost half of the country’s economic output and around a third of formal employment between 2009-2012.  The reports, however, also comments that such “dynamism…has failed to translate into structural transformation” necessary for developmental needs and is delivered at a high cost.

The report claims that the services sector has the “potential to become a significant driver of sustained economic growth and structural transformation” but that this would require policies to build bridges between the “services sector and other sectors of the economy, especially manufacturing”.

The report highlights some examples where African economies are tapping into opportunities in the services sector; examples of “emerging regional services” are financial and banking services industries in Mauritius and Nigeria, the commercial and cargo air transport industries in Ethiopia and South Africa, educational services industries in Uganda and Ghana, telecommunications services in Egypt and port service industries in Djibouti and Kenya.

However opportunities aside, many African countries are feeling serious economic and social strain; the Ebola-affected countries of West Africa, tourism-reliant countries such as Egypt and Tunisia suffering from recent terrorist attacks and mineral heavy economies affected by global price drops, alongside the many regional conflicts that are hampering economic and social development.

In Ghana, the Premium Times on July 3rd reported that sources were suggesting that public debt in the country could reach 70% of GDP by the end of this year, with the Ghana Cedi loosing 99% of its value against the US dollar and increasingly high inflation. Ghana has borrowed from the International Monetary Fund (IMF) 26 times since 1966, leading to the imposition of more and more conditions for the repayment of loans. The article concludes that the IMF and World Bank with extensive privatisation, foreign direct investments (FDI) and deregulations, have led to debt traps that have further encumbered and disregarded the poorest. Recently on July 7th, Ghana gave signs that it may  consider renegotiating its bailout terms with the IMF, viewed by some economists as unrealistic.

A recent commentary by Radio France Internationale draws parallels between the recent Greek economic crisis in Europe and similar actions by the IMF during the 1980-1990s in Africa. Greece, defaulting on its 1.5bn loan repayment, has felt the imposition of strict capital controls and the country is heading towards an exit from the Eurozone.

François Ndengwe from the African Advisory Board explained that “what is happening to Greece, happened to Africa for over three decades”. Dr Samuel Nyambi, Executive director of CAPDEV, a development company commented that “for myself and many other Africans, we feel a lot of sympathy with the Greeks and the reforms they’re having to swallow, because we went through the same thing with the IMF’s structural adjustment programs.”

During the 1980s-90s the IMF and the World Bank imposed a stringent set of structural reforms to repay debts owed; these reforms have been critiqued by many economists as seriously hindering economic and social development on the continent. According to GlobalInsolvency, reforms centred on the repayment of loans led to lay-offs, privatisation, salary cuts and reduced spending, that made the pursuit of long-term development agendas impossible, resulting in further indebtedness and increased poverty in almost every African country where the IMF structural reforms were implemented.

Find out more in the Africa Research Bulletin

Africa-IMF: Mission Visits and New Funding
Economic, Financial & Technical Series
Vol.52, Issue.5, Pp.20852B-20855A

Africa: Competitiveness Report
Economic, Financial & Technical Series
Vol.52, Issue.5, Pp.20841A-20842B

Africa -IMF/World Bank: Growth Remains Solid, but Slows
Economic, Financial & Technical Series
Vol.52, Issue.4, Pp.20815C-20818A

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