This is the story of one of the biggest corruption scandals of all time.
A fraud that has been estimated to have cost one of the poorest countries in the
world its entire GDP for a year. A story that would not have been
possible without ingredients such as unlimited expectations, unbridled greed and country risk.
Today on VisualPolitik we’re talking about the Tuna Bonds
of Mozambique. Listen up.
In Africa, the forgotten continent, the last region of the world to join modernity,
the first two decades of the 21st century were impressive. Poverty began to fall sharply and
most African economies began to take off. Suddenly the demand for infrastructure and
projects of all kinds made many governments on the continent rush to the markets in search of funds.
Markets opened their arms wide with the illusion of sharing a part of that huge
wave of prosperity. And do you know what?
Our protagonist in this video, Mozambique was not only one of the countries rushing
towards the future but became one of the most brilliant economies in the whole continent.
Institutional reforms, foreign investment, tourism and the
discovery of huge gas fields in the Ruvuma River basin on Mozambique's northern coast
bordering Tanzania seemed to paint a very promising picture.
During the first decade of this century, Mozambique's economic growth was around 7%
per year. And that was before the exploitation of one of the largest natural
gas discoveries in the world was launched. To give you an idea, while in 2010 the size of
Mozambique's economy stood at about $10 billion dollars, IMF forecasts suggest that by 2021 it
will exceed $30 billion and $75 billion by 2025. Yes, it still made it a very poor country,
but the expected evolution was colossal. However, the reality has been totally different.
In 2021, the size of this Southern African country’s economy is less
than $16 billion. And although things are expected to improve,
the numbers will still fall far short of the initial forecast.
And even in recent years, the trajectory has been very different from what was expected.
Instead of good news, the country faced default, a huge budget adjustment and capital flight.
And the burning question is, why? What happened that suddenly caused
the reality to be so different from the initial projection?
Well VisualPolitik fans, the simplest explanation has to do with a financial
operation, a ruse that made this country's economy face a terrible
nightmare. Listen up.
(THE POISONED GIFT OF THE TUNA BONDS) The year was 2010. Things were going well for
Mozambique. The national economy had begun to take off and gas fields promised unlimited profits.
However, at a certain point in that year, a series of meetings and agreements took
place that would mark the future of the country for more than a decade.
Executives from Privinvest, a well-known French-Lebanese shipbuilding company,
together with executives from the Swiss bank, Credit Suisse,
and senior government officials put a business proposal on the table.
At the time, markets were embracing the high yields of African bonds and
Mozambique would soon be exploiting its huge hydrocarbon deposits, so why wait? The country
could issue a huge amount of debt to finance the development of new productive sectors. After all,
natural gas would soon pay all the bills. Well, no sooner said than done. All parties,
joined by the Russian bank VTB, set to work to create a huge fishing industry in the country.
The problem... Well the problem is that Mozambique's interests were never on the table.
You see, during the following three years, Mozambique’s government created three
public companies: Ematum, Mozambique Asset Management and ProIndicus.
Surprisingly, the two main shareholders or direct owners were the Ministry of Defence
and the Intelligence and Security Service. [Yes, yes, that’s right. The ultimate
shareholders of the proposed fishing companies]. The fact is that once formed, between 2013 and
2014 the Swiss bank, Credit Suisse, and the Russian VTB, organized a round of
funding to move these projects forward. In total just over 2 billion dollars. An
amount that may seem small to us until we realize that this represented almost 15%
of the country's entire GDP and more than 20% of the entire foreign debt in just three operations.
Of this $2 billion, almost half consisted of bonds placed on the international market
with a yield of 8.5%. A profitability that made them a huge success and the demand
exceeded the supply several times over. They were the now infamous Tuna Bonds.
However, the reality, the stark reality is that it was all a kind
of huge ruse to fleece one of the poorest countries in the world.
For example, the parties involved took advantage of the fact that investment in Africa was in vogue
in order to pull off this bizarre operation. The two banks that handled the deal pocketed
close to $200 million in bank fees and commissions. That means that almost 10%
of all the financing went to the banks that handled the deal. Totally disproportionate.
What’s more, the prospectus and feasibility studies were pure
science fiction. For example, international investors were told that Mozambique had been
catching about 200,000 tons of tuna per year. The reality is that, according to the national
fisheries office, catches in 2013 between foreign and domestic vessels amounted to just
6,000 tons. In addition, revenue estimates were based on the sale of tuna at more than $10,000
per ton, a totally unreasonable price on the wholesale market.
But... Do you know what? Nobody cared. You know, investing in Africa was all the rage,
details were the last thing on anyone’s minds. And among the investors were such important
entities as the Portuguese Commercial Bank and the United Bank for Africa.
The fact is that everyone got their share except the Mozambicans themselves.
The issuing banks pocketed $200 million;
the military spent most of the funds obtained not on fishing boats but on military boats and
equipment, and the company that owned the boats sold them at a significant premium.
And, of course, politicians were not left out of the picture. Ferraris, Roll-Royces,
BMWs... Even a plane from France loaded with 7,400 bottles of wine has been documented.
And above all, lots and lots of cash.
In total, audits have estimated the money that went directly to
bribes as totalling up to $500 million dollars. The tuna companies were created not to operate
but as vehicles to milk the cow. The idea was that the gas profits would pay for such a gap in the
public budget and no one would notice anything. So the debt was kept secret and not included
in the government accounts. It was known as the hidden debt.
The problem, the big problem, is that when the gas money didn't arrive, everything
started to fall apart. (THE DEBACLE)
In 2016 when the Wall Street Journal published all the details about the debt incurred, the hysteria
was tremendous. International donors and the IMF itself immediately stopped their contributions,
plunging government revenues. This, in turn, meant the
government was unable to pay the bills. Then, ta da!, came the spectacular default,
the collapse of public spending, the economic crisis, the flight of capital and
the devaluation of the currency. Foreign debt became unpayable, GDP
growth plummeted, unemployment soared and almost 2 million people fell below the poverty line.
The Tuna Bonds were too cumbersome. For example, as a result of this operation,
the debt burden in relation to State revenues increased more than sixfold.
To give you an idea, according to calculations made by the Center for Public Integrity in
Mozambique along with the Christian Michelsen Institute in Norway, the economic cost exceeded
$11 billion, the equivalent of the country's entire gross domestic product in 2016.
A disaster that would punish the country for years and that, by the way,
has become a new nightmare for Credit Suisse, a bank marked lately by scandals,
such as the Archegos Capital scandal that we already covered here on VisualPolitik in
collaboration with Value School. (Mozambique is reeling from the
Credit Suisse "Tuna Bonds" scandal. The Swiss bank was fined $475 million. FT)
("The idea that this is over for Credit Suisse is completely wrong. There is a
lot of litigation in the English courts at the moment and that is not going to go away.
If anything, it's going to go on and on and on." Natasha Harrison, managing partner of Boies
Schiller Flexner, a US law firm that has sued the Swiss bank on behalf of several creditors)
The whole operation is now in court, but the damage has been done. The collusion of big banks,
politicians and unscrupulous businessmen along with the lack of attention to detail of
international investors caused a huge catastrophe in one of the poorest countries in the world.
So there you have the cursed history of the Tuna Bonds.
Remember to pay attention to the details, to be wary of the lack of transparency and legal
certainty and easy profits because they can end up turning into a huge nightmare.
But now it's your turn: Do you think Mozambique should be dumped with the repayment of this huge
debt of more than $4 billion dollars in total plus interest? How could this kind of fraud be avoided?
Leave us your comments below and if you found this video interesting don't forget
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