A Swiss Bank and a Billion Dollar Tuna Fishing Company in Mozambique

In 2013 a Mozambique tuna fishing company received 850 million dollars in investments in order to buy 24 fishing vessels and 6 patrol boats. This is an enormous investment for a fishing company - by far the biggest single investment in fishing seen on the continent.

Initial press releases by government and company representatives claimed the company would make at least 200 million dollars in profit every year, while also providing thousands of jobs and high quality fish for local markets. Two years on the situation is alarming – the company is running at a loss and the state has to pay for its bad debts. There are many concerns about how the 850 million was actually spent, about the patrol vessels bought with this money armed with canons and machine guns, and about the ecological impact of this new fishing company. International donors working in Mozambique threatened to end all aid to the country over potential corruption in the deal, but donors such as the World Bank and NORAD, have continued to give millions of dollars of aid for further fisheries management capacity building. The saga risks detracting from the positive policies developed by Mozambique and others for managing foreign tuna fisheries contained in the 2014 Maputo Declaration. 

In 2014 Credit Suisse and WWF - Switzerland published a report on the need to attract increased investments in ocean conservation, particularly in developing countries. It was one example of how several international environmental NGOs have been campaigning with Banks for increased private investments in fisheries. The report also echoed other policy documents produced by the World Bank, about the need for a wealth based approach – governments in Africa need to focus on maximizing rents from fisheries and this could unlock billions of dollars in profits. Some people have argued that this advice is based on flawed statistics and overlooks the fact that the most important sector for livelihoods and food security remains small-scale, for which ‘rent maximization’ for the state is a peculiar and dangerous ambition.  

About the same time as Credit Suisse were working with WWF on this vision for increased investments to help save Africa’s oceans, the Swiss bank was also working with the Mozambique government to help finance the biggest ever investment in an African fishing company, 'EMATUM'. Credit Suisse agreed to buy 500 million dollars of debt that they then ‘re-packaged’ and sold to investors through a Euro Bond. The returns offered to investors were excellent – 8.5% profit to be paid back by 2020, and the bonds came with a guarantee from the Mozambique government. Credit Suisse sold the bonds in a matter of weeks, which encouraged the government of Mozambique to approach the Russian Bank VTL to sell another 350 million dollars in debt, bringing the total investment in the company EMATUM to 850 million dollars. VTL’s bonds sold in a few weeks as well.

The justification for EMATUM

It is a common view that to fully benefit from its fisheries resources, African countries have to develop their own fishing and fish processing capacities. Many African states simply sell licenses to distance water fishing fleets who ‘pay, fish and go’. The value added is therefore thought to be minimal, while there are considerable (often overlooked) costs for coastal countries to manage these foreign boats. Building domestic fishing capacity is still an ambition stressed by African Ministers in their reform strategy for fisheries and aquaculture, published in 2014.

The argument for domesticating commercial fisheries was used to justify the financing of EMATUM. In 2013 the former Mozambique Fisheries Minister explained to his Parliament that EMATUM was based on a careful feasibility study and the company was forecasted to generate $200 million a year shortly after it commenced business. This would mean that EMATUM would vastly increase the value added to the economy from tuna fishing, which had been roughly $4 million a year from selling licenses to foreign companies, none of whom landed catches in Mozambique. EMATUM would become one of the world’s largest tuna fishing companies, employing and training thousands of Mozambique citizens and providing many more with an affordable supply of tuna. As the director of EMATUM described to China Daily Newspaper in 2014:

“This time last year there were 130 vessels fishing in our waters, and only one was from Mozambique. That gave us an indication of how valuable the tuna fisheries sector could be. Mozambique is a member of the Indian Ocean Tuna Commission (IOTC), and what was happening, we were risking losing our tuna fishing quota if we didn’t develop a sustainable industry. The business viability studies we had done indicated that we could earn about $200 million per year if we put in place a fleet of about 20 vessels. Based on that a strategic plan was approved by the government in July last year to establish a national tuna fleet. Despite having a 2,800 kilometre long coastline, and huge marine resources, we still have challenges from the point of view of food security. So why not embark on such an ambitious project? A project that would allow us not only to fish, but to create a whole value chain in the tuna industry, which will have a multiplier effect in our economy. Our challenge is to serve the tables of Mozambicans with the world’s best quality of tuna, creating the brand: ‘Made In Mozambique’” 

EMATUM is a private company, although it has three main shareholders, all of which are government organisations – the State Intelligence and Security Agency, the government’s national fishing company, Emopesca, and the national Institute for the Management of State Holdings. The $850 million raised through Credit Suisse and VTL was intended to buy 30 vessels – 24 fishing vessels (21 long liners and 3 trawlers) and 6 patrol vessels. There was no competitive tendering for the boat-building contract. About $300 million was earmarked for the purchase of the vessels, and the remaining $550 million for “radar equipment, satellite communications, onshore installations, transfer of technology, licence fees, training, and the running costs and payment of interest on the loan for the first year”, explained the Former Minister of Fisheries in 2013.

The prospectus sent to investors about EMATUM was brief – about 3 pages. It remains strictly confidential (Credit Suisse has refused to give us a copy). There was no other information or analysis available in the public domain about the business model. If there was any doubt about the ability of EMATUM to pay back this money, investors had the assurance of the government in a country that has made discoveries of substantial off-shore gas. As the Economist pointed out in November 2013, investors were probably aware EMATUM is a risky venture, but they “know there are huge gas reserves off the shores of Mozambique that will eventually bring in lots of foreign exchange, even if tuna does not”. 

In order to issue the debt for financing EMATUM, the government had to by-pass its rules about borrowing. The 2013 Budget Law in Mozambique set a maximum limit to government guarantees for repayment of debts to only $6 million, and there are checks and balances involving a parliamentary oversight body in order to approve new public debts. EMATUM established $850million of new government guaranteed debts for the country, agreed without any parliamentary involvement.  This single deal raised the country’s total debt by nearly 60%, important for one of the world’s most indebted countries.

A sinking investment?

Starting with debts of $850million, plus high levels of interest, would require the company to make spectacular earnings. The Mozambique fisheries minister assured Parliament in late 2013 that the “fiscal risk has been taken care of”, and that there was no chance of the company defaulting on repayments. This seemed to overlook doubts about the amounts of tuna and other fish available for the company, and whether it would be plane sailing for a new company with no experience in fishing and fish processing, as well as trade with foreign markets.  

In May 2015 the company published its accounts for the previous two years, showing that it was running at a loss. In 2014 it had made a loss of nearly $25 million. This was explained by the fact that only 9 boats had been supplied in 2014; another 15 were on their way, including the three trawlers that would supply the boats with bait. However fishing success was also lower than expected, with the first ‘experimental’ fishing trips ending up costing the company $3 million. There has also been a worsening exchange rate with the dollar. Still the company chairperson was upbeat about the future, recently saying the company was still on track to earn an annual profit of $200 million.

Faced with the mounting pressure to repay investors, the new government elected in 2014 has been forced to take on more responsibility for the repayment of the loans. An initial move was to absorb $350 million into the government’s sovereign debt fund, but this was later expanded to $500 million, leaving EMATUM with obligations to pay back only $350 million. In 2015, the government announced its intentions to restructure the debt – extending the timeframes for repayments and negotiating a lower interest rate. This sent the value of EMATUM’s shares tumbling. More significantly,  news of EMATUM's financial problems meant Mozambique's international credit rating was lowered, thereby impacting on the country's currency value.  

Allegations of corruption?

If EMATUM does require massive amount of public spending to rescue it, then it will generate increasing scrutiny – why should a private fishing company absorb such large amounts of public money in a country that experiences very high levels of under-development and poverty? And if the company does produce significant profits in a decade or so, will this really benefit Mozambique citizens, or predominately the shareholders and company executives? The multiplier effect may not be very evident, especially if the vast amount of debt caused by EMATUM diverts funding that could have been used for more obvious poverty reducing efforts.

There have been several other specific concerns about the deal that have worried investors and aid partners in Mozambique. One issue is that six of the boats ordered were patrol boats, intended to conduct fishing surveillance and deter illegal fishing and piracy at sea. The patrol boats being supplied by the French company are 'HSI 32 interceptors' (pictured below), and company reports indicate they come with the options of "a remotely operated 20 mm cannon and two 12.7 mm machine guns". This has caused anxiety surrounding EMATUM as it is feared investors have unknowingly paid for the purchase of weapons, and that a private fishing company will be in control of 6 military equipped vessels; more than the capacity of the entire state’s navy (although the French company has recently announced the Mozambique Navy is purchasing another 3 interceptors for itself).

A patrol boat leaving France for EMATUM in Mozambique 

A patrol boat leaving France for EMATUM in Mozambique 

But perhaps most significantly, there has been considerable anxiety over the use of the $850 million. Africa Confidential has been following the story with regular updates, and recently described that the deal is well known in Mozambique to have funnelled “hundreds of millions of dollars into the pockets of individuals close to the top of party and state”. Opposition politicians have described EMATUM as the biggest financial scandal in the country since independence. Calls for the arrest of the former president and finance minister have been made, although both are protected with immunity from government investigations.

The response from foreign aid partners

Remarkably, despite large amounts of aid released by foreign partners, and years of working with the government to improve its fisheries management, EMATUM was announced in the press without any prior discussion with foreign aid donors.

Most aid partners work together in Mozambique through a group known as the G19. They issued public statements in 2013 saying that if there was not improved transparency on EMATUM, they could withdraw all aid funding for the country. This, for a short period, looked like a significant stand-off between the government and the foreign donors, who have not only made Mozambique one of the World’s most aid dependent countries, but who also provide more money for fisheries development in Mozambique than any other country in Africa (see our data on this here).

By all accounts transparency has been lacking in EMATUM, and the problems associated with it have grown more serious since 2013. So how have the foreign donors reacted?

In 2014 there were reports that total aid commitments by the G19 had been reduced, but by 2015, it seems aid has continued and slightly increased since 2013. However some donors, including Norway, decided to end their contributions to the central budget, and shifted more aid instead into projects. This may have been a reaction to EMATUM. But overall the threats by donors have been largely dropped. In fact, the World Bank has recently approved another large investment in Mozambique’s fisheries – a loan of 37 million to help improve fisheries management. And in early 2014 Norway agreed to extend its support for fisheries development with a grant of nearly 25 million dollars, including a focus on stopping illegal fishing, for which we should imagine the contribution from EMATUM’s well armed six patrol boats will be vital.  

At the same time, Mozambique has managed to attract even more foreign investments for expanded commercial fisheries in Tuna, raising doubts about the idea of nationalizing the tuna sector. For example, in August 2015, a Chinese owned company announced it had signed an agreement to have 9 tuna fishing vessels built in China, which would be used to fish in Mozambique’s Nampula Province. The government in Mozambique also announced progress in a new deal that grants access to at least 15 Japanese tuna fishing vessels. Meanwhile, Mozambique and the EU are entering into the final phase of negotiating a new tuna fisheries partnership agreement, which would extend access for about 50 European owned vessels. 

China has also announced a 120 million dollar loan for upgrading the fishing port in Beira, in order to further support fisheries production in the country. The Director of EMATUM describes this as strategic for its business and China as a key market for their tuna:   

“China has enormous potential for us…If half the population consumed our tuna, we would not need to export to any other markets. We catch tuna with just 24 ships, but we should not stop there – there is a huge opportunity for growth, so our capacity can increase a lot”

With such statements, it will be important to see how far EMATUM lives up to its aims of supplying Mozambicans with high quality tuna to address food security concerns. Indeed, it is highly debatable whether the route to addressing food security in the country lies with such a huge investment in a commercial fishing company targeting high value fish for export markets.

Sustainability challenges

While the attention has been on the financial situation surrounding EMATUM, very little has been written about its environmental impact – important for a country where marine biodiversity is experiencing a worrying decline. Prawn fishing –mainly through joint ventures between Mozambique companies and foreign firms – were once the country’s main export earner, but have been reduced significantly over the past 10 years due to an inability of the state to stop overfishing.

The impact of EMATUM fishing activities on fish resources is hard to predict. IOTC reports suggest tuna migrating in Mozambique’s waters may be fished within sustainable limits, but the situation depends to a large extent if fishing effort is kept in check in the region. The addition of another 24 commercial fishing vessels is significant. But a focus on tuna only may be misleading. Longline vessels operating in Mozambique have historically targeted far more sharks and swordfish – for example, tuna represents only 13% of EU long liners catches in Mozambique waters, with more valuable sharks and swordfish making up the majority of the rest (for this data see here). It is therefore quite likely that EMATUM will do the same. In fact, Africa Confidential reports that the first landings made by EMATUM were dominated by sharks, not tuna.

Robust scientific data on the status of these fish species is limited, but many accounts (see here for a graphic example) show that shark populations off Mozambique have been decimated by over fishing to supply foreign markets for shark fins.  If EMATUM is involved in shark finning or is considered unsustainable, it will face more international criticism.  But regulating the environmental impact of EMATUM’s vessels is a major challenge – will its 6 patrol vessels police their own boats? And will the government’s fisheries authorities  be willing and able to enforce penalties and fines given the state’s direct interests in the company, and the desperate need to get the company financially stable? 

What lessons can be learned?

The case of EMATUM is remarkable, and the costs involved could be high, falling on citizens and development partners, while potentially opening a new chapter in the decline of marine biodiversity in the region. We could see the EMATUM saga as an isolated case, but there are wider implications.

First, EMATUM exposes the risks attached to policies of developing national fishing capacity, in particular for tuna. For many African states, commercial, capital-intensive tuna fisheries may not produce significant benefits to the wider economy, particularly when the costs of managing fisheries responsibly is factored in, and the fact that these are not labour intensive and tend to focus on exports. Perhaps the biggest opportunity for coastal states is to focus more on the processing side of operations, which could produce more opportunities for employment. Indeed, the Director of the Fisheries Administration in Mozambique has highlighted the importance of this through the recent Maputo Declaration, which contains several good proposals on how to better manage foreign distant water fishing in the region to increase the value to coastal states. EMATUM detracts from this policy thinking, and suggest it was created in a rush with minimal consultation with fisheries experts.

Second, EMATUM provides us with a worrying example of efforts to boost investments in fisheries in Africa. CFFA has already offered its views on how increased investments will not simply lead to a triple win outcome, and we warn about the finacialisation of fisheries conservation in general. EMATUM is a vivid example of how investments can be contradictory, including form a Bank that has shown considerable interest in financing ocean conservation. Did Credit Suisse care about the environmental and developmental impact of its role in financing EMATUM? WWF, with its partnership with Credit Suisse and office in Mozambique, would be well positioned to condemn the role of Credit Suisse and other investors in this saga, although one hopes its partnership does not stop it from doing so.  

Finally, there is a fundamental lesson from EMATUM for fisheries policy debates, as well as the role of development aid. This must be a major set back in a country that has received the most development aid for fisheries in Africa and has shown progress in developing responsible fisheries policies. This highlights one problem with fisheries aid and related policy debates –there is too much attention on technocratic projects and support. Fisheries continues to exists in a bubble disconnected from wider political economy considerations, including corruption which remains largely off the agenda for fisheries aid partners and coastal state governments in Africa. However, EMATUM should act as a warning that political reforms are a vital component for fisheries development. Reform strategies and development aid in fisheries must make serious efforts to address the lack of transparency, participation and oversight in fisheries. In other words, political reforms designed to improve democratic accountability are needed just as much as technocratic ones designed to improve scientific knowledge or boost profits and rents.  


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