## 1. The SOE Sector in Mozambique ## Source details **Canonical URL:** [1. The SOE Sector in Mozambique](https://www.imf.org/-/media/files/publications/cr/2024/english/1mozea2024003-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1mozea2024003-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1mozea2024003-print-pdf.pdf.json) --- ### Role, scale, and recent performance - SOEs provide essential public goods and services (e.g., electricity, transportation, communication, extractives) but can generate fiscal costs and risks and are often subject to inefficiencies and poor governance. - IGEPE’s portfolio for consolidation purposes included 21 companies as of 2022: 11 fully-owned by the state, and 10 where the state and/or IGEPE are the majority shareholder. - The total assets of these 21 SOEs amounted to about 70 percent of GDP in 2022. - Employment and fiscal footprint in 2022 (IGEPE data): - SOE sector employed almost 18,000 people (about 2 percent of total formal employment). - Salaries and other personnel-related expenses in the sector amounted to 2.5 percent of GDP. - Net investment in tangible and intangible assets by the sector was around 4 percent of GDP. - Concentration and sectoral spread: - The top five SOEs in IGEPE’s 2022 consolidated accounts (EDM, ENH, CFM, ADM, PETROMOC) held almost 90 percent of the sector’s total assets. - The sector’s activities span financial, electricity, hydrocarbon, communication, and transportation sectors; the number of entities is concentrated in communication and transportation. - Financial performance and vulnerabilities: - Out of 21 fully- or majority-owned entities, nine SOEs reported negative operational profits in 2022. - Outstanding liabilities of the sector were about 46 percent of GDP in 2022 (IGEPE consolidated accounts). - World Bank Public Expenditure Review (2023) indicators (five largest SOEs, as of end-2020): - Accumulated arrears of the five largest SOEs amounted to almost 5 percent of GDP. - Net flows from budget to the largest five SOEs in 2020 were about a deficit of 2 percent of GDP. - Contingent liabilities of those entities reached almost 16 percent of GDP in 2020. - Historical averages (2017–19): - Average net outflows from the budget to the largest five SOEs: about 1.1 percent of GDP. - Average contingent liabilities: 13 percent of GDP. - SOE-to-SOE and SOE-government arrears and within-sector obligations are often netted in consolidated accounts, masking granular bilateral liabilities and arrears. ### Key fiscal and macro risks - Large asset and liability positions imply macroeconomic and fiscal costs and risks that can affect budget execution, private sector conditions, and overall economic stability. - Loss-making strategic SOEs (e.g., in airports, information and communication) may have spillovers into the wider economy. - Procurement practices and legal discretion for non-competitive procurement elevate corruption risks and impede accountability and competitive neutrality. ### Data, transparency, and monitoring recommendations - Short-term priorities for improving availability and accessibility of data: - Publish a complete list of all SOEs under IGEPE’s mandate (fully-, majority-, and minority-owned) with state ownership shares and basic information (including size of assets and liabilities), updated annually. - Include links to SOEs’ websites where feasible and continue publishing each SOE’s financial statements on IGEPE’s website, updating them regularly as they become available. - Improve timeliness of consolidated accounts publication by addressing SOE data-submission delays and continuing digitalization and staff training; recent publication pattern: - 2020 and 2021 reports were published in spring 2023 and 2024, respectively; 2022 report was published in May 2024 (but lacks some details compared to previous reports). - Launch a centralized database, published annually, on outstanding arrears and liabilities within the SOE sector and between government and SOEs, with priority coverage for large SOEs with macroeconomic and fiscal implications. - MEF (in cooperation with IGEPE) should establish and make publicly available the arrears dataset, and prepare a comprehensive strategy (in coordination with IGEPE and SOEs) to reduce arrears and prevent new accumulations, including state arrears to SOEs. - Granular reporting: - Produce separate annual reports documenting all variables and indicators for each SOE included in consolidated accounts to provide operational and financial granularity missing from sector-level consolidated reports. ### Procurement transparency and anticorruption steps - Current legal framework grants SOEs broad discretion to undertake direct (non-competitive) procurement, including “exceptional” processes without objective criteria or special approvals, which increases corruption risks. - Recommended actions: - Publish SOEs’ procurement policies and annual procurement plans to improve transparency and efficiency. - Launch a centralized/granular public database for SOE procurement (including amounts, contracting SOEs, types of procedures, beneficiaries, and beneficial owners). - Continue IGEPE’s revision of SOE procurement policies to introduce AML, beneficial ownership transparency, and anti-corruption elements, and complete publishing procurement guidelines and plans for the SOE sector by 2025. - Consider revising the legal framework to make SOEs subject to government procurement rules on transparency, while allowing narrow, well-defined flexibility where competition with the private sector exists. ### Governance reforms and institutional arrangements - Strengthen SOE governance following international good practices (e.g., OECD Guidelines on Corporate Governance of SOEs, 2015) and lessons from country cases: - Strengthen role and independence of SOE boards of directors; ensure boards can set strategy in line with clear objectives. - Clearly set and periodically update the state’s rationale for ownership and the individual objectives assigned to each SOE; separate ownership, regulatory, and policy-making functions of the state. - Formalize board nomination processes based on competitive merit and transparent principles; require professionalism and relevant skills. - Ensure board members do not hold roles in regulatory or oversight bodies and declare ownership in all SOEs. - Require SOEs to maintain accounts according to international accounting standards; subject financial statements to independent external audits; establish comprehensive internal audit mechanisms. - Enhance competition by removing state-granted advantages (special tax treatments, favorable regulatory treatments, preferential procurement) and prevent monopolistic pricing or predatory practices that harm private suppliers. - Recent progress: - MEF and IGEPE have enhanced financial oversight and reporting (e.g., publication of consolidated accounts) and are working on transparency and digitalization, but further attention to corporate governance frameworks is needed. *Source: 1. The SOE Sector in Mozambique (June 24, 2024).* ### 16. Undertaking a comprehensive analysis of the SOE sector is important to set a holistic ### Purpose and scope of a comprehensive SOE analysis - Take stock of existing SOEs (including subsidiaries) encompassing: - commercial and financial viability, - performance, - public policy objectives, - track record, - role in addressing market failures. - Use the analysis to: - identify current information gaps, - guide and sequence policies, - prioritize large SOEs, SOEs targeted for privatization, and SOEs competing with private companies, - develop an SOE ownership policy outlining the rationale and objectives for state ownership (including on minority-shareholding) to guide SOE reforms going forward. ### IMF-supported assessment and recent efforts - MEF has commenced using the IMF-designed “SOE Health Check Tool” to evaluate the financial vulnerability of the fully- and majority-owned companies, and published the financial risk indicators of SOEs in 2024, in the context of the IMF ECF arrangement. - The quantitative tool underpins the SOE Financial Health Report, which: - analyzes trends in key metrics for liquidity, profitability and solvency for the largest ten companies, - provides similar information for other companies, - was prepared in close collaboration with IGEPE, - included information and analysis on the performance of the consolidated sector over 2020-2022. - Going forward recommendations: - update the analysis annually, - publish the findings for transparency and public awareness, - explore options to incorporate and quantify the fiscal risks arising from the SOE sector in forward-looking (i.e., contingency) analysis. - Note: These analyses on profitability and viability of SOEs can inform the IGEPE’s Investment Strategy 2020-2030, which provides a useful roadmap. ### Fiscal risks from minority-owned SOEs and ownership strategy - Minority-owned SOEs pose fiscal risks and uncertainties and add to IGEPE’s capacity constraints. - By definition, the state has no control over decision making of these entities. - Given IGEPE’s capacity constraints, it is not feasible to monitor their operations and decisions thoroughly in real time, and project flows to the budget in a timely and accurate manner. - Policy implication: Government should reconsider the ownership strategy and rationale behind minority-owned SOEs. - In this context, the IGEPE’s Investment Strategy 2020-2030 can serve as a baseline. ### Illustrative implementation notes from authorities (as reported) - Authorities noted that implementation of the IGEPE Investment Strategy 2020-2030 has been bearing fruits so far, for instance, with improvements in the operations of EDM and LAM. - Authorities mentioned that some minority-owned entities have been a good source of income for the state via the receipt of dividends. *Republic of Mozambique — International Monetary Fund (extract).* ### 1. The SOE Sector in Mozambique ________________________________________________________ 4 ### 1. The SOE Sector in Mozambique ### Role, scale, and recent performance - SOEs provide essential public goods and services (e.g., electricity, transportation, communication, extractives) but can generate fiscal costs and risks and are often subject to inefficiencies and poor governance. - IGEPE’s portfolio for consolidation purposes included 21 companies as of 2022: 11 fully-owned by the state, and 10 where the state and/or IGEPE are the majority shareholder. - The total assets of these 21 SOEs amounted to about 70 percent of GDP in 2022. - Employment and fiscal footprint in 2022 (IGEPE data): - SOE sector employed almost 18,000 people (about 2 percent of total formal employment). - Salaries and other personnel-related expenses in the sector amounted to 2.5 percent of GDP. - Net investment in tangible and intangible assets by the sector was around 4 percent of GDP. - Concentration and sectoral spread: - The top five SOEs in IGEPE’s 2022 consolidated accounts (EDM, ENH, CFM, ADM, PETROMOC) held almost 90 percent of the sector’s total assets. - The sector’s activities span financial, electricity, hydrocarbon, communication, and transportation sectors; the number of entities is concentrated in communication and transportation. - Financial performance and vulnerabilities: - Out of 21 fully- or majority-owned entities, nine SOEs reported negative operational profits in 2022. - Outstanding liabilities of the sector were about 46 percent of GDP in 2022 (IGEPE consolidated accounts). - World Bank Public Expenditure Review (2023) indicators (five largest SOEs, as of end-2020): - Accumulated arrears of the five largest SOEs amounted to almost 5 percent of GDP. - Net flows from budget to the largest five SOEs in 2020 were about a deficit of 2 percent of GDP. - Contingent liabilities of those entities reached almost 16 percent of GDP in 2020. - Historical averages (2017–19): - Average net outflows from the budget to the largest five SOEs: about 1.1 percent of GDP. - Average contingent liabilities: 13 percent of GDP. - SOE-to-SOE and SOE-government arrears and within-sector obligations are often netted in consolidated accounts, masking granular bilateral liabilities and arrears. ### Key fiscal and macro risks - Large asset and liability positions imply macroeconomic and fiscal costs and risks that can affect budget execution, private sector conditions, and overall economic stability. - Loss-making strategic SOEs (e.g., in airports, information and communication) may have spillovers into the wider economy. - Procurement practices and legal discretion for non-competitive procurement elevate corruption risks and impede accountability and competitive neutrality. ### Data, transparency, and monitoring recommendations - Short-term priorities for improving availability and accessibility of data: - Publish a complete list of all SOEs under IGEPE’s mandate (fully-, majority-, and minority-owned) with state ownership shares and basic information (including size of assets and liabilities), updated annually. - Include links to SOEs’ websites where feasible and continue publishing each SOE’s financial statements on IGEPE’s website, updating them regularly as they become available. - Improve timeliness of consolidated accounts publication by addressing SOE data-submission delays and continuing digitalization and staff training; recent publication pattern: - 2020 and 2021 reports were published in spring 2023 and 2024, respectively; 2022 report was published in May 2024 (but lacks some details compared to previous reports). - Launch a centralized database, published annually, on outstanding arrears and liabilities within the SOE sector and between government and SOEs, with priority coverage for large SOEs with macroeconomic and fiscal implications. - MEF (in cooperation with IGEPE) should establish and make publicly available the arrears dataset, and prepare a comprehensive strategy (in coordination with IGEPE and SOEs) to reduce arrears and prevent new accumulations, including state arrears to SOEs. - Granular reporting: - Produce separate annual reports documenting all variables and indicators for each SOE included in consolidated accounts to provide operational and financial granularity missing from sector-level consolidated reports. ### Procurement transparency and anticorruption steps - Current legal framework grants SOEs broad discretion to undertake direct (non-competitive) procurement, including “exceptional” processes without objective criteria or special approvals, which increases corruption risks. - Actions recommended: - Publish SOEs’ procurement policies and annual procurement plans to improve transparency and efficiency. - Launch a centralized/granular public database for SOE procurement (including amounts, contracting SOEs, types of procedures, beneficiaries, and beneficial owners). - Continue IGEPE’s revision of SOE procurement policies to introduce AML, beneficial ownership transparency, and anti-corruption elements, and complete publishing procurement guidelines and plans for the SOE sector by 2025. - Consider revising the legal framework to make SOEs subject to government procurement rules on transparency, while allowing narrow, well-defined flexibility where competition with the private sector exists. ### Governance reforms and institutional arrangements - Strengthen SOE governance following international good practices (e.g., OECD Guidelines on Corporate Governance of SOEs, 2015) and lessons from country cases: - Strengthen role and independence of SOE boards of directors; ensure boards can set strategy in line with clear objectives. - Clearly set and periodically update the state’s rationale for ownership and the individual objectives assigned to each SOE; separate ownership, regulatory, and policy-making functions of the state. - Formalize board nomination processes based on competitive merit and transparent principles; require professionalism and relevant skills. - Ensure board members do not hold roles in regulatory or oversight bodies and declare ownership in all SOEs. - Require SOEs to maintain accounts according to international accounting standards; subject financial statements to independent external audits; establish comprehensive internal audit mechanisms. - Enhance competition by removing state-granted advantages (special tax treatments, favorable regulatory treatments, preferential procurement) and prevent monopolistic pricing or predatory practices that harm private suppliers. - Recent progress: - MEF and IGEPE have enhanced financial oversight and reporting (e.g., publication of consolidated accounts) and are working on transparency and digitalization, but further attention to corporate governance frameworks is needed. *Source: 1. The SOE Sector in Mozambique (June 24, 2024).* ### 16. Undertaking a comprehensive analysis of the SOE sector is important to set a holistic ### 16. Undertaking a comprehensive analysis of the SOE sector is important to set a holistic ### Purpose and scope of a comprehensive SOE analysis - Take stock of existing SOEs (including subsidiaries) encompassing: - commercial and financial viability, - performance, - public policy objectives, - track record, - role in addressing market failures. - Use the analysis to: - identify current information gaps, - guide and sequence policies, - prioritize large SOEs, SOEs targeted for privatization, and SOEs competing with private companies, - develop an SOE ownership policy outlining the rationale and objectives for state ownership (including on minority-shareholding) to guide SOE reforms going forward. ### IMF-supported assessment and recent efforts - MEF has commenced using the IMF-designed “SOE Health Check Tool” to evaluate the financial vulnerability of the fully- and majority-owned companies, and published the financial risk indicators of SOEs in 2024, in the context of the IMF ECF arrangement. - The quantitative tool underpins the SOE Financial Health Report, which: - analyzes trends in key metrics for liquidity, profitability and solvency for the largest ten companies, - provides similar information for other companies, - was prepared in close collaboration with IGEPE, - included information and analysis on the performance of the consolidated sector over 2020-2022. - Going forward recommendations: - update the analysis annually, - publish the findings for transparency and public awareness, - explore options to incorporate and quantify the fiscal risks arising from the SOE sector in forward-looking (i.e., contingency) analysis. - Note: These analyses on profitability and viability of SOEs can inform the IGEPE’s Investment Strategy 2020-2030, which provides a useful roadmap. ### Fiscal risks from minority-owned SOEs and ownership strategy - Minority-owned SOEs pose fiscal risks and uncertainties and add to IGEPE’s capacity constraints. - By definition, the state has no control over decision making of these entities. - Given IGEPE’s capacity constraints, it is not feasible to monitor their operations and decisions thoroughly in real time, and project flows to the budget in a timely and accurate manner. - Policy implication: Government should reconsider the ownership strategy and rationale behind minority-owned SOEs. - In this context, the IGEPE’s Investment Strategy 2020-2030 can serve as a baseline. ### Illustrative implementation notes from authorities (as reported) - Authorities noted that implementation of the IGEPE Investment Strategy 2020-2030 has been bearing fruits so far, for instance, with improvements in the operations of EDM and LAM. - Authorities mentioned that some minority-owned entities have been a good source of income for the state via the receipt of dividends. *Republic of Mozambique — International Monetary Fund (extract).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1mozea2024003-print-pdf.pdf_