## State-Owned Enterprises in Mozambique: Current Situation and Policy Options ## Source details **Canonical URL:** [State-Owned Enterprises in Mozambique: Current Situation and Policy Options](https://www.imf.org/-/media/files/publications/selected-issues-papers/2024/english/sipea2024032.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2024/english/sipea2024032.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2024/english/sipea2024032.pdf.json) --- ### Background: Role, Size, and Risks - IGEPE’s portfolio consisted of 21 companies for consolidation purposes as of 2022; among those, 11 companies are fully-owned by the state, while the state and/or IGEPE are the majority shareholder in 10 companies. - Total assets of these 21 SOEs under IGEPE’s portfolio stayed about 70 percent of GDP in 2022. - The SOE sector employed almost 18,000 people (about 2 percent of total formal employment) in 2022. - Salaries and other personnel-related expenses in the sector amounted to 2.5 percent of GDP in 2022. - Net investment in tangible and intangible assets by the sector was around 4 percent of GDP in 2022. - The SOE sector is highly concentrated: the total asset size of the top five SOEs in IGEPE’s 2022 consolidated accounts amounted to almost 90 percent of the sector’s total assets. The top five SOEs identified include EDM (Electricidade de Moçambique), ENH (Empresa Nacional de Hidrocarbonetos), CFM (Caminhos de Ferro de Moçambique), ADM (Aeroportos de Moçambique), and PETROMOC (Petróleos de Moçambique). - Sectoral footprint: SOEs operate across financial, electricity, hydrocarbon, communication, transportation, extractives, and other sectors. - Financial performance: Out of 21 fully- or majority-owned entities, nine SOEs saw negative operational profits in 2022. - Outstanding liabilities of the sector stayed about 46 percent of GDP in 2022 (IGEPE consolidated accounts). - World Bank Public Expenditure Review (2023) data (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 stayed about a deficit of 2 percent of GDP. - Contingent liabilities of those entities reached almost 16 percent of GDP in 2020. - Pre-COVID averages (2017–19): average net outflows from the budget to the largest five SOEs were about 1.1 percent of GDP, and contingent liabilities averaged 13 percent of GDP. - Implication: the SOE sector entails significant macroeconomic and fiscal costs and risks, with some large SOEs capable of material spillovers to the broader economy and public finances. ### Policy and Reform Priorities: Data, Governance, and Transparency - Recent and ongoing authority actions: - IGEPE started publishing annual reports on the sector’s consolidated accounts and is exploring digitalization to improve timeliness and quality of data and reporting. - IGEPE has been revamping its website to compile SOEs’ annual financial statements in a timely manner ahead of consolidated accounts publication. - MEF incorporated fiscal risks related to the SOE sector into its annual reports and published a comprehensive analysis to assess financial health of the sector in 2024 with IMF support. - Short-term transparency and data priorities: - IGEPE should publish the list of all SOEs under its mandate (fully-, majority-, and minority-owned) alongside the shares owned by the state and basic information (including the size of assets and liabilities), to be updated annually. The list should include links for SOEs’ websites, whenever feasible. - Continue publishing each SOE’s financial statements and update them regularly as they become available. - Improve timeliness of consolidated accounts: 2020 and 2021 reports were published in spring 2023 and 2024, respectively; the 2022 report was published in May 2024 (but lacks some details compared to previous reports). Delays are partly due to late data submission by SOEs; digitalization of data submission is ongoing. - IGEPE should continue staff training and capacity-building to better coordinate data submission and produce consolidated accounts and audits in a timely manner. - Need for granular and centralized datasets: - Launch and publish annually a centralized database on outstanding arrears and liabilities within the SOE sector and between government and SOEs, including SOE-to-SOE arrears and SOE-government arrears (e.g., tax obligations, VAT refund arrears). - MEF (in cooperation with IGEPE) should establish this dataset and make it publicly available; once available, MEF should prepare a comprehensive strategy (in coordination with IGEPE and SOEs) to reduce arrears and prevent accumulation of new arrears, including arrears of the state to SOEs. - Provide granular data for each SOE (included in consolidated accounts) by documenting the same variables and indicators reported for the overall sector, potentially via a separate annual report. - Procurement transparency and governance: - Mozambique’s legal framework grants SOEs broad discretion to undertake direct (non-competitive) procurement, elevating corruption risks; SOEs may use “exceptional” processes without objective criteria, safeguards, or special approvals beyond informing the shareholders meeting. - Legislation allows each SOE to develop its own procurement policies, subject to IGEPE approval, to be incorporated into corporate documents (which are not always publicly available). - There is no centralized/granular database on SOE procurement (e.g., modalities), impeding assessment of competitiveness and accountability. - Immediate steps: publish SOEs’ procurement policies and annual procurement plans to improve efficiency and transparency. - IGEPE is revising SOE procurement policies to introduce AML, beneficial ownership transparency, and anti-corruption elements, and is committed to complete publishing all procurement guidelines and plans for the SOE sector by 2025. - Authorities should consider launching a centralized/granular procurement database (including amounts, contracting SOEs, types of procedures, beneficiaries, and beneficial owners) and consider legal revisions to subject SOEs to the government’s procurement oversight as appropriate. - Other governance recommendations: - Enhance timely and regular collection of data that is easily accessible to better assess SOE performance and raise awareness about associated fiscal costs and risks. - Focus attention on large SOEs given concentration of assets and potential macro-fiscal implications. - Conduct comprehensive assessments of efficiency and commercial viability for SOEs reporting losses, especially strategic entities delivering essential public goods and services. ### Procurement transparency and rules - Various SOEs currently include some information of procurement activities in their websites. - Recommendation: Strengthen procurement rules, especially regarding transparency requirements, while considering adequate, but narrow, flexibility for those that compete with the private sector. ### SOE governance reforms and international good practices - OECD Guidelines on Corporate Governance of SOEs (2015) underpin many country reforms. - Elements for successful reforms (cited sources: World Bank 2020; OECD 2015a, 2015b, 2021; IMF 2020, 2021): - Introduce measures to strengthen the role and independence of SOEs’ boards of directors. - Clearly set and periodically update the state’s rationale for state ownership and the individual objectives assigned by the state to individual SOEs, supported by political leadership. - Enhance competition via removing barriers to entry by eliminating advantages enjoyed by SOEs, including special tax treatments, favorable regulatory treatment and preferential procurement procedures. - Require SOEs to maintain accounts according to international accounting standards, have financial statements subject to independent external audits, and establish comprehensive internal audit mechanisms. - Take steps to prevent monopolistic pricing power of SOEs and protect private suppliers to SOEs from predatory pricing. ### Strengthening corporate governance in Mozambique - Recent reforms to the SOE legal framework and ongoing efforts by MEF and IGEPE improved financial oversight and reporting; more attention is needed to corporate governance frameworks to improve sector performance. - Key recommendations: - Strengthen the role, independence, and autonomy of SOE boards; empower boards to set their own strategy in line with clear objectives. - Clarify roles of the state (as owner), boards, and management, ensuring uniformity across SOEs. - Separate the state’s ownership, regulatory and policy-making functions; develop a comprehensive ownership policy including strong transparency requirements for both SOEs and the state as owner. - Formalize the board nominations process based on competitive merit and transparent principles seeking professionalism and relevant skills. - Ensure SOE board members (i) do not take other roles in regulatory or oversight bodies, and (ii) declare their ownership, if any, in all SOEs. ### Comprehensive analysis, prioritization, and sequencing of reforms - Undertake a comprehensive analysis of the SOE sector to set a holistic strategy for prioritizing and sequencing needed reforms. - The analysis should encompass: - Existing SOEs (including subsidiaries), commercial and financial viability, performance, public policy objectives, track record, and role in addressing market failures. - Identification of information gaps to guide and sequence policies. - Prioritization of large SOEs, SOEs targeted for privatization, and those competing with private companies. - Development of an SOE ownership policy outlining the rationale and objectives for state ownership (including on minority-shareholding). ### SOE Health Check, reporting, and fiscal risk analysis - 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, analyzing trends in key metrics for liquidity, profitability and solvency for the largest ten companies, and similar information for other companies. - The report was prepared in close collaboration with IGEPE and included information and analysis on the performance of the consolidated sector over 2020-2022. - Recommendations: - Update the analysis annually and publish the findings for transparency and public awareness. - MEF should explore options to incorporate and quantify the fiscal risks arising from the SOE sector in its forward-looking (i.e., contingency) analysis. - Use analyses on profitability and viability to inform IGEPE’s Investment Strategy 2020-2030. ### 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. - Recommendation: Reconsider the ownership strategy and rationale behind minority-owned SOEs, using IGEPE’s Investment Strategy 2020-2030 as a baseline where appropriate. - Note: Authorities mentioned some minority-owned entities have been a good source of income for the state via the receipt of dividends. *Prepared by Can Sever and Santos Bila, IMF Selected Issues Paper (SIP/2024/032), completed June 24, 2024.* ### Section 1 ### State-Owned Enterprises in Mozambique: Current Situation and Policy Options ### Background: Role, Size, and Risks - IGEPE’s portfolio consisted of 21 companies for consolidation purposes as of 2022; among those, 11 companies are fully-owned by the state, while the state and/or IGEPE are the majority shareholder in 10 companies. - Total assets of these 21 SOEs under IGEPE’s portfolio stayed about 70 percent of GDP in 2022. - The SOE sector employed almost 18,000 people (about 2 percent of total formal employment) in 2022. - Salaries and other personnel-related expenses in the sector amounted to 2.5 percent of GDP in 2022. - Net investment in tangible and intangible assets by the sector was around 4 percent of GDP in 2022. - The SOE sector is highly concentrated: the total asset size of the top five SOEs in IGEPE’s 2022 consolidated accounts amounted to almost 90 percent of the sector’s total assets. The top five SOEs identified include EDM (Electricidade de Moçambique), ENH (Empresa Nacional de Hidrocarbonetos), CFM (Caminhos de Ferro de Moçambique), ADM (Aeroportos de Moçambique), and PETROMOC (Petróleos de Moçambique). - Sectoral footprint: SOEs operate across financial, electricity, hydrocarbon, communication, transportation, extractives, and other sectors. - Financial performance: Out of 21 fully- or majority-owned entities, nine SOEs saw negative operational profits in 2022. - Outstanding liabilities of the sector stayed about 46 percent of GDP in 2022 (IGEPE consolidated accounts). - World Bank Public Expenditure Review (2023) data (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 stayed about a deficit of 2 percent of GDP. - Contingent liabilities of those entities reached almost 16 percent of GDP in 2020. - Pre-COVID averages (2017–19): average net outflows from the budget to the largest five SOEs were about 1.1 percent of GDP, and contingent liabilities averaged 13 percent of GDP. - Implication: the SOE sector entails significant macroeconomic and fiscal costs and risks, with some large SOEs capable of material spillovers to the broader economy and public finances. ### Policy and Reform Priorities: Data, Governance, and Transparency - Recent and ongoing authority actions: - IGEPE started publishing annual reports on the sector’s consolidated accounts and is exploring digitalization to improve timeliness and quality of data and reporting. - IGEPE has been revamping its website to compile SOEs’ annual financial statements in a timely manner ahead of consolidated accounts publication. - MEF incorporated fiscal risks related to the SOE sector into its annual reports and published a comprehensive analysis to assess financial health of the sector in 2024 with IMF support. - Short-term transparency and data priorities: - IGEPE should publish the list of all SOEs under its mandate (fully-, majority-, and minority-owned) alongside the shares owned by the state and basic information (including the size of assets and liabilities), to be updated annually. The list should include links for SOEs’ websites, whenever feasible. - Continue publishing each SOE’s financial statements and update them regularly as they become available. - Improve timeliness of consolidated accounts: 2020 and 2021 reports were published in spring 2023 and 2024, respectively; the 2022 report was published in May 2024 (but lacks some details compared to previous reports). Delays are partly due to late data submission by SOEs; digitalization of data submission is ongoing. - IGEPE should continue staff training and capacity-building to better coordinate data submission and produce consolidated accounts and audits in a timely manner. - Need for granular and centralized datasets: - Launch and publish annually a centralized database on outstanding arrears and liabilities within the SOE sector and between government and SOEs, including SOE-to-SOE arrears and SOE-government arrears (e.g., tax obligations, VAT refund arrears). - MEF (in cooperation with IGEPE) should establish this dataset and make it publicly available; once available, MEF should prepare a comprehensive strategy (in coordination with IGEPE and SOEs) to reduce arrears and prevent accumulation of new arrears, including arrears of the state to SOEs. - Provide granular data for each SOE (included in consolidated accounts) by documenting the same variables and indicators reported for the overall sector, potentially via a separate annual report. - Procurement transparency and governance: - Mozambique’s legal framework grants SOEs broad discretion to undertake direct (non-competitive) procurement, elevating corruption risks; SOEs may use “exceptional” processes without objective criteria, safeguards, or special approvals beyond informing the shareholders meeting. - Legislation allows each SOE to develop its own procurement policies, subject to IGEPE approval, to be incorporated into corporate documents (which are not always publicly available). - There is no centralized/granular database on SOE procurement (e.g., modalities), impeding assessment of competitiveness and accountability. - Immediate steps: publish SOEs’ procurement policies and annual procurement plans to improve efficiency and transparency. - IGEPE is revising SOE procurement policies to introduce AML, beneficial ownership transparency, and anti-corruption elements, and is committed to complete publishing all procurement guidelines and plans for the SOE sector by 2025. - Authorities should consider launching a centralized/granular procurement database (including amounts, contracting SOEs, types of procedures, beneficiaries, and beneficial owners) and consider legal revisions to subject SOEs to the government’s procurement oversight as appropriate. - Other governance recommendations: - Enhance timely and regular collection of data that is easily accessible to better assess SOE performance and raise awareness about associated fiscal costs and risks. - Focus attention on large SOEs given concentration of assets and potential macro-fiscal implications. - Conduct comprehensive assessments of efficiency and commercial viability for SOEs reporting losses, especially strategic entities delivering essential public goods and services. *Prepared by Can Sever and Santos Bila, IMF Selected Issues Paper (SIP/2024/032), completed June 24, 2024.* ### Section 2 ### Section 2 ### Procurement transparency and rules - Various SOEs currently include some information of procurement activities in their websites. - Recommendation: Strengthen procurement rules, especially regarding transparency requirements, while considering adequate, but narrow, flexibility for those that compete with the private sector. ### SOE governance reforms and international good practices - OECD Guidelines on Corporate Governance of SOEs (2015) underpin many country reforms. - Elements for successful reforms (cited sources: World Bank 2020; OECD 2015a, 2015b, 2021; IMF 2020, 2021): - Introduce measures to strengthen the role and independence of SOEs’ boards of directors. - Clearly set and periodically update the state’s rationale for state ownership and the individual objectives assigned by the state to individual SOEs, supported by political leadership. - Enhance competition via removing barriers to entry by eliminating advantages enjoyed by SOEs, including special tax treatments, favorable regulatory treatment and preferential procurement procedures. - Require SOEs to maintain accounts according to international accounting standards, have financial statements subject to independent external audits, and establish comprehensive internal audit mechanisms. - Take steps to prevent monopolistic pricing power of SOEs and protect private suppliers to SOEs from predatory pricing. ### Strengthening corporate governance in Mozambique - Recent reforms to the SOE legal framework and ongoing efforts by MEF and IGEPE improved financial oversight and reporting; more attention is needed to corporate governance frameworks to improve sector performance. - Key recommendations: - Strengthen the role, independence, and autonomy of SOE boards; empower boards to set their own strategy in line with clear objectives. - Clarify roles of the state (as owner), boards, and management, ensuring uniformity across SOEs. - Separate the state’s ownership, regulatory and policy-making functions; develop a comprehensive ownership policy including strong transparency requirements for both SOEs and the state as owner. - Formalize the board nominations process based on competitive merit and transparent principles seeking professionalism and relevant skills. - Ensure SOE board members (i) do not take other roles in regulatory or oversight bodies, and (ii) declare their ownership, if any, in all SOEs. ### Comprehensive analysis, prioritization, and sequencing of reforms - Undertake a comprehensive analysis of the SOE sector to set a holistic strategy for prioritizing and sequencing needed reforms. - The analysis should encompass: - Existing SOEs (including subsidiaries), commercial and financial viability, performance, public policy objectives, track record, and role in addressing market failures. - Identification of information gaps to guide and sequence policies. - Prioritization of large SOEs, SOEs targeted for privatization, and those competing with private companies. - Development of an SOE ownership policy outlining the rationale and objectives for state ownership (including on minority-shareholding). ### SOE Health Check, reporting, and fiscal risk analysis - 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, analyzing trends in key metrics for liquidity, profitability and solvency for the largest ten companies, and similar information for other companies. - The report was prepared in close collaboration with IGEPE and included information and analysis on the performance of the consolidated sector over 2020-2022. - Recommendations: - Update the analysis annually and publish the findings for transparency and public awareness. - MEF should explore options to incorporate and quantify the fiscal risks arising from the SOE sector in its forward-looking (i.e., contingency) analysis. - Use analyses on profitability and viability to inform IGEPE’s Investment Strategy 2020-2030. ### 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. - Recommendation: Reconsider the ownership strategy and rationale behind minority-owned SOEs, using IGEPE’s Investment Strategy 2020-2030 as a baseline where appropriate. - Note: Authorities mentioned some minority-owned entities have been a good source of income for the state via the receipt of dividends. *Source: sipea2024032 - Section 2* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2024/english/sipea2024032.pdf_