In Mozambique, one of the companies in the State Owned Enterprise Sector (SOE) that has been causing concern to the government is Linhas Aéreas de Moçambique (LAM), whose negative performance has been criticised by the population, which complains about the high prices charged and the frequent lack of punctuality on flights.
In a new effort to revitalise the airline, which has been in a critical situation for years, the government decided on Tuesday 4 February to sell 91% of the state’s shares in the company through private negotiation. The government also authorised the public companies EMOSE (Empresa Moçambicana de Seguros), CFM (Caminhos-de-Ferro de Moçambique) and HCB (Hidroeléctrica de Cahora Bassa) to acquire the state’s stake in the carrier.
As this is a new structural measure in the SOE since the new executive came in, with a focus on LAM, DE has analysed the possible advantages and disadvantages of the decision with economists. They believe that the need to capitalise the company is obvious, but stress that it is essential for the new government to implement transparency measures and fight corruption in order to guarantee the company’s sustainability.
Transparency and corruption problems
‘Some business, strategic and investment decisions at LAM were not compatible with generating profit. One example was the leasing of a cargo plane, which remained inoperative for a year, causing significant losses to the company and, consequently, to the state,’ explained economist Egas Daniel, adding that the Maputo-Lisbon route also proved unprofitable for the company and that ’the agreement with Fly Modern Ark did not have the desired effect on most of LAM’s operations.’
Salvado Raíssa
For Salvado Raíssa, an economist and project manager at the Centre for Democracy and Human Rights (CDD), the government’s intervention in LAM cannot be exclusively focused on the financial issue. ‘LAM has structural problems in its management, transparency and efficiency. Before discussing how many flights the company carries out and how much it makes, it is necessary to address its management and the issue of transparency. One of the main problems pointed out by Fly Modern Ark during its management of LAM was the existence of damaging corruption,’ he recalled.
Raíssa warned that if these problems persist, there is a high risk that the government will be forced to finance the company again or intervene financially. ‘If we remember, the Executive said a year and a half ago, when Fly Modern Ark entered the country, that the expectation was to transform the company, but many of the structural problems remained,’ she emphasised.
Clésio Foia
Viability of the Management Model
Economist Clésio Foia analysed the model of transferring shareholdings to other state-owned companies and warned that such a strategy could limit the implementation of management practices characteristic of the private sector, such as efficient decision-making, a focus on results and innovation. ‘The concentration of shareholdings in public companies can lead to a centralisation of economic power, making the state the country’s main economic agent, which can result in less competitiveness and efficiency,’ he warned.
Egas Daniel, on the other hand, considered that the management model could be advantageous, as LAM will remain under the control of profitable state companies, ensuring the continuity of its strategic mission of connecting economically unviable provinces. ‘The companies involved in the purchase of LAM have good profitability and distribute dividends to the state,’ he said.
Salvado Raíssa, however, takes a more sceptical view. ‘CFM is still profitable due to its monopolistic nature. I’m not even talking about EMOSE. HCB benefits from the fact that the government holds the largest stake, but it also has other investors who guarantee some supervision. The acquisition of LAM, a bankrupt company, by these three organisations does not guarantee that the management model will be sustainable,’ he argued.
Possible (dis)advantages of the sale
Economist Clésio Foia pointed to some advantages arising from the sale of the government’s assets in LAM to other state companies: ‘Relief from budgetary or fiscal burdens, and the transfer of management to profitable companies in the State Business Sector can reduce or eliminate the need for government subsidies on an ongoing basis. Companies like HCB and CFM have a history of efficient management and positive profitability, which could help LAM. Also, the acquisition of new aircraft will allow the carrier to reopen or introduce new flight frequency routes, increase flow and compete with better prices. And restructuring can boost related sectors such as tourism and logistics, promoting broader economic growth. With adequate investment, the company can overcome its image of inefficiency and improve services.’
Despite the potential benefits, the economist explained that the divestment also raises concerns about financial sustainability and management efficiency.
LAM has structural problems in its management, transparency and efficiency.Before discussing how many flights the company carries out and how much it makes, it is necessary to address its management and the issue of transparency.One of the main problems Fly Modern Ark pointed out during its management of LAM was the existence of damaging corruption
‘If the restructuring fails, the state could continue to bear LAM’s financial guarantees and contingent liabilities, which would keep pressure on public accounts. Companies identified as potential acquirers, such as EMOSE, HCB and CFM, may divert investments from their core activities to subsidise LAM, compromising its profitability and efficiency. Even after significant financial injections, such as 3.7 billion meticals (57.3 million dollars) between 2020 and 2023, the company continues to face serious structural problems, indicating that the solution may require more than just new investments. In addition, the financial sustainability of the 8.4 billion meticals (130 million dollars) – the amount earmarked for restructuring and acquiring new aircraft – may not be enough to guarantee a sustainable recovery in the long term,’ he pointed out.
Egas Daniel
Alternatives for revitalising LAM
Among the possible solutions for revitalising LAM, Raísse suggests going public or forming public-private partnerships. ‘Before we think about going public, it’s essential to resolve internal problems such as management, corruption and efficiency. The company’s administration is excessively cumbersome and there are many workers without defined roles,’ he warned.
Clésio Foia suggested strategic partnerships with private investors, following the example of South African Airways, which sold 51 per cent of its shares to a private consortium as part of its restructuring.
The economist defended the possibility of alliances with international airlines to share resources and adopt more efficient management models. ‘You could also establish alliances with other international airlines in order to establish code-share agreements or joint ventures to expand the route network and share resources. Another alternative would be to go public, but first, for this hypothesis, it would be necessary to have stable financial health in order to fulfil the criteria for adoption or listing on the Mozambique Stock Exchange (BVM), which could attract investment and impose market discipline, requiring transparency and improved corporate governance,’ he advised.
Private sector reaction
The Confederation of Economic Associations (CTA) said on Thursday 6 February that the sale of 91% of the state’s stake in LAM to state-owned companies represents ‘a first positive sign’ of structural reforms. ‘Since 2017 we have been calling for deep reforms in the state’s business park, and this is a measure that can bring benefits,’ said Agostinho Vuma, president of the CTA.
For him, the measure will help the private sector by promoting tourism, as well as contributing to better movement of people and goods in Mozambique and the region, and it is also expected that there will be a reduction in fares.
‘This is a measure that we have been waiting for for a long time and we believe that in these first 100 days it can be a ‘breath of fresh air’ for us as a private sector, but above all for the whole of society for which we aim to make mobility increasingly easier for us as Mozambicans,’ he added.
Text: Nário Sixpene
