The Ematum Case In Mozambique Harvard Case Solution & Analysis

In this connected world, it is not the companies that have to compete for their survival, the nations have to compete also to earn as much as they can so that their citizens can be fed properly and there are some savings also for the future tragedies or mishaps. But corruption, misappropriation, etc. in the national accounts of any country are proved to be hindrance in the achievement of these ambitious goals.The government of Mozambique wants to increase its revenue streams through launching of a company which do fishing of Tuna. The company has been made and finances for purchasing of the vessels have been taken from the issuance of bonds at exorbitant rates. The financial performance of the company is very bad and it does not even get the true potential of the revenues. The government is mulling an option to operate it as public-privatize venture or continue operating it under its control.
Mozambique is one of the fragile economies of the African subcontinent. The economic freedom score of the economy of Mozambique is 54.8, which makes it the 125th economically free country in the world index of 2015. It is ranked at 24th spot among the 46 economies of Sub-Saharan Africa region. The question here arises that what factors are responsible for lower score of Mozambique, then of African region as a whole as shown in diagram number 1. Another question is that what factors are responsible for the higher score of the free economies of the world. What makes them different from the rest as shown in diagram number 1?The peace after the civil war and the discovery of natural gas acts as a catalyst to accelerate the economic growth in Mozambique (2015 index of Economic Freedom). But corruption, misappropriation, lack of justice, etc. have masked the development made in presence of these catalysts.
Background- EMATUM

The government of Mozambique realized that there is huge illegal fishing of Tuna within the waters of Mozambique in Indian Ocean. According to one of the ministers of the cabinet of Mozambique, the total amount of the vessels licensed to carry out the Tuna fishing are 129, but in comparison to that the revenues from the licensee fees are very low as shown in exhibit 1.According to Indian Ocean Tuna Commission, the potential of the Tuna fishing in South-Western Indian Ocean is more than 70 0k tonnes a year(, n.d). The government incorporated a Tuna fishing company in the public sector under the name of EMATUM in 2013. If the government of Mozambique brings in its own vessels for fishing, will it be a feasible option to carry forward by the government of Mozambique?

EMATUM vs. Economy of Mozambique:

The performance of the government of Mozambique is marred by the weak finances, corruption and by all other evils of the bad economy. To buy such flotilla of vessels, huge amount of money is needed. Mozambique’s government banked on the option of issuing the bonds worth $850 million in order to finance the purchases of vessels at exorbitant rates, three times higher than that of US treasuries (Reuters, 2015). The amount of bonds issued was equal to 6% of the GDPof Mozambique. Does Mozambique has the ability to cope up with the issuance of bonds of such a huge size?

Financial Analysis of the EMATUM:

It has been two years since the incorporation of EMATUM. The financial performance of the company for the two years has been shown in exhibit 2 and 3. The company’s potential to earn revenues is of $196 million(, n.d). However, it was earning very less revenue. The huge interest payments on the bonds made the case more difficult. The company had acquired huge amounts of fixed assets but that also increased the amount of long term loans in the form of bonds.The Ematum Case In Mozambique Case Solution

Financial Risk Management:

The financial risk to the government as well as the company itself is huge due to borrowing of the funds at higher rates. The company needs to consider whether to hedge these risks through various hedging instruments or it should consider going on without hedging. The company needs to consider the cost benefit analysis in order to better judge and get the true picture of the scenario.

Exchange Rate Risk:

The company faces huge amount of exchange rate rick while doing interest payments to its bond holders. Due to the weak economy of the country, the risk becomes far greater in magnitude to affect the financial position of the country.......................

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