Mozambique: Natural Resources to Provide Catalyst for Further Development

Courtesy of Future Directions International, a detailed look at Mozambique, where large reserves of natural resources in Mozambique are attracting foreign investment, which is expected to boost the already-growing economy:

After a decade-long civil war, Mozambique was one of the world’s poorest countries. Now, however, it has one of the world’s fastest growing economies. Gross Domestic Product (GDP) increased from US$2 billion at war’s end in 1992, to US$15.3 billion in 2013. The future prospects for the Mozambican economy look promising, with foreign investors continuing to showing interest in its natural resources, especially in the mining sector. Recent new discoveries of natural gas and oil deposits will present opportunities for Mozambique, but translating that growth into improved social outcomes will continue to be a major challenge.

Australian mining and exploration companies, such as Cokal Limited, Baobab Resources, Auroch Minerals and Metals of Africa Limited, have already recognised the value of Mozambique’s minerals sector and have based several projects there. India’s International Coal Ventures Private Limited (ICVL) consortium, has announced plans to triple the output of its Benga open cut mine in Tete province within the next three years. ICVL recently paid US$50 million for coal assets that had been owned by Rio Tinto since 2011; this was around two per cent of the original value. Rio Tinto’s Mozambique operations had been severely hindered by the lack of infrastructure.

This comes soon after a Corporate Council on Africa business forum, held in Washington DC on 4 August, at which Mozambican President, Armando Guebuza, encouraged US investors to invest in his country’s coal and natural gas reserves. Mozambique is expected to benefit from ongoing high demand for coal from China and India. According to KPMG international, it could become one of the ten largest coal exporters by 2017, with coal production forecast to reach 38 million tonnes per year.

During the Corporate Council on Africa event, President Guebuza also emphasised the need for foreign investment in railway infrastructure, so that the mines can reach their full potential. He said that: ‘The Moatize coal mines can produce a great deal, but the throughput logistics are a problem’. Currently, the only way to transport the coal mined in Tete is the Sena railway line, which will still only have a capacity of 11 million tonnes per year – an increase of five million tonnes – once current work is completed. This is inadequate considering the production levels forecast for 2017, not to mention the hugely ambitious target of 100 million tonnes per year by 2020, hoped for by the government. The importance of investing in rail was also outlined in a report by PwC and Econometrix, where the need to upgrade infrastructure to meet rising demandwas identified asa key obstacle to further improving the Mozambican economy.

As well as coal, Mozambique has potential in both the natural gas and oil sectors. Recent discoveries indicate that Mozambique may possess over 100 trillion cubic feet of natural gas. Although not new to the natural gas industry, with additional foreign investment Mozambique is likely to become a major natural gas exporter and has already identified a number of customers in Asia. A small oil reserve has been discovered in the southern province of Inhambane and South African petrochemical company, Sasol, is expected to launch production this year. Although the reserve is expected to produce only 2,000 barrels per day, further exploration is already underway.

Foreign investment is crucial if Mozambique is to reap the benefits of its natural resources. But that could be problematic. The current political situation is not as stable as many investors would like, with tensions between the Frelimo and Renamo political parties recently resurfacing. Amid the tension, general elections are expected to be held on 15 October, with Renamo leader,Afonso Dhlakama, expected to stand again as a presidential candidate. A Mozambican executive, interviewed by the Financial Times, noted the importance of these elections, ‘stability is the key issue; this year and next are the most important years in Mozambique. If we can have all these processes [elections] done properly, we are on the right way.’ A successful election will help to maintain investor confidence in the country.

In poor but resource-rich countries such as Mozambique, there are often expectations that exports of natural resources will bring in large amounts of foreign revenue, create jobs and boost economic growth. In Mozambique, there is also a general hope that development will reduce its high rate of poverty. Although resource-based development has the capacity to help with these issues, the experience in resource-rich African countries, like Nigeria, Equatorial Guinea and the Democratic Republic of Congo, indicates that the wealth obtained from natural resources does not always translate to a better standard of living.

Former researcher for the South African Institute of International Affairs, Ichumile Gqada, has emphasised the importance of equitable development, commenting that ‘gas discoveries have created a sense of hope in Mozambique, [but] hopes frustrated could bring with them a level of unrest and instability detrimental to the peace and stability that foster inward investment’. Both transparency and equitable development will be needed to maintain stability, a key factor in the continued economic growth of Mozambique.

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