Alaco

05.02.2016 | Is Mozambique ill-prepared for the predicted energy windfall?

Mozambique is forecast to become a leading energy supplier following the discovery of huge gas reserves. But if the government fails to tackle a raft of challenges, it may succumb to the resource curse that has plagued many other resource-rich African countries.

Mozambique is at a critical junction in its development.  Long dependent on foreign aid, the former Portuguese colony now has the opportunity to transform itself into a regional economic player thanks to recent energy discoveries.   However, the country may struggle to realise its potential unless it calms political rivalries, addresses widespread corruption and yawning disparities between the rich and poor.

Since the end of the civil war in 1992, which claimed 1 million lives and left the country in ruins, a combination of donor assistance, debt cancellation and foreign investment has put Mozambique on an upward economic trajectory and this could be only the beginning.  The exploitation of newly discovered gas and coal reserves could more than double the country’s wealth. 

The International Monetary Fund says the development of the offshore Rovuma field may turn the country into the third-largest exporter of liquefied natural gas, behind Qatar and Australia, with total investments projected to surpass $100 billion.  The two biggest investors, the oil companies ENI and Anadarko, are expected to finalise their investment plans this year.  Meanwhile, Tete province, in the centre of the country, is estimated to hold 20 billion tonnes of untapped reserves of coal, exports of which could triple by 2017 if the planned construction of a rail corridor connecting the region with the coast is completed in time.

But amid the economic optimism, the political stability that has helped to unlock Mozambique’s potential is under threat.  Tensions are once again mounting between the Frelimo government and the opposition Renamo party, who fought each other in the civil war.  After losing elections in late 2014, Renamo disputed the results of the poll and called for greater autonomy for six of the provinces where it had most supporters.  Outbreaks of violence between government troops and Renamo militia followed, with up to 3,000 fleeing the fighting into neighbouring Malawi since mid-2015.  The simmering conflict is unlikely to spark a civil war, but could lead to further political polarisation.

Corruption and marked inequality may also mean that few Mozambicans benefit from the anticipated energy bonanza.  The NGO Freedom House says corruption in government and business is pervasive, despite the government’s attempts to combat it through legislation and a dedicated unit within the Attorney General’s Office.  Graft and transparency are likely to become even bigger issues as the extractive sector expands. 

Although the IMF predicts the economy will grow by up to 7 per cent this year, the country remains one of the poorest in Africa.  Economic development has largely benefited a small urban elite, with some 55 per cent of Mozambicans living below the poverty line.  About eighty per cent of the population is employed in the agricultural sector, where incomes are meagre.  Failure to let the benefits of the developing extractive sector trickle down to the wider population is going to increase social tensions. 

The government has sought to address inequality to some extent by, for example, attempting to improve the performance of commercial agriculture and smallholder farms; increasing funding for the country’s struggling SMEs; and putting an emphasis on industrialisation in its national development strategy.  However, it is not clear how effective these measures have been. 

Moreover, even if the authorities are serious about tackling the wealth gap, efforts will be hampered by the downturn in commodity prices, shrinking foreign reserves and mounting public debt.  The country’s finances have been particularly stretched by the authorities’ ill-fated decision two years ago to act as a guarantor for a controversial $850 million bond to set up a tuna fishing company, which has left it having to make principal and interest repayments of around $260 million annually until 2020.

For the moment, the signs are that Mozambique is likely to struggle to effectively manage its predicted energy windfall, which could see it suffer the sort of authoritarianism, endemic corruption and social tensions that have plagued several other African countries since the development of their extractive sectors.