Mozambique's economic recovery over the past decade can be attributed to a number of factors. Its proximity to a South Africa that is keen to promote growth and build ties with its near neighbours is undoubtedly near the top of the list.
The resumption of agricultural production and trade that had been suspended during the long years of civil war certainly also accounted for much of the growth. Yet there is little doubt that the government has made the most of its few advantages and is investing in the kind of infrastructure that can help to take the economy on to the next level.
One area in particularly robust health, which both contributes to GDP and constitutes national infrastructure, is the power sector. Greatly increased generating capacity could stimulate sizeable export revenues and provide the growing domestic industrial sector with plentiful supplies of electricity.
While the construction of the gas pipeline from Mozambique's Pande and Temane natural gasfields to South Africa has been well publicised, plans for domestic consumption of gas are also well advanced.
The Elgas consortium will shortly publish its plan for a major gas-fired power plant in southern Mozambique. It is envisaged that the plant will have generating capacity of between 600MW and 1,500MW; a full feasibility study into the proposed plant will be carried out in 2005. Although such a massive addition to national capacity may seem ambitious for the Mozambican market alone, the continued development of the Southern African Power Pool (SAPP) provides a huge opportunity for power producers in the region.
It is likely that gas from both the Pande and Temane fields would be used to supply the plant, while electricity will be supplied to EDM and Eskom. However, the development of the SAPP's Short Term Energy Market (Stem) could change everything. Although Stem was introduced in 2001, the existence of long-term power supply contracts in the region has retarded its development--but the amount of electricity traded on shorter term contracts is now on the increase.
Instead of agreeing to purchase a fixed amount of electricity from a supplier over a fixed number of years, power companies in southern Africa can now purchase electricity in hourly blocks as and when required, in the fashion of sophisticated power pools operating in the UK or Australia for example.
This promotes competition, reduces tariffs and encourages independent power producers (IPPs) to set up in one country, safe in the knowledge that excess production can always be exported. Although the position of IPPs within the SAPP has yet to be determined, it is likely that Mozambique will be a prime site for new power plants that aim to supply the entire region.
Two South African firms, power utility Eskom and black empowerment firm African Legend, own a 35% stake in Elgas but most of the equity in the venture is held by Mozambican interests. Electricidade de Mocambique (EDM), Empresa Nacional de Hidrocarbonetos (ENH) and Consultinvest are the other shareholders in the company. Elgas is also at various stages of development of eight hydroelectric plants within Mozambique: Lurio Falls (177MW), Mavuzi III (56MW), Massingir Dam (50MW), Alto Malema (50MW), Tsate (50MW), Mutala (27MW), Muenezi (21MW) and Mavuzi II (8MW).
POWER SECTOR, A SUCCESS STORY
Two larger hydroelectric schemes are also at the planning stage. The 1,300MW Mphanda Nkuwa plant would be built 65km upstream of the existing Cahora Bassa plant. A 2002 feasibility study concluded that the new plant would be more economically viable than Cahora Bassa and Eskom has expressed an interest in purchasing power from the plant but the final go-ahead has not yet been given. If and when construction work begins, a feasibility study on the 500MW Cahora Bassa North project is likely. The former would require investment of $2.5bn, making the latter a relative bargain at just $300m.
Despite the country's hydroelectric and gas resources, the 1,050MW Moatize coal-fired plant is still under consideration. Zimbabwe was expected to purchase a large proportion of the plant's production but problems in that country have affected the viability of the scheme.
The $130m, 440kV transmission line linking Mozambique with South Africa and Swaziland is now operational. It was built and owned by the Mozambique Transmission Company (Motraco), which is owned by EDM (33.3%), Eskom (33.3%), Swaziland Electricity Board (15%) and a range of international investors. The new line will ease trade in electricity between Mozambique and South Africa. Although the development of the power sector is a success story in its own right, continued investment in transmission and distribution infrastructure will ensure that there is both an ample supply of electricity and an efficient means of delivering it to industrial and manufacturing concerns that develop domestically or seek to locate themselves in a low-cost economy.
South Africa has attracted substantial manufacturing investment, particularly in the motor trade, over the past decade, and Mozambique could easily offer itself as an alternative location with lower wages but equally attractive infrastructure.
Large-scale investment in Mozambique's road, rail and port infrastructure should boost domestic economic growth and also enable the country to offer itself as an alternative entrepot to southern Africa, for companies used to trading through Durban. Indeed, several major companies have begun to consider using the port of Maputo because of delays at Durban.
INTEGRATED APPROACH TO TRANSPORT
One of the most important aspects to transport investment in the country has been the integrated approach to development. Most Mozambican ports originally developed to serve traders in western Mozambique, Malawi, Zambia and Zimbabwe. Rail lines ran from the Indian Ocean to the west, so that each port had a defined hinterland. Most of these ports and associated rail lines fell into disuse during the civil war or were directly attacked and sabotaged by opposition forces.
Today, however, government and donor support has focused on redeveloping these transport links in order to kickstart regional economies. Following on from combined rail and port projects focused on Beira and Maputo, asimilar scheme on the Quelimane rail line has been unveiled. Again, a public private partnership (PPP) has been announced: this time state-owned rail and port operator CFM has been awarded a contract with Dutch firm Cornelder Mozambique. Under the PPP port landlord system, port and rail infrastructure will remain state owned but the joint venture will manage operations. The same partnership already operates the port of Beira.
A number of subsidiary contracts have been awarded over the past few months. Two Indian companies, Ircon and Rites have own a $175m contract to rehabilitate the Beira line to Zimbabwe and maintain rail infrastructure over the next 25 years. The government hopes that the improved line will lead to the redevelopment of the country's coal industry.
The company that won the contract to manage the port of Maputo in 1996, Maputo International Port Services (MIPS), is to invest $70m in new cranes for the port in order to boost capacity and improve turn around times.
Following on from Indian Ocean oil and gas discoveries, to the south in South Africa and to the north in Tanzania, offshore exploration is gearing up in Mozambique. Petronas Carigali Mozambique has acquired a 4,800km 2D seismic survey and is now due to begin drilling on its Zambezi Delta Offshore Block. The company is 85% owned by Malaysian oil company Petronas, with the remaining 15% share held by ENH. In addition, DNO of Norway has begun drilling on the Inhaminga onshore block in Sofala province. The company's general director Aasmund Erlandsen has indicated that natural gas discoveries are more likely than oil.
Careful economic management and selective investment in infrastructure has attracted praise and financial support from many donors, the IMF and the World Bank. Mozambique has also qualified for debt relief under the heavily indebted poor countries (HIPC) arrangement, although some creditors are keen to take the HIPC policy one step further. At the start of September, fellow lusophone country Brazil agreed to cancel 95% of the $350m debt owed to it by Mozambique and the Brazilian government is keen for other creditors to follow suit.
Brazilian president Luiz Inacio Lula da Silva commented: "I think this could serve as an example for other countries similar in size to Brazil to make a similar gesture to the poor countries of the world that often have an essentially unpayable debt."
The Mozambican government has fulfilled most of the promises on economic reform made to the multilaterals in order to qualify for debt relief. A reduction in the debt burden, donor support and rising government revenues are helping to pay for the infrastructural investment that could enable the country to experience a high level of growth for a long time to come. After many years of war and despair, Mozambique seems set for a similarly long period of recovery.…