Magazine article Business Credit

Hot Spots: Mozambique

Magazine article Business Credit

Hot Spots: Mozambique

Article excerpt

Mozambique is a former Portuguese colony where even today, two decades after the end of a 15-year-long civil war that claimed the Uves of more than a million people, average income is not much more than USD 400 a year and over half of the 23-million population ekes out a living below a poverty line of 50 U.S. cents. Real gross domestic product (GDP) growth averaged 8% between 1996 and 2008, driven by reconstruction and development after the war and helped by debt relief, yet the state still depends on international donors for between 40%-45% of its budget and much of the country is still little more than a sprawl of small villages connected by rough dirt roads.

Now, though, Mozambique is on the brink of an amazing boom that could turn it into one of the wealthiest nations in Africa. The country's coal mining rush is one reason for this, as the region is endowed with one of the worlds richest undeveloped coal reserves. Coal exports have already climbed from 1.5 million metric tons to more than 4 million tons annually. Production is forecast to reach 20 million tons by 2015. So far, Brazil's Vale is the only miner exporting coal, but Mozambique could be producing between 20-50 million tons per mine each year in the next decade, and investment in known coal projects is expected to bring USD 10 billion into the country over the next few years.

Billions more will be spent on infrastructure such as roads and railroads to transport the coal and make improvements to the port of Maputo. Even more important in making the nation the focus of unprecedented investor interest have been huge discoveries of natural gas off the northern coast. These could bring in another USD 70 billion in investments over the next few years. The biggest finds were by Andarko Petroleum and Cove, a small, Africa-focused oil and gas explorer that has just accepted a USD 2-billion bid from Royal Dutch Shell for its 8.5% stake in a big gas field, as well as the Italian energy giant ENI.

The two fields of Andarko and ENI combined could contain up to 60 trillion cubic feet of recoverable natural gas, nearly as much as Kuwait's entire reserves. They are expected to turn Mozambique into a world-class exporter of liquefied natural gas (LNG), with sales targeted mainly to the energy-hungry economies of China and India. The large LNG plant that Andarko has proposed to build will cost upwards of USD 25 billion, more than twice the country's entire gross domestic product. At today's prices, the 30-40 million tons a year of LNG which Mozambique may produce would mean revenues of around USD 30 billion. Prior to that, the country will already benefit from rising investment levels: ENI says it expects to spend 3.1 billion euros between 2012 and 2015; Andarko and its partners will likely spend more.

It is hardly surprising that the heads of political leaders in Maputo are spinning, although it remains to be seen just how quickly and extensively all this will benefit the region. Current contracts with miners and oil companies apparently do not have the kinds of clauses demanding the use of local content as do the agreements forged by countries such as Brazil. This means that domestic companies could get the short end of the stick and be relegated to minor suppliers as quick construction means bringing in workers, equipment and materials from abroad. Also, resource booms can entrench elites and worsen corruption, a problem that has plagued Eastern Africa (Nigeria, Angola, etc. …

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