Mozambique's gas boom threatens to falter as economy stumbles

In Mozambique's capital Maputo, shiny office towers and luxury hotels jostle for space with fashionable shops and gourmet restaurants among the dilapidated colonial architecture.

A new ring road passes on the palm tree-lined seafront, while gigantic pillars under construction will form part of what is being billed as Africa's largest suspension bridge. Airports and ports are being renovated in several cities.

The construction boom – financed partly by Chinese capital – was fuelled by the discovery in 2010-11 of gas reserves estimated at 200 trillion cubic feet.

The upcoming commercial exploitation of the northern Rovuma gas fields has the potential of turning one of the world's poorest countries into its third-largest producer of liquefied natural gas after Qatar and Australia, raising it into a middle-income nation.

But it now looks doubtful whether Mozambique will be able to seize the opportunity as concern mounts over an economic slowdown and massive debt threatening to devour the gas income.

Investors are withdrawing, with foreign direct investment dropping by a quarter to 3.7 billion dollars last year, according to the World Bank. "Many of the new offices and housing are standing empty," economist and banking expert Luis Magaco said.

The end of the 16-year civil war in 1992 spurred the economy into an average growth of 8 per cent between 1996 and 2008, driven by construction, energy, telecommunications, transport and finance.

The growth initially succeeded in reducing poverty, but it became increasingly reliant on coal, aluminium and other mineral industries, which created few jobs.

Central Maputo's wide avenues stand in contrast to the unpaved roads, piles of garbage and rusty fences in the capital's slums.

In the agricultural settlement of Matsequenha about 80 kilometres west of Maputo, the 180 resident families live mostly in grass huts.

They cook on fires outdoors, and the local shop is almost empty for lack of cars powerful enough to transport goods on the muddy and rut-filled road. "There is a lot to cry about," village chief Ernesto Sebastiao Muianga says.

Like him, 70 per cent of Mozambique's work force eke a living out of subsistence farming. The World Bank classifies nearly 55 per cent of the 26-million population as poor.

The Rovuma offshore and onshore gas fields offered the southern African country a new chance to rise out of poverty.

The International Monetary Fund has estimated that Mozambique could get half of its gross domestic product from gas by the mid-2020s. But analysts now say the windfall could be delayed amid growing concern over good governance and an economic slowdown.

Donors have suspended hundreds of millions of dollars in aid over a revelation that the government hid from them the existence of 1.3 billion dollars in debt, reportedly used for military equipment in corrupt deals.

The secret debt and the devaluation of the metical currency are expected to push the debt to GDP ratio past 100 per cent this year, just as the economy is being crippled by a fall in coal and other commodity prices and a severe drought.

Local analysts expect a growth considerably slower than the World Bank forecast of 5.8 per cent.

An inflation which was running at 17 per cent in April is meanwhile threatening to spark unrest, while an armed conflict between the government and the opposition party Renamo has escalated in northern and central provinces, where gas and coal reserves are located.

With falling gas prices also creating uncertainty about the future of the industry, analysts said, the US company Anadarko - Mozambique's leading gas prospector alongside Italy's Eni - is expected to pull out. Anadarko did not comment.

Even if gas production is delayed, it is likely to start within a few years, Magaco said.

But tax income from gas projects will be swallowed up by dept repayments which "will cast a decades-long shadow over the country," said Chris McKeon, Africa analyst with the risk consultant Verisk Maplecroft.

Others worry that the gas income will fall victim to Africa's "resource curse" - corrupt officials and a business-minded elite pocketing the mineral wealth.

The government also appears prepared to grant gas companies exemptions from taxes and currency rules that would allow them to take much of the wealth out of the country, said Fatima Mimbire from the anti-corruption watchdog Centre for Public Integrity.

"We are still negotiating” the conditions in which the companies will operate, Finance Ministry spokesman Rogerio Nkomo responded.

"The risk for [Mozambicans] is to stay in the same or worse situation," Mimbire said.

Village chief Muianga, nevertheless, trusts that the gas discoveries will benefit the poor. “The government cannot forget us,” he says on the yard of his small rock house, where hens are strutting and a dog is taking a nap.

"If you promise, you have to deliver. However long it takes."

Last update: Thu, 26/05/2016 - 12:46

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