Mozambique: Africa’s Very Own Qatar
For many people, the first time they heard about Mozambique was in March this year when cyclone Idai hit the country, killing 602 people, destroying nearly 110,000 houses and leaving more than 146,000 people displaced¹. The World Bank estimates that the country has lost up to $773 million from damages to buildings, infrastructure and agriculture.
What most people don’t know is that the country has some of the biggest natural gas reserves in the world and just three months after the cyclone, a historic announcement was made. On June 18th , the American energy firm, Anadarko Petroleum Corporation, announced its Final Investment Decision (FID) in Mozambican liquified natural gas (LNG).
The firm plans to invest $25 billion to develop the project. According to many sources, this constitutes the biggest foreign investment for any project in Africa. During the signing ceremony in Maputo, the capital city of Mozambique, Anadarko CEO Al Walker claimed that “over time this project will double this country’s GDP”².
The Rovuma LNG project has also been approved by the government of Mozambique in May. It’s another large natural gas project led by the Italian Eni and Exxon Mobil. The FID will be announced later this year.
Country Profile
Mozambique is located in Southeast Africa, bordered by six countries (Zimbabwe, Eswatini, South Africa, Tanzania, Malawi, Zambia) and the Indian Ocean. According to recent data provided by the United Nations (UN), the country has a population of 29.5 million people and a GDP of $14.46 billion. It covers an area of 801,590 square kilometers, which is about nine times the size of Portugal, its former colonizer. The official language is Portuguese.
Technical details of the gas projects
Mozambique LNG
The operators in the Mozambique LNG joint venture are: Anadarko Moçambique Área 1 (26.5%) PI, Mitsui E&P Mozambique Area1 Ltd. (20%), ENH Rovuma Área Um, S.A. (15%), BREML (Beas Rovuma Energy Mozambique Limited) (10%), BPRL (10%), ONGC Videsh (10%) and PTTEP Mozambique Area 1 Limited (8.5%)³. This joint venture will explore the Area 1 offshore of the Rovuma Basin which has about 75 trillion cubic feet of recoverable natural gas (Mozambique LNG).
In its initial phases, the production capacity of Mozambique LNG will be 12.88 million tons per year with an eventual production capacity of 50 million tons. So far, the Mozambique LNG has secured several Sales and Purchase Agreements (SAPs) from multinational firms including PTTEP of Thailand, Électricité de France (EDF), Tokyo Gas Co Ltd., and Centrica LNG Co. Ltd⁴.
Rovuma LNG
The second major natural gas project is the Rovuma LNG which will explore Area 4 of the same basin. The operators will be Eni (25%) and Exxon Mobil (25%). The other parties are: CNPC (20%), Galp (10%), Kogas (10%), and ENH (10%)⁵. The deepwater area that Rovuma LNG will explore contains more than 85 trillion cubic feet of natural gas (Exxon). According to Exxon, the Rovuma LNG project will produce approximately 15 million tons of LNG per year with potential capacity of over 40 million tons.
Coral Sul FLNG
Finally, there is smaller project led by Eni, the Coral Sul FLNG. It’ll be a floating LNG vessel, the first ultra-deepwater FLNG facility in the world according to Eni. The expected production capacity is 3.4 million tons per year. Eni will have a 50% stake, China National Petroleum Company (20%), and 10% each held by ENH, Kogas and Galp Energia⁶.
Infrastructure work has already begun on the sites.
Financial windfall for the country
According to various reports released by the energy firms involved in the development of the project, the government of Mozambique and other world institutions, the gas projects are expected to bring significant foreign reserves to the government of the country. These additional resources could help to develop the country and lift millions out of poverty.
A document released by finance ministry of Mozambique estimates that the country will realize about $95 billion of revenue from the gas projects over a period of 25 years⁷.
According to the IMF, the country could reach double-digit economic growth from 2023 when production is slated to start in the Rovuma basin⁸. But beyond the direct earnings from the project, there will be other associated benefits. Some infrastructure investments will be made in the form of roads, hotels, and housing.
Will the average Mozambican benefit?
Based on historical observations in the LNG sector, it is evident that Mozambique will greatly benefit from the gas projects. However, past experiences also prove that most countries in Africa have been unable to manage natural resource revenues.
Natural resources wealth hasn’t been synonymous with development in Africa
There are many reasons why many people are doubting that the wealth from the Rovuma basin exploration will resemble what LNG represented for Qatar’s economic miracle. The reasons are all legitimate. Historically, most countries in Africa have experienced extraordinary levels of growth from natural resources. Unfortunately, this wealth hasn’t lifted many people out of poverty.
An example is Gabon with its oil and manganese sectors. The GDP per capita of the central African nation peaked at $10,795 in 2011, making Gabon one of the wealthiest countries on the continent and an El Dorado for many foreigners. Nevertheless, 38.5% of the Gabonese population still lives in poverty. It’s the same case with Nigeria, a country that has profited richly from the oil industry, but has not been able to build wealth for the average Nigerian. It achieved another feat though: in June 2018, the country overtook India, as the country with the highest number of people living in extreme poverty.
Economically, Mozambique has performed quite well
It’s important to note that Mozambique isn’t a country that you’d find at the bottom of economic performance indices in Africa. After the civil war, Mozambique has experienced a rapid economic growth. The country’s GDP grew at an annual rate of 7.2% between 2000 and 2016⁹. Nevertheless, this brilliant economic performance hasn’t translated into a proportional reduction in poverty. Recent data shows that 48% of Mozambicans still live in poverty. Hence, people are wondering if the LNG wealth will make any difference
The fishing boats and the hidden debt scandal
Mozambique has not been a good student in financial discipline and it had its dealings with high-level corruption cases. A case in point is the “Tuna Bonds” scandal where the country issued $2 billion in international bonds to develop its tuna-fishing industry. Instead the funds were used to purchase mainly coastal radar and patrol vessels and hundreds of millions of dollars were unaccounted for. Even worse, the country hid $1.2 billion in loans from investors to raise the bonds, causing the IMF to freeze financing to the country. This video explains the scandal and this article by the Economist details it.
Leaders of Mozambique have a historic opportunity to change the lives of millions of people for the better
Nevertheless, with sound management and a strong investment policy, Mozambique can achieve the feat of lifting millions of people out of poverty. The government took a good initiative by establishing a decree law relating to the oil and natural gas development in 2014. However, this highlights the country’s inexperience in the energy sector and one wonders if its leaders can manage such big projects in the best interest of Mozambicans.
Domestic industrialization must be a top priority
When a country develops a big natural resources project, one of the first observations is the high salaries for employees directly involved in the project or those in related sectors. Consequently, if the country does not have a strong industry base, there’s an immediate hike in imports because with bigger salaries, people tend to consume more. The boost in imports increases the trade deficit of the country but most importantly, it’s a lost opportunity in job creation. It also exposes the country to external geopolitical issues.
We’ve observed this in Venezuela. When the country began to commercially explore oil, it didn’t develop a strong domestic industry and so when sanctions hit the country, imports quickly dried up and inflation skyrocketed.
Going forward
Leaders of Mozambique should view the Rovuma Basin LNG projects as an opportunity to rapidly develop other important sectors of the economy. Given the government will capture such significant amounts of revenues, it should enable it to invest in the legal framework and infrastructure for labor-intensive sectors such as agribusiness and manufacturing. Finally, significant public investments including in education and health must be made so that every Mozambican enjoys the wealth from the country’s resources.
[1] ReliefWeb. 18 June 2019. Protection Cluster Strategy for Idai response
[2] South African Oil & Gas Alliance (SAOGA)
[3] Oil India. 18 June 2019. Press Release
[4] BankTrack.org. 13 September 2018. Mozambique LNG
[5] Standard Bank. 19 March 2019. Rovuma LNG Project: Macroeconomic Study
[6] Empresa Nacional De Hidrocarbonetos, EP. October 2018
[7] Republic of Mozambique. June 2018. Projected Government Revenues from Gas Projects
