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Mozambique’s Gas Dream in Danger

03.05.2018 / Energyboardroom

The discovery of 100 trillion cubic feet of natural gas in 2010 had the potential to precipitate a turnaround for the troubled east African country of Mozambique; which has enough reserves to become the world’s third-largest exporter of LNG. However, a decline in investor confidence compounded by the global commodity price slump and political instability, is threatening to derail this dream.

“[the debt crisis indicates] a serious deficiency in governance and that is at the heart of any discussion about whether resources are going to become a blessing or a curse”

Peter Fabricus, Institute of Security Studies

Despite an abundance of resources, the Republic of Mozambique remains one of the poorest and most underdeveloped countries in the world. After a protracted civil war between 1977 and 1992, multi-party elections in 1994 helped see the country develop into a relatively stable presidential republic which has seen steady growth since 2001, but remains in an impoverished state thanks to the legacy of colonization and political instability. However, the discovery of massive reserves of natural gas in the country’s Ravuma Basin in 2010 stimulated predictions of rapid economic growth and Mozambique becoming a major global energy exporter, akin to an east African Qatar.

Nonetheless, various issues must be resolved before Mozambique can achieve the widespread prosperity that has been anticipated. Above all, the USD 2 billion debt crisis of 2017 has precipitated a loss of investor confidence. As a result, the International Monetary Fund (IMF) and the World Bank have suspended their budgetary support for Mozambique. Representatives of the World Bank noted that “FDI declined by 20 percent indicating a decline in confidence in the economy.” As Peter Fabricus, a consultant with the Institute of Security Studies, suggests that the debt crisis indicates a “serious deficiency in governance and that is at the heart of any discussion about whether resources are going to become a blessing or a curse.”

Additionally, the country is ranked poorly by other yardsticks; standing at 138th of 190 countries in the ‘Ease of Doing Business Index’ and 153rd of 180 countries in the ‘Corruption Perception Index’. In January 2018 Norway’s national oil company, Statoil, pulled out of negotiations in Mozambique due to the unfavorable business environment and lack of progress being made. The plunge in global gas prices and the threat of insurgency from opposition militants have also raised concerns as to how well Mozambique can capitalize on its discoveries. With 49.2 percent of its population living in poverty, significant progress must be made before the potential benefits of Mozambique’s reserves are realized.

“With 49.2 percent of its population living in poverty, significant progress must be made before the potential benefits of Mozambique’s reserves are realized”

Nevertheless, Mozambique’s gas reserves still hold massive potential for the country. The reserves, which have been valued at 50 times the republic’s Gross Domestic Product (GDP), attracted USD nine billion in FDI in 2014 alone. Between 2013 and 2015, 15 percent of all FDI invested in sub-Saharan Africa was channeled towards Mozambique. Equally, recent inflows of FDI are predicted to give a substantial boost to the country’s GDP, as GDP per capita is anticipated to increase 11-fold by 2035.

Significantly the government of Mozambique expects to receive an estimated USD three billion in tax revenues per year in the coming decade. Mozambique’s National Oil Institute (INP) announced that significant revenues “derived from corporate income tax should begin to enter the state coffers by the end of the 2020s or the beginning of the 2030s.” Therefore, the pieces are in place for Mozambique’s gas momentum to build over the next ten years. Whether the nation can fully capitalize on this and use its natural resources to catapult itself out of poverty remains to be seen.

Writer: Louis Goss

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