MOZAMBIQUE MAINTAINS INVESTMENT PULL
the equipment through a government-backed‘ tuna bond’ was deemed to be ill advised, businesses in the country are at least sympathetic to the government’ s motives.
This transaction, as well as further undisclosed loans taken by the government and secured around the same time, has contributed to growing public sector debt, which stood at about 85 % of GDP by the end of 2015. Most of this – about $ 9.89bn – is denominated in foreign currencies, with the highest proportion allocated in dollars. As the metical has plunged, servicing this debt has become increasingly difficult. The authorities’ response to these problems has been to initiate several cost-cutting measures, as well as to promote greater transparency of public finances. Dr Tomas Matola, chief executive of Banco Nacional de Investimento( BNI), Mozambique’ s national development bank, says:“ The government of Mozambique has designed an austerity plan that consists of cutting the current and unproductive expenditure and creating a financial risks analysis unit, which will be responsible for tracking the government indebtedness, as well as its potential impacts.”
Gas boost in pipeline
By most economic indicators, Mozambique’ s outlook is deteriorating. Substantial government debt is accompanied by sky-high inflation – at 19 % in June – and projected GDP growth of 4.5 % in 2016, three percentage points below historical levels according to the IMF. But the discovery of an estimated 5000 billion cubic metres of natural gas off the country’ s north coast, in the Romuva basin, looks set to give the economy a boost to dwarf any of these current difficulties. Italy’ s Eni and US independent Andarko have both started to develop concessions offshore. The International Energy Agency estimates that total government revenue up to 2040 could reach north of $ 115bn from these projects. More offshore reserves are still to be discovered and exploited, meaning this figure could rise in the coming years.
Beyond gas, the government is looking to other opportunities in power generation and agriculture, to position the country as a hub for the southern African region. With Zimbabwe’ s status as a major food producer diminished, Mozambique is well placed to capitalise on its agricultural potential to fill the void.
“ The economic potential here is across all sectors and not just in natural resources. Moving forward, agriculture will be important, given that Mozambique’ s population is growing so quickly, as are the populations of many of its neighbours,” says Mr Correia.
Generating potential
Meanwhile, the country’ s abundant hydropower potential, combined with its natural gas reserves, is offering the government a chance to make Mozambique the region’ s dominant power generation hub. Among its neighbours, South Africa is grappling with a power generation crisis just as many other fast-growing economies in the Southern African Development Community are struggling to meet their energy needs.
“ We want to develop Mozambique’ s hydropower potential, which is about 18 gigawatts, as well as the country’ s abundant coal and gas reserves, to supply the domestic market and our neighbours with power,” says Lourenco Sambo, director-general of Mozambique’ s investment promotion centre.
Taken together, these opportunities and others underscore the optimism that prevails in Maputo. For the banking sector, the gains are expected to be substantial. Those lenders focused on infrastructure finance, in particular, can expect to benefit. In the case of BNI, its focus on infrastructure development means that its role in the market is expected grow along with its returns.“ BNI expects to reach $ 23m of profit in 2025, and become a true giant in the Mozambican market in the next 10 years,” says Mr Matola.
Though foreign direct investment has stalled over the past year, the opportunities on offer mean it is only a matter of time before investors return. How long that process will take largely depends on the government’ s efforts to augment transparency, clean up the public finances and enact the investor-friendly reforms needed to propel the economy forward.
“ Today, Mozambique represents an investment opportunity the likes of which the world has not seen for many years,” says Mr Magalhães. – The Banker
BEYOND GAS, THE GOVERNMENT IS LOOKING TO OTHER OPPORTUNITIES IN POWER GENERATION AND AGRICULTURE, TO POSITION THE COUNTR Y AS A HUB FOR THE SOUTHERN AFRICAN REGION
52 Business Times Africa | 2016