Mozambique, a mineral-rich country with vast natural gas reserves is geographically positioned as a sea-port entry for six countries it borders. With so much natural wealth, the market environment in the country, however, does not attest to these favourable factors. The country is among the least developed in the world, with a very low Human Development Index. Low economic growth, political instability and a high corruption rate underscore the growth potential the economy possesses.
Sunk capital investments
A lot of capital investments have been made by various foreign multinational companies in the gas-rich northern region of Mozambique. The country’s LNG sector has projects worth billions of dollars that have been committed for the exploration of gas. Major global energy players such as Total, Eni and ExxonMobil are actively engaged in the natural gas sector.
Having injected huge funds, they now face a security threat that could deem their financial commitments void.
In 2013, Rio Tinto had to write down its Mozambican assets by US$3 billion as a result of failure to transport its coal to port for export. The company had invested huge sums of money based on assumptions of vast coking coal reserves that it would export. Upon the insurgence of extremist rebel groups, with escalating violent activities, the rail network was disrupted and there were increased security risks for normal operations to continue.
The company suffered great loss as it failed to recoup its capital outlay and eventually failed to continue its operations. The high-security risks at a time when investment capital is yet to be recouped, have the potential to turn away more foreign capital injections in the gas-rich country.
The curse of abundant resources
The abundance of resources is both a positive outcome towards development and a negative impact contributing to conflict. The greedy nature of mankind, when put at a country level, escalates to extreme forms of capitalism, exploitation and violations of national law and general human ethics.
In 2010, Anadarko, an international energy company discovered more natural gas reserves where it was doing operations. Another discovery by an Italian oil and gas company was made placing Mozambique in the global spotlight as it could become a major natural gas exporter.
Since the discoveries of these natural gas reserves in the northern region of Mozambique, more harm than good has been accounted for. Economic prospects of the people of Cabo Delgado who had established their livelihoods on farming and fishing are now shuttered as a result of displacements.
The flux of foreign international energy firms has coincided with the uprise of terrorist attacks in the area. The need to dominate and control the resource–filled area is one factor contributing to the growth and dominance of these extremists groups.
Foreign political agenda
Various companies stretching from all over the globe are rushing in with high-value investments in Mozambique’s natural gas sector. One narrative is that in the need for energy self-sufficiency and energy market dominance these major world economic countries such as the US, France, China and Italy are increasing their influence in Mozambique. The French government has spent years ensuring that its corporations and arms trade benefit from the natural gas reserves in Mozambique.
Most of these global economic powerhouse countries may intend to exploit the country’s natural gas reserves at all costs.
The increasing terrorist attacks have been targeted at civilians, and government authorities such as the police but none towards the companies with exploration and extraction sites in the violent hot zones.
European countries’ efforts in promoting arms trade and military empowerment in exchange for precious minerals and natural resources in Africa, leaves a lot to consider. This poses great concern on their involvement on the continent as these extremist rebel groups could be mainstreaming chaos under their financial backup.
The debt trap
A self-inflicting external debt to the World Bank and IMF sees Mozambique sovereign financial power placed in the hands of its lenders. The country had amassed a cumulative external debt totalling US$14.78 billion in 2019. This represented a ratio of 113% to its GDP. Debt from the international funding bodies was put on halt amid allegations and admission to previously undisclosed funding.
The country’s debt crisis limits the government’s efforts towards infrastructure development. The high rate of corruption in the government system adds to the turmoil the economy faces towards servicing its external debt, with increasing leakages in the government’s coffers.
Catastrophic weather events
Cabo Delgado, a region in the north part of Mozambique is where vast natural gas reserves were discovered. The region graced with mineral and resource wealth is suffering from terrorist attacks, with mass deaths recorded. The recent turn of events of terror comes after the region suffered the strongest cyclone to ever hit the African continent. Cyclones Kenneth and Idai left thousands homeless and property losses were huge. Natural disasters have also contributed significantly to the lag in progress and development of the natural gas sector in Mozambique.
The Covid-19 outbreak is a global catastrophe that forced the shutting down of economic activities worldwide. In Mozambique, the Covid-19 situation further exacerbated an already precarious situation. The country was coming from severe weather-related catastrophes in 2019.
Most business activities were put on hold when the country induced lockdown measures to control the spread of the virus. Global markets were closed and all international flights were down thus export activity for natural gas could not materialize. The country’s financial position grew even weaker with increasing relief aid needed to appease the climatic and biological catastrophes.
Towards a positive future
The east-coastal country has endured the worst run of misfortunes, facing challenges that range from climatic, political, economic and socio-cultural imbalances. To outpace the challenges the country is facing, more government investments in energy infrastructure are needed to support existing private sector contributions to the same.
A shift of administrative focus towards constructive economic development as well as improving the security situation will go a long way to boost production. High production levels and increased export activity are set to see the country turn around its misfortunes.