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Mozambican commodity boom transforming economy

30 november 2011, 12:03
World-scale gas processing plant located near Vilanculos in the province of Mozambique. ©Reuters
World-scale gas processing plant located near Vilanculos in the province of Mozambique. ©Reuters
A coal boom, major natural gas finds and new oil exploration are changing impoverished Mozambique's economy and creating questions for the government on how to share the benefits across the nation, AFP reports.

Mozambique remains one of the world's poorest countries nearly two decades after a devastating civil war, even though its shattered economy has regularly posted strong growth -- expected at 7.25 percent this year.

But the natural resources boom is changing things. Mining exports jumped 27 percent in the first half, even before Brazilian mining giant Vale started shipping coal from new mines in September.

Overall exports totalled $1.3 billion in the first six months, more than half the projected total for the year, and a figure certain to soar once the new coal sales are factored in.

"Mozambique will become a large coal exporter, the largest on the continent after South Africa," said Victor Lopes, economist for sub-Saharan Africa at Standard & Chartered bank.

With 13.1 billion tonnes of proven reserves, Mozambique is poised to become one of the continent's biggest exporters. Vale has already announced plans to double its initial $1.7 billion investment.

Other mining majors like Rio Tinto are also jumping into coal fields while Italian energy giant ENI in October announced the discovery of off-shore natural gas deposits to the tune of 22 trillion cubic feet -- the largest find in the company's history.

Just weeks earlier, US-based Anadarko Petroleum announced a 10 trillion cubic feet find. Taken together, the finds put Mozambique in a position to become one of Africa's biggest gas producers.

Mozambique has also joined Malawi in authorising oil exploration in Lake Malawi, after a series of big finds in Africa's other Great Lakes.

The flood of investment, along with strong prices for exports have made the Mozambican metical one of the best-performing currencies against the US dollar, said Joao Mosca, economics lecturer at the Polytechnical University in the capital Maputo.

"Prices rose considerably" for exports like aluminium, tobacco, cotton and cashew nuts, he said, helping the metical rise 16 percent against the dollar in the first 10 months of the year.

"At a time when most African currencies are depreciating, the Mozambican currency has been appreciating," said Lopes.

"It's definitely among the best-performing of African currencies."

Inflation has stabilised from 16.5 percent at the end of 2010 to eight percent in September 2011, earning authorities a nod of approval from the International Monetary Fund.

That in turn has helped ease popular pressure on the government, after deadly food riots erupted in 2010 at the soaring cost of living.

But the government now faces the longer-term challenge of how to harness the flood of foreign investment to lift the nation out of poverty.

Mozambique slipped down one notch last year on the UN's Human Development Index, leaving it ranked 184th out of 187 countries on the key quality of life measure.

The country has expanded its tax base, with revenues amounting to 21 percent of the gross domestic product, against an African average of 17 percent.

But even the IMF has said the government should consider ways of earning more tax from the commodities boom, without scaring off foreign investors.

"That is why institutions like the IMF and international donors think the government should renegotiate contracts to secure more taxes from mega-projects," said economics lecturer Mosca.

"For government it is a difficult balance between reaping the benefits of big projects and remaining an attractive investment destination," Lopes said.

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