Coal and gas discoveries prompt economic boom

Neil Ford

Lack of investment during the colonial era and a long civil war left Mozambique among the poorest countries in the world – just ten per cent of Mozambicans have electricity in their homes. But its large reserves of fossil fuels are helping to change that

Mozambique is in the process of transforming itself from basket case to boom economy within the space of a couple of generations. It experienced little development during five centuries of Portuguese rule and was devastated by a bloody civil war that ended as recently as 1992 and turned it into one of the world’s poorest countries. Two decades of sound political and economic governance put it on the road to recovery and now the discovery of huge coal and gas reserves offer the prospect of more prosperous days to come. 

The headline figure of seven per cent average annual economic growth since 1992 is impressive enough. However, this started from a very low base and annual GDP per capita still stood at just US$578.80 in 2012. Yet even more rapid growth is forecast for the next decade, which could see per capita annual GDP break through the $1,000 barrier within six to eight years. 

Most investment to date has been made in the far south of the country, in and around Maputo and its industrial offshoot, Matola. However, the location of the new natural resource discoveries could help to spread development to the northern half of the country. 

The government puts national gas reserves at a massive 100 trillion cubic feet, most of it located in the far north, in the Rovuma Basin on the border with Tanzania. The main two development consortia, which are led by US firm Anadarko and Eni of Italy, have been persuaded by the government to develop a combined onshore liquefied natural gas (LNG) plant. LNG is the obvious option to develop the reserves – there is no large convenient outlet for the gas locally but the world’s biggest LNG markets are located on the opposite side of the Indian Ocean in East Asia. 

Gas will be piped to the plant to be processed into a liquid, so that it can be loaded on to LNG carriers for export. The plant will initially be developed with four liquefaction trains – or production units – giving combined production capacity of 20 million tonnes a year. As a rule of thumb, it costs about $1 billion to develop a million tonnes a year of production capacity, so it is clear that this will be one of the biggest single investments ever made on the African continent. 

Moreover, the project is being developed with expansion to 50 million tonnes a year in mind. Finally, the oil and gas industry in Mozambique is still relatively new, so there is plenty of scope for further discoveries to be made over the coming years. Mozambique is the most important new producer to emerge on the global gas scene for many years, but its arrival as an international coal supplier is equally impressive. Rio Tinto and Brazilian firm Vale are both developing massive coal projects in Tete Province in the north west of Mozambique that could collectively yield up to 50 million tonnes of coal a year. More than 100 other coal exploration licences have been granted in the same area, some of which have already yielded commercial coal reserves. Again, almost all production is to be exported overseas. 

The main obstacle to the development of the country’s coal industry is the lack of transport capacity required to move the coal from Tete eastwards to Indian Ocean ports. However, new coal terminals are being constructed at the ports of Nacala and Beira, while an entirely new port is being developed at the mouth of the Zambezi river. The Sena Railway to Beira has already been upgraded and two new railway lines are to be completed to handle coal. 

Coal and gas projects will boost GDP, but will not directly create the millions of jobs required to pull Mozambicans out of poverty. However, the new transport infrastructure should benefit the wider economy and the government has drawn up plans to develop a new north-south railway that should improve access to the nation’s ports, particularly for agricultural producers and forestry firms. Mozambique is successfully positioning its ports as entrepôts for the entire Southern African Development Community (SADC) region. 

Rail and road links from Zimbabwe and Malawi to Beira are being upgraded, while funding is sought for a new railway from Botswana to the planned new port of Techobanine in the south of Mozambique. The Port of Maputo has already made the most of its proximity to South Africa to attract trade from South African companies. Maputo is actually geographically closer than the Port of Durban to South Africa’s industrial heartland around Johannesburg and is steadily gaining business from the region. 

Several South African car manufacturers, such as BMW, now export vehicles through Maputo and paper company Sappi switched a large proportion of its exports from its new $300 million Ngodwana Mill in Durban to Maputo in December. Osório Lucas, the chief executive of Maputo Port Development Corridor (MPDC), which operates the port, said that this success was “not only dependent on the DP World Maputo container terminal performance, but also on the equally important services offered by shipping lines and the reliability of rail services from Sappi’s plant at Ngodwana”. 

The energy boom should also benefit the country in other ways. A string of gas and coal-fired power plants are planned and although not all will actually be developed, it seems likely that the country will gain at least 3 GW of thermal generating capacity within the next decade. This will help diversify the generation mix away from its current reliance on hydro and should provide the electricity required to power other sectors. It should also help to speed up the national electrification programme, as just ten per cent of Mozambicans currently have access to electricity at home. 

In the longer term, tourism, agriculture and possibly manufacturing will be the basis of employment creation. Subsistence farming currently dominates the agriculture sector, so there is plenty of scope to develop more productive practices. The main export crops include cashew nuts, sugar and cotton – production of each could be greatly increased through more investment in irrigation, particularly in the relatively arid south. 

Mozambique’s beaches were popular attractions for white South Africans during the colonial period and visitors are now beginning to return to the region as transport links are improved. As ever, infrastructure that is developed for one industry can easily be exploited by others.

About the author:

Dr Neil Ford is an independent consultant and journalist, focusing on international affairs, particularly in developing countries


Sorry, the comment form is closed at this time.

Amnesty International