Mozambique eyes Norway for clues how to handle possible natural resources windfall - oil companies expect to find oil

subscriber | 09 December, 2007

JOHANNESBURG. A recent Mozambique government report toots the idea that the country should have a transparent, clear strategy to deal with a potential resources windfall.

Norway - alongside Australia, Botswana and Canada - is seen as a role model that the country should learn from and not to repeat mistakes of Nigeria, Angola, Sudan and Sierra Leone - all at the lowest ranks of the UN’s Human Development Index despite their vast resources.

“Australia, Canada, Norway and Botswana have been able to use their rich natural resources to embark on a sustainable high-growth path”, the report states, as quoted by Dr. Joseph Hanlon, a specialist author and journalist on Mozambique.

The government report recommends that future natural resources investments should only be done if there is full institutional transparency and that the country joins “Extractive Industries Transparency Initiative” as it believes that investments otherwise would be destructive for the country.

A interrelated UNDP’s International Poverty Centre report proposes - also quoted by Hanlon - the need for “a significant shift” from large to small projects as foreign investments presently only benefits “richest households in the midst of a large impoverished population”.

There is good reason for Mozambique’s new-found self esteem and belief that the country soon could be wrestling with positive cash flows instead of having to live cap in hand from foreign development finance.

A World Bank report in November praised, as has become customary, Mozambique’s economic performance. An average GDP grown by 8 percent annually over the past ten years makes it difficult not to be encouraging.

And there is more to come as a number of natural resources projects are coming on stream and there is great hope that the country indeed can see windfall resources revenues - in particular from oil and gas.

Mozambique is still among the most aid dependent countries in the world - development grants and finance still represent one fifth of GDP.

But a lot of good things have happened on the forex front.

The country started exporting gas to South Africa in 2004 through new Temane-Secunda pipeline, which accounts for 3 percent of South Africa’s energy need. The pipeline’s capacity will be doubled over the next six years.

Exploration companies are expecting to find more gas, though they are also holding out for the possibility of finding oil. US oil company Anadarko Petroleum stated in September, when president Armando Gebuza visited USA, that it expected to hit oil in Mozambique - either on- or offshore - and most in blocks bordering Tanzania.

Norway's Statoil-Hydro and DNO are also among a group of foreign licensees searching for oil and gas.

For the time being Mozambique’s largest income earner by far, due to the cheap electricity generated by the rehabilitated Cahora Bassa hydro power station, is the Mozal aluminium smelter outside the capital Maputo, which generates 40 percent of the country’s export income.

A new power station is also being planned further downstream along the Zambezi river where ABB is hoping to get a slice of the action.

There are large, proven deposits of coal and base metal.

A titanium sand dune mining project is up and running, while a large coal deposit, the Moatize coal mining project, hasn’t yet.

Brazil’s Comphania Vale do Rio Doce last month competed a viability study and is expected to invest US $ 1 billion if its plans are approaved by government.

The worlds largest iron’ and steel producer ArcelorMittal has also invested in coal mining as well as in steel-rolling and wire-drawing companies, including a company linked to a bank scandal, with Nordic development finance involved, disclosed by journalist Carlos Cardoso - who was murdered seven years ago by the accomplices to try and avoid further disclosures.

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Mozambique’s natural resources potential is massive and the country export is bound to expand.

It’s a fact that foreign investment in Mozambique so far most definitely mainly has benefited the country’s well-heeled politically connected elite.

For whatever reason there is greater urgency to kick-start investments in natural resources projects.

There are some large-scale agricultural exceptions, e.g. South African sugar company Tongaat Hulett’s multibillion investment in sugar plantations and a large refinery.

The UNDP’s International Poverty Centre report state that there is “a deal between political elite and transnational capital, supported by the IFIs (International Finance Institutions) and the donor community” to pour money into capital intensive natural resources projects at the expense of investments in agriculture.

It is difficult to get things done without political protection when hurdles such as property tenure, bureaucratic red tape, and consequent corruption arises - which all together makes it difficult to access financing.