Mozambique : mining spurs growth (Africa Report n°32 – July 2011)

Coal and metal revenues could aid efforts at self-reliance and poverty alleviation

As the plane touches down at Chingodzi airport in the dusty Tete town in Northwestern Mozambique, it is hard to believe that just below the airport’s runway lies what some have described as the “last great coal reserve in the world”. It is certainly a deposit large enough to justify the demolition of the airfield to make way for pulling this black gold out of the earth.

The coal and mining sector is seen as the key to Mozambique’s growth in the years to come. « Natural resources are the impulse to economic growth in Mozambique, » said President Armando Emilio Guebuza at the official opening of Vale SA’s Moatize coal mine in May. The development of the mines would be « one more victory in fighting poverty, » he added.

Although figures for the Moatize coal reserve vary, multinationals like Brazil’s Vale SA, the world’s largest iron ore producer, and Australian listed Riversdale Mining have both announced that they will invest more than $1bn to extract coal from the area. At Vale’s official launch in May, the company said it would ship 11m tn of coal per annum, beginning this July. Riversdale is positioning itself to begin shipments by year-end.

Guebuza, who came to power in 2004 on a ticket of “fighting poverty”, has overseen an increase in investment to the donor-dependent country. Analysts argue he has outperformed his predecessors in this regard, but he is battling to address discontent caused by an increase in the price of basic commodities such as food and fuel. Price hikes led to violent street demonstrations in September last year, resulting in the deaths of scores of Maputo residents at the hands of the police.

Similar strikes earlier this year also put the regime on its guard and Guebuza chose his words carefully when commenting on recent events in the Arab world. The uprisings in North Africa « serve as a warning for ail of us – a warning that we have to take the needs of our people into account, and we have to intensify dialogue with the people, » he told France-based Euronews in an interview that was also broadcast in Mozambique.

However, Guebuza’s lieutenants – including planning and development minister Aiuba Cuereneia, who acts as the de facto finance minister – warned in February that food shortages forecast for the latter part of the year could trigger violent demonstrations like those witnessed in September 2010.

At the same time, the government said it was devising a System where those earning less than 2,000 meticais ($68) a month will receive food parcels, while schoolchildren from poor families and low-paid workers would be given passes to use on public transport. But by late May, the plans had not yet been put in place and there were fears that the announcement was politicking by the government.

Negociating new contracts. One bone of contention that could derail development in the industrial sector is the call for the renegotiation of megaproject contracts. Critics say the megaprojects were receiving excessive protection from the government through tax exemption laws that meant some companies did not declare their earnings to the tax authorities.

On 28 January, Bank of Mozambique governor Ernesto Gove became the first government official to say that conditions now existed for the renegotiation of contracts signed a decade ago. « In investment everybody has to win, otherwise social tensions are created, » he said.

Two months later, Prime Minister Aires Ali agreed under pressure from opposition legislators that the government was not gaining meaningfully from certain contracts. While Ali did not openly admit to irregularities, he said « some clauses in the contracts need to be revised with care ».

Mega-projects include Vale’s Moatize coal mine, Kenmare’s heavy mineral sands project in northern Nampula province, Riversdale’s Benga coal project and BHP Billiton’s Mozal aluminium smelter on the outskirts of Maputo.

Privatisation of state operations – especially in the railway sector – hit a snag when the government had to rescind a contract with Indian consortium Ricon to repair and operate the Sena railway line. The line was to be used to carry coal from the Moatize and Benga coalfields. After an inspection in February, Rosario Mualeia, chairman of the state-run port and railway authority Caminhos de Ferro de Moçambique (CFM), rescinded the contract signed in 2004, saying all of the 544km line was badly repaired.

Under the contract, Ricon was to own 51% of the Beira Railroad Corporation (CCFB), with 49% held by the CFM. Mualeia blamed the World Bank for the crisis, saying the $104m loan was conditional on the privatisation of the project, with the state company CFM kept at arm’s length.

Riversdale is now considering barging its coal along the Zambezi River to the central port of Beira, while Vale SA says it will initially use road transport to carry coal that cannot be transported on the Sena line. But the problem remains unsolved: CFM for its part does not have sufficient locomotives and wagons to transport the coal and the two companies have said they will buy their own to ease the problem.

Donor Reliance. The banking sector continues to grow, in stark contrast to the fact that the majority of the population struggles to live on $1 a day. According to auditing firm KPMG’s 2009 banking sector report published in February 2011, Mozambican banks made a combined profit of $143m in the year under review. But although major institutions like the World Bank and the IMF continue to project a growth rate of above 7%, the economy remains donor reliant.

Sweden, one of the 19 countries that directly support Mozambique’s budget, announced on 24 May that it would provide $100m to “maintain its promise”. Swedish ambassador Torvald Åkesson said his country would be drawing up a new cooperation strategy by the end of 2011.

The government is, however, under increasing pressure to cut its expenditure and widen the tax base so that the country might become self-reliant. At a time when sectors like mining, services and industry are registering positive growth, it is « high time » that Mozambique weans itself from donor dependence, said a political analyst who preferred not to be named.

On the political scene, it is likely that the ruling Frente de Libertaçào de Moçambique (FRELIMO) will continue to dominate the presidentiel race for 2014. The opposition continues to be fragmented, a sure sign that FRELIMO will not have any serious challengers.

The Movimento Democratico de Moçambique (MDM) led by the youthful Daviz Simango recently suffered a setback when its secretary-general, Ismael Mussa – who is also one the party’s eight legislators – resigned, citing “dictatorship” in the party. Simango is reported to have taken both the positions, in a move that will seriously affect the party’s operations.

The second-largest political party, Resistência Nacional Moçambicana (RENAMO), also bas a leadership crisis as its long-serving leader, Afonso Dhlakama, clings to power. He continues to claim he was robbed of victory by the ruling party, FRELIMO, and since 2009 has threatened to hold national strikes. Political analysts say he has passed his sell-by date and believe his continued stay in northern Nampula is some sort of political hibernation that will take him through to retirement.

The armed guerillas he has been maintaining in the Marringue district of Sofala province – his base during the 16-year civil war – are renouncing him one by one, saying they are « tired of living in the bush on empty promises. »

Fred Katerere in Maputo

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