Mozambique’s Coming Resource Boom
To describe the recent discovery of natural gas deposits off the Southern coast of Mozambique as “transformational” might be an understatement. Until recently, this East African country of about 23 million people had a paltry annual GDP per capita of $1,000 with 70% of the population living below the poverty line. Now, with the announcement made on October 20th by the Italian energy company Eni that more than 22.5 trillion cubic feet of natural gas can be produced, Mozambique’s future is looking suddenly brighter.
To put it in perspective, Mozambique may be able to provide four times the annual consumption of the world’s largest importer, Japan – a truly staggering quantity of gas.
According to World Bank economist Ricardo Gazel, “Big projects in coal mining and gas will contribute to strong growth in Mozambique in coming years,” he said. “There are risks coming from a global economic slowdown, which could weigh on exports, foreign investment and external aid to Mozambique,” nevertheless the Bank has revised growth projections for the country up to 7.25% in 2011 and 7.5% in 2012.
In addition to the Mamba field gas discovery, the Brazilian mining company Vale began exports of coal this year, building on a thriving aluminum mining industry, the second largest on the continent.
However, despite the much needed economic windfall, Mozambique continues to face a number of risks arising from poor infrastructure, corruption, and the perennial challenge of spreading these gains from the resource boom to the more vulnerable sectors of society. Speaking to the Financial Times, Anne Fruhauf of Eurasia Group said that the discovery of such significant resources can cause political instability, especially in a country with weak institutions such as Mozambique. Although the gas won’t come online for several years, Fruhauf says “the question of the trickle down effect will become much more pressing and the effect on the population will be increasingly important”. That’s particularly so because “those provinces where the gas is located are the poorest regions in an already very poor country.”
One immediate impact of the Mamba discovery has been an increase in forecasts for exploration investment in the area. According to IHS Global Insight, the discoveries “are bound to turn both the country’s and the region’s energy outlook around. Eni’s discovery will also have far-reaching consequences, making it more likely that other international companies will follow suit with deep-water exploration, particularly elsewhere in Mozambique but also in Tanzania and Kenya.”
Although it is expected that much of this natural gas will be exported to energy-hungry economies of Asia, there will be a long-term impact on other suppliers, such as Russia’s Gazprom, which has used high prices, coordination, and cooperation with other producer states as a form of political leverage in Europe.
The above image belongs to National Geographic, Photograph by James L. Stanfield.