FEATURE-Mozambique coal, gas: boom for all, or just a few?

Tue Jun 19, 2012 7:03am EDT

* More than half of Mozambicans still live in poverty

* Wealth disparities may lead to social unrest

* Tax breaks mean state receipts from minerals tiny

By Agnieszka Flak and William Mapote

MAPUTO, June 19 (Reuters) - In Mozambique's port capital Maputo, glitzy offices, boutique hotels and fancy restaurants are popping up alongside crumbling colonial buildings, nourished by multi-billion dollar investment in coal and gas deposits to the north.

Luxury cars jam crowded streets and smart-suited business executives strut the sidewalks.

But their proximity to children begging for food and clusters of tin-roofed shacks offers testimony that the benefits of the southern African nation's incipient economic boom are out of reach for the vast majority of its 23 million people.

The former Portuguese colony, which emerged from civil war two decades ago, boasts some of the world's largest untapped coal reserves and is discovering vast natural gas deposits along its white-sand Indian Ocean coast.

Expectations run high as miners such as Brazil's Vale and Rio Tinto and oil majors U.S.-listed Anadarko Petroleum and Italy's Eni compete for a share.

Vale has invested $2 billion in its Moatize coal mine in northwest Tete province, and plans to plough another $6.4 billion into a region wrecked by the 1977-1992 civil war.

After hearing about the investment frenzy, 37-year-old Pedro Maculuve took a two-day bus journey to Tete, hoping to get a job and leave a crowded township where he lives in a straw hut.

He came back disappointed. "I used to work on the mines in South Africa and thought I could be useful in Tete but I was turned away," he said in Maputo where he sells wooden masks and trinkets.

Mozambique's gas deposits may be an even bigger game-changer for a country where more than half of the people live below the national poverty line of around $0.65 a day and 60 percent have no formal job.

South African petrochemicals group Sasol and its partners have spent around $1.5 billion to produce gas from their onshore Pande/Temane fields since 2004.

Large offshore gas finds in the last year have triggered forecasts of capital inflows of $50 billion over the next decade - five times Mozambique's gross domestic product - and more is expected to be spent rebuilding railways, roads and ports.

Yet life for average Mozambicans, whose annual per capita income is just over $400, has yet to improve and some fear that the growing disparity between have and have nots could trigger protests from a population not shy of expressing frustration.

"I don't expect much from these mining and gas projects," Maculuve said. "I don't trust the things they say anymore."

ROSY OUTLOOK

On paper, the outlook could not be rosier: Mozambique's economy has been growing at an average 7 percent a year, inflation is at record lows and the metical rose most against the dollar last year compared with other currencies.

Geology has delivered a jackpot in coal reserves estimated at more than 23 billion tonnes and gas deposits of up to 100 trillion cubic feet - enough to supply Germany, Britain, France and Italy for a decade.

Geography has also helped: sitting on Africa's southeast coast, Mozambique is in prime position to ship energy to growing markets in Asia.

Those running businesses in Maputo, around the coal fields and along the coast where gas has been found are reaping the benefits of new investment - but there are consequences.

"The price of food and transport has doubled in just over a year. We see those projects as big opportunities in terms of jobs for local people but for now that is not happening," said Celeste Makauze, a 42-year-old mother of five who sells vegetables at a market in the coastal town of Pemba.

Much of the country is a sprawl of villages connected by dirt roads and tracks, and output yields from farming, the livelihood of two thirds of the population, are stagnating.

World Bank officials fear the country may succumb to the "resource curse" that has blighted many African states, or the "Dutch disease" that hit the Netherlands in the 1960s, when the gas sector grew rapidly to the detriment of other industries.

"There can be massive growth or there can be a Dutch disease scenario of decay," Ivo Imparato, a World Bank sustainable development expert, told an energy conference in Maputo.

One big problem is the lack of skills needed to develop the mining, gas and support industries. Curricula at universities and colleges are changing, but courses are in their infancy and it will be many years before a new generation of graduates with the right technical skills hits the job market.

In the meantime, an influx of migrants - qualified and unqualified - from other African countries and crisis-hit Europe, especially Portugal, has made it harder to find jobs.

"Only one of my six children has managed to find a job so I have to feed them," said Celia Ines, a prawn vendor at Maputo's fish market. "But it's getting harder each month."

Shanty towns are getting bigger and more crowded as locals flee Maputo's city centre, where they can no longer pay rents that have doubled in the last two years, estate agents says.

Many car owners are forced to park their vehicles because fuel is too expensive, malnutrition is widespread and health services are as sporadic as supplies of water and electricity.

In recent years, people have protested across Mozambique against the rising cost of bread, electricity and fuel.

The government has since raised subsidies for essential items, but the risk of unrest persists, especially as the ruling Frelimo party moves towards elections in 2014, analysts said.

"The possibility of social unrest is an underlying latent threat that could re-erupt at any time," said Anne Fruhauf, an Africa analyst at Eurasia Group.

"There is much greater pressure on the party to show some gains because there is an increasing perception that the government doesn't really care about the people."

FISCAL INCENTIVES

To lure investors following the civil war, the government granted huge tax breaks to outside firms, which means state revenues from the investment splurge are tiny.

In 2009, revenues from the minerals sector accounted for only around $40 million, or just over 2 percent of total government receipts, according to the Extractive Industries Transparency Initiative, an anti-corruption watchdog.

"The fiscal incentives that were given to these companies are very damaging. These contracts need to be renegotiated," said Dionisio Nombora, a researcher at the Centre for Public Integrity, a local think tank.

The government has been under pressure to revisit the deals, but fears scaring investors, and even if it did, increases in revenue would be slow to materialise given that mining has yet to start at many coal projects and gas production from offshore fields is at least six years away.

There is also no clarity on how firms should invest in social projects to benefit the communities where they operate.

In January, more than 700 families demonstrated against a lack of access to water, electricity and agricultural land in an area to which they had been resettled by Brazil's Vale.

Vale declined to comment. The families have since launched a legal case against the state, alleging human rights abuses.

One senior government official admitted the resettlement fiasco was a "learning exercise" and vowed to tighten policies to ensure companies do not cut corners and are held accountable.

But a Soviet-style bureaucracy - a hangover from the war era when Mozambique was a one-party socialist state - breeds corruption and mismanagement, civil society activists say.

They add that the heavy involvement of President Armando Guebuza and other top officials in private business creates conflicts of interest that reduces any benefit to the public.

According to two Transparency International reports from 2011, Mozambique reported the highest incidence of bribery among countries in southern Africa, with corruption perceived to be on the rise in the last three years by the majority of the public.

Critics say the government will need to work hard to avoid the kind of shocking wealth disparities that afflict Mozambique's Portuguese-speaking African cousin Angola, where poverty is widespread despite its vast oil riches.

"If we continue like this, these resources will not benefit the people," Nombora said. "They will benefit, to a large extent, the multinationals and the political elite involved in this business."

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.