* 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 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
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
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."
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."
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