Close
Mozambique: Towards an economy transformed by gas

Mozambique: Towards an economy transformed by gas

Mozambique’s gas boom provides an opportunity to create broad-based economic growth. Investors should seize opportunities beyond the gas sector, says Martim Faria e Maya

The discovery of natural gas in the Rovuma basin has fundamentally changed Mozambique’s economic outlook and opened new development pathways for one of the world’s poorest countries. The combined output of the two areas put out for concession to date will produce 30m tonnes of liquefied natural gas (LNG) per annum. Up to a quarter of the gas will be set aside for domestic use in Mozambique. Projected LNG investment of $55bn, equivalent to four times the size of the country’s GDP, will be the largest of its kind in Africa. LNG exports are expected to increase annual GNP by $10-14bn and make Mozambique a global energy player. Government revenues over the next 25 years will increase by $4-5bn per annum.

But as President Filipe Nyusi noted recently, one cannot eat natural gas. Nor, one might add, will GDP feed a nation. Rather, the transformative potential of the gas boom lies in harnessing the spark of gas to ignite the domestic economy in sectors as diverse as energy, agriculture, agro-processing, manufacturing and construction. Investments such as those foreseen for the domestic production of gas-based fertilisers, fuel and electricity will provide the sort of push required. They will boost industrialisation, generate jobs and trigger a virtuous cycle with far-reaching impact on food security, livelihoods and the economy.

Mozambique has vast resources beyond its newfound gas. On and beneath its soils lie vast riches; along its expansive coastline numerous opportunities to harness the blue economy. Its young and growing population constitute a pool of energy, creativity and labour, and a growing market for services and consumer goods.  

Three sectors offer the greatest prospects of generating the jobs that will allow Mozambique to reap the benefits of its burgeoning labour market and build a prosperous, inclusive and resilient economy. First, unutilised arable land covering an area equivalent to Italy and the highest irrigation potential on the continent offer countless opportunities to develop the agriculture sector, achieve food-security and lift millions out of poverty. Second, industrialisation based on local value-addition to readily available commodities will increase incomes, improve the trade balance and reduce exposure to global commodity prices. And third, nature-based tourism will create service jobs and economic incentives to preserve Mozambique’s unique and diverse ecosystems and cultural heritage. 

The ongoing expansion of energy access, transportation networks and other economic infrastructure will remove crucial bottlenecks, while expanded investments in education and skills-training will prepare Mozambicans for unprecedented job opportunities. Concurrent reforms to improve the business environment should likewise stimulate local entrepreneurship and promote foreign direct investment in the non-gas economy. The African Continental Free Trade Area expands the scope for agricultural and industrial growth beyond the domestic market, while the country’s geographic location makes it a natural gateway between Asia and Africa.       

Admittedly, few countries have managed to successfully develop and diversify their economies away from a dominant non-renewable commodity. Many have failed. However, the natural resource curse is not a certainty but rather a policy choice. Today’s policy choices are being informed by prior successes and failures, and adapted to a context that is unique both to Mozambique and to a changing global environment. Mozambique’s late-comer status is in many respects a blessing. 

Mozambique’s planned sovereign wealth fund is one such policy example. The fund can perform three complementary functions: to serve as a buffer against volatility in future gas prices; to act as a clearing house for strategic investments in human and physical capital formation; and to set aside savings for a post-gas future.

Mozambique’s moment

The scale of Mozambique’s current needs provides compelling rationale to favour increased public investment in social and economic infrastructure today. The future will best be served by equipping Mozambique and its people with the infrastructure, tools and skills to compete and prosper in a post-gas era. Failure to do so would be analogous to saving for a child’s university fees at the expense of her primary and secondary education today, let alone her nutrition and health. The sole but by no means negligible constraint on public investment will of course be the country’s own capacity to absorb such investments.     

But for policymakers and investors alike, the most valuable non-renewable resource may well be time itself, specifically the present moment. The moment for policymakers to choose between a gas-based economy and an economy transformed by gas; the moment for investors to seize opportunities beyond the gas sector. That moment is Mozambique’s, that moment is now. 

Read more about Mozambique

“Mozambique’s long road to peace and prosperity”

Related Posts

Join our 70,000+ subscribers by signing up to our mailing list

Help us deliver better content