Mozambique stands on the cusp of transformative economic growth driven by the development of one the largest natural gas discoveries in the world. In the next five years, Mozambique expects to see nearly $60 billion in investment to develop its offshore natural gas reserves and an onshore facility that will convert the gas to liquefied natural gas (LNG) for export to global markets. However, between the combination of the outbreak of COVID-19, an increasingly violent extremist movement in northern Mozambique, and the impact of the global downturn on Mozambique’s resource dependent economy, the start of that transformation is likely to be delayed.
Following three years of slow economic growth, driven by a combination of the lingering impacts of Mozambique’s 2016 hidden debt crisis and the back to back devastating cyclones in 2019, 2020 was supposed to be Mozambique’s breakout year. Throughout 2019 Mozambique made important strides toward realizing its potential.
In June 2019, Anadarko made the Final Investment Decision (FID) on the first of two expected LNG megaprojects. However, nearly a year later, the LNG site (now run by Total) is the center of Mozambique’s COVID-19 outbreak and the violent extremists in the surrounding province have grown in size and effectiveness, declaring themselves an affiliate of the Islamic State and conducting increased attacks throughout the province. Against this backdrop, ExxonMobil, the co-lead of the second major LNG project in northern Mozambique announced in April 2020 that it would delay FID on its project until at least 2021 due to the impact of the COVID-19 pandemic on global commodity prices.
Despite these setbacks, however, there are still reasons for optimism about Mozambique’s mid- term outlook. Following three years of reforms since the hidden debt scandal, Mozambique has made progress in the fight against corruption. Since February 2019, it arrested more than 20 politically connected officials for their role in the scandal and in August 2019, the country adopted a 27 point plan to fight corruption and improve governance with the IMF. Thanks in part to this solid progress, the IMF and Mozambique entered into discussions to re-launch a new lending program, potentially the first non-emergency budgetary assistance to the government in four years. If Mozambique continues on this path of reform, it will be better placed to manage its eventual resource income and attract other investments.
The country has also made significant progress toward consolidating the peace process. In August 2019, the government and the main opposition party signed a ceasefire agreement and peace accord, bringing to an end years of sporadic conflict. These agreements also set the stage for national elections in October 2019 that brought President Nyusi back to power for a second five-year mandate. Despite credible allegations of significant election-related fraud and intimidation, President Nyusi and the opposition leader Ossufo Momade continue to work together to consolidate the peace agreement finalize the disarmament, demobilization, and reintegration of former opposition movement fighters.
As Mozambique looks to its future, U.S. businesses are poised to play a key role in this country’s transformation. In June 2019, Mozambique signed a commercial Memorandum of Understanding with the Department of Commerce, outlining five key areas for investment including energy, infrastructure, financial services, agri-business, tourism and fisheries, opening the door to increased cooperation and U.S. investment. In December, the U.S. government’s Millennium Challenge Corporation also announced that Mozambique was eligible to develop a second compact. While still under development, this compact will make available $350 million or more in targeted development assistance to create the enabling environment for additional investments.
Mozambique offers the experienced investor the potential for high returns, but remains a challenging place to do business. While the country welcomes foreign investment, investors must factor in corruption, an underdeveloped financial system, poor infrastructure, and significant operating costs. Transportation inside the country is slow and expensive, while bureaucracy, port inefficiencies, and corruption complicate imports. Local labor laws remain an impediment to hiring foreign workers, even when domestic labor lacks the requisite skills. In addition to the LNG and associated industries there are also significant opportunities for investment in the power and infrastructure sectors, particularly related to the reconstruction after Cyclones Idai and Kenneth devastated large swaths of the country in March and April 2019. The agriculture and tourism sectors remain underdeveloped relative to their potential, as do critical services sectors, such as health care.
|TI Corruption Perceptions Index||2019||146 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2019||138 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2019||119 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||USD 332.0 million||https://apps.bea.gov/
|World Bank GNI per capita||2018||USD 460 million||http://data.worldbank.org/