Resource boom trajectory in Mozambique: What can be learnt from the others?
The recent offshore gas discoveries in Mozambique, estimated at 150 trillion cubic feet, are one of the largest known gas reserves. Sector experts, argue that their commercial exploitation is unlikely to take place before 2019 due to the large investments required in production and transport infrastructure. It must be noted that the emergence of the extractive industry could provide the means for Mozambique to reach the status of a middle-income country (MIC) by 2025. Having sailed fairly well from conflict to peace, growth and relative macroeconomic stability, Mozambicans are now witnessing a period of massive transformations mainly driven by the resource boom. This boom, has on the other hand, raised fears of a resource curse trajectory. The term resource curse refers to the observation that nations with rich endowments of natural resources (oil, gas, coal, metals, timber) often dramatically underperform economically relative to what one would expect.
Over a decade of strong and sustained economic performance that Mozambique has enjoyed, delivered minimal structural transformation. Its productive base remains weak, mainly dependent on natural resources, which are concentrated in a few megaprojects, specifically coal, gas and aluminum. These megaprojects resulted from large FDI inflows, which have driven economic growth but did not have a significant impact on government revenues, employment creation, and economic diversification. Agriculture still provides a livelihood to over 80% of the workforce, and it contributes to the country’s GDP by 24.9%. Despite this major contribution to the economy, the sector remains subsistence-based with very low productivity. The economy relies on raw-material exports, with minimal cross-sectoral linkages. Gas and aluminum made up 75% of total manufacturing, and 70% of total exports in 2008, resembling a number of natural resource dependent economies, e.g. Angola where oil production accounts to 50% of GDP, 80% of government revenues, and 95 % of exports.
Over many years, it has been observed that mineral resource rich countries have been disadvantaged in the drive for economic progress. In the 70's, it was driven by the impact of the oil price shocks on the oil exporters where windfall revenues seemed to introduce serious distortions to the economies. In the 80's, the phenomenon of Dutch Disease - an overvaluation of the real exchange rate and the contraction of agriculture and industry - attracted attention. In the 90's, it was the impact on government behavior - rent seeking and corruption - that dominated discussions. The existence of the curse is controversial in the literature and there is growing evidence that its occurrence is far from inevitable. In many countries, natural resource revenues can and have produced tangible benefits. Where a curse has occurred, the main explanation lies in the way large windfall resource revenues affect government behaviour. Thus avoidance implies political reform to encourage good governance. Increasingly, analyses address how the various players in natural resource projects, from international financial institutions, multinational corporations to non-governmental organizations - can assist governments at risk to create capacity to manage the challenge.
A path Mozambique should certainly avoid is that of other countries, such as Angola – Africa’s second largest oil producer after Nigeria. Angola’s GDP has grown steadily in the past 10 years grossly owing to oil production with a paradox of only absorbs 1% of the labor force. On the other hand, agriculture, which accounts for less than 10% of GDP, absorbs 85% of labor force! Nevertheless, Angola’s GNI per capita is currently estimated at US$4,874, which places the country in the upper Middle-Income category, according to World Bank classification. In spite of this GNI, its socio-economic indicators are very much similar to those of a typical Lest Developed Country (LDC). High poverty and unemployment rates, large disparities, and severe health and education challenges.
It is against this trend that his note intends to alert Mozambican authorities, development practitioners, the private sector, academia and the general public of the economic path that the country is pursuing, with a view of preventing by all means a focus on resource-driven rush which could jeopardize the diversification efforts, employment creation and an inclusive and equitable growth.
by Domingos Mazivila