20 December 2012

Mozambique: Resources Are Not Wealth, but Promises of Wealth

Maputo — Mozambican President Armando Guebuza on Thursday warned that the existence of natural resources “does not in itself mean development, or wealth”.

Giving his annual State of the Nation address to the Mozambican parliament, the Assembly of the Republic, Guebuza stressed that minerals in the ground do not immediately translate into wealth in people’s pockets.

“The discovery of natural resources is a promise of development. It is a promise of wealth yet to be achieved”, he said. “A cycle has to be followed which goes from location and identification, through preparing the technical, logistical and financial conditions, until the resources are placed on the market”.

“The farmer does not harvest maize on the same day that he sows it”, Guebuza added. “There is a lot of investment he must make in terms of time, attention and dedication to his fields. The same applies to natural resources”.

He pointed out that the natural gas at Temane, in the southern province of Inhambane, was discovered in 1960. But a concession contract (with the South African company Sasol) was not signed until 2000, and industrial production of the gas began in 2004.

The first modern licence for coal mining (with the Brazilian mining giant Vale) was signed in 2007, and only four years later, in 2011, did the first trainloads of coal arrive in the port of Beira.

It will take much longer to exploit the natural gas reserves in the deep waters of the Rovuma Basin, off the coast of northern Mozambique. These reserves were discovered in 2010, but the investment required for a liquefied natural gas (LNG) plant is so large and complex that industrial production is not expected until 2018.

“To translate resources into development and wealth can tale a very long time”, Guebuza warned. It was also subject to logistical constraints. Thus, although the known reserves of coal in Tete province amount to 23 billion tonnes, and although in the medium term, the government hopes that 50 million tonnes a year will be mined, current production is only four million tonnes a year.

“Correct identification of the structural challenges and adopting an adequate strategy to overcome them is the real key that will make possible the better future we all long for, of a Mozambique that is free from poverty and increasingly prosperous”, said the President.

For the coal mines, the main obstacle is that there is only one railway from Tete to the sea. This railway, the Sena line, can carry a maximum of six million tonnes of coal a year. Guebuza said the government has drawn up a plan of action that will increase the line’s capacity to 25 million tonnes a year, as from 2016.

All the coal currently leaves from Beira port. Until recently, Beira was only handling 1.8 million tonnes of all types of cargo a year. That figure has now risen to six million tonnes a year, but Guebuza wanted to see it rise to 18 million tonnes a year, in the near future.

New railways are on the drawing board. The one at a most advanced stage has been planned by Vale. It will cut across southern Malawi and connect with the existing railway through northern Mozambique, to a new coal terminal built at Nacala-a-Velha. Guebuza said this railway and port should be complete by 2015, with a projected capacity to carry 30 million tonnes a year.

Other lines are planned from Tete to the coast of Nampula or Zambezia province, entirely within Mozambican territory. One would go from the Moatize coal basin to Macuze in Zambezia. A second would branch off the Sena Line at Nhamayabwe, cross upper Zambezia, and join the line to Nacala at Mutuali. Guebuza said that each of these would have an initial capacity of 25 million tonnes a year.

“The challenge of transforming the promise of development and wealth into real development and wealth is posed in the same terms when we look at the natural gas in the Rovuma Basin”, he continued. “A series of infrastructures must be built to transport it from the sea to Palma district (in Cabo Delgado province), and then to process it for use on the domestic and foreign markets”.

A further development challenge was “to strengthen the capacity of the public sector to guarantee good governance”. If state institutions were to perform properly their planning and supervision tasks, Guebuza said, they needed to continually train their staff, recruit new professionals and ensure that the most capable staff are well motivated and remain in the public service “so that the State will be able to carry out its mission of promoting the integrated and sustainable development of our country”.

Guebuza stressed the need to create a dynamic Mozambican middle class that could take advantage of the opportunities opened by the exploitation of mineral resources. But the current Mozambican business class lacked the capital to invest in large projects, and was unable to meet the demand from the extractive industry for specialized goods and services.

So the goods and services required “mostly come from abroad”, said Guebuza.

“This means that we are making little use of the opportunities for employment, income and revenue”.

The government was taking measures to ensure “that Mozambicans participate in this type of operation”. It has set up the Empresa Nacional de Hidrocarbonetos – Logistica (National Hydrocarbon Company – Logistics), with the intention that “logistics services in the hydrocarbon sector should be led by companies formed mostly by Mozambican capital, guaranteeing the training of national staff and the creation of local skills”.

A similar logistics company would be set up for the mining sector. “Our vision”, Guebuza said, “is that in the long term Mozambicans should be the overwhelming majority in these business units”.

Also as part of the strategy to build up a middle class, “we are taking action to support the development of the private sector, through improving the legal and institutional framework”.

That included simplified licensing procedures, the collection and dissemination of information about markets and prices, and setting up Provincial Inter-Sector Groups “to monitor the strategy for improving the business environment”.

Guebuza added that the District Development Fund (FDD) was a way to encourage Mozambicans to set up businesses. The FDD is still commonly known as “the seven million”, since it began in 2006 as an allocation of seven million meticais (about 236,000 US dollars) from the state budget to each of the 128 districts. The money was to be lent to people with viable projects that could create jobs and boost food production,

Guebuza believed that the FDD would “strengthen the local business fabric”, and enable these small businesses “to take greater advantage of other public and private investments, and of our decentralization policy”.

He insisted that loans from the FDD are only intended for people from low income strata who do not have the guarantees needed to obtain bank loans, but are regarded as trustworthy and credible by their community and the District Consultative Council.

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