4 December 2017

Africa: Natural Gas Won't Solve Mozambique's Development Challenges

Photo: Anadarko Petroleum Corp.
Natural gas flow test in Mozambique (file photo).

The discovery that Mozambique holds one of the largest reserves of natural gas in the world has generated great optimism about the country's future. But the recent sovereign debt crisis has cast serious doubt on the ability of the country to effectively manage the associated profits and better promote human development.

Without a concerted effort to ensure transparent management of gas revenues and channel that windfall into investment in basic human development, the country will continue to face barriers to inclusive growth.

A recent report from the African Futures Project (AFP) used the International Futures (IFs) forecasting system - housed at the Frederick S Pardee Center for International Futures - to assess Mozambique's long-term development prospects and help frame uncertainty around the future of natural gas, economic growth and human development.

Mozambique's natural gas reserves have sparked huge optimism for the country's future

This research finds that even with the significant boost to economic growth from natural gas production, Mozambique will have essentially the same number of people living in extreme poverty in 2040 as it has today. This is largely due to rapid population growth, and continued lack of access to basic services experienced in the country.

Mozambique has averaged 7% GDP growth per annum over the past 20 years, but it still has some of the lowest levels of human development in the world. Of the 186 countries ranked by the United Nations Development Programme's Human Development Index, Mozambique ranks 183rd.

More than 65% of the population lives in extreme poverty and most of the country lacks access to basic infrastructure, health and education. Only 5% of the population has completed a secondary education, life expectancy is 5.5 years lower than the regional average and 22 million Mozambicans have no access to improved sanitation facilities.

IFs forecasts that Mozambique will improve access to education, health and infrastructure services over the next 23 years. But the country's growing population, which is forecast to nearly double by 2040, will make it increasingly difficult to extend basic healthcare and education to the country's poorest and most vulnerable. This challenge is best illustrated by looking at the forecast for extreme poverty in the country out to 2040.

Figure 1 below shows that the percentage of people in Mozambique living in extreme poverty will fall from around 65% in 2016 to about 35% by 2040. However, the absolute number of people surviving on less than US$1.90 per day will be roughly the same in 2040 as today.

This trend is mirrored in other areas of service delivery, where the absolute number of Mozambicans in need of basic services is forecast to increase across various dimensions of human development. Table 1 shows the number of people (in millions) in need of basic services in Mozambique in 2016 and 2040 and highlights the increase in a number of key categories.

Further adding to this challenge, the discovery of over US$1 billion in undisclosed government debt in the spring of 2016 triggered a suspension of aid from a number of donors and has called into question the government of Mozambique's ability to effectively manage and distribute government revenue.

Although Mozambique faces stark challenges, there are opportunities to improve the future of the country. As part of this research, the AFP used IFs to explore alternative future scenarios for Mozambique that represent a successful five-year policy push in different areas of development.

Our research shows that concerted efforts to improve family planning and care, extend health and nutrition services and advance education outcomes over the next five years would help ensure that more of Mozambique's young population have the opportunity to live full and productive lives. Meanwhile, boosting agricultural production and improving government transparency and effectiveness could help ensure that human development outcomes are paired with inclusive growth.

To benefit from its gas reserves, Mozambique needs better budget management and service delivery

Further, if Mozambique can effectively manage gas extraction and ensure windfalls are used to advance human development and inclusive growth, 4 million fewer people could be living in extreme poverty by 2040. But if gas production is delayed, government budget management continues to deteriorate and the country fails to invest in human development outcomes, 11 million more people could be living in extreme poverty by 2040.

In other words, unless there is a significant improvement in budget management and basic service delivery, Mozambique's vast gas reserves will do little to improve human development for the poorest and most vulnerable in the country.

Alex Porter, Research Consultant, Frederick S Pardee Center for International Futures and Zachary Donnenfeld, Researcher, African Futures and Innovation, ISS Pretoria


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