Executive summary

Mozambique is no stranger to crises—COVID-19 is just the latest to threaten a delay to its budding gas industry.

DESPITE THE INITIAL POSITIVE expectations for economic recovery, 2020 has proven to be a hard year for Mozambique, where the global disruption caused by COVID-19 added to years of crises, including the 2016 hidden debt scandal and the ensuing financial crisis, the IMF’s retreat, cyclones Idai and Kenneth in 2019, unrest in the center of the country, and the Islamist insurgency in Cabo Delgado.

The challenges are huge. The Southern African country ranks among the 10 poorest in the world for GDP per capita, and the Mozambican population is currently growing more rapidly than its GDP—it is expected to double in the next 20 to 30 years. Every year about half a million Mozambicans enter adulthood, but only 10% are absorbed into the formal economy. The scenario hardly seems encouraging, yet Mozambicans are confident about a rosier future awaiting their country.

Much of this confidence stems from the expectation of the double-digit GDP growth that will kick off once LNG production in Cabo Delgado starts. 2020 marks the 10th anniversary of the discovery of gas in the Rovuma Basin, which will make Mozambique one of the top-three exporters globally. Thus far, LNG developments have been characterized by negotiations, delays, and false expectations—the “bursting of the bubble,” as many refer to the post-2015 business climate, which partly led to the financial crisis. The biggest risk factor, however, has been the ongoing Islamist insurgency that started in late 2017, triggered by a mix of religious and socio-economic concerns. Thus far, it has taken the lives of over 1,100 people and contributed to the displacement of an estimated 250,000 people. As the insurgency takes the shape of a civil war, many fear the impact on the development of the LNG industry and the stability of the region. Yet, despite the challenges, French oil giant Total has recently secured financing for the Mozambique LNG project, the biggest project financing ever in Africa’s history, and Italian company Eni is on track to complete construction of the Coral South FLNG Project by 4Q2021. It is clear that the upcoming year will be crucial to determine how gas revenues will contribute to development in Mozambique.

While being a major catalyzer for development, many insist gas should not be viewed as the only hope for Mozambique. There is growing excitement in a number of areas, from mining to electricity and infrastructure. Coal currently represents Mozambique’s biggest export, with Brazilian company Vale comprising the lion’s share and the Indian market receiving the bulk of these exports. As the coal market crosses an uncertain phase globally, other minerals

are increasingly placing Mozambique on investors’ maps. Mozambique has the biggest expected reserves of heavy mineral sands in the world, while the ruby deposits in Cabo Delgado are the most significant recent discovery. Graphite extraction in the same region is expected to boom, mirroring the growth of the electric vehicle market. Recent regulation has created a favorable environment for the access of foreign companies, which are now flocking to the country.

Opportunities also abound also in the logistics sector, where Mozambique has played a traditionally strong role thanks to its long coastline, which allows it to serve neighboring landlocked countries. The country is now seeking to better capitalize on the corridors of Nacala, Beira, and Maputo by expanding and improving the respective ports and building nationwide connecting infrastructure. Infrastructure creation—arguably Mozambique’s biggest challenge—is one of the cornerstones of President Nyusi’s strategy for industrialization, which seeks to leverage Mozambique’s potential as an agro-producer and transform its economy from commodity exporter to value-added producer. There are huge challenges regarding infrastructure and transport, SADC and national regulation regarding exports and tariffs, the cost of energy, and more, but the willingness is there.

Besides infrastructure, two of the main projects for President Nyusi’s second mandate (2020-2024) are laying the grounds for universal energy access and financial inclusion. Interestingly, Mozambique is the only country in the region producing a surplus of electricity, which represents its third-largest export. Yet, only onethird of the population is connected to the grid, leaving the majority in the dark. Through the ProEnergia program launched in 2018, the country seeks to connect all Mozambican households by 2030. This will require a combined effort of expanding the grid, increasing generation, and developing off-grid solutions such as solar home systems and mini-grids.

Another key societal challenge is financial inclusion. According to the central bank, only 32% of Mozambicans have a bank account and only 7% has some type of insurance; this leaves the majority of the population outside of the formal economy, limiting the opportunities that people can access. Through our interviews, we have observed a highly dynamic space, with a range of innovative solutions to bridge the gap with the “unbanked.” These include the agency banking model, the central bank’s Sandbox Regulator, the creation of the first Private Credit Bureau, financial literacy initiatives, and the creation of the “Third Market” by the Mozambique Stock Exchange (BVM). No solution, however, is proving as disruptive as mobile wallets and mobile money, which in 2016 surpassed the number of bank accounts and are growing three times as fast, now reaching 50% of the population.

Finally, we cannot talk about 2020 without reflecting on COVID-19. At the time of writing, Mozambique was relatively spared by the pandemic in health terms, but it was deeply affected by the economic disruption. Sectors such as transport, tourism, real estate, and construction were hit the hardest, and the prevailing thought among businesses is to “wait until things get better.” Yet, many interviewees have reiterated the same: Mozambique is no stranger to crises, and this specific one is hitting the world as a whole. Despite all the challenges, the increasingly closer prospects of gas revenues will eventually lead to the much-awaited economic recovery. ✖