Boom time for Mozambique, once the basket case of Africa

As African lions outpace Asian tigers, one of the world's poorest states is moving from civil war bust to boom – but who will gain?

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      David Smith in Maputo
    * The Guardian, Wednesday 28 March 2012
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A Mozambican gold miner prepares to climb down into a mine shaft in Manica province
A Mozambican gold miner in Manica province. The wealth of resources in the southern African country could herald a new era for a people still recovering from 15 years of civil war. Photograph: Goran Tomasevic/Reuters

The shells of stylish colonial-era buildings, like shipwrecks on the ocean floor, still give Maputo a distinct character. But the capital of Mozambique no longer feels like an urban museum. Amid the crumbling grandeur rumble cranes and mechanical diggers, carving out a different skyline.

A construction boom is under way here, concrete proof of the economic revolution in Mozambique. Growth hit 7.1% last year, accelerating to 8.1% in the final quarter. The country, riven by civil war for 15 years, is poised to become the world's biggest coal exporter within the next decade, while the recent discovery of two massive gas fields in its waters has turned the region into an energy hotspot, promising a £250bn bonanza.

The national currency was the best performing in the world against the dollar. Investment is pouring in on an unprecedented scale; as if to prove that history has a sense of irony, Portuguese feeling Europe's economic pain are flocking back to the former colony, scenting better prospects than at home. Increasingly this is the rule, not the exception in Africa, which has boasted six of the world's 10 fastest-growing economies in the past decade. The first oil discovery in Kenya was confirmed on Monday, while the British firm BG Group announced that one of its gas fields off the Tanzanian coast was bigger than expected and could lead to billions of pounds of investment. Bankers, analysts and politicians have never been so bullish about the continent, which barely 10 years ago was regarded as a basket case.

From Cape Town to Cairo, there are signs of a continent on the move: giant infrastructure projects, an expanding middle class, foreign equity scrambling for opportunities in telecoms, financial services and products aimed at a billion consumers. Growth is no magic bullet for reducing inequality or fostering democracy, but the stubborn truth that it is still the world's poorest continent has done little to dull the confidence and hype about the African renaissance.

Africa has 16 billionaires, topped by Nigerian cement tycoon Aliko Dangote with an estimated fortune of $10.1bn (£6.5bn), according to Forbes magazine. Economic growth across the continent will be 5.3% this year and 5.6% in 2013, the World Bank predicts, with some countries hitting double digits. "Africa could be on the brink of an economic take-off, much like China was 30 years ago and India 20 years ago," the bank says. Many of the African lions are already outpacing the Asian tigers.

Africa exports its natural resources with the price and demand for them determined by growth in China, whose bilateral trade with Africa has grown tenfold in a decade, eclipsing that of the United States.

In return, Chinese loans are funding many of the infrastructure projects changing the face of the continent.

There are an estimated 1 million Chinese in Africa: trading, investing, building, labouring, running micro-businesses and, critics say, exploiting its wealth of natural resources.

On a recent afternoon at the Southern Sun hotel in Maputo, overlooking the Indian Ocean, the arrival of a delegation of Chinese businessmen in smart suits surprised no one. Mozambique is now an immensely attractive prospect as it emerges from a traumatic past of colonialism and civil war.

When the Portuguese pulled out hastily in the mid-1970s, they did so with spite, sabotaging vehicles and pouring concrete down wells, lift shafts and toilets, leaving the country in disarray. The civil war claimed about a million lives. Devastated by famine and economic mismanagement, it was only in 1994 that the first democratic election paved the way for a long, hard recovery.

Today there is a growing middle class, as seen in the opening of shopping centres and, in 2010, a private hospital offering the country's first cosmetic surgery. And now Mozambique's long-untapped energy resources are coming into play. The remote Tete province boasts possibly the last big coking coal mine in the world. The giant Brazilian mining firm Vale, which began shipping from there last September, is spending billions on operations including a coal terminal and railways. It aims to double capacity from 11m tonnes a year to 22m by 2014.
Jackpot

But it is the recent discovery of a gas field off the northern coast that is already being described as a "jackpot" with the potential to transform this impoverished, donor-dependent country's fortunes – and which has turned east Africa into the most exciting prime target for energy multinationals.

Last year the US oil group Anadarko found an estimated 850bn cubic metres of natural gas in Rovuma basin – more than three times the reserves left in the North Sea. The Italian energy group ENI also made two big discoveries nearby.

Mozambique's time has come partly thanks to location: Asia, especially energy-hungry India, is eager to acquire liquefied natural gas. The discovery triggered a bidding war for the London-listed Cove Energy, which has an 8.5% stake in the Rovuma gas field.

There is competition from Shell and the Thai state-owned PTT Exploration, while two Indian firms are also considering offers.

"Economically this will be of huge benefit [to east Africa]," John Craven, Cove's chief executive, told the Sunday Times last year. "For the economy of Mozambique, this is a huge project. They will have the ability to transform their country if they play their cards right."

Shell, BP and Total are also reportedly vying to acquire a 20% stake in Eni's gas field. Local analysts estimate that the gas could bring Mozambique revenue of $200bn to $400bn over 40 years. This would be a huge windfall in a country where, despite the impressive recent growth, GDP stands at a modest $1,100 a head and government spending at $6bn.

And where there is gas, there is usually lucrative oil. Mateus Zimba, country manager for the South African energy company Sasol, said: "Looking at the size of the gas in place, I think this country can't be the same any more. This has to change the nature of what Mozambique does. I'm looking at it as a Mozambican and saying we will be a world player.

"I hope coal and gas will give us enough independence to take control of our own destiny, and looking at foreign investment rather than foreign donations. I can only hope we are on the right track to avoid polarisation in this country, because that is the biggest issue we face."

The lack of wealth trickling down has cast a shadow over Africa's success stories. This is the case in Mozambique, which ranks fourth from bottom of the UN's human development index behind the likes of Afghanistan, Ethiopia and Liberia. About 54% of people remain poor, according to a 2008-09 survey, and poverty reduction has slowed down. This is despite anti-poverty government budgets that allocate a fifth of spending to education.

Will coal and gas change anything? Africa's history is littered with broken promises of spectacular finds that enrich greedy despots and giant corporations but leave the people worse off than ever. The so-called "resource curse" is a constant threat, although today's governments and campaigners alike are more alive to it. Shell admits that Mozambique offers a chance to rehabilitate its image after the PR debacle of its oil business in Nigeria.

Gabriel Fossati-Bellani, an Italian-born entrepreneur whose ventures provide services for the energy industry, is optimistic. "It's a huge jackpot of gas," he said. "Mozambique has tremendous potential through this opportunity and is already showing it wants to take the right approach to equitable distribution of wealth. The local business environment is ready for a larger participation in the profits of the sector."

"I would bet not only on short-term business growth in Mozambique but the long term, including a business-minded government trying to deliver equity."

He believes the country can steadily replace dependency on foreign aid with its burgeoning private sector. "The hype is real. It's going to happen. The country is in the middle of its logarithmic curve of compounded growth," he said.

"People are expecting a lot from Mozambique – and they should. Business is growing, the middle class is growing, the level of professionalism and service delivery has gone up in leaps and bounds. Maputo is a metropolis now. It functions like a city should in this day and age."

That means new shopping centres and hotels struggling to keep up with demand, restaurants where pre-booking is now a must and lengthening traffic jams of expensive cars. Almost every week brings a fresh business delegation from countries such as Australia, Brazil, Britain, India, Norway, Turkey and China, which is making its mark here as in the rest of Africa.

Most ambitious of all is a planned $1bn waterside complex in Maputo with 300,000 square metres of office, residential, retail and hotel buildings, which is expected to take 15 years to construct. José Pinheiro, chief executive of property developers CR Holdings, said: "It will be a new rebirth of the city. It is probably the most important development since the beginning of the 20th century.

"I came here from Portugal in 1997 and the differences are huge. Back then, a director in the government probably had a salary of about $400-$500; now it's $2,000-$3,000. The development in the social tissue of the country is amazing. There is still a long road but it has evolved really well."

He added: "You see more investment coming from the UK, Germany, Spain.

There is growing awareness that the road to development is in Africa. They understand the same thing that China did 10 years ago. They want to be on the same road."

Alongside its other projects in Mozambique, CR Holdings is spending $50m to build a hotel, housing and Portuguese-designed shopping centre in Tete, a hot and isolated town dubbed "the new Johannesburg" because of the coal rush expected to attract 3,000 foreign workers. But this phenomenon is also raising grave concerns over local price inflation and its effects on the poor, including malnourished children.
Expats

"Natural resources have positive and negative impacts," Pinheiro conceded. "Rentals are suffering from coal mines bringing expats to the city. But it's also driving the building of new housing. It will bring investment and income to the country and benefit small companies. For example, a catering company in Maputo got work in Tete, producing 14,000 meals a day."

The role of donors, the World Bank and the International Monetary Fund should help insulate the Mozambican economy against the most pernicious effects of the resource curse, Pinheiro believes. But it will require patience and planning – accessing the gas will take the best part of a decade, and require tens of billions of dollars of investment.

Even then, some remain sceptical of what it will mean for Mozambique's 23 million people. They question whether the government will direct enough of its new revenue towards infrastructure, which is still sorely lacking, and improving agricultural productivity – the biggest single tool for reducing poverty.

Erik Charas, director of @Verdade (the Truth), Mozambique's biggest circulation newspaper, warned: "There is a lack of transparency in these deals. They're making deals for generations to come and I have no idea about them. The lack of transparency is a major flaw.

"The people in power are negotiating on their own behalf. We might end up with 50 billionaires who own private planes and the rest of the population impoverished. That is our biggest fear."

"Coal and gas have the potential to trickle down," he added. "There is enough time for things to be done right. The government should prioritise the people instead of impoverishing the communities where these things sit.

"The potential is there and it's not messed up yet. The country is definitely wealthy. We have no right to complain because we have this opportunity. But if we don't do it right, we could be poorer than we are now."

Adrian Frey, director of an estate agency, Pam Golding Properties Mozambique, summed up the mixed mood: "Gas changes everything. It changes our thinking. The investment expected in the next 10 years is $30bn. There is a huge demand for building and water and restaurants and banking facilities. We are on the right track and everything is getting better."