Diplomacy

Eastward Glance

Asian Relations

Rich oil discoveries in the Rovuma Basin have primed Mozambique's growing economy, leaving the nation as a potential suitor for the many Asian countries that are increasingly demanding LNG.

An estimated 170-200 trillion cubic feet of natural gas has been discovered in Mozambique, which will fuel national exports of 20 million tons a year. The resources, discovered by Anadarko in 2010, could make Mozambique the third largest exporter of LNG in the world. These are expected to spur the economy on: GDP has just grown at 7.5% YoY, with an average 8% increase forecast by the World Bank for between 2015 and 2017.

Asian nations are the world’s largest importers of LNG with Japan, South Korea and China having the first, second and third largest intakes, respectively. Together with India they account for over 125 million tons of LNG imports per annum.

After gaining independence from Portugal in 1975, the country survived a 15-year civil war, and since 1992 the FRELIMO Party has guided the country’s economic recovery.

Although Standard & Poor’s credit rating was a modest ‘B,’ the IMF noted that the Bank of Mozambique’s careful management of liquidity helped to achieve a low inflation print of 4.2% at the end of 2014, and with temporary intervention from the central bank the New Metical remained stable following an influx of foreign investment. The economy was bolstered by interest rates dropping to an all-time low of 7.5% at the beginning of 2015, and they are predicted to fall even further to 6.5% by the end of the year.

Japan has strived for non-nuclear sources of energy since the Fukushima disaster, lasting over 12 months without any nuclear energy between 2013-14; the latest figures show that Japan imports 56.6 million tons of LNG per annum. Japan has a direct objective of investing in Africa, with $32bn of aid already pledged to African nations over the next five years to support growth that will develop future investment opportunities.

Spending $2.39bn in October of 2013 alone, South Korea is the world’s second largest buyer of LNG, importing 36.77 million metric tons in 2012.

China has the fastest growing import requirements, taking 18 million tons of LNG in 2013, which is expected to rise to 61 million tons in 2020, according to Reuter’s.

India imported 15.17 million tons of LNG in 2012, which is expected to rise to 50 million tons by 2020, although it has plans for 83 million tons of LNG capacity by that date.

Benefits for the Asian investor include the shorter shipping distance from Mozambique when compared to the Arab peninsula. The new resources will give China and India access to cheaper oil, which will help China in particular diversify away from the inflated Australian market.

Mozambique’s two-way trading with China stands at $3.62 billion, with $1.96 billion being Chinese exports. Trade with India is predicted to reach as much as $3 billion by 2016, and India is already providing $640 million of credit for projects, training, and scholarships.

However, investment is not without risk; in October 2013 there was low-level insurgency from the opposition, although a peace deal was ultimately signed in September 2014 whereupon RENAMO agreed to desist from boycotting parliament. In 2014 Rio Tinto sold its Benga mine assets for $50 million, bought for $3.76 billion three years earlier, citing the logistical challenges of transporting coal from Tete to the coastline around 600km away.

Rail upgrades to both the Beira and Nacala ports, due to be complete in 2015, will streamline business and give importers access to the coal in Tete and the metals in Chibuto.

Significant investments from other countries in Mozambique include $436 million in infrastructure by Vietnamese backed Vittel, the company that set up the country’s first mobile telecoms network, a sign that the oil wealth is spurring a burgeoning consumer economy.

Economic policy from the socialist-led government, who have held power since the 1994 democratic elections, is focused on inclusive growth and encouraging foreign investment under license.

The currently underdeveloped infrastructure means there is considerable opportunity for continued investment. The timing of Mozambique’s extraction program is crucial as it looks set to hit maximum capacity by 2020 to meet the rising forecast demand of the Asian nations. Already in 2013 tax receipts from Rovuma were $400 million, or 2.1% GDP.

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