GETTING BETTER
Mozambique hit new bumps on its economic journey over the last year, including currency devaluation and inflation, yet the long-term prospect of a major LNG export business could bring about the investment the country needs.
Globally collapsing commodity prices have put pressure on the Mozambican economy to say the least, harming importers and contributing to a 16% drop in the metical against the dollar so far this year on the back of a 29% drop over 2015. As an exporter of predominantly raw materials, this reality has hit the trade balance hard, with export receipts dropping by half in 1H2015. Struggling to service the country's debt, the government has dipped into its foreign reserves, which have gone from a peak of $3.2 billion in August 2014 to just $1.8 billion in February 2016. This led to the government turning to an IMF loan in late 2015—to the tune of $286 million—in order to cushion the blow caused by devaluation. The loan naturally came with several stipulations, including curbing the budget deficit, raising interest rates, and improving the functioning of the FX market.
That was not the end of the country's woes. The country suffered a fresh dent to its debt rating following the fallout of its failed “tuna bond.” In 2013, global investors lent the state-owned Mozambique Tuna Company $850 million to buy a tuna fishing fleet, yet it later emerged that the money had been used to buy military boats. In April 2015, the bonds were restructured, lumbering Mozambique with further debt and leading Standard & Poor's to cut its credit rating of Mozambican debt to selective default.
The IMF is optimistic about the future of the Mozambican economy, stating that, “as other countries in the region, Mozambique is currently experiencing an external shock associated with the drop in commodity prices, lower growth in trading partners, and delays in investment associated with large natural resource projects.”
And in terms of natural resources, Mozambique is blessed. Back in 2010, Italy's Eni and the US' Anadarko struck gas in the Rovuma Basin, bringing proven natural gas reserves to 100 trillion cubic feet (Tcf). The excitement at the time was palpable, and although expectations were somewhat dashed when commodities prices, including oil, began to drop globally, the authorities are working tirelessly behind the scenes to make the country's dreams of a major LNG industry a reality. All eyes are on Anadarko, which is preparing to make a final investment decision on a $15 billion LNG project in conjunction with state-owned Empresa Nacional de Hidrocarbonetos (ENH) and Eni. Long term, the prospects are bright, with the IMF predicting that investment in the LNG business could reach $100 billion. The group of companies now expects the first shipments to leave Mozambican shores in 2020. Elsewhere, Shell is busy working on a gas to liquids (GTL) project in Cabo Delgado province. Believing that LNG cannot be the only answer to the question of what to do with the country's vast gas reserves, it concluded in a 2014 feasibility study that the project is viable technically and commercially and is now looking to access enough gas on the right terms.
Before gas, however, coal was king, and the commodity is still important for the country. Mozambique is Africa's second largest producer of the stuff. Sector developments in recent years have been focused on boosting infrastructure to allow coal from the center of the country to reach ports on the Indian Ocean. Currently, the government is investing millions to develop the almost-600km Sena railway line from Tete to Beira, the port city through which much of Mozambique's coal exports leave. The completion of the works is expected to allow large-scale miner Vale to ramp up production at its Moatize mine, for which the firm also authorized the Phase II expansion of. When complete, the mine's capacity is expected to be doubled from its current capacity of 11 Mt/y, coming online in 2017. Neither coal nor gas look likely to fix the country's electricity challenges, however, with 80% of the population living off the grid and currently being targeted by small-scale renewable projects. That said, the government is encouraging the domestic use of gas to promote industrial development. Further down the line, the Mphanda Nkuwa Dam project, downstream from the massive Cahora Bassa Dam, could add 1.5GW of power, pushing total capacity in the country to 4GW, and is one of five hydro facilities under consideration.
All in all, it is a challenging time for new President Filipe Nyusi, who entered office in 2015 with 57.1% of the vote. The government's fiscal priorities remain on the social sector, including social subsidies, health, and education, with the sector accounting for 68.4% of spending in 2014. It is hoped that the growing domestic revenue brought by future gas exports will provide a handsome boost to budgets in the years to come.
For now, Mozambique is playing the waiting game, carefully managing its fiscal arrangements before it can collect the fruits of its hydrocarbon resources. Unlike its tuna bond, Mozambique is not out of the water yet, and will need to ensure a solid investment environment if the big players are to take a gamble on the future of LNG in a country that is entirely new to the game.

TABLE OF CONTENTS
Review: Economy
Much to Gain
Despite numerous years of considerable economic growth, Mozambique has been unable to retain its wealth and bring more than half of its population out of poverty. Developing one of the world's largest gas reserves and becoming a regional exporter of energy may be the solution.
read articleFocus: Aluminum
Foil Plans
Mozambique is the second-largest producer of aluminum in Africa and the 14th in the world. Since 2000, it has been producing aluminum for export, and in 2015 Midal Cables opened a factory near Mozal; the country's largest aluminum smelter. This could be the start of a Mozambican aluminum value chain.
read articleInterview
Ben James, Managing Director, Baobab Resources
TBY talks to Ben James, Baobab's Managing Director, resident in Mozambique. A geologist by training, Ben has been directly involved with the development of the Company's Tete Project from a greenfields iron ore discovery to an asset on the verge of corner-stoning Mozambique's nascent steel industry.
read articleFocus: Aluminum
Aluminum Legacy
Mozambique is the second-largest producer of aluminum in Africa and the 14th in the world. Since 2000, it has been producing aluminum for export, and in 2015 Midal Cables opened a factory near Mozal; the country's largest aluminum smelter. This could be the start of a Mozambican aluminum value chain.
read articleInterview
Hon. Jorge Olívio Penicela Nhambiu, Minister, Science and Technology, Higher and Technical Vocational Education (MCTESTP)
TBY talks to Hon. Jorge Olívio Penicela Nhambiu, Minister of Science and Technology, Higher and Technical Vocational Education (MCTESTP), on bringing science and technology to rural areas and increasing research in the country.
read articleFocus: E-government + E-bau
Digital Decisions
Between 2015 and 2016, Mozambique fell five positions in the World Bank's Ease of Doing Business Index. The government is investing in the GovNET and e-BAU platforms to facilitate procedures and cut the costs of acquiring business licenses and improving services provided to the public.
read articleReview: Health
Time for a check-up
Mozambique's healthcare budget rose to $561.5 million in 2015, an increase of 1.1% on expenditure in 2014, accounting for 10.2% of the state budget. Total healthcare expenditure in 2014 was $477.5 million. The Ministry for Health oversees the sector and is responsible for setting the budget each year.
read articleInterview
Dr. João M. Carvalho Fumane, Director General , Hospital Central de Maputo (HCM)
TBY talks to Dr. João M. Carvalho Fumane, Director General of Hospital Central de Maputo (HCM), about the range of services on offer and what is being done to further excellence in the health sector
read articleInterview
Hon. Jorge Ferrão, Minister, Education and Human Development
<span style="line-height: 1.6em; background-color: initial;">TBY talks to Hon. Jorge Ferrão, Minister of Education and Human Development, on the goals of the ministry, the role of local languages, and tackling teacher absenteeism.</span>
read articleInterview
Prof. Doctor João Leopoldo da Costa, Rector, Instituto Superior de Ciências e Tecnologia de Moçambique (ISCTEM)
TBY talks to Prof. Doctor João Leopoldo da Costa, Rector of Instituto Superior de Ciências e Tecnologia de Moçambique (ISCTEM), on the perils of the internet on education and the quality of its high school.
read articleReview: Tourism
Mozambeach
With white-sand beaches, scuba diving, and game reserves among its wide range of accommodation, Mozambique is a goldmine for tourism. However, to attract the number of tourists the country is aiming for, and entitled to, it will have to compete with its considerably more popular neighbors.
read articleReview: Legal
Smart Choices
Foreign investments are sources of capital, foreign exchange, and technical know-how for developing countries such as Mozambique. Over the past three decades, Mozambique has been successfully striving to ensure a favorable legal framework for foreign private investment.
read article