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Mozambique's upcoming LNG projects alone represent the largest-ever investment undertaken in the region, but several challenges linger, which must be addressed through long-term policies and commitment.
Mozambique's construction sector has long played an important role in the economy. Between 1993 and 2015, the value added by the sector increased at an average of 12.5% per year, well above the average GDP growth of 7.9%. On the one hand, investment in basic infrastructure, health, education, and housing improved overall living conditions and standards of living, and on the other, investment in roads, IT, and office facilities boosted logistics and economic activities and reduced costs.From 2010 onward, the government's focus shifted to high-value natural resource exploitation and the increase in demand for non-concessional loans for public investment. Today, the country's construction sector is regarded to have one of the strongest growth outlooks across sub-Saharan Africa. The industry is mostly driven by huge investments pledged to infrastructure projects that are designed to support Mozambique's rapidly developing mining and oil and gas sectors.
Having introduced the PPP law in 2011, the government continues to be drawn to the idea of using PPPs to improve infrastructure and boost construction activity, especially given the significant capital requirement of infrastructure investment and the public sector's lack of technical capacity to manage megaprojects. While a number of PPPs have been successfully carried out, such as the ports of Nacala, Maputo, and Beira, and the Ressano Garcia, Machipanda, and Nacala railways, the government has so far failed to structure the PPP program within an established legal PPP framework, which means each project has its own rules. Moving forward, the government must take certain institutional fragilities into account when designing a PPP program. Alas, despite registering tremendous growth since the 1990s, not all is gloomy for Mozambique's construction sector. The country entered a macroeconomic crisis in 2015 due to constraints to the budget and a hidden debt crisis, and ever since, there have been significant barriers to the development of the construction industry, the most recent one being the COVID-19 pandemic.
To start with, the widespread disruption of construction activities caused by cyclones Idai and Kenneth in March and April 2019 continue to dampen Mozambique's growth forecast. The two cyclones, coming six weeks apart, caused unprecedented damage from flooding and high winds across a wide area of the country, particularly the central provinces of Manica, Sofala, and Zambezia, and Mozambique's fourth-largest city, Beira, where an estimated 90% of the buildings were damaged or destroyed. In particular, the damage to power and transport infrastructure has made it difficult to organize supply chains and carry out construction work in large areas of the country. And although USD1.2 billion was pledged by international donors toward the reconstruction efforts, the figure is a far cry from the government's estimated USD3.2 billion needed to restore infrastructure and build housing.
Just as Mozambique was beginning to recover from the aftermath of the cyclones in 2019 and its economy was starting to show signs of recovery, the COVID-19 pandemic dealt a deadly blow to a number of key megaprojects, such as the Total-operated Mozambique LNG project, the Rovuma LNG project, the Coral South FLNG project, and the Chongoene airport.
Construction delays at the Total-operated Mozambique LNG project and ExxonMobil's decision to delay its final decision for the Rovuma LNG project have dented the immediate growth of the construction sector. Notably, Total's LNG project is one of the three large LNG production projects targeting Mozambique's Rovuma basin, which together are estimated to attract a whopping USD50 billion in CAPEX.
On the positive side, except for short-term delays, business is expected to continue as usual. Mozambique LNG, which was projected to begin operations in 2024, will begin operations in 2025 due to COVID-19-related disruptions. As for the Rovuma LNG project, its construction will begin in 2021 rather than 2020. On the other hand, the Coral South FLNG project, a floating, offshore production facility, will suffer no delays and will begin operations in 2022 as it is constructed mainly in South Korea. After going through numerous challenges in the recent past, many in Mozambique believe that the worst is over. Only time will tell if that is true, but until that happens, companies in Mozambique should do their best to reach the stage of diversified and sustainable development that would enable them to weather similar downturns in the future.
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TABLE OF CONTENTS
Interview
Lourenço Sambo, General Director, Agency for the Promotion of Investments and Exports (APIEX)
APIEX is formulating different strategies to target and attract new investors into the country, support existing ones, and help achieve reforms to improve the business environment in the country.
read articleFocus: Heavy mineral sands (HMS)
The time is now
Mozambique is home to major mineral sands deposits, most of which remain unexploited. With demand for titanium, rare earth elements, and zirconium on the rise, heavy mineral sands projects in the country are now attracting significant attention from international mining companies, even in times of crisis.
read articleInterview
Janfar Abdulai, Minister of Transport and Communications,
The Ministry of Transport and Communications aims to make Mozambique a logistics hub in the SADC region by leveraging the country's strategic location, introducing friendlier regulation, and building robust infrastructure.
read articleFocus: Breweries in Mozambique
Beer battles
Although underdeveloped, Mozambique's beer industry has a long history and a bright future. Home to one of Africa's most-awarded beers, Laurentina, the country is now a battleground for Heineken and ABInbev, two of the largest beer companies on the planet.
read articleInterview
Custódio Mucavele, Country Program Officer Mozambique, International Fund for Agricultural Development (IFAD)
IFAD is a UN-specialized agency that works with the government on agricultural transformation, with particular attention on developing value chains in the agriculture and fisheries sectors.
read articleFocus: Reforming the agricultural sector
On the right track
Mozambique's agricultural sector holds great potential for growth, but it is a sector beset by challenges. Although the government has implemented a host of reforms in recent years, more needs to be done to ensure a supportive business environment.
read articleB2B
Empowering smallholder farmers
ECA is a private agro-processing company and a greenfield venture made possible by AgDevCo, a social impact investor that promotes the launch of new agribusiness opportunities. Together, they are creating income-earning opportunities for Mozambican farmers and improving financial inclusion.
read article
