Will Mozambique end up like Nigeria or Norway?

The 2011 discovery of a major off-shore gas field, combined with extensive coal reserves inland, has prompted some to suggest that Mozambique, one of the world’s poorest countries, has hit the jackpot.The gas is thought to be worth an estimated $350bn (£233bn) while projections predict that from 2015 the country could produce 100 million tonnes a year, putting it just outside the top 10 producers in the world.Such riches, for a country with an economy that produces just $26bn (£17bn) a year and is rebuilding itself after a 16-year brutal civil war that ended in 1992, does sound promising.It is certainly enough to make a difference to Mozambique, which has bumped along the bottom of a range of indices measuring poverty, health and education for decades.But turning those resources into riches is not straightforward.Two pathsConsider the contrasting experiences of Norway and Nigeria, two nations that made major oil finds in the 1960s.Today, Norway exports six times more energy than it consumes and, per capita, is one of the richest countries in the world.Nigeria, by contrast, still imports energy and at least $400bn (£266bn) of oil revenue is thought to have been stolen or misspent since independence in 1960. It remains one of the poorest nations on the planet.It is an unfair comparison in many ways - for example, with an estimated population of 162 million, Africa’s most populous nation dwarfs Europe’s northernmost nation, which has just five million inhabitants.Nigeria’s vast size raises immense challenges that Norway simply doesn’t have to contend with.Nevertheless, the contrasting fortunes of the two countries starkly illustrate the fact that an abundance of natural resources does not automatically lead to wealth and prosperity.The main reason for the disparity is of course their relative wealth.While Norway was already rich enough to pay for the expertise and infrastructure development needed to drive its nascent oil industry Nigeria had to rely on multinational companies to pay these costs.Norway also set up a sovereign fund to reinvest and save for the post-oil future. It is now worth 40% more than Norway’s entire economy.As a result much of the resulting profits went to those who provided the necessary investment.Like many developing countries, Mozambique finds itself in a similar position.Extracting gas from an off-shore gas field is expensive and time consuming. It can take a decade before off-shore gas can be extracted from a new field.Mozambique is only expected to gain around $20bn (£13bn) during the lifetime of the 100 trillion cubic feet (2.8 trillion cubic metres) of gas discovered.That is less than 10% of its estimated $350bn (£233bn) total value.Industry experts say such a paltry sum is consistent with what a developing country would expect to receive, given the high level of outside investment.Sebastien Marlier, an analyst at the Economist Intelligence Unit who tracks developments in Mozambique, is not confident that the country will be East Africa’s Norway.“I think Mozambique will have a very hard time reaching the standards set by Norway,” says the economist.The challenges are immense. To properly exploit the resources underground, Mozambique needs a solid infrastructure, expertise and above all, a competent, honest government.“Corruption has become a major concern in Mozambique,” says Mr Marlier.“A small elite associated with the ruling party and with strong business interests, dominates the economy.”Concerns focus on the way mining and exploration licences are agreed between the government and multinational companies that have been queuing up to buy into the boom.The licences are effectively a right to exploit a find and, and once bought, can be traded.Depending on market conditions, their price can rise dramatically, or indeed fall. Early buyers stand to make a profit if the finds turn out to be more valuable than first thought.Furthermore, many multinational firms operating in Mozambique secured tax exemptions for up to 15 years.When they bought the licences, in some cases more than a decade ago, the country was considered to be such a high risk prospect that strong incentives were needed to attract investment.If capital gains taxes had been paid on the 2011 sale of the Benga coal mine by Riverdale to Rio Tinto for $3.8bn (£2.5bn) Mozambique would have netted hundreds of millions of dollars.‘Nothing to hide’Adriano Nuvunga, director of a Maputo-based anti-corruption organisation, the Centre for Public Integrity, says there is a basic lack of transparency about these dealings.He worries that his countrymen may not be getting the share of wealth they deserve.“There isn’t a system to find out whether the government has done good business,” he says.Mr Nuvunga’s concerns - which are shared by many - are dismissed by Arsenio Mabote, head of the National Petroleum Institute (NPI), a government agency which promotes and co-ordinates exploration and production activities.“Those who have been involved in Mozambique know the process is very transparent,” he says pointing out that all the necessary legal and regulatory frameworks are there for those who want to invest in the sector.“We have a very transparent system,” he insists. “The environment in Mozambique is there for companies to invest without fearing that there is corruption.“You can find documents and model contracts that we negotiate on our website. We have nothing to hide.”Things are changing however. A new tax law passed last year means any petroleum assets sold by foreign companies will be subject to a 32% capital gains tax.Another headache is Mozambique’s ailing train network vital for transporting valuable coal from Tete, the centre of the coal mining industry, to port.Flooding damage earlier this year knocked out stretches of the train line led to coal piling up for weeks.Some mines stopped production altogether until the backlog was cleared.Three coal mining companies are now building or proposing to construct entirely new railways to export their coal.However, it is not clear if the lines will be open to all or if Mozambique will end up with three competing railway lines.To compound these challenges, questions remain over whether mineral money will be successfully channelled into wider economic development.Poverty reduction initiatives and agricultural plans have been mooted by Mozambique’s government.Multinational crutchMr Mabote, of the NPI, says long-term plans are in place to create jobs and redistribute wealth.He says students are being sent to Malaysia, Norway and other parts of Europe for studies.“We are also improving the universities here so that they can teach petroleum and mining related skills,” he adds, although he estimates it could be seven years before the fruits of these efforts are realised.In the meantime, he says the government is working on projects that will eventually have a “social and economic impact”.Nigeria and Norway provide a glimpse at two alternative futures that differ starkly.As a developing nation lacking the wealth that enabled Norway to make the most of its resources without outside help, Mozambique has started on a path similar to that trodden by Nigeria.It is a path that involves using multinational companies as a crutch.

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Will Mozambique end up like Nigeria or Norway?