World’s next gas boom could transform Mozambique, but its challenges are fierce

Mozambican President Filipe Nyusi, left, and Renamo leader Ossufo Momade join hands, as they exchange documents, at a signing agreement in Maputo, Mozambique, Tuesday, Aug. 6, 2019. Mozambique’s president and the leader of country’s main opposition group have signed a new peace accord in the capital. By signing the Peace and National Reconciliation Agreement in Maputo Tuesday afternoon, President Filipe Nyusi and Renamo leader Ossufo Momade pledged to end years of armed violence and to peacefully participate in Mozambique’s elections on Oct. 15. (AP Photo/Ferhat Momade)

A remote parcel of land in northern Mozambique is being touted as the world’s most valuable real estate, attracting US$55-billion in planned investment by multinational companies in an emerging gas boom of extraordinary proportions.

The site is the Afungi peninsula, on the Indian Ocean coast near the Tanzania border. Companies such as Exxon Mobil Corp. and Total SA are pouring billions of dollars into offshore gas projects around the peninsula. A city of 150,000 is being planned on a site where just a few thousand now live.

The boom will transform the economy of one of Africa’s poorest countries. Standard Bank, a South African bank and major financier in the Afungi projects, says the projects could turn Mozambique into the world’s fourth- or fifth-biggest producer of liquid natural gas, giving it an annual growth of 10 per cent and turning it into a middle-income country. The International Monetary Fund says the projects “could lift millions of people out of poverty.”

But the projects face some fearsome challenges: a raging Islamist insurgency in northern Mozambique; the threat of pirate attacks on supply ships in the nearby Mozambique Channel; angry protests by communities complaining of jobs going to outsiders; and an economy plagued by gross inequality and state corruption, which could funnel the benefits to a small elite.

Exxon Mobil and Total this month reportedly asked the government to send military reinforcements to guard their operations in Cabo Delgado, the northern province where a shadowy insurgency has killed more than 500 people and forced 100,000 to flee their homes over the past two years.

There are already several hundred troops in the region, along with 200 mercenaries from a Russian private firm, but they have failed to quell the attacks, prompting the investors to seek hundreds of additional troops, the reports said.

The insurgency has been linked to Islamist extremists, but analysts say the rebels are exploiting the grievances of impoverished local communities, which fear that the benefits from the gas boom are being monopolized by outsiders. A report by the Africa-based Institute for Security Studies warns that “social exclusion” is a key factor in the insurgency. Gas project convoys have sometimes been directly targeted by the insurgents.

“The money isn’t benefiting the local people,” Estacio Valoi, co-author of the ISS report, told The Globe and Mail. “Many of the workers are being recruited from outside.”

To make room for an LNG plant, hundreds of people in the Afungi peninsula are being resettled. “Fishermen are losing access to the coast and they’re being told to become farmers,” Mr. Valoi said. “They’re worried about it.”

Somali pirates are another potential threat. Although they haven’t attacked any ships in the Mozambique Channel since 2011, there are fears they could be lured back by the flow of supply ships for the LNG projects. A maritime surveillance plane, operated by Canadian company PAL Aerospace, was recently spotted at Pemba Airport, near the Mozambique Channel, reportedly on a U.S. anti-piracy contract.

Mozambique could begin exporting gas as early as 2022. Standard Bank estimates the LNG projects will trigger as much as US$128-billion in capital investment across Mozambique, driven by rising LNG demand as China switches to gas from coal. An estimated 40,000 construction jobs will be created on the Afungi peninsula alone.

The government’s strategy is to generate enough income from the projects to benefit low-income people in the region and across the country. But this will take careful planning.

“Revenues from gas and oil should go mainly to the agricultural sector,” said Higino Francisco de Marrule, Mozambique’s Minister of Agriculture and Food Security. “As a government, we don’t want to lose our focus on development and creating better conditions for the people. We can’t eat oil and gas.”

The gas revenue will allow the government to devote at least 10 per cent of its budget to agriculture, almost double the current percentage, he said, and the project supply chains could spread the benefits to farmers and other local suppliers. “Anything you do in agriculture has a very high multiplier effect,” the Minister told The Globe in an interview.

The French multinational energy company Total says its gas project will award up to US$2.5-billion in contracts to Mozambican companies. It is already holding meetings with the business community to discuss opportunities in engineering, road construction, camp management and security services.

The government is also considering the creation of a sovereign wealth fund to manage the gas revenues. It has signed an agreement to receive expert advice from Norway, an oil and gas exporter that has one of the world’s biggest sovereign wealth funds.

But in a country plagued by corruption, where studies have estimated that several billion dollars have been stolen or diverted from state coffers in the past two decades, many people are skeptical that the benefits of the gas projects will trickle down to the poor.

“I don’t believe these projects will benefit Mozambicans,” said Edson Cortez, an anti-corruption campaigner who heads the Centre for Public Integrity in the capital of Maputo. “We don’t have any authority that has the expertise to control the revenue.”

Ivan Amade, a banker and business consultant in Maputo, said the country doesn’t have enough small and medium-sized enterprises to take advantage of the supply chain opportunities.

Without those companies, the benefits are likely to flow into the pockets of foreigners, he said. “The gas projects will have an impact mainly on the rich.”