The International Monetary Fund (IMF) caught the attention of investors when it issued a report predicting that Mozambique’s average economic growth rate between 2021-2025 could reach as high as 24 percent per annum and liquefied natural gas projects (LNG) could reach more than 50 percent of the country’s nominal output by the mid-2020s. While this growth and these production levels are attainable, they are based on a number of assumptions and what the IMF describes as “various risk factors [which]could significantly change the long-term projections.”
First, gas processing facilities in the Rovuma Basin will need to begin production by 2021. The Mozambican government already has made a significant step forward by approving the Decree-Law nº 2/2014 of 2 of December, which establishes the legal and contractual regime applicable to the LNG projects in the Areas 1 and 4 of the Rovuma Basin. According to the IMF, the total investment in these two areas could exceed one hundred billion dollars and Mozambique would become the world’s third largest LNG exporter.
Second, peace and security based on inclusive growth must be one of the government’s top priorities in the short term. The opposition party Renamo is putting an increasing amount of pressure on the governing Frelimo party and threatening to use force to achieve its political objectives. An unstable political situation, whether real or perceived, could deter foreign investment thereby threatening the development of the country’s gas sector and other economic development goals.
Finally, the government has been engaged in an economic and social reform process, which will lead to significant poverty reduction in the country, although other development challenges remain such as fighting corruption.
The government will continue to invest heavily in public sector reform and capacity development, with the objective of improving efficiency, enhancing transparency and devolving responsibility from the highly centralized ministries to the provinces and districts. The government, according to the IMF, also needs to develop and consolidate a macroeconomic policy focused on three main goals: (i) diversification into an economy that is sustainable and not overly reliant on the mega-LNG projects; (ii) proper management of the expected financial windfalls from the gas sector; and (iii) investment in infrastructure and other critical sectors of the economy. Implementing these policies will be critical to Mozambique achieving its long-term high-growth potential.
Article compiled by Sandro Jorge, a senior lawyer our member firm , Couto, Graça & Associados in Mozambique and was the first LEX Africa recipient for the Covington Fellowship Program.
