Big oil-producing countries have faced a double-hit in recent months: the sudden drop in prices of oil and the economic impact of the global pandemic. In the case of Angola, which entered both crises with an already weakened economy, how are its prospects looking? The Africa Report speaks to Sergio Pugliese, the Executive President for the African Energy Chamber (AEC), to find out.
The rising tide
From shattered beginnings, Mozambique is growing into a rising
regional star and positioning itself to provide food and energy to a
world hungry for both, in defiance of the Afropessimists.
Foreign diplomats get a hardship allowance for the Maputo posting. Until recently they received a ‘danger bonus’. This only goes to show how off the radar of Western chancelleries the country has been after 17 years of peaceful growth, or else, how those who know the truth keep it to themselves. Mozambique is a country of extraordinary potential, with 2,500km of pristine Indian Ocean beaches, fertile soils criss-crossed with rivers, the largest unexplored coal deposits in the world, a swinging melting-pot of a capital city, a large market of South African consumers next door, cheap energy from the Cahora Bassa dam and a location ideal for trading with Asia. On top of that, the peaceful democratic transition of 2004-05 from ex-President Joaquim Chissano to current President Armando Guebuza has won, and still wins, the country sustained support from the donor community.
The speed of the Mozambican recovery is sometimes compared to that of Vietnam. After a hasty Portuguese decolonisation in 1975, the country became snared in the politics of the Cold War, with apartheid-era South Africa funding the Resistência Nacional Moçambicana (Renamo) insurgency. Bitter civil war raged until the apartheid regime began to pull back in 1990. After the 1994 Frente de Libertação de Moçambique (Frelimo) victory in the country’s first multiparty elections, 1.7m refugees were repatriated.
Chissano’s cabinet of smart, young technocrats started the reconstruction – and in many places, the construction – of the country. In 2000, floods knocked the country hard, but since then, there has been a jump forward in infrastructure development and livelihoods. “You used to need a tractor to travel the roads here – now you can drive a Ferrari from Maputo to Dar es Salaam,” says Adrian Frey, who recently sold his legal practice to local investors. Tight fiscal management and financial sector reform brought inflation down to single digits, one of the lowest rates in the region, by the late 1990s.
Certainly, the global downturn carries risks. Foreign direct investment, which had been pouring into mining and infrastructure, will fall back as commodity prices crash, potentially adding delay to certain ‘mega-projects’, like a $5bn refinery at Nacala or the pipeline from the Pande and Temane gas fields to South Africa.
Cutting dependence on donors
Donor nations currently fund over 50% of the national budget and, although they have said the 2009 money is secure, they may not be in a position to sustain this, adding to other uncertainties about the outlook beyond 2010.
For Prime Minister Luisa Diogo, financing the next 24 months will be a challenge, especially given the drying up of the international bond market, though energy projects could be spared given the power crunch in South Africa. “International investors understand energy is the best investment possible in this region,” she says.
Felix Fischer, the IMF resident representative, is sanguine about the country’s ability to respond effectively to emergent difficulties, citing the administration’s fiscally-responsible reaction to food and fuel price increases in 2008. “Though the government abolished VAT on diesel, they rearranged the whole budget to find the money, cutting non-essential spending, re-introducing VAT progressively as fuel prices came down. On top of that they introduced innovative food-for-labour and a cash-transfer scheme for the very poor.”
South Africa’s Sasol says work will not halt on the gas pipeline given the power crunch faced at home. Work continues on the 300,000 barrel-per-day Oilmoz refinery, which aims to service a regional market that currently imports refined fuels from Dubai and India. The huge interest in Mozambique’s agricultural potential following the hunger riots of 2008, and growing Asian appetites, mean that the development of this sector will accelerate, vital to reaching the poorest parts of the population.
Profiles of the President, leader of the
opposition and Mayor of Beira.
In the last two years there has been a shift in emphasis away from capital-intensive projects like the Mozal smelter towards more labour-intensive agriculture and tourism. The need for investment in human capital is underscored by a lack of skilled personnel, understandable given the lack of responsibility taken for education by the Portuguese. James Duncan, managing director of Nissan Motorcare in Maputo, says he has to re-skill his mechanics from scratch. “The skills pool in Mozambique is very poor when we compare to neighbouring states”. Money has been poured into education, and a new direction in terms of relevance of curricula and technical/vocational education will surely help.
The political outlook remains stable, though the country is not blessed with an effective opposition. Tainted by its past, Renamo is never going to gain power. Afonso Dhlakama, its erratic and error-prone leader, has crowned his legacy of failure by a collapse of support in November 2008’s municipal elections. Though it hoped to keep Nacala, Renamo failed to win a single mayoral position, giving Frelimo 42 out of 43 municipalities.
The remaining mayorship was captured by the charismatic and young Daviz Simango, who was kicked out of Renamo and replaced by another candidate for the bustling industrial port city of Beira. Running as an independent, he humilated the Renamo stand-in, and now will be heading up a new opposition party called Modemo, which will be challenging Guebuza for the presidency in October 2009.
Having had the presidential palace renovated over the last four years, Guebuza has no intention of losing his post in the next elections. Frelimo’s support, in rural and urban areas, looks like it is staying strong. A canny political operator, Guebuza has removed any internal threats to his leadership, whilst keeping key power centres like those of Prime Minister Diogo and former first lady Graça Machel in play. Though he did not fight in the independence struggle, planning minister Aiuba Cuereneia is seen as a potential future president. As Guebuza’s strategist, he manages party finance and administration, but whether he can break free of the big beasts in the party remains to be seen.
Wind in the sails
Mozambique has had a fair wind over the past 15 years. But to continue pulling people up out of poverty requires more than ten years of high growth. South Korea took 50. A second generation of reforms is needed to improve the business environment. The banking sector, though sound, is not playing its role in lending to the private sector. In part this is due to a lack of an accounting culture, which makes it hard for banks to manage risks. “On top of this there is quite a deficient court system”, says the IMF’s Fischer. “All the banks we talk to say they can only bring 10% of their non-performing loans to court”. The country’s infrastructure, while capable of sustaining a first decade of growth, looks unlikely to support a second without continued investment.
Other, more stubborn problems exist. Drug money from heroin imports via Pakistan is seeping into political life. In a pattern well known from West Africa, the police and security services are worst affected. The HIV/AIDS pandemic continues to decimate, with prevalence rising to around 16% in 2008. Yet a middle class is emerging. The capacity of the Mozambicans to make friends and influence people will only grow. Just ask the diplomats how hard it really is to live in Maputo.