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Expansion of mining in Mozambique bringing benefits and concerns

12th April 2013

By: Keith Campbell

Creamer Media Senior Deputy Editor

  

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Mineral production in Mozambique should generate revenues of nearly 20.8-billion meticais (some $680-million, or R6.24-billion) during this year, a technical team from the International Monetary Fund (IMF) has forecast.

Mozambique’s income from mineral production last year was nearly 14.3-billion meticais (about $470-million, or R4.3-billion), while, in 2011, it was just under 5.1-billion meticais (some $170-million, or R1.5-billion).

In gross domestic product (GDP) terms, the minerals sector accounted for 1.4% of the country’s GDP in 2011, rising to 3.4% in 2012 and predicted by the IMF to reach 4.3% this year. The ramping up of coal exports this year, the execution of major infrastructure projects and the elimination of transport bottlenecks – particularly an increase in the capacity of the railways linking the inland coal-producing Tete region to the coast – should increase the country’s economic growth rate to 8.4% for this year.

International ratings agency Fitch Ratings has noted Mozambique as one of the primary commodity-producing African countries that has gained in importance in recent years (others being Angola, Uganda and Zambia). The country is one of 20 African States whose sovereign debt is now rated by the inter- national agencies (in 1994, South Africa was the only African country to have its debt rated). Being rated encourages foreign investment.

Mozambique is now the second-biggest recipient of foreign direct investment (FDI) in new businesses in Southern Africa, after South Africa, reported Fitch. Recently, Fitch Ratings upgraded its outlook on Mozambique sovereign debt from ‘stable’ to ‘positive’ as a result of prudent fiscal and monetary policies followed over the past ten years. The agency expects the country to grow even more rapidly in future owing to the exploration for and exploitation of its natural resources. Fitch’s rating of long-term Mozambique debt is B+ with a stable outlook, while short-term debt is rated at B.

The director of Mozambique’s Investment Promotion Centre, Lourenço Sambo, recently told Radio Mozambique that 43 countries had invested in the African state, with the biggest concentration being in the minerals and hydrocarbons sectors. “As is well known and in the public domain, Mozambique is in the world statistics in terms of gas and coal,” he said. “Now, our concern is not to talk about gas or coal, [but] how we can do the logistics of the resources which have been discovered and increase their value. At this moment, we are decentralising activities to the provinces because that is where the riches are located.” He also affirmed that FDI was continuing to grow significantly.

Radio Mozambique also cited an unnamed source as saying that the country had experienced significant growth in investment during the first quarter of this year, compared with corresponding periods of previous years. “We had much investment, with the major emphasis on the hydrocarbons sector,” affirmed the source.

In his interview, Sambo revealed that his main concern was the lack of growth in domestic Mozambique investment. This was currently insignificant. “National investment is, for us, the great challenge,” he asserted. “We have to find ways of creating genuinely Mozambican companies.”

The development of the Mozambique private sector is one of the concerns of the International Finance Corporation (IFC), which is part of the World Bank group. The IFC is the world’s biggest development agency, focused entirely on the private sector in developing countries.

At the beginning of April, IFC VP: Treasury and Syndications Jingdong Hua made his first visit to Mozambique and emphasised the need to strengthen the national capital market to increase access to local currency finance for the private sector. This will allow long-term financing of major projects in strategic sectors. Mining and gas are two of the strategic sectors that the IFC is focusing on in Mozambique (the others include agribusiness, energy, financial services and tourism). A stronger local capital market will also benefit small and medium-size enterprises, which, he pointed out, play an important role in job creation and growth.

He renewed the IFC’s proposal to create public–private partnerships with the Mozambique government to provide consultancy services to emerging local companies in, among others, the mining and natural gas sectors. “Since Mozambique continues its positive progress of stability and growth, the IFC is committed to support the private sector in a way that creates opportunity and shared prosperity,” assured Hua.

A particular focus is to work with the government and private sector in the African country to improve the investment climate, mobilise foreign and local investment and increase access to financial and infrastructural services. “We can ensure that the opportunities that exist today [will] create still bigger oppor- tunities in the long term. The increase in the access to finance and to alternatives to finance is essential to support a successful private sector and is a priority for the IFC in Mozambique,” according to IFC Mozambique country manager Jumoke Jagun-Dokunmu. Total IFC commitments in Mozambique since 1986 come to $337.1-million.


Resources and Capacity

Although currently best known for its coal and natural gas, Mozambique is home to a wide range of other minerals and metals. Even in 2010, the US Geological Survey reported that the African country had a “significant role” in global production of beryl, ilmenite, tantalum and zircon. In that year, Mozambique’s share of global tantalum production was some 16%; of ilmenite, around 6%; of zircon, about 3%; and beryl, some 1%. Domestically important is the production of cement.

The country also hosts the Mozal aluminium smelter, near the capital city of Maputo. This makes Mozambique Africa’s second-largest producer of the metal, after South Africa (the alumina smelted at Mozal comes from Western Australia). Mozal’s share of global aluminium production in 2010 was 1%.

In an address to the African Mining Governance Study Tour Alumni Learning Forum in coal-rich Tete province in November last year, Mozambican Mineral Resources Minister Esperança Bias noted that her country had great mineral potential, citing in particular coal, heavy minerals sands and hydrocarbons. (The Learning Forum is an initiative of the Australia-Africa Partner- ships Facility, itself a programme, set up in 2010, of the Australian Agency for International Development.)

“Large-scale mining operations started in 2004, with greater focus on natural gas, heavy sands and coal,” she reported. “In the near future, another three coal projects will enter into production. But we also have artisanal and small-scale production of sand, clay, stone and gold, as well as precious and semiprecious stones. The challenge we face is how to manage production in this sector and mitigate the negative environmental impacts caused by these activities, although we are aware that they are important for the livelihood of many families. I would also like to mention some developments in the mining sector, particularly in the industrial minerals sector, namely lime, phosphate and diatomite, which are used for soil conditioning (as fertilisers) and as additives in animal feed, as well as for industrial purposes.”

Since 2009, Mozambique has been a member of the international Extractive Industries Transparency Initiative (EITI), which is intended to ensure the transparent handling of government revenues from the mining and hydrocarbons sectors. The EITI includes standards for the release of tax payments by industry and mining and hydro- carbons tax receipts by government. Bias pointed out that in October 2012 her country had been classified as an EITI-compliant country because of its efforts to establish transparency in these natural resources sectors.

“The mining register is open to public scrutiny and contains information for the licensing of mining activities, the areas applied for, existing licence holders, areas designated for mining passes, areas declared as mining reserves, areas in which mining is prohibited, total and partially protected areas, and areas of geological and mining interest,” she highlighted. “It is open to the public and can be freely consulted.”

In parallel, Mozambique has been seeking to develop local skills, expertise and insti- tutions in mining and natural gas explor- ation, exploitation, management, adminis-tration, regulation, monitoring and oversight. Minerals and hydrocarbons exploration and exploitation require a wide range of permissive, supportive and regulatory activities, ranging from the issuing of licences to compliance monitoring to macroeconomic management.

“[The] Centre for Gemmology and Cutting of Stones has been established to train Mozambicans in the identification and classification of gold and gemstones,” stated Bias. “The Training Strategy for the geological and mining sector, including hydrocarbons, has also been approved and will be revised periodically to ensure that it is aligned with current requirements. In this manner, government aims to ensure that its non- renewable mineral resources are mined in a sustainable manner and that they translate into social and economic development for the country, given that a skilled workforce contributes to the creation of employment, the development of infrastructure and the improvement of the country’s business, which are all decisive factors for the fulfilment of this objective.”


Resentments and Responses

Training is essential. One of the biggest, if not the biggest, mining investors in Mozambique to date is the Brazilian group Vale, which has developed the Moatize coal project in Tete province. In March, Vale Mozambique operations director Altiberto Brandão told the United Nations Integrated Regional Information Networks (Irin) that his company had had difficulty in finding skilled labour locally in Tete. There was only a small mining geology institute, and no technical training centre, in the province.

“We were taken by surprise by the [mining] boom; we were not prepared,” admitted Tete province acting secretary Américo Conceição to Irin. “Today, we are planning to build a polytechnic school to create a local workforce. Of course, we should have done that already ten years ago.”

The result has been that the creation of permanent mining jobs for local people has been slower than hoped, and this has created some resentment. “When the mining companies came to Tete, most people were happy. We thought that they would build new schools and a university, but that didn’t happen,” Mozambique nongovernmental organisation Liga dos Direitos Humanos (Human Rights League) member Julio Calengo told Irin. “They have done some things – our economy is growing at a macro level – but the people are complaining; they are disappointed. They say, ‘If this is the way it is going to be, they might as well leave again’.”

Apart from Vale, the other major companies now mining coal in Tete are Anglo-Australian group Rio Tinto, with its Benga operation, and Indian group Jindal Steel & Power. Brandão reported that Vale had now employed almost 400 people from Tete and would recruit 300 young local people for training, of whom 100 would get jobs on the mine. On its website, Jindal Africa states that it is confident it will employ more than 2 000 local people (but whether this means Mozambicans in general or citizens of Tete in particular is not specified).

Another concern is that the development of the mines in Tete has driven up food and accommodation prices in the region. “Before Vale came, a kilo of tomatoes cost ten meticais, now it costs 40 or 50, and it is the same with beans, maize and flour,” Tete schoolteacher Vicente Adriano told Irin. “Teachers have the same low salary, but food and the rent of a house, or buying a plot, have become many times more expensive.”

There have also been complaints about tax incentives that the government granted mining companies. Maputo has undertaken to review these.

“[W]e are also currently conducting a review of the mining and oil legislation and the Geological and Mining Policy,” Bias told the Learning Forum in Tete. “A Strategy for the Mineral Resources Sector is also being drafted, which will contain the actions to be undertaken for the implementation of the said policy. Transparency in the manner in which natural resources are managed is an important component of the development process as it enables civil society to better understand what the government does.”

Edited by Creamer Media Reporter

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