11 Jul Interview with Omar Mitha, Special Economic Advisor to the Presidency of the Republic, Chairman of Banco Nacional de Investimentos (BNI), Mozambique
What are the key factors driving Mozambique’s economic growth and how does the government of President Nyusi plan to sustain it?
We have seen a rebound in our economy after the time that we all faced during the pandemic years. We’ve recovered substantially, for example, in the hospitality industry. Last year, we saw a huge inflow of investments coming into the tourism sector with a very large growth rate. That has combined with the conservation of nature and forestry, as well as the beach and sun and construction in real estate, retail and the business segment for the main cities, especially in Maputo.
Secondly, the government has put a lot of effort into building infrastructure across the board, but the main ones would be the roads and the bridges connecting the country, north-south way. Also, you have the ports and the railway complex which play a significant role in the geostrategic location of Mozambique vis-a-vis the landlocked neighbors of Malawi, Zimbabwe and Zambia. In Nacala, a city on the northern coast of Mozambique, after huge investments to the tune of $400 million, we’ve seen an increase in flows of goods and receipts for the balance of payment. The Maputo Port was also expanded last year too and there is a plan to expand with a concession to Dubai Ports, to the tune of $1 billion for the next five years which is intended to take advantage of the crippled system in South Africa, especially the congestion of the Durban Port.
In terms of power, we will have, by the end of 2024, the biggest power generation project, a gas-to-power project that is associated with the Pande and Temana gasfields in Southern Mozambique where we have a concession to Sasol from South Africa. It is going to generate 450 megawatts of power. Most of that will be allocated to the power pool in Southern Africa to provide for the needs of Zimbabwe, Zambia and other countries, especially South Africa which is facing huge needs in terms of power supply.
Against the backdrop of that, it’s time that we’re going to reap some benefits of huge investments in agriculture. We’ve seen a boost in terms of exports of cash crops like cashew nuts and macadamia, or fruits like avocado and banana. They’ve made their way into external markets. On the other hand, there are big opportunities in terms of rice production, horticulture as well, onions and edible oil. Agriculture faces its challenges, but the reason it’s important is it has been recording the highest growth rate among the sectors, apart from the extractive industry.
When it comes to the extractive industry, we played a bigger role in the last few years. It is true that, due to security issues, we’ve seen a slowdown in investments in the northern part of Mozambique, but exports will ramp up because the floating liquefied natural gas (LNG) has not yet reached its full capacity, so 3.4 million tons per annum of LNG will be exported to Europe. Mozambique is poised to take advantage of the outbreak of the Ukraine war to fill the gap. Of course, we have competitors in the north like Algeria, Egypt and others in the Mediterranean and very near to Italy. Algeria has been exporting LNG for 50+ years.
How do you assess governmental economic policies?
There is merit in terms of economic policy by the government. After the tightening policy we’ve seen due to the inflationary pressures that stemmed from the Ukraine war — because oil input bills hiked the cost of living in Mozambique — there was a need to tame inflation. Now we are relaxing the interest rate and there is room for investment and consumption to increase. This is also going to improve the balance sheet of most of the banks that were posting some high non-performing loans. That means the pricing of future loans will be lower than current loans. This monetary loosening is going to pave the way for aggregate demand to increase.
If the international global economy stands as it is with no more jitters and vulnerabilities, we are poised to reach that growth. The government is very optimistic, talking about 5-5.5% but I would rather be cautious as to what the future holds in store because we are a very vulnerable country. We’ve suffered cycles of booms and busts as a result of the weather conditions, as a result of policy-induced wars, as the case of the terrorist attacks in the northern part of Mozambique, or now we see the Hamas-Israel war and maybe the Iran war, which could expand and spiral the effects into the Middle East, which is also an important market for us for example for fruits and avocados, taking advantage of the seasonality of the fruit. I remember, for example, in mid-2020 there was a project to export bananas to Iran but when sanctions were imposed on Iran, the off-taker said they could no longer buy them. As a result, that company collapsed. These issues could happen at any time, so the narrative that we’re going to grow hinges upon what might happen in the global economy to a very large extent.
Many countries, like Mozambique, have a high debt-to-GDP ratio, so there is a high bar in terms of servicing the debt and with the strengthening of the US dollar that could impose a toll on the purchasing power and the currency of this country. We have to be realistic in the sense that maybe we could go to the IMF or to the World Bank to see if we could get some support for payment. That has been the case in the vast majority of cases.
What opportunities for financing an investment exist for local and international banks and financial institutions to support infrastructure development?
There are plenty of opportunities. Mozambique is a pretty diversified economy. It is true that agriculture accounts for 25% of GDP. It is the main economic activity for most of the people, the main provider of income as of today. In addition to that, there’s a huge scarcity of rice and edible oils so there is an opportunity to integrate the production of raw materials and agriculture into agro-processing that would make its way into the local market to satisfy this huge demand.
Furthermore, because we are part of the Southern African Development Community, there can be opportunities for African trade as well. Given the infrastructure that we have, both in power and transportation, we could play a big role in localizing industries in our country where we could maybe serve as a hub to have most of these agro and raw materials processed and not only look into China, for example, where there’s a huge demand of food but also look into other African countries where there are also issues of food and imports that weigh a lot in their imports bills and undermine their balance of trade.
There are plenty of opportunities to come in tourism, agriculture, services and even the banking sector. We look at infrastructures as an enabler to other sectors. If we look at the clusters in most of those sectors, whether it’s tourism or agriculture, we’ll see that the impediments are based on the lack of roads, especially roads that go to the farms, the lack of infrastructure in terms of logistics which includes warehousing and including even fridges in the ports. You have also got other issues such as stringent safety regulations, especially in Europe, even in China.
Overall, though, when we look at our geography, our sectors, our vast land, the sea and the seashore, tourism is always there. The reason tourism is important is because of its linkages with agriculture, industry, construction and almost everything. At the end of the day, that’s what we’re looking for: an ecosystem that works instead of looking at departments saying it’s agriculture, it’s tourism, or it’s real estate. Real estate is somewhat an elite sector. You’ll find it in the cities that are densely populated where the purchasing power is higher and where you would find a segment of people that have got similar consumption habits as those of the first world in Europe. That’s where you have the multinational headquarters and they can afford to pay rent or buy a house to the tune of $400,000. That’s not for the countrywide. It is not a bellwether for the country’s situation. Many other opportunities could stem from the large-scale projects in the extractive industry.
As chairman of Banco Nacional de Investimentos, what do you think are the expectations from Mozambique’s gas fields and how can Mozambique benefit worldwide and attract the attention of the US?
Most important is to cement the credibility of the country that is hosting a multi-billion dollar investment in the northern part of Mozambique. This is a golden opportunity to also inform those who are not so aware. ExxonMobil and ENI are working towards the final investment decision in the Mamba sometime in 2025 which is extremely important. In addition to having the gas, you’ve got the mineral sector as well. Mineral sector, gas, power: these are all intertwined. Nowadays, we talk about minerals because we want to know to what extent Mozambique can play a role in energy transition for battery production which depends on lithium, graphite, and other minerals that Mozambique possesses or neighboring countries possess, but they consume a lot of power and they need infrastructure in terms of rail and ports. If you have an investor with a global eye, he might say I will get lithium from Zimbabwe, graphite from Mozambique, copper from Zambia and maybe I can locate this industry in Mozambique because that’s where you’ve got the power and you’ve got the railways. This would be a golden opportunity to display this regional view that will create synergies among countries. If every one of us is focused on its own objectives, confined within its geographic limits, we will not be able to have this wider view, so investors will provide us with this opportunity. Of course, we would have to be engaged with our neighbors too.
In the energy sector, Mozambique is very rich in terms of hydropower. About 64% of our power comes from hydro. With hydro, we are also supplying power to Zimbabwe, Malawi and South Africa; let alone the large fields in the northern part of Mozambique. If that comes on shore, then we will be very well positioned because there is a need to supply 10% of the hydrocarbons, as domestic gas, into our market and part of that gas would go into fertilizers, gas-to-liquids, or even power generation. If you have a fertilizer plant in Mozambique that would serve the region, or a gas-to-liquids that would serve not only for import substitutions of fuels but also it would diversify exports to our regional neighbors as well. We could cut by half the ordering of fuel from the Middle East, assuming that these large-scale projects, which are very technology-intensive, are feasible, well funded and they’ve got good off-takers with good credit ratings.
Then the question comes. You’ve got many resources but you don’t seem to take advantage of those resources for your own development. We rely only on the sources of funds which are the royalties, income profits and other flows that come into that. That raises questions about how we manage transparency and how those funds will be deployed,
Another issue we must focus on is building capacity for supplying goods and services in agriculture and other industries, even going into the core business of oil and gas, like going to the rigs, offshore, or doing work in the offshore machinery. It will take time, but you can strike a joint venture agreement with a company like FMC that they gradually train local people and alter their structure so it becomes Mozambican. I’ve seen this in Angola, for example; when they trained Angolans over the years and eventually Angolans are occupying the management positions, so in the span of 15 to 20 years, it has become almost an all-Angolan company.
Of course, we have to be cautious because of energy transitions — we need to ask to what extent will oil and gas survive in the next 30 years? Does it pay to build capacity only on that, knowing that there could be disruption in the future because of renewable energies? That’s a risk that we face, but it might not be easy for the fossils to go away, maybe for the next 30 years. We’ve seen that renewables require a lot of subsidies and most of the countries can’t pay for that; they can’t afford it. Even today in Europe, with the Ukraine war outbreak, Germany is going to coal and other countries have gone to oil and gas again, meaning that renewables might not be so forthcoming. We’ve got war now all in the Middle East again, between Israel and Hamas, maybe with Iran, which is a major supplier of oil in the world. All this might wreak havoc on the supply chains of oil and it might even bring into play countries like Mozambique saying that on the east coast of Africa, you are better placed because you are away from the risk from the Middle East and you are in a better position to supply to the East, like China, Japan, South Korea and all these premium countries that Mozambique intends to supply in the future.
What environmental considerations and measures is your government taking to make sure that we all benefit from these resources that you have?
The biggest polluters are the most developed countries like the US, China and other countries. Yet they are the ones that are imposing this type of restriction, whereas Mozambique is a very tiny fraction in terms of pollution. Mozambique has forestry which is a natural carbon capture. President Filipe Nyusi was in Washington DC where he was holding an international conference for the Miombo Forest, the world’s largest dry tropical forest ecosystem, about developing it but ensuring we keep it healthy and keep the air clean. The balance sheet of Mozambique in terms of net zero is very positive.
We suffer from cyclones but we are suffering unduly because we are not the ones who are polluting. On the contrary, our contribution is very positive. Maybe there is one hidden asset that we have, which is the carbon credit that we have to explore to make more money for ourselves. But we need to learn how this market works, how to interact with the main players and if it’s well-measured and fair. I think that we are on the right track because we abide by the laws. At the end of the day, if, for example, the IFC, the World Bank, the US EXIM bank and any other developmental finance bodies impose strict rules on the environment to distribute funding, there is no way that the majors can escape from complying with those rules.
Thinking of tourism and the environment, we are lucky because we have everything in one place to grow eco- and conservation tourism. You have the forestry and the animals and at a stone’s throw, you can see the beach. You don’t have to fly to two countries like in other places. If you go to Mauritius, it’s just for diving and the sea and then you’ve got to go to Tanzania or Kenya to see the animals. Here you have both at the same place. You can see the elephants, you can go diving and you can enjoy the sun and sea.
We are facing a kind of conundrum. When we see that we have an opportunity to develop and transform our country by monetizing our oil and gas resources and when there are voices that are saying you should not do that because that is fossil fuels, then it’s very contradictory. We have to be given an opportunity to get those financial resources that could be deployed for infrastructure, education, healthcare and to stave off our debt level. If we have the financial resources, then we can improve our credit rating, we can have access to financial markets and it will improve the standing and the reputation of the country as a destination for foreign investment. Unless people have confidence in a country like ours foreign investment will not come into the country.
What is your message to the international business community about investing in Mozambique and the opportunities currently available in the economy and why should people come to Mozambique?
There are good reasons that people should come to Mozambique. Number one is that we have moved a long way. It has been a long journey for us because when we became independent in 1975, we had a kind of centralized economy. We went into transformation in 1985-87. With the IMF blueprint, we have succeeded with all those transformations and reforms.
Private investors are welcome to Mozambique. With the help of USAID, for example, we improved the business environment and the investment law has improved. We’ve also put in place many measures that are friendly for investors. For example, there’s no requirement for a visa nowadays to come to Mozambique. They can come to Mozambique very quickly as long as they make a decision. We’ve got very good connections in terms of airports including Qatar, Turkish Airlines, Ethiopian Airlines. We’re looking forward to having Emirates and Air France have an eye on Mozambique as well in the future. We’ve got a good climate, a good environment and political stability. What’s happening in the northern part is very much contained. There is no spillover effect into other regions. As we move forward, I think that it will simply vanish and disappear.
It is not an over-exaggeration to say that Mozambique has everything, from agriculture, agro-processing, tourism, industry, services, infrastructures and energy. Mozambique is very rich in energy because we’ve got hydropower like the Cahora Bassa Dam and a project in the pipeline, the Mphanda Nkuwa Dam. All this wealth speaks to potential investments. If we look at other countries, we can easily do what they are doing. Kenya is said to be a powerhouse in East Africa. They’re exporting avocados, for example, to China. We are not exporting avocados to China, but we’ve got the potential to do that. You’ve got South Africa exporting citrus to Europe. We can do that as well. We have the same climate they have in South Africa and we have the same conditions. The only thing is that probably we’ve inherited a structure that did not have those types of products and people often cling to what they know and are resistant to change. But if we can say let’s not do this, let’s go into citrus, let’s go into avocado and expand, for example, banana production, pineapple production, mango production, macadamias, the cashew nuts — all these opportunities exist in the agricultural sector.
Of course, between us and Portugal there are a lot of colonial ties. Maybe it was not easy to convince a US investor or a British investor to come to Mozambique in the past, but that is not the case anymore. Portugal is no longer the number one investor here. We’ve got countries like the United Arab Emirates, Europe, Italy, France, the UK, Portugal and South Africa — all of these invest in our country.