This report is the final deliverable of a capstone project realized at Columbia University's School of International and Public Affairs (SIPA).
The SIPA capstone constitutes the final project for graduate students who bring their diverse professional and educational backgrounds to the project and are in their final semester of a rigorous, two-year degree program.
Download the Mozambique Governance Watch full report: Mozambique: Mobilizing Extractive Resources for Development (PDF 6.5mb). Or download the report by individual sections by clicking here.
Executive Summary
The development of Mozambique’s significant mineral and hydrocarbon reserves has the potential to generate substantial wealth and prosperity for the country. The magnitude of possible benefits for Mozambique has powerful implications for one of the poorest nations in the world. It is up to the Government, and the people of Mozambique, to decide when, where, and, most importantly, how to utilize their reserves over the next few decades. Fundamentally, Mozambique is confronted with several challenges to transform its abundant extractive resource wealth – residing primarily in the country’s inland coal deposits and its deep-water natural gas basins – into sustained, long-term economic development. This is a task of significant but not insurmountable complexity, encompassing a range of political, economic, and social dimensions. It will require collaborative and coordinated efforts by a variety of different stakeholders, some with conflicting objectives and priorities. It is thus incumbent upon Mozambique’s leadership to manage this transition and implement an industrial strategy that mobilizes the country’s extractive resource development in a manner that achieves a prosperous outcome for its people.
Expectations of stakeholders are high, and this will not be an easy undertaking for the Government and people of Mozambique. Over the last five decades, numerous countries across the developing world have failed to benefit from their natural resource wealth. In fact, pervasive evidence suggests that resource-rich developing states tend to have lower economic growth rates and poorer development outcomes compared to states lacking such resources. Due to these paradoxical trends, collectively referred to as the resource curse, there is a renewed international focus on resource-rich, low-income countries like Mozambique.
This report provides a comprehensive review of the critical economic, political, legal, social, and environmental variables that will affect and be affected by the rapid development of Mozambique’s extractive resources. Each section proposes methodical and practical recommendations for the country’s policymakers, which – if implemented – will enhance the current institutional framework governing the activities of the extractive sector. Ultimately, this report attempts to provide the Government of Mozambique with a policy framework that promotes the sustainable development of the country’s economy, society, and environment, and aims to help the country avoid the perils of the resource curse. These issues are described in greater detail in the summaries of each section of the report that follow.
Economic and Commercial
Mozambique stands to gain significant revenue from exploiting the economic and commercial potential of its natural gas and coal reserves. The country’s offshore natural gas discoveries are among the largest finds in the world in over a decade, while it’s coal reserves are beginning to be exported to international markets. If it is able to successfully commercialize its extractive resources, Mozambique will become a highly competitive player on the global energy scene.
In addition to promoting economic growth, the Government’s overall economic objective is to reduce persistently high rates of poverty. Currently eight out of ten Mozambicans continue to live on less than $2 per day. In the years ahead, natural resource revenues will comprise an increasing share of the country’s GDP, a trend that exposes Mozambique to several challenges in maintaining financial and social stability. Despite ongoing reforms, the country’s overall capacity to absorb windfall revenues from the development of extractive resources remains limited. Yet, with sound fiscal management, these hurdles can be overcome. There are a number of measures the Government can take to better prepare itself for the windfall. Prior to exploring such measures, however, it is first important to understand key implications of the resource curse and how it threatens Mozambique.
Generally, there are two underlying features of the resource curse that afflict countries: “Dutch Disease” and revenue volatility. Dutch Disease refers to the destabilizing impact of increased foreign exchange that inevitably follows a sharp rise in natural resource exports. A huge increase in natural resource revenues typically causes the real exchange rate to appreciate. The change in real exchange rate results in economic destabilization by reducing the international competitiveness of a country’s non-extractive resource exports (e.g. agricultural and manufacturing) and may also reduce employment in these sectors. These economic outcomes tend to adversely affect the labor force of a developing country, where undereducated workers often struggle to transition from traditionally low-skilled sectors of the economy to more knowledge-based and service-oriented industries.
Revenue volatility is another important facet of the resource curse. The disruptive effects of revenue volatility in a resource-based economy predominantly arise from fluctuations in global commodity prices. This volatility can be detrimental to growing economies and frequently results in imprudent fiscal policies. Often, governments borrow against the value of their newfound resources and spend windfalls on immediate consumption, at the expense of long-term investments that can hinder future growth opportunities for the country.
The resource curse commonly takes hold in developing nations that lack the institutional capacity necessary to manage huge resource revenues. To minimize the impacts of Dutch Disease and revenue volatility, a state must have sound institutions in place. Institutions are also necessary to manage complex public-private revenue-sharing partnerships that are typical of extractive industries. A sovereign wealth fund is one option that states can utilize to manage large inflows of resource revenue, stabilize pressures on the exchange rate, and reduce the influences of price and revenue volatility. The implementation of this fund (explained further below) is one of the central recommendations of this report. Above all, a sovereign wealth fund allows Mozambique to invest in infrastructure and socioeconomic development over the long-term, thus ensuring that the country will still see benefits of its extractive resources long after the reserves have been depleted.
Linkages and Local Content
Mozambique’s national resource wealth is not limited to revenue generation for the state but can and must flow to benefit local Mozambicans. Conventional understanding about how the local population benefits from extractive resources is typically limited to the industry’s provision of employment and a few philanthropic projects. However, extractive industries tend to have a minimal impact on the labor market. The capital intensive nature of extractive industries stems from industry demand for fewer, more highly skilled workers compared to the labor-intensive, low-skilled workforce sectors – such as agriculture or manufacturing. Low prevalence of human capital in Mozambique further limits employment opportunities for Mozambicans in the extractive sector, leading to unfulfilled expectations in communities and promoting social unrest. This section provides examples and recommendations of how the Government, extractive companies, and stakeholders can increase employment opportunities for Mozambicans in the extractives sector and create economic linkages between the extractive industries and Mozambique’s local businesses, especially in regions of extractive operations.
Prosperity driven by the growing extractive industry can be translated to communities in Mozambique through cultivating local content – including local recruitment, training, and purchasing local goods and services. Though not a “silver bullet” to prosperity, local content can contribute to the fulfillment of expectations that mineral and hydrocarbon production will help improve the lives of Mozambicans. Local content is also critical to the extractive industry’s operational sustainability by generating a social license to operate within a given community. Smooth, sustainable operations also benefit the state by supporting steady revenue flows and general social stability.
Given local human capital and the capacity of Mozambique’s private sector are currently very limited, it is critical that both the government and extractive companies initiate early and consistent engagement with communities and the local private sector in regard to both the type of employment and business opportunities that will be available. Additional management of expectations through transparent communication of the expected timeline of these opportunities is also necessary. To achieve optimal local content goals, the government must also invest deliberately in the provision of poverty-reducing public goods, including quality education, literacy, and healthcare, which in turn serve to improve human capital in the long-run. These efforts require significant strategic social investment by stakeholders to build the capacity of local communities and enable individuals and businesses to compete and access income-generating opportunities in the newly established extractive industry value chain. Without investing in the development of Mozambique’s human capital and building the capacity of the local business sector, Mozambique’s ability to fully access and realize the potential benefits of its vast natural resource wealth will remain hindered. Finally, this section also discusses the need to develop and implement a strategic plan that mitigates inward migration, local food price inflation, and constraints on community resources affecting areas impacted by extractive industry operations in Mozambique that could be source of social instability.
Infrastructure
Marked rates of underdevelopment in Mozambique are closely tied to the country’s shortage of infrastructure, which has largely failed to respond to social and economic development needs. Although recent public, private, and donor investment in developing Mozambique’s infrastructure has focused much more on facilitating the trade derived from megaprojects, it might also represent an unparalleled opportunity to build a system that fosters inclusive social development. The Government has the option to take advantage of the international community’s willingness to invest and orient economic resources to address infrastructure-related impediments of development.
Ensuring inclusiveness, through both connection and universal access to roads, railways, and electricity, must be at the heart of this endeavor. Railways, in particular, must guarantee access for general freight and passengers, as well as for mining companies. With respect to Mozambique’s roads, an upgrade and significant extension of the network would decrease transportation costs for all parties. This, in turn, would help mitigate the country’s high rates of poverty and inequality, permitting both the mining provinces and the rest of the country to benefit from extractive industry operations. Special attention must be paid to use of roads as connectors between impoverished yet potentially productive areas and the Beira, Nacala and future Macuse corridors. Finally, despite the current efforts of the Government to bring the grid to every district, only a small percentage of Mozambicans have reliable access to electricity. The potential for clean production must be developed to provide electricity access beyond district centers, and to help reduce Mozambique’s reliance on unsustainable energy sources.
Environment
Protecting the country’s ecology is critical to Mozambique’s vitality and will require investment and attention to environmental governance that keeps pace with resource extraction. First, to mitigate environmental risks inherent in resource development, research into fisheries and terrestrial ecosystems is necessary to create a baseline for conservation priorities, since much of Mozambique’s ecology is not well researched. The existing Environmental Impact Assessment review period is also too short for the increasing volume of assessments and the current limited capacity of the Government and civil society. Such assessments for large extraction projects and their corresponding infrastructure development should be made available to the public with a longer, more adequate review period than the current 45 days. In line with the country’s existing environmental law, specific requirements and guidance on biodiversity offsets must be drafted and enforced to ensure that all small and large-scale extractive resource projects account for environmental impacts from the beginning of the project.
Mozambique’s current environmental legislation should be reinforced with more detailed guidance. Exemplary laws from other countries, such as Norway, can be utilized for legal reference until a robust new set of laws can be established. With ongoing active exploration of the natural gas, Mozambique should dictate when and where seismic surveys are conducted in order to protect the delicate biodiversity surrounding the nation’s corals and fisheries. In addition, the government must create an environmental emergency plan so that, should accidents occur, the various government ministries have an aligned mitigation strategy that facilitates rapid response. Additional funding, training, and resources allocated to environmental ministries are also necessary to expand their capacity to study the nation’s ecology, properly implement protective legislation, and adequately monitor mining and natural gas exploration and production. Additionally, the growing artisanal mining sector needs strategic Government support to organize associations, as well as train, guide, and monitor expansion to ensure the safety and prosperity of Mozambicans. In this way, small-scale mining could become a means to reduce poverty as opposed to creating conflict and environmental degradation. All of these governance strategies will need to be implemented quickly and should utilize revenues from the extractive industry to guarantee that Mozambique’s dynamic ecology continues to be a source of pride and the pillar of a growing tourism industry.
Resettlement
Resource exploration, mineral concessions, and infrastructure development have all exponentially increased the resettlement of communities in Mozambique, especially in remote areas. Although the country has the extraordinary opportunity to strategically translate its mineral assets into long-term sustainable development, extractive operations can only be fully successful if the investments are embedded in stable and prosperous communities. One of the country’s top objectives should be to leverage the recent boom in extracting natural resources to improve the living conditions of Mozambicans and to ensure a prosperous environment in which companies can diligently operate.
If Mozambique follows five basic resettlement principles, the rights of Mozambicans and compliance with the international conventions and agreements that the nation has pledged to support will be ensured. First, projects that require resettlement must conduct early, inclusive and transparent consultations to give communities the opportunity to make decisions on issues directly affecting their lives. Early consultation also helps build critical buy-in from impacted populations. Second, it is key to provide communities with the tools and information to diligently participate in negotiations that reach fair agreements. Third, compensation, that includes improved livelihoods and standard of living is key to translating resource extraction into prosperity for individuals affected by resettlement. Fourth, resettlement processes entail negative environmental impacts that must be diligently addressed as they highly impact the health conditions and access to other resources (water, soil, etc.) of the surrounding communities. Lastly, an inclusive and legitimate post-resettlement committee must oversee agreement compliance, progress, and accountability. Such a committee also recognizes that communities are dynamic and future agreements will have an established channel for discussion. A well-structured and well-managed resettlement process, jointly agreed upon by communities and companies, can help to ensure that extractive operations and other projects that require resettlement enjoy greater community buy-in and promote sustainable development.
Mozambique must also ensure that women are not left out of opportunities to participate in and benefit from the country’s development through the extractive industries. The Government bears a duty to ensure women’s equal access to socio-economic opportunities, reduce disruptions to their standards of living and improve livelihoods. In the context of mining operations, Mozambique can meet these challenges by implementing its existing laws and Constitutional provisions which guarantee the equal rights of men and women, along with amending existing mining legislation to address issues on resettlement, consultation and compensation.
Such arrangements also stand to benefit from local resources (including human capital), thereby reducing the likelihood of conflict. The resettlement process in Mozambique is ongoing, and there are a number of ways that the Government can promote mutually beneficial resettlement agreements leaving all parties affected better off and fairly attended.
Legal Framework
From a legal perspective, Mozambique must aim to reform and update the legislative, institutional, and contractual frameworks associated with extractive industries in order to maximize the gains from and minimize the costs of extractive resource development. In this context, Mozambique is currently reviewing its legal and fiscal frameworks for oil and gas exploration and production, to take into account developments in the industry and new gas discoveries. Recent drafts of the petroleum legislation contain several important additions that address infrastructure, revenue sharing, oversight, and environmental protection. However, the law needs further strengthening to ensure that new and existing projects are carried out in a safe, fair, and efficient manner. Vague references to "good industry practice" should be replaced with clear and transparent obligations. Deals should be standardized and their key terms should be set in legislation to improve transparency and competitiveness. Companies must be assured fair and open access to facilities to promote competition and increase efficiency. Penalties must be clear and significant to deter bad behavior. Environmental protections should take into account that companies are often in the best position to monitor, prevent, and mitigate environmental and health risks. The Government must also preserve its ability to reform and improve its legislation over time - especially in relation to the environmental, social, and health impacts of extractives.
The fiscal regime should draw on a range of different tools to generate a fair share of revenue for Mozambique. While opinions may differ on what is "fair", Government revenue should amount to at least one third of the profits for mining and 65% of the profits for oil and gas over the lifetime of a project. As the industry becomes more established, and business conditions improve, this share should increase substantially for future projects. The regime needs to balance up-front income with long-term objectives - taking into account the legitimate interests of investors, the capacity of public agencies to administer the regime, and the interests of future generations of Mozambicans.
There is also a critical need for existing mining legislation to be examined and amended, in order to better reflect the growth of the sector and to protect the interests of the Mozambican people, particularly with respect to environmental, health, social, fiscal and contract transparency considerations. Accordingly, provisions of the current Mining Law of 2002 should be amended in these distinct areas, giving mining activities a modern and adequate regulatory basis to ensure greater competitiveness, guaranteeing the protection of rights and defining the duties and obligations of holders of mining titles. While the Mining Law of 2002 is undergoing revisions and is expected to be passed by Parliament in the coming months, this section sets forth policy recommendations which illustrate some of the gaps and challenges present in Mozambique’s mining legislation. Reforms in the mining laws offer an important opportunity for the country to further develop its economy, and importantly, to promote equity, reduce poverty, and meet its development goals through a forward-looking approach. The recommendations in this section are offered to strengthen, clarify and update existing mining legislation, and provide guidance on how mining activities can be conducted in a manner, which prioritizes and improves the social and economic well being of the Mozambican people.
Governance
The Government must adopt a transparent and uniform policy framework and fiscal regime to effectively administer the process of extractive industry development vis-à-vis government costs and revenues. To this end, Mozambique should create an accountable and transparent framework of governance to manage its extractive assets. There must be checks and balances built into the institutional structures of the Government. This will create accountability, separate responsibilities to minimize conflicts of interest, expand powers for specific agencies to fulfill their roles, and allow for agencies to manage extractive resource development accordingly. Mozambique must also focus on anti-corruption measures to improve its governance. Some useful tools include the anti-corruption law as well as other Information and Communication Technology platforms that can help bolster the country’s systems of oversight. Above all, transparency must become a fundamental part of the extractive industry’s contractual process, to ensure that all parties are getting their fair share of revenue.
Sovereign Wealth Fund
Sound revenue management is key to the sustainable development of Mozambique's economy. The financial impact of natural gas and coal exportation can have detrimental effects for the country. As mentioned above, problems arise from real exchange rate appreciation, which puts other export industries out of business, and from fluctuation in commodity prices, which is destabilizing for the domestic economy. Establishing a sovereign wealth trust fund in a traditional financial center will help Mozambique absorb the coming windfall and promote growth and development in the country in five key ways. First, it effectively shelters the domestic economy from the commodity sector, so that volatility in oil, gas or coal prices do not have such a disruptive effect on the country’s budget planning from one year to the next. Second, by channeling revenues into specific development programs, the fund can help the government to focus and plan for expansion of infrastructure, education, healthcare and public services. Third, the fund can help to ensure that government revenue from extractive resources become an ongoing source of income for decades to come, and provide intergenerational equity. Fourth, and crucially, a sovereign wealth fund can insulate Mozambique’s currency, helping to ensure that investment in the extractives industry does not have negative impacts on other sectors of the economy. Finally, the trust will legally enshrine the purpose of the fund and thus insulate Mozambique's fund from sovereign debt and facilitate the country’s access to international financial markets due to improved legal standards.
Mozambique Moving Forward Mozambique is embarking on potentially one of the most defining opportunities of the nation’s history. Despite the impoverished state of much of the country, Mozambique is endowed with significant hydrocarbon and mineral resource wealth in an era that is experiencing innovation, awareness, and collaboration at an unprecedented rate. The nascent development of Mozambique’s large-scale hydrocarbon and mineral reserves is a point of strength and opportunity for structured and deliberate leadership to shape the future of Mozambique into a prosperous regional authority with the capacity to be a source of strength and guidance beyond its borders.
There is universal familiarity with the potential outcomes that lie ahead for Mozambique. The nation’s limited human capital and restricted absorption capacity of the local public and private sectors to adapt and manage the rapid changes underway exemplifies the necessity for Mozambique to engage actively, early, and transparently to realize the opportunities at hand. However the continuum that flows between a resource blessing of prosperity and a resource curse is process of significant complexity. Multi-directional relationships between the economics, social, environmental, political and legal aspects of natural resource development requires clear frameworks and implementation of transparent objective that will benefit the nation now and for future generations. The areas this report examines identifies the current and potential weakness that could derail Mozambique’s intention to pursue a path of sustainable development that is supported by revenues and income generating potential of the growing explorations and production of Mozambique’s natural resources. Each section also includes recommendations that address the challenges and opportunities specific to the changing environment of Mozambique’s natural resource extraction.
Expectations of stakeholders are high, and this will not be an easy undertaking for the Government and people of Mozambique. Over the last five decades, numerous countries across the developing world have failed to benefit from their natural resource wealth. In fact, pervasive evidence suggests that resource-rich developing states tend to have lower economic growth rates and poorer development outcomes compared to states lacking such resources. Due to these paradoxical trends, collectively referred to as the resource curse, there is a renewed international focus on resource-rich, low-income countries like Mozambique.
This report provides a comprehensive review of the critical economic, political, legal, social, and environmental variables that will affect and be affected by the rapid development of Mozambique’s extractive resources. Each section proposes methodical and practical recommendations for the country’s policymakers, which – if implemented – will enhance the current institutional framework governing the activities of the extractive sector. Ultimately, this report attempts to provide the Government of Mozambique with a policy framework that promotes the sustainable development of the country’s economy, society, and environment, and aims to help the country avoid the perils of the resource curse. These issues are described in greater detail in the summaries of each section of the report that follow.
Economic and Commercial
Mozambique stands to gain significant revenue from exploiting the economic and commercial potential of its natural gas and coal reserves. The country’s offshore natural gas discoveries are among the largest finds in the world in over a decade, while it’s coal reserves are beginning to be exported to international markets. If it is able to successfully commercialize its extractive resources, Mozambique will become a highly competitive player on the global energy scene.
In addition to promoting economic growth, the Government’s overall economic objective is to reduce persistently high rates of poverty. Currently eight out of ten Mozambicans continue to live on less than $2 per day. In the years ahead, natural resource revenues will comprise an increasing share of the country’s GDP, a trend that exposes Mozambique to several challenges in maintaining financial and social stability. Despite ongoing reforms, the country’s overall capacity to absorb windfall revenues from the development of extractive resources remains limited. Yet, with sound fiscal management, these hurdles can be overcome. There are a number of measures the Government can take to better prepare itself for the windfall. Prior to exploring such measures, however, it is first important to understand key implications of the resource curse and how it threatens Mozambique.
Generally, there are two underlying features of the resource curse that afflict countries: “Dutch Disease” and revenue volatility. Dutch Disease refers to the destabilizing impact of increased foreign exchange that inevitably follows a sharp rise in natural resource exports. A huge increase in natural resource revenues typically causes the real exchange rate to appreciate. The change in real exchange rate results in economic destabilization by reducing the international competitiveness of a country’s non-extractive resource exports (e.g. agricultural and manufacturing) and may also reduce employment in these sectors. These economic outcomes tend to adversely affect the labor force of a developing country, where undereducated workers often struggle to transition from traditionally low-skilled sectors of the economy to more knowledge-based and service-oriented industries.
Revenue volatility is another important facet of the resource curse. The disruptive effects of revenue volatility in a resource-based economy predominantly arise from fluctuations in global commodity prices. This volatility can be detrimental to growing economies and frequently results in imprudent fiscal policies. Often, governments borrow against the value of their newfound resources and spend windfalls on immediate consumption, at the expense of long-term investments that can hinder future growth opportunities for the country.
The resource curse commonly takes hold in developing nations that lack the institutional capacity necessary to manage huge resource revenues. To minimize the impacts of Dutch Disease and revenue volatility, a state must have sound institutions in place. Institutions are also necessary to manage complex public-private revenue-sharing partnerships that are typical of extractive industries. A sovereign wealth fund is one option that states can utilize to manage large inflows of resource revenue, stabilize pressures on the exchange rate, and reduce the influences of price and revenue volatility. The implementation of this fund (explained further below) is one of the central recommendations of this report. Above all, a sovereign wealth fund allows Mozambique to invest in infrastructure and socioeconomic development over the long-term, thus ensuring that the country will still see benefits of its extractive resources long after the reserves have been depleted.
Linkages and Local Content
Mozambique’s national resource wealth is not limited to revenue generation for the state but can and must flow to benefit local Mozambicans. Conventional understanding about how the local population benefits from extractive resources is typically limited to the industry’s provision of employment and a few philanthropic projects. However, extractive industries tend to have a minimal impact on the labor market. The capital intensive nature of extractive industries stems from industry demand for fewer, more highly skilled workers compared to the labor-intensive, low-skilled workforce sectors – such as agriculture or manufacturing. Low prevalence of human capital in Mozambique further limits employment opportunities for Mozambicans in the extractive sector, leading to unfulfilled expectations in communities and promoting social unrest. This section provides examples and recommendations of how the Government, extractive companies, and stakeholders can increase employment opportunities for Mozambicans in the extractives sector and create economic linkages between the extractive industries and Mozambique’s local businesses, especially in regions of extractive operations.
Prosperity driven by the growing extractive industry can be translated to communities in Mozambique through cultivating local content – including local recruitment, training, and purchasing local goods and services. Though not a “silver bullet” to prosperity, local content can contribute to the fulfillment of expectations that mineral and hydrocarbon production will help improve the lives of Mozambicans. Local content is also critical to the extractive industry’s operational sustainability by generating a social license to operate within a given community. Smooth, sustainable operations also benefit the state by supporting steady revenue flows and general social stability.
Given local human capital and the capacity of Mozambique’s private sector are currently very limited, it is critical that both the government and extractive companies initiate early and consistent engagement with communities and the local private sector in regard to both the type of employment and business opportunities that will be available. Additional management of expectations through transparent communication of the expected timeline of these opportunities is also necessary. To achieve optimal local content goals, the government must also invest deliberately in the provision of poverty-reducing public goods, including quality education, literacy, and healthcare, which in turn serve to improve human capital in the long-run. These efforts require significant strategic social investment by stakeholders to build the capacity of local communities and enable individuals and businesses to compete and access income-generating opportunities in the newly established extractive industry value chain. Without investing in the development of Mozambique’s human capital and building the capacity of the local business sector, Mozambique’s ability to fully access and realize the potential benefits of its vast natural resource wealth will remain hindered. Finally, this section also discusses the need to develop and implement a strategic plan that mitigates inward migration, local food price inflation, and constraints on community resources affecting areas impacted by extractive industry operations in Mozambique that could be source of social instability.
Infrastructure
Marked rates of underdevelopment in Mozambique are closely tied to the country’s shortage of infrastructure, which has largely failed to respond to social and economic development needs. Although recent public, private, and donor investment in developing Mozambique’s infrastructure has focused much more on facilitating the trade derived from megaprojects, it might also represent an unparalleled opportunity to build a system that fosters inclusive social development. The Government has the option to take advantage of the international community’s willingness to invest and orient economic resources to address infrastructure-related impediments of development.
Ensuring inclusiveness, through both connection and universal access to roads, railways, and electricity, must be at the heart of this endeavor. Railways, in particular, must guarantee access for general freight and passengers, as well as for mining companies. With respect to Mozambique’s roads, an upgrade and significant extension of the network would decrease transportation costs for all parties. This, in turn, would help mitigate the country’s high rates of poverty and inequality, permitting both the mining provinces and the rest of the country to benefit from extractive industry operations. Special attention must be paid to use of roads as connectors between impoverished yet potentially productive areas and the Beira, Nacala and future Macuse corridors. Finally, despite the current efforts of the Government to bring the grid to every district, only a small percentage of Mozambicans have reliable access to electricity. The potential for clean production must be developed to provide electricity access beyond district centers, and to help reduce Mozambique’s reliance on unsustainable energy sources.
Environment
Protecting the country’s ecology is critical to Mozambique’s vitality and will require investment and attention to environmental governance that keeps pace with resource extraction. First, to mitigate environmental risks inherent in resource development, research into fisheries and terrestrial ecosystems is necessary to create a baseline for conservation priorities, since much of Mozambique’s ecology is not well researched. The existing Environmental Impact Assessment review period is also too short for the increasing volume of assessments and the current limited capacity of the Government and civil society. Such assessments for large extraction projects and their corresponding infrastructure development should be made available to the public with a longer, more adequate review period than the current 45 days. In line with the country’s existing environmental law, specific requirements and guidance on biodiversity offsets must be drafted and enforced to ensure that all small and large-scale extractive resource projects account for environmental impacts from the beginning of the project.
Mozambique’s current environmental legislation should be reinforced with more detailed guidance. Exemplary laws from other countries, such as Norway, can be utilized for legal reference until a robust new set of laws can be established. With ongoing active exploration of the natural gas, Mozambique should dictate when and where seismic surveys are conducted in order to protect the delicate biodiversity surrounding the nation’s corals and fisheries. In addition, the government must create an environmental emergency plan so that, should accidents occur, the various government ministries have an aligned mitigation strategy that facilitates rapid response. Additional funding, training, and resources allocated to environmental ministries are also necessary to expand their capacity to study the nation’s ecology, properly implement protective legislation, and adequately monitor mining and natural gas exploration and production. Additionally, the growing artisanal mining sector needs strategic Government support to organize associations, as well as train, guide, and monitor expansion to ensure the safety and prosperity of Mozambicans. In this way, small-scale mining could become a means to reduce poverty as opposed to creating conflict and environmental degradation. All of these governance strategies will need to be implemented quickly and should utilize revenues from the extractive industry to guarantee that Mozambique’s dynamic ecology continues to be a source of pride and the pillar of a growing tourism industry.
Resettlement
Resource exploration, mineral concessions, and infrastructure development have all exponentially increased the resettlement of communities in Mozambique, especially in remote areas. Although the country has the extraordinary opportunity to strategically translate its mineral assets into long-term sustainable development, extractive operations can only be fully successful if the investments are embedded in stable and prosperous communities. One of the country’s top objectives should be to leverage the recent boom in extracting natural resources to improve the living conditions of Mozambicans and to ensure a prosperous environment in which companies can diligently operate.
If Mozambique follows five basic resettlement principles, the rights of Mozambicans and compliance with the international conventions and agreements that the nation has pledged to support will be ensured. First, projects that require resettlement must conduct early, inclusive and transparent consultations to give communities the opportunity to make decisions on issues directly affecting their lives. Early consultation also helps build critical buy-in from impacted populations. Second, it is key to provide communities with the tools and information to diligently participate in negotiations that reach fair agreements. Third, compensation, that includes improved livelihoods and standard of living is key to translating resource extraction into prosperity for individuals affected by resettlement. Fourth, resettlement processes entail negative environmental impacts that must be diligently addressed as they highly impact the health conditions and access to other resources (water, soil, etc.) of the surrounding communities. Lastly, an inclusive and legitimate post-resettlement committee must oversee agreement compliance, progress, and accountability. Such a committee also recognizes that communities are dynamic and future agreements will have an established channel for discussion. A well-structured and well-managed resettlement process, jointly agreed upon by communities and companies, can help to ensure that extractive operations and other projects that require resettlement enjoy greater community buy-in and promote sustainable development.
Mozambique must also ensure that women are not left out of opportunities to participate in and benefit from the country’s development through the extractive industries. The Government bears a duty to ensure women’s equal access to socio-economic opportunities, reduce disruptions to their standards of living and improve livelihoods. In the context of mining operations, Mozambique can meet these challenges by implementing its existing laws and Constitutional provisions which guarantee the equal rights of men and women, along with amending existing mining legislation to address issues on resettlement, consultation and compensation.
Such arrangements also stand to benefit from local resources (including human capital), thereby reducing the likelihood of conflict. The resettlement process in Mozambique is ongoing, and there are a number of ways that the Government can promote mutually beneficial resettlement agreements leaving all parties affected better off and fairly attended.
Legal Framework
From a legal perspective, Mozambique must aim to reform and update the legislative, institutional, and contractual frameworks associated with extractive industries in order to maximize the gains from and minimize the costs of extractive resource development. In this context, Mozambique is currently reviewing its legal and fiscal frameworks for oil and gas exploration and production, to take into account developments in the industry and new gas discoveries. Recent drafts of the petroleum legislation contain several important additions that address infrastructure, revenue sharing, oversight, and environmental protection. However, the law needs further strengthening to ensure that new and existing projects are carried out in a safe, fair, and efficient manner. Vague references to "good industry practice" should be replaced with clear and transparent obligations. Deals should be standardized and their key terms should be set in legislation to improve transparency and competitiveness. Companies must be assured fair and open access to facilities to promote competition and increase efficiency. Penalties must be clear and significant to deter bad behavior. Environmental protections should take into account that companies are often in the best position to monitor, prevent, and mitigate environmental and health risks. The Government must also preserve its ability to reform and improve its legislation over time - especially in relation to the environmental, social, and health impacts of extractives.
The fiscal regime should draw on a range of different tools to generate a fair share of revenue for Mozambique. While opinions may differ on what is "fair", Government revenue should amount to at least one third of the profits for mining and 65% of the profits for oil and gas over the lifetime of a project. As the industry becomes more established, and business conditions improve, this share should increase substantially for future projects. The regime needs to balance up-front income with long-term objectives - taking into account the legitimate interests of investors, the capacity of public agencies to administer the regime, and the interests of future generations of Mozambicans.
There is also a critical need for existing mining legislation to be examined and amended, in order to better reflect the growth of the sector and to protect the interests of the Mozambican people, particularly with respect to environmental, health, social, fiscal and contract transparency considerations. Accordingly, provisions of the current Mining Law of 2002 should be amended in these distinct areas, giving mining activities a modern and adequate regulatory basis to ensure greater competitiveness, guaranteeing the protection of rights and defining the duties and obligations of holders of mining titles. While the Mining Law of 2002 is undergoing revisions and is expected to be passed by Parliament in the coming months, this section sets forth policy recommendations which illustrate some of the gaps and challenges present in Mozambique’s mining legislation. Reforms in the mining laws offer an important opportunity for the country to further develop its economy, and importantly, to promote equity, reduce poverty, and meet its development goals through a forward-looking approach. The recommendations in this section are offered to strengthen, clarify and update existing mining legislation, and provide guidance on how mining activities can be conducted in a manner, which prioritizes and improves the social and economic well being of the Mozambican people.
Governance
The Government must adopt a transparent and uniform policy framework and fiscal regime to effectively administer the process of extractive industry development vis-à-vis government costs and revenues. To this end, Mozambique should create an accountable and transparent framework of governance to manage its extractive assets. There must be checks and balances built into the institutional structures of the Government. This will create accountability, separate responsibilities to minimize conflicts of interest, expand powers for specific agencies to fulfill their roles, and allow for agencies to manage extractive resource development accordingly. Mozambique must also focus on anti-corruption measures to improve its governance. Some useful tools include the anti-corruption law as well as other Information and Communication Technology platforms that can help bolster the country’s systems of oversight. Above all, transparency must become a fundamental part of the extractive industry’s contractual process, to ensure that all parties are getting their fair share of revenue.
Sovereign Wealth Fund
Sound revenue management is key to the sustainable development of Mozambique's economy. The financial impact of natural gas and coal exportation can have detrimental effects for the country. As mentioned above, problems arise from real exchange rate appreciation, which puts other export industries out of business, and from fluctuation in commodity prices, which is destabilizing for the domestic economy. Establishing a sovereign wealth trust fund in a traditional financial center will help Mozambique absorb the coming windfall and promote growth and development in the country in five key ways. First, it effectively shelters the domestic economy from the commodity sector, so that volatility in oil, gas or coal prices do not have such a disruptive effect on the country’s budget planning from one year to the next. Second, by channeling revenues into specific development programs, the fund can help the government to focus and plan for expansion of infrastructure, education, healthcare and public services. Third, the fund can help to ensure that government revenue from extractive resources become an ongoing source of income for decades to come, and provide intergenerational equity. Fourth, and crucially, a sovereign wealth fund can insulate Mozambique’s currency, helping to ensure that investment in the extractives industry does not have negative impacts on other sectors of the economy. Finally, the trust will legally enshrine the purpose of the fund and thus insulate Mozambique's fund from sovereign debt and facilitate the country’s access to international financial markets due to improved legal standards.
Mozambique Moving Forward Mozambique is embarking on potentially one of the most defining opportunities of the nation’s history. Despite the impoverished state of much of the country, Mozambique is endowed with significant hydrocarbon and mineral resource wealth in an era that is experiencing innovation, awareness, and collaboration at an unprecedented rate. The nascent development of Mozambique’s large-scale hydrocarbon and mineral reserves is a point of strength and opportunity for structured and deliberate leadership to shape the future of Mozambique into a prosperous regional authority with the capacity to be a source of strength and guidance beyond its borders.
There is universal familiarity with the potential outcomes that lie ahead for Mozambique. The nation’s limited human capital and restricted absorption capacity of the local public and private sectors to adapt and manage the rapid changes underway exemplifies the necessity for Mozambique to engage actively, early, and transparently to realize the opportunities at hand. However the continuum that flows between a resource blessing of prosperity and a resource curse is process of significant complexity. Multi-directional relationships between the economics, social, environmental, political and legal aspects of natural resource development requires clear frameworks and implementation of transparent objective that will benefit the nation now and for future generations. The areas this report examines identifies the current and potential weakness that could derail Mozambique’s intention to pursue a path of sustainable development that is supported by revenues and income generating potential of the growing explorations and production of Mozambique’s natural resources. Each section also includes recommendations that address the challenges and opportunities specific to the changing environment of Mozambique’s natural resource extraction.