Over the past 10 years Mozambique has been more successful in attracting foreign direct investment (FDI) than most other developing countries, but analysts wonder how much the inflow has benefited the broader economy.
This year’s United Nations Conference on Trade and Development’s World Investment Report says Mozambique last year attracted FDI worth $255-million, the third most successful least-developed country after Sudan and Angola. The report says Mozambique should rank 118th based on its inherent financial potential, but it was so successful attracting investment it came in 23rd in 1999/2000.
However, Carlos Nuno Castel-Branco, a senior lecturer at the Eduardo Mondlane University in Mozambique, argues that the government must spread the benefits of FDI more widely. He says: “We currently have a situation where Mozambique’s development path is determined by foreign corporate interests rather than a government-led industrial policy.”
In a study published as Economic Linkages Between South Africa and Mozambique carried out for the British Department for International Development, Castel-Branco says investment is heavily skewed towards the minerals-energy complex; he advocates a more influential manufacturing sector and a more diversified economy. Investments are also concentrated in the mineral-rich south, which benefits from the export harbour at Maputo and its proximity to South Africa, a neighbour with an economy 40 times the size of Mozambique’s.
After a brutally frank assessment of the effect FDI has on areas such as direct and induced investment, employment, economic growth and the transfer of capacities, among others, Castel-Branco calls for a serious reconsideration of the government’s policy.
South Africa is a main contributor to Mozambique’s FDI, with investments in the Mozal aluminium smelter in Matola, just outside Maputo, and the Corridor Sands titanium-mining project in Chibuto, also in the south of the country. The Office of the South African High Commissioner in Maputo reports that South Africa has invested about R30-billion in Mozambique over the past five years.
But Castel-Branco says most large FDI projects generate little investment flows, given the incentive structure based on tax holidays and exemptions that draws foreign money.
“For example, Mozal … pays virtually no tax. Hence, South African FDI is not very likely to induce public investment.”
Castel-Branco says FDI has created a small pool of well-paid workers because it focuses on capital-intensive programmes, except in sugar production. Mozal employed about 10 000 people while the plant was being built, but now employs only 1 000.
Workers at Mozal are 18 times more productive than those at average Mozambican companies. So, as at other foreign-owned companies, they earn higher wages and enjoy better working conditions.
Jaco Kriek, vice-president for projects at the South African Industrial Development Corporation (IDC), says: “Mozambique attracts investment because it is investor friendly and is hungry for investment.”
The IDC is a leading investor in Mozambique, with interests in Mozal and Corridor Sands.
The IDC co-owns Mozal through a R1,6-billion investment, owning 25% of the project, in partnership with the diversified mining group BHP Billiton and Mitsubishi Corporation of Japan.
The project was divided into two phases. The first went operational in 2000 and the second will start next year. The ultra-modern plant features well-tended landscaping with sophisticated engineering.
Kriek says Mozal’s strategic benefits include its proximity to the port, a 7% export rebate from Europe and a tax rate of only 1% of revenue.
Mozal generates $400-million of exports, half of Mozambique’s yearly total.
The Corridor Sands project is expected to become one of the world’s most important titanium projects. Also partly financed by the IDC, the project is owned by Southern Mining and WMC from Australia.
It is expected to get under way late this year and be operational by 2004. At its peak it is expected to produce a million tons of minerals a year and require an investment of $1-billion.
For all the work done, a lot remains to be accomplished. Kriek says the IDC is involved in rehabilitating the railway line between the port of Beira and Sena in the north. According to the Mbendi Information for Africa website, the project is estimated at a capital cost of R2-billion. The line will allow coal to be exported and goods to be shipped from neighbouring landlocked Malawi and the port.
Commentators have long argued that Mozambique’s economic growth figures are inflated by huge once-off injections of capital. Mozal is estimated to have added about 5% to gross domestic product. “Economic growth is driving the Mozambican economy to higher stages of activity, but growth is not sustained between mega-project cycles,” Castel-Branco says.
Foreign owners might repatriate profits with little or no reinvestment, so economic growth will remain mild after projects.
Castel-Branco says future growth is likely to be driven by the conclusion of the Southern African Development Community Trade Protocol and trade negotiations with institutions such as the European Union. It will also be boosted by the natural expansion of South African corporations.