Pemba, Mozambique – Families wait in front of the port of Pemba for the boat of the evacuees from the coasts of Palma on April 1, 2021. More than a thousand people evacuated from the shores of the city of Palma arrived at the seaport of Pemba after insurgents attacked Palma on March 24, 2021.
Alfredo Zuniga / AFP via Getty Images
Mozambique had placed its economic hopes on the colossal natural gas reserves discovered a decade ago – but an escalating Islamist uprising threatens to tear the carpet out from a surge in private investment.
In late March, an armed Islamist group loosely connected to ISIS and known locally as Al-Shabab – not to be confused with the Somali militant group of the same name – attacked the gas-rich city of Palma in the country’s northern province of Cabo Delgado. inflict mass civilian casualties and displace tens of thousands.
The attack came within hours after French energy giant Total announced it was resuming its Mozambique Liquefied Natural Gas (LNG) project, a $ 20 billion facility located on the nearby Afungi peninsula Construction is.
According to Standard Bank, up to 120 billion US dollars are at stake nationwide for LNG projects.
The International Monetary Fund expects Mozambique’s GDP to grow by 2.1% in 2021, with inflation projected at 5.3%. However, Standard Bank recently highlighted in a statement that the escalation towards guerrilla warfare could undermine the benefits of the LNG projects.
“While long-term growth prospects, aided by LNG investments, remain broadly positive, armed conflict is limiting prospects for more inclusive growth,” it said.
Tax hit
Together with the humanitarian crisis triggered by the uprising – with the warning from the United Nations World Food Program on Tuesday that almost a million people in the north of the country are suffering from severe hunger – the attacks also pose an existential threat to public finances.
“The longer the conflict pushes back the completion of the planned LNG projects, the longer it will take for the indebted Mozambican government to generate income from gas exports,” said Gerrit van Rooyen, economist at NKC African Economics.
Total has now moved all staff from its Afungi location, but van Rooyen suggested that this could be a tactic to pressure the government to improve security around the Afungi complex and accept foreign aid instead of one accept permanent exit. Total declined to comment when contacted by CNBC.
President Filipe Nyusi’s government has relied primarily on private security companies to support defense efforts while restricting access to aid workers and journalists.
In addition to Total’s LNG project, both the US energy company ExxonMobil and the Italian energy supplier Eni are carrying out separate energy projects in the country, all of which are of crucial importance for the future of Mozambique’s taxation.
The delayed start of LNG exports is likely to reduce government revenues noticeably.
Mozambican soldiers leave the tarmac of the airport in Pemba on March 31, 2021. – Sporadic clashes broke out in Palma on Tuesday as thousands of residents hid in the besieged city in northern Mozambique to escape the area overrun by militant jihadists, agencies said.
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The Mozambican Ministry of the Economy and Finance estimated in 2018 that a 20% cost overrun and 18 month delay in two key areas of LNG projects would reduce government revenues by around 6% – nearly USD 2.5 billion – over a 25-year period. could lower.
“The longer it takes for LNG projects to reap benefits, the longer the government will have to draw on other resources and international aid to finance the country’s economic development and service its external debt,” said van Rooyen.
NKC estimates that external debt was $ 11.8 billion, or nearly 87% of GDP, at the end of 2020, with the government spending more than 13% of total revenue on interest payments over the course of the year.
The LNG projects should push growth back to over 5% per year, said van Rooyen, which – if everything goes according to plan – should help steer the country’s mountain of debt to a more sustainable level.
“Safety vacuum”
Mozambican security forces as well as private military contractors and Total’s security team were blind from last month’s raid on Al-Shabab. The ensuing struggle lasted about 12 days and counterinsurgency operations continue.
The South African 16-nation development community held an emergency meeting last week condemning the violence and promising an “appropriate regional response”.
Risk advisory agency Pangea-Risk said in a research report last week that the attack was not triggered by Total’s announcement that it would resume operations. Instead, it was said that the move took place after months of preparatory planning by militants who have been increasingly active in the region since 2017.
Pangea risk first warned in October 2020 and again on March 12, two weeks before the attack, that insurgents were planning attacks in natural gas hub cities.
Pemba, MOZAMBIQUE – The OCSV Sapura Diamante (Offshore Construction Support Vessel), a pipe-layer ship used in offshore construction, is docked in the port of Pemba, where sailboats with people displaced from the coasts of Palma and Afungi are awaited attacked by armed groups on March 30, 2021.
Alfredo Zuniga / AFP via Getty Images
“There will be a security vacuum in Cabo Delgado next month, if not longer, exposing both Palma and other places in the province to further militant attacks,” said Robert Besseling, CEO of Pangea-Risk.
According to Besseling, local sources expect a raid on the resettlement village of Quitunda near the LNG site on the Afungi peninsula in the coming weeks.
“Such a raid would put pressure on the Afungi garrison to leave the security zone around the LNG site and to use it to protect vulnerable displaced persons in Quitunda, which may violate the Mozambican government’s security treaty with Total, ” he added.
Besseling suggested that the provincial capital Pemba and the Tanzanian port city and gas center in Mtwara in the Rovuma border region between the two countries will be “very ambitious targets” for the insurgents.
Meanwhile, the humanitarian situation in Cabo Delgado is expected to worsen in the coming weeks as refugees continue to flee Palma for camps in nearby districts. The total number of displaced people is estimated at over 700,000 and is increasing.
