Growth and Development Profile: Mozambique

In our latest growth and development profile, we look at Mozambique.

You can download a PDF version of the video presentation here

Mozambique is one of the poorest countries in the world riven in the past by civil war (the last one ended in 1992) but now a nation that might be able to take advantage of big discoveries of natural gas to fast-track improvements in basic living standards and development outcomes.

Benefits of a natural endowment of gas

• Resource revenues from natural gas could be used to create a sovereign wealth fund for investment in the domestic economy
• Significant boost to net exports leading to increase aggregate demand & employment in engineering, construction & logistics
• Allows Mozambique to import machinery, technology and other inputs to raise productivity e.g. in their farming sector
• In theory – it will cause an outward shift of their PPF / long run aggregate supply curve and a faster rate of trend economic growth

Risks and drawbacks from natural gas industry investment in Mozambique

• Rents from natural resources rarely leads to inclusive growth – wealth discovered beneath the ground needs to be turned into human capital
• Mozambique has borrowed heavily to help finance the LNG projects – leading to a significant rise in their external debt measured as a % of GDP
• Rising gas exports could cause their currency to appreciate making other export sectors (e.g. coal and tuna fishing) less price competitive
• Surge in investment in gas extraction and refining has led to rapid growth in property speculation which has increased property prices and consumer prices
• Natural resource wealth is often a root cause of civil conflict + increasing risk from terrorism