Growth and Development Profile: Mozambique

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