At the recent Indaba conference, Mozambique was being seen as a more attractive destination for foreign investors, particularly as the South African government grapples with the threat of another wave of labour unrest in the mining sector and continued regulatory uncertainty; despite the ruling African National Congress’ decision to reject wholesale nationalisation.
The mining code revision and the government’s efforts to comply with the Extractive Industries Transparency Initiative (EITI) will be key issues shaping future policy on the mining sector in 2013. In this article, Simiso Velempini, Control Risks’ political and security risk analyst for Mozambique, assesses the immediate challenges facing mining operators and the prospects for a smooth transition of power when the country goes to the polls in 2014.
Prime Minister Alberto Vaquina, in December, presented the government’s 2013 social and economic plan to the Assembly (legislature). In his address, Vaquina projected an expansion of the mining and hydrocarbons sectors and increased local participation in both industries. International investors have expressed growing interest in the country’s vast and untapped natural resources, which, as was highlighted in Vaquina’s speech, will play a pivotal role in the country’s future economic growth.
Laying the ground work
Vaquina’s ambitious economic and social plan is scuppered by infrastructure constraints, particularly in the mining sector. Both the ailing transport system and a power network unable to match increased demands from an expected upsurge in mining-sector investment have had a negative impact on the government’s estimated production targets. To address infrastructural deficiencies, construction of a railway and port project that will link Tete province with the coastal town of Macuse (Zambézia province) is likely to begin in the second half of 2013. The rehabilitation of the Sena railway line is slated for completion in early 2013. Both projects are seen as a means of helping to increase coal exports in the short term. Infrastructural constraints mean that Tete province’s mineral export potential may be realised around the end of 2013. Although this will disappoint public expectations of increased revenue from the mining sector, Frelimo (political party The Mozambique Liberation Front) will comfortably win another majority at the 2014 legislative elections.
One of the most salient developments from Frelimo’s September Congress was the inclusion of an ‘economic and social areas’ section in the Central Committee, the party’s highest decision-making body. The emerging group of young economic entrepreneurs that staff this section will seek to expand its commercial interests into the mining and nascent offshore gas sectors in the coming years. The 2013 offshore gas licensing round, revisions to the national gas plan and the review of the mining code will all provide avenues through which this group can expand its commercial activities to include the extractives sector. This underscores the need to mitigate integrity risks by conducting extensive due diligence on all local potential partners, suppliers and sub-contractors.
Anticipated local content requirements (see text box) will pave the way for these emerging elites to establish their business interests in the sector in the short term. As the 2019 elections approach, the entrepreneurial elite will come of age and begin to influence internal party dynamics. The old guard will resist, either by incorporating those with divergent views into their patronage network or by using their remaining political power to curtail the new group’s economic expansion. Although this power struggle will raise tensions within the party, it will cause little disruption to government operations or the investment climate in the long term.
Waiting in the wings
Speculation about President Armando Guebuza’s intentions ahead of the 2014 elections is rife, but we believe that he is highly unlikely to change the constitution to allow him to run for a third term. Frelimo indicated in early 2012 that it would not support any moves to change presidential term limits.
Unilateral changes to the constitution would increase concerns over political instability among foreign investors and international donors, undermining government plans to attract FDI to the extractives and tourism sectors, as well as potentially reducing or leading to the suspension of budgetary support.
Despite Frelimo’s attempts to decrease its dependency on foreign donors, foreign budgetary support has instead risen from 33% to 34.4%. Any significant cuts in donor support would have a negative impact on infrastructure and social development plans, particularly in the run-up to the 2014 national elections. In a further indication that Guebuza will step down, in accordance with the constitution, Frelimo secretary-general Filipe Paunde in September 2012 hinted that the head of state would be different from the head of the party in 2014 for the first time in Mozambique’s post-independence history.
Guebuza is expected to step down in 2014. Nonetheless, he will still play an influential role in deciding who becomes Frelimo’s presidential candidate. During the ruling Frelimo party’s 10th congress in September 2012, party delegates re-elected him as party president. He is likely to use his influence as party president to lobby groups within Frelimo to support his preferred candidate. We have identified three main contenders: Paunde, Agricultural Minister Jose Pacheco and speaker of parliament Verónica Nataniel Macamo Ndlovo (known as ‘Macamo’). Both Paunde and Pacheco hail from the northern provinces, whose profile has been raised by increased foreign investment in the mining sector in Tete province and offshore gas discoveries, particularly in Capo Delgado (Pacheco’s home province). Local communities, accordingly, now have higher expectations that the next president will be from the north, and such sentiments are highly likely to factor into Guebuza’s decision-making process. Despite Macamo’s status as a respected party member with a strong public profile, her southern origins will hamper her electoral chances.
At this stage, Pacheco is the strongest contender of the three. A protégé of Guebuza, Pacheco is a well-regarded representative of a younger group within Frelimo that is pushing for modernisation. Although he is aligned with Guebuza, he could win support as a technocrat by promising competent management and a concerted effort to adopt consensus-based decision-making. Although the run-up to the announcement of Frelimo’s presidential candidate will be marked by speculation and heated debate, the transition between Guebuza and his successor will be smooth. Sweeping policy changes that could act as a disincentive to foreign investors are highly unlikely in the aftermath of the elections.
By Simiso Velempini, analyst, Africa
Simiso monitors political and security developments in southern Africa. She produces daily updates for Control Risks’ online Country Risk Forecast and PRIME services, tracking political, economic and security developments in the region and updating clients on their implications for commercial activities.
Simiso holds a BA (Languages), a BA (International Relations) and a BA (Honours) in International Relations from the University of Pretoria. She also holds a MA in International Security from Sciences Po, Paris and an MSc in International Relations from the London School of Economics, where she wrote her thesis on South Africa’s foreign policy towards Zimbabwe during the Mbeki presidency. Simiso speaks English, French, Ndebele and Zulu.