Resources Galore
Overview
If someone said Mozambique, as an economist your first thoughts may turn to the dismal Human Development Index within the country. Or perhaps the devastating levels ofpoverty that go hand in hand with their HDI figure. So it's all bad news for the African country? Not quite. In fact Mozambique is spoilt by a wealth of natural resources. The country plays host to vast deposits of coal and off shore gas,that to some extend have been looked over by foreign countries and investors, until now.
The Brazilian mining giants Vale and Rio Tinto, have sighted the potential in ‘the world’sbest undeveloped coking coal’. Vale believe they will produce approximately 4.6million tonnes of coal this calendar year, with the intention of raising the figure to 22 million in the next few years. As well as coal, Mozambique accounts for 100 trillion cubic feet of offshore gas, that has only recently been discovered.
Benefits to Mozambique
The Mozambique government intend to use it's resources to attract foreign direct investment. Coal mining has already seen witnessed investment from large mining firms, and the countries aggregate demand will be feeling the benefits from an increase in investment and exports. However, the government now wishes to focus it's attention on their off shore gas supplies. Mozambique have forecast an investment of $50 billion in the next ten years. And the minerals minister says Mozambique could be earning $5.2 billion a year from natural gas alone by 2026.
The benefits Mozambique will gain from increased FDI will be an increase in aggregate demand, leading to growth within the country. Furthermore, Mozambique will also see an increase in it's GDP following the increased output. The citizens in Mozambique should hopefully feel the benefits from GDP, as the money filters through to individuals and increases living standards and life expectancy. The increase in GDP will have positive affects on the countries HDI, leading togreater economic development within Mozambique.
By exporting the natural resources Mozambique will strengthen it's currency as the demand for their currency increases. A stronger currency will lead to cheaper imports for Mozambique. As a developing country Mozambique does not have easy access to necessities such as Medicines. Making these cheaper to import means they are more accessible to citizens, and require a lower percentage of consumers income.
The Complications
The greatest drawback for investors is the poor infrastructure within Mozambique. For example railways that are essential in the transportation of coal, can not cope with the increase in demand. This will make the countries resources less desirable to investors as they will have to provide additional investment for transportation cost.
The Mozambique government is also believed to suffer from corruption, and consequently foreign aid donors have begun to pull out of government funding. The increase in GDP may lead to an increase in corruption from the government, as the incentive isincreased. This will lead to greater inequality in the distribution of wealth.Therefore, the benefits the citizens of Mozambique would hope to see from increased GDP, may not filter through effectively. Furthermore, as a developing country that is reliant on aid, a corrupt government may see a a fall in donations. This would lead to an increase in poverty, and a decrease in living standards.
Will it be a brighter future?
The natural resources within Mozambique are set to increase the countries GDP and HDI, these benefit the economy and individuals within the country.
However, I believe the idea of gaining FDI from the sourcing of natural resources is flawed by the corruption of the government and poor infrastructure Suitable infrastructure is essential for investors mining coal or gas. Investors may look for alternative opportunities in other countries with greater infrastructure A fixed government would be able to create stronger foreign relations between trading countries, making exporting the resources mined by investors easier.
