The Conundrum of FDI

As public officials celebrate predictions of another above-average year of growth for the Mozambican economy, despite disappointments in social development and poverty reduction and delays in LNG project development, one of Mozambique’s stellar statistics continues to be its performance in the area of Foreign Direct Investment (FDI). Both regionally and globally, the country leads, showing a massive year-on-year increase last year according to statistics published by fDi Markets, a division of the London Financial Times. In terms of projects, while South Africa and Kenya saw declines of -15% and -12% respectively compared to 2013, Mozambique soared to +67% by this measure of FDI.

Regionally, Africa witnessed the largest increase in inward investment in 2014 versus 2013, at 65%. Egypt, Morocco and Mozambique saw large increases in project numbers, while Egypt, Angola, Morocco, Ghana and Zambia all moved into the top 10 destinations in the region by capital investment, replacing Iraq, Jordan, Ethiopia, Algeria and Kenya, countries that have been affected by geopolitical uncertainty or security issues. Ghana, Nigeria and South Africa saw decreases in their project numbers.

Heralding these statistics as well they might, politicians as well as members of the global investment community could pause to consider what is the meaning of such data for an economy still in the throes of a very pre-industrial stage of development. As reported by Club of Mozambique earlier in the week, the majority of Mozambique’s US$9 billion in capital investments received last year was devoted to real estate, and much of that hinged on the development of shopping centres and other specialty commercial real estate projects.

In the same way, in the energy sector, with Anadarko and ENI on the threshold of injecting tens of billions of dollars in FDI over the next five years, virtually guaranteeing continued double digit annual increases in Mozambique’s FDI, what is the meaning of such performances which may add only tens of thousands of jobs to a quasi-feudal economy where any inputs of significance still have to be imported in order to both launch as well as to lubricate the megaprojects upon which the country’s future growth depends? 

While it has long been agreed that offshore and onshore gas can and one day will one day transform Mozambique’s economy, how much of a cause for celebration is it that just one or two, or at most a handful of foreign-owned companies will account for 70 or 80% of the country’s GDP for the best part of the next decade?

Indeed, what if, in a worst case scenario, the long awaited final investment decision (FID) of Anadarko, the subject of top-level discussions between management and the presidency in Maputo last week, for some reason fails to come to fruition? Where then will be the buoyant statistical backdrop to an economy which remains as unbalanced as it is non-inclusive? 

Other economists argue about the risk of a ‘resource curse’ and the threat to non-energy sectors of a gas boom for the benefit of the few, while nearly all agree that the country cannot generate enough electric power, whether by hydro, coal or gas in any short or medium term time frame to support broad based economic advance based on a reliable and adequate electricity network.

Nevertheless, the emergence of a commitment by all partners to growth underpins current discussions just as optimism continues to hang in the air for the business community and the ordinary population. Although so little has yet been delivered the political will is there as are the potential returns for all stakeholders. Looking northwards to Tanzania, thought of until recently as a potential competitor to Mozambique in LNG development, if not in terms of size then at least in terms of commercial agility, the bigger pitfalls of a lack of goodwill and commitment are now clearly on display for all to see.

Political timelines have mired decision-making and over ambitious fiscal demands have sent key outsiders running for cover. In the Realpolitik of global resource economics, disinvestment is not an idle threat, but a genuine nuclear option which multinationals can and already have chosen to deploy amid frustration and falling profitability. Mozambique has avoided such confrontation and corporate flight thus far and will do well over the coming months to seal its mega-deals, long sitting on the table, and from there move to give meaning once again to the economy’s powerful economic potential.