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Report urges Mozambique to create ‘green investment fund’ for infrastructure

A new ‘green economy investment fund’, supported by levies on the extractive industries, could help Mozambique boost investment in vital infrastructure projects, according to a new policy review from the African Development Bank (AfDB).

The proposed fund was part of a package of recommendations made in the AfDB’s ‘Transition Towards Green Growth in Mozambique’ report (76-page / 3.55 MB PDF), aimed at supporting sustainable development goals under the country’s ‘Green Economy Action Plan’ (GEAP).

Other recommendations included promoting “greener modes of transport, such as mass-transit systems, particularly in the capital city Maputo” and projects to overhaul the power generating sector.

The report said the key “new financing instrument” under the GEAP should be “a green economy investment fund, to be established with revenues from fees on extractive industry activities”. Monies raised would be invested in “a diversified portfolio of financial assets” such as shares, bonds and real estate, with income invested in green economy activities, the report said.

However, the “boom” in extractive industries “poses challenges alongside opportunities”, the report said. “The added revenues could provide a development boost... (but) extractive industries could also increase the strain on Mozambique’s natural capital and social environment.”

The report said adverse effects from the extractive industries could be tempered by the “timely preparation of proper and adequate policy planning for the new wave of investments”, as the “large fiscal revenues deriving from these industries are only to materialise in the mid-to-long term”.

According to the report, Mozambique’s economy “has grown at an impressive average rate of 7.2% during the last decade, driven by foreign direct investment (FDI), agricultural growth and infrastructure investment”.

Since the discovery in 2009 of the “world class reserves of first coal and later natural gas, Mozambique’s attractiveness to foreign investors prompted several billion dollars of FDI from the world’s largest mining and oil companies from South Africa, Australia, Brazil, the US, Italy and, more recently, China”, the report said. However, Mozambique “lacks the ability to exploit these resources fully and ensure equitable and sustainable access for the majority of the population”.

The rate of access to electricity reached 38% by 2012, but grid stability and rural electrification “are still major constraints, especially for industrial activities and transformation of agricultural produce”, the report said.

Energy policy in Mozambique’s evolving green economy “should mainly incentivise investments in renewable energy generation”, the report said. Policies should focus “in particular” on projects such as mini-grids, “with a view to increasing access to sustainable energy services to peri-urban and rural populations”. This could be supported by “harnessing the country’s vast potential in hydro, solar, wind and biomass”.

In the transportation sector, the report said Mozambique’s Ministry of Transport and Communications should lead with policies that “incentivise private sector investment in affordable transport services running on gas and electricity, as well as toll roads linking major markets with agricultural production areas.”

In April 2014, a report published by the UK-based Oxford Institute for Energy Studies (62-page / 3.18 MB PDF) said gas finds in Mozambique’s northern Rovuma Basin “could represent an economic game changer for one of the world’s least developed countries”.

The report said: “Amid such ambitious plans and schedules, 2014-15 will be a crucial decision-making period for developers looking to race ahead of other East African ventures, such as those in Tanzania, if they are to succeed in bringing liquefied natural gas production online by the end of the decade and to finalise long-term contracts with, primarily, Asian buyers before the global price outlook changes.”

Earlier this year, the international and current affairs think-tank Chatham House said foreign investors are “committing” to Mozambique, but the attitude of the country’s government will be a “critical factor to developing a positive business environment” for oil and gas operators in the years ahead.

The Chatham House report (56-page / 35.2 MB PDF) said the arrival of the liquefied natural gas (LNG) industry in the country was “of particular note... in the context of some globally-significant offshore gas finds in the north”. In addition to LNG development, the report said “significant investments” were under way in agribusiness (biofuels production), coal, non-hydrocarbon minerals and fisheries.

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