Transcript 16179x - International Security Cooperation Summit

Fuelling Africa
Fuelling the economic development of Mozambique
and Southern Africa – Empowering its people
Speaker: Victor Viseu
Day 2: 10H30 to 11H00
Oil &Gas – Mozambique 2013 Conference
2 – 5 December 2013
Maputo
Mozambique
Area: 801,590 square kilometers
Population: (2011 est.) 23,929,708
Average Life Expectancy (2011 est.) : 50 years
Currency : Metical (MZM) US$ 1 = MZM 29,19
Natural Resources : coal, titanium, natural gas,
hydropower, graphite
GDP (2012 estimate) : US$ 14,64 billion
Real GDP growth (2012 estimate) : 7,5%
GDP per capita (PPP 2012 estimate) : US$ 1,200
GDP per capita (2012 estimate) : US$ 612
Budget deficit (2012 estimate) : - 6,5% of GDP
Public debt (2012 estimate) : 39,9% of GDP
Inflation Rate (2012 estimate) : 3,5%
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Economic Performance indicators
Major drivers promoting development
Impact of Africa’s Economic Performance
Economic transformation of Mozambique
Attracting finance to the region
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Economic growth – GDP and GDP per capita
Inflation
Foreign Direct Investment
Current Account
External debt
Total Consumption at the SADC Region: 882.000 BPD
Africa’s Economic Growth (2000-2014)
Source: African Development Report 2012 team based on data sourced from the AfDB database.
GDP Per Capita by Region (Constant 2000 US Dollars)
Source: African Development Report 2012 team based on data sourced from the AfDB database.
• GDP of 8,4% for 2013 (IMF) was worlds’ top five
economic growth
– This value might be lower due to instability during the
last quarter of 2013 restricting flow of goods between
south and north of the country
• GDP averaged 7,7% for the last 15 years
• GDP projected to grow more than 8% to 2018
• GDP per capita for 2012 was US$ 612, and
expected to reach US$ 963 by 2017 (IMF)
• GDP (PPP) per capita was US$ 1,200
Sub-Saharan Africa’s Sectorial contribution to GDP (Percent, 2012)
Source: African Development Report 2012 team based on data sourced from the AfDB database
Mozambique’s Sectorial contribution to GDP (Percent, 2012)
Source: Institute Nacional de Estatistica - Moçambique
Credit Extended by the Mozambican banking sector in 2011 and 2012
• Inflation
– In 2012 was 3,5% and in 2013 projected 4,52%. Strong MZM helped.
• Investment
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Interest rates in 2013: Lending 21,19%; Deposit 11,41%
Domestic Credit to the economy in 2012 totaled US$ 3,3 Billion
Own funds of all Domestic banks limits lending per client to US$ 200 million
Foreign direct investment (FDI)
• African FDI has grown 32,5% since 2007, double the growth rate in non-african
developing markets and four times the growth in FDI for developed markets
• Africa’s FDI has grown 87% during the last ten years, and will peak at US$ 159
billion by 2015
• SSA received most of FDI due to political unrest in North Africa.
• FDI projects between 2002 and 2012 created in Morocco 116,157 jobs, in RSA
78,926 jobs and in Egypt 77,883 jobs. Mozambique FDI generated less than 20,000
jobs
• In Mozambique in 2008 50% of FDI was for mineral resources; in 2012 of US$ 3
billion of FDI only 30% was for mineral resources
• Between 2013 and 2016 there will be US$ 10 billion in FDI
Trend in FDI projects and associated job creation in Africa
574
70 000
506
60 000
516
500
50 000
375
244
408
373
400
322
307
40 000
30 000
600
247
300
FDI Projects
200
20 000
10 000
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2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Jobs Created 27 450 35 674 36 540 60 100 66 270 61 120 58 940 46 650 49 470 46 809
FDI Projects
244
307
247
322
375
373
574
506
516
408
Jobs Created
100
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Examples of largest investments projects approved in Africa
Company
Origin
Investment
Location
Jobs
Created
Description
Year
Lopesan-Satocan
Spain
Morocco
7 500
New mega project for Hotel group
2006
Nissan
Japan
Morocco
6 000
New location for car manufacturer
2007
renault
France
Morocco
6 000
New location for car manufacturer
2009
CCI International
Germany
South africa
4 500
Call center business servicing off-shore clients
2012
Shaanxi automobile Group
China
Algeria
4 000
New vehicle assembly unit for chineses automobile group
2008
Samsung Electronics
South Korea
Algeria
3 500
New production plant
2004
Volkswagen
Germany
South africa
3 500
Expansion of existing production operations and new
workshop facility
2010
tele Tech
United
States
South africa
2 500
New call center
2007
coroplast fritz Muller
Germany
Tunisia
2 500
Greenfileld wiring systems manufacture
2008
Portucel
Portugal
Mozambique
2 500
Paper manufacturing plant
2010
Source: AI Africa investor
• Current Account
– Deficit in 2013 projected to US$ -4 billion or 25,39%
of GDP
– Deficit in 2018 projected to US$ -8,21 billion or
30,84% of GDP
– Reflects high dependency on mega projects
– In 2012 Exports US$ 3,516 billion, Imports US$ 5,373
billion
– in 2011 Exports US$ 2,776 billion. Imports US$
4,187 billion
• External debt
– External debt reduced from a high of 138% in 2001
to a lowest of 33,2% in 2011
– In 2013 will reach 42,1%
– Fitch Rating of Mozambican treasury bonds
improved from B to B+, the same rating as Zambia,
Ghana, Kenya and Cape Verde
– The low score on the Human Development Index
(HDI) limited further improvement on the rating.
• High commodity prices
• Diversification of economies into agriculture,
manufacturing and services
• Trade reorientation to South –South and fast growing
emerging markets - BRICS
• Lower external debt
• Increase FDI, and productivity improvements
• Sustained remittances from African Diaspora
• Improvements in the level of democracy and accountability
• Strong economic and fiscal management
• Decline on prevalence of armed and social conflicts
• Rise in domestic consumption
• Slow pace of poverty reduction. In 2012, 54% of population lived in
poverty
• Non-monetary measures of poverty
– Considerable decline in Infant mortality rates from 199 deaths per
1000 live births in 2003 to 76 in 2012
– Increase in life expectancy from 37 years in 2000 to 52 years in 2012
– Net primary schools enrollment rate improved from 42 in 1999 to 90,7
in 2009
– UNDP’s HDI (0.327) ranks Mozambique on bottom of list of 178
countries ahead of two countries.
– HDI – Human development index – dimensions such as Life
Expectancy, educational attainment, decent std living
• Income inequality. Population earning <US$1 per day (PPP) was
81% in 1997 down to 60% in 2003 (PARP reduce poverty to 42% by
2014)
GINI Index for selected African Countries
45,7%
Overall, the evidence suggests that the
impressive growth in Africa since 2001 has not
substantially led to a lowering of income
inequality.
African Development Report 2012
• Environmental damage
– Land degradation - soil erosion, nutrient loss and changes in crops
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4 to 12% of Africa’s GDP is lost to environmental degradation
85% of this loss is due to land degradation
land degradation in Africa affects 65% of agricultural areas
Globally land degradation could reduce food production by 12% in the next 25 years
Residuals from pesticides in food and drinking water is a major health concern
– Loss of forest cover
• Net forest loss in Africa amounted to 3,4 million ha per year during period 2000 – 2010
(FAO, 2011) due to economic activity and demand for affordable fuels
• The large-scale forest loss aggravates climate change by contributing to GHG (green
house gas) emissions
• In central Mozambique degradation is estimated to contribute to 2/3 of net bio-mass loss
– Depletion of fish stocks
– Green house gas emissions.
• CO2 emissions in Africa have increase by 35% in the last 10 years to 930 million tons in
2010
• From 1971 to 2009 South Africa, Algeria and Nigeria contribute about 76% of total CO2
annual emissions in Africa
The 2012 African Development Report warns:
African economic growth is currently
consuming natural assets on a scale
which threatens growth prospects and
overshadows the progress achieved in
social indicators.
The 2012 African Development Report warns:
Furthermore, African growth is slowly
contributing to climate change. Loss of forest
cover and GHG emissions from the fossil fuel
based energy sector are the main drivers for this
trend.
– Research funded by FAO and UNDP warns:
The persistence of environmental degradation
and continued inequality in African countries
necessitates a shift towards more inclusive and
sustainable growth. Thus, African countries
should pursue green growth pathways. The
necessity for green growth becomes even more
apparent considering the development
challenges in the 21st century.
• The vision of an independent economy (1975)
– “national economic project” following socialist development
ideology
• Increase in productivity and food production, industrial processing of raw
materials(cotton, cashew, tinned veg, meat, cooking oil)
• Organizing agricultural sector by building state farms
• Privately owned industries were allowed as long they served national
interest
• The war time economy (1977 – 1992)
– Economic growth reduced by 2,3% per annum (collier 2007)
– Government opted for liberal market economy by joining IMF and WB in 1984
– Aid from western and eastern Europe kept economy alive, led to massive
dependence of aid.
– Aid dependence reached US$ 1 billion equivalent to 75% of GDP (Hanlon 2007)
• Aid based economy (1992 to date)
– SAF in 1986 to 1987, was followed by enhanced SAF in 1990
– Level of aid reduced from above 50% in the 80’s to an
estimated 35% of government budget or US$ 580 million
– Perceived lack of progress in good governance led to “donor
strike” in 2010
– Civil society pressurizes for more transparency in public
sector and promotion of inclusive growth of the economy
• From aid to business based economy
– Natural resources and growing investment
– Advantage of having non-resource based economy at
present
SAF – Structural Adjustment Fund
• Risks on the new economy
– Societal, institutional and rapid economic changes are
not synchronized, therefore risking conflict
– Expectations are higher than social and political
capacities to absorb the economic transformation
• Illegal economy brings serious security issues
– Long coast line attracts illicit traffic through its borders
– Reinforce police training and structures
– Harmonize criminal law in the region
• Risks mitigation on the new economy
– Involvement of civil society will:
• Provide on the ground evaluation on economic growth impact on
income inequalities and HDI of the poor and human security;
• Fight for environmental protection
• Promote transparency on resources exploration contracts
– Code of Ethics (2013) brings transparency to the government
actions and reduces conflict of interest in governance
– Resource curse to be avoided :
• Create jobs connected to extractive industries – Linkage programs
• Promote diversification into agriculture and tourism (value add and
African branding. Eg Kenya tea vs Sri Lanka)
• Promote Agripreneurs amongst youth – agribusiness is cool
– Amiran Farmer’s kit promoting green house farming in 1,000 high schools
in Kenya
– 60% of population is under 35 years, and 64% of unemployed are youth
– Government / CSI to minimize risk for loans
• Conditions for success for the new economy
– Access to global markets
– Resource management and environmental protection to be
approached at regional level and continental level
– Massive investment in human resources training
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Resources related technologies, general management
strengthen state administration and institutional capacity
CSR programmes should focus human capital development
CSR will have a government POLICY for the extractive sector
– Have supportive regulation in areas such as development of
PPP framework, and extractive resources concessions
– Government capacity to regulate income distribution to
enhance the human security of its citizens
Katharina hoffmann in her August 2013 research on economic
transformation of Mozambique - implications for human security
concluded:
“Only if the government and its democratic
structures make it possible for citizens to
participate and create some regulating
competence vis-à-vis national and international
business, will Mozambique be able to act as a
sovereign nation that is actively shaping the wellbeing of its people instead of exchanging one
form of dependency for another”
• Infrastructure requirements in Mozambique
– CFM need together with its private partners US$ 20 to
25 billion to implement all the coal and natural gas rail
and ports infrastructure construction projects.
– Infrastructure to bring to market the 23 billion tons of
coal from Tete province and the 150 TCF of natural gas
from the Rovuma basin
– Anadarko is due to make final investment decision on
its 2 or 5 train LNG plant in Palma in Cabo Delgado
valued up to US$ 20 billion
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SADC’s Regional Infrastructure Development
Master Plan (RIDMP)
• Infrastructure Master plan adopted at 2012 summit in
Maputo
• IDMP Strategy – foundation for Africa economic
community
• It consolidates the SADC’s Free Trade Area, the
COMESA-EAC-SADC Tripartite Grand Free Trade
Area towards total integration of Africa
• Need US$ 64 billion urgently to implement the first
phase and could cost a total of US$ 500 billion in
the next fifteen years
• The SADC infrastructure vision 2027 is anchored in
six pillars
• Funding Options for Infrastructure projects
– Locally currency Bonds
• Treasury bonds
• Commercial bonds
– Foreign currency bonds (sovereign bonds)
• All supported by QE programme of US$ 85 billion per month
– Zambia, Rwanda, Nigeria, Mozambique, Ghana raising
a total of US$2,750 million with interest rates varying
from 5,375% (Nigeria)n to 8,5% (Mozambique) and
terms from 5 years to 10 years. Most oversubscribed.
• These bonds open the way for municipalities and
parastatals to also be funded by bonds
• African Diaspora remittances
– WB estimates Diaspora annual savings to reach US$ 53 billion
– IFC set up in 2007 Diaspora Investment fund for infrastructure,
bank capitalization, and debt management
• Investment funds targetting institutional investors
– BCG estimates Investment funds raised a record US$ 62,4 trillion in
2012 worldwide
– less than 1% of these funds is allocated to portfolio investments in
Africa
– Manufacturing Industry for import substitution is on the rise, and
also industries downstream oil and gas.
– The market cap for the whole of Africa, excluding RSA, is US$ 460
billion, just over that of apple Inc with US$ 442 billion
– Riscura consulting found that 20 top institutional investors from
RSA with US$ 150 billion of AUM had average allocation to Africa
out side RSA of 5,1% in 2013.
• Sovereign wealth funds
– Most of resource rich countries have SWF to manage
effectively revenues from its extractive industries
– Counter ill-effects of Dutch disease and revenue
volatility
– Botswana Pula Fund based in diamonds worth US$ 6,9
billion
– Angolan sovereign Fund with US$ 5 billion
• Sovereign wealth funds
– Stabilization fund – short term oriented and risk tolerant
• Has deposit and withdrawal framework
• Buffers economy from economic shocks and prices volatility
• Invest in Liquid assets
– Development fund – long term foreign financial assets
• Acts as a holding fund until good return projects are identified
• Invest in wider socio-economic projects and industrial
development projects to diversify economy
• Operates like a private equity fund
• Self sustainable and has to have strict investment rules to avoid
political interference
• Sovereign wealth funds
– Saving fund – inter-generational
• Investments in private equity, real estate and infrastructure,
generally in foreign markets
• Share present wealth with future generations
• Useful commitment mechanism curtailing short term political
spending
• It is only advisable when economies are mature (not
developing)
• Problems encountered by funders of Infrastructure
projects and Mega Projects
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Restriction of movement of capital cross border
Investors demands of returns of 25% in US$ terms
Corporate may accept 10% - 15% as criteria used WACC
Labour and wage cost, skill base, productivity, cost to get
products to market and scalability
– Market liquidity, portfolio diversification and requirement
for better governance including international best
practices regarding corporate disclosure and reporting
– Nature of projects require minimum guarantee of medium
to long term political and social stability
THANK YOU