Mozambique's Beneficiation - Lessons for Africa
What can Namibia and other African countries possibly learn from Mozambique? It has been ranked by Transparency International in 2019 as the 146th place out of 180 countries in terms of official corruption. To give you an idea of how bad that is it is on par with Nigeria. This compared to 56th for Namibia in 2019 but that was before fishrot. Mozambique has become so corrupt that the old revolutionary slogan Á Lutta Continua’ has been translated by the wags into English as ‘The looting continues’
There are few iron laws in Economics as virtually everything is contested. Economists disagree on just about everything but where there is agreement amongst most economists that if you want to escape the miserable fate of being a supplier of raw materials to help the development of other richer and more developed nations then you have to pay. The poorer and less developed you are the more you will pay to make the transformation. When you open just about any policy document in Africa written nationally, regionally or on pan-African basis there will be a sanctimonious ‘waya waya’ Tangen- what is the word in Oshiwambo) about their commitment to beneficiating raw materials ie adding value to raw minerals or agricultural products. African leaders simply don’t mean what they say because they know that as much as they hate their predicament Africa exists largely to supply China (and India when it comes to gold and diamonds) which will then beneficiate our raw materials.
And if Africa really wants to beneficiate its raw materials its peoples will have to pay and some of the politicians know this but are completely unwilling to tell people the truth- you are poor miserable and bedraggled and you cant compete with the Chinese and if you want to you will have to pay to become competitive. This is as true of gold and diamonds as it is for base metals like zinc and copper and nickel.
Occasionally governments find ways to make their citizens pay for their transformation in ways that do not do offense or less obvious to the hip pocket nerve i..e the wallet. At the end of the last century Mozambique was simply toxic in terms of the international business community. It was a war torn, impoverished cashew nut exporting country that had undergone two decades of liberation struggle and civil war. How do you transform such an economy, you ask? The answer is you pay!
In order to get itself put on the international investment Mozambique map ,it and the IFC offered BHP-Billiton,' the big ( we usually add ugly) Australian’ a deal it could not refuse. Mozambique or more correctly South Africa’s Eskom would sell electricity to BHP for an aluminum smelter it would establish in Maputo Bay at a cost of some US$1.5 billion and create quality employment for over 1000 Mozambican workers. It would eventually grow to a capacity of over 500,000 tonnes of aluminum per annum. BHP would pay no more than 1% turnover tax to the government of Mozambique and get electricity at some of the lowest prices on the planet.
Aluminum is a strange commodity and to produce it you need to add a great deal of cheap electricity to bauxite which in the case of Mozambique came from Australia. In a normal year 60% of the cost of a tonne of aluminum is the electricity used to smelt it. Thus Mozambique was putting its huge hydroelectric capacity at Caborra Bassa on the Zambezi to use beneficiating BHP’s bauxite. Bauxite is normally shipped around the world hunting for cheap electricity and smelters which exist in places like Quebec and Iceland where electricity is cheap.
Once the Mozal facility came into existence it became a classic export enslave with almost no direct economic connection to Mozambique but what it did was to transform Mozambique from an impoverished cashewnut economy to a significant industrial exporter in one swoop. More importantly it established the country’s reputation as a place where large transnational firms could do business despite the country’s ranking as one of the most corrupt countries in Africa. For natural resources businesses corruption is just a cost and in the resource sector a normal daily issue. One megaproject after another has followed from Mozal- gas coal, iron and steel.
The route that Mozambique has taken has given rise to a skewed and unbalanced economy but the results remains the envy of much of Africa. For years the economists who advised government in Mozambique tried to push backward linkages ie what Mozal purchased from the rest of the economy. The neo-liberals would look for any sign of these type of linkages even beer consumption by Mozal’s workers. They hated the very idea of beneficiation as it flew in the face of what the World Bank and rest of international community was telling Mozambique. But Mozal remained an almost complete enclave with no real developmental connection until recently when Bahrain based Midal,one of the world’s biggest aluminum wire and rod makers set up a factory just outside Mozal and started producing wire for export to Europe and Africa.
Why invest in Mozambique you ask? Several good commercial reasons. First Mozambique has duty free access to the EU market under the EPA, it has relatively abundant electricity at a reasonable price for business and most importantly it had the aluminum. No-one should imagine that BHP helped. In fact Midal had approached BHP to buy molten aluminum from the smelter to make cable as early as 2002. BHP’s response was very negative arguing it would only supply ingots and at prices based on London fob prices even though the factory was next door. This was because it was supplying aluminum to a South African subsidiary and other suppliers and did not want to improve the competitiveness of a global firm. Furthermore it is insisted on charging prices as though it were selling to London and not next door. Here the Mozambican officials that negotiated with BHP made a serious mistake and should have followed what Botswana did with its Nickel mine and forced the producer to include a clause in its off-take agreement which gave priority to local use. Eventually BHP sold off its South African assets and in 2014 agreed to supply Midal with molten aluminum at the ex-factory price rather than the London price.
Now Mozambique is one step further along the path to diversification and beneficiation. As much as the free marketeers hate it- Mozambique has started to make beneficiation work. As many 160 workers work in the Midal plant and it is using Mozambican electricity and aluminum to export high value added and very profitable cable. Will the people of Mozambique benefit – not from taxes as Midal operates in a tax free zone and so the Mozambicans will pay for moving up the value chain.
These are the views of Professor Roman Grynberg and not UNAM where he is employed.
