Pemba, Mozambique – Families wait outside the port of Pemba on April 1, 2021, for the boat of evacuees from the coasts of Palma. More than a thousand people evacuated from the shores of the town of Palma arrived at the sea port of Pemba after insurgents attacked Palma on March 24, 2021.
Alfredo Zuniga/AFP via Getty Images
Mozambique had pinned its economic hopes on the colossal natural gas deposits discovered a decade ago — but an escalating Islamist insurgency threatens to pull the rug from beneath a surge in private investment.
In late March, an armed Islamist group loosely affiliated with ISIS and known locally as Al-Shabab — not to be confused with the Somali militant group of the same name — attacked the gas-rich town of Palma in the country’s northern Cabo Delgado province, inflicting mass civilian casualties and displacing tens of thousands.
The attack came within hours of French energy giant Total announcing that it was resuming operations at its Mozambique Liquefied Natural Gas (LNG) project, a $20 billion facility under construction in the nearby Afungi Peninsula.
In total, up to $120 billion is at stake on LNG projects across the country, according to Standard Bank.
The International Monetary Fund expects GDP in Mozambique to grow 2.1% in 2021, with inflation projected at 5.3%. But Standard Bank highlighted in a recent note that the escalation towards guerilla warfare could erode the benefits of the LNG projects.
“While the long-term growth outlook remains largely positive, supported by LNG investments, armed conflicts constrain the prospects for more inclusive growth,” it said.
Along with the humanitarian crisis triggered by the insurgency — with the United Nations World Food Program warning on Tuesday that almost a million people now face severe hunger in the north of the country — the attacks also pose an existential threat to government finances.
“The longer the conflict pushes back the completion of the planned LNG projects, the longer it will take for the debt-ridden Mozambican government to earn revenue from gas exports,” said Gerrit van Rooyen, economist at NKC African Economics.
Total has now withdrawn all staff from its Afungi site, but van Rooyen suggested this could be a tactic to pressure the government into beefing up security around the Afungi complex and accepting foreign help, rather than a permanent exit. Total declined to comment when contacted by CNBC.
President Filipe Nyusi’s administration has relied primarily on private security contractors to assist in defense efforts, while restricting access to aid workers and journalists.
The delayed start date of LNG exports is expected to tangibly reduce government revenue.
Mozambican soldiers are seen leaving the tarmac of the airport in Pemba on March 31, 2021. – Sporadic clashes broke out in Palma on Tuesday as thousands of residents hid around the besieged northern Mozambique town, scrambling to escape the area overrun by jihadist militants, aid agencies said.
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Mozambique’s Ministry of Economy and Finance estimated in 2018 that a 20% cost overrun and 18 month delay on two key areas of the LNG projects could slash government revenue by around 6% — almost $2.5 billion — over a 25-year project lifeline.
“The longer the LNG projects take to reap benefits, the longer the government will have to rely on other resources and international aid to finance the country’s economic development and service its foreign public debt,” van Rooyen said.
NKC estimates that external public debt stood at $11.8 billion, or almost 87% of GDP, at the end of 2020, with the government spending more than 13% of total revenue on interest payments over the year.
The LNG projects are expected to lift growth back to above 5% per annum, van Rooyen said, which — if all goes to plan — should help to steer the country’s debt pile to a more sustainable level.
Both Mozambican security forces and private military contractors, along with Total’s security team, were blindsided by the raid by Al-Shabab last month. The ensuing battle lasted around 12 days and counterinsurgency operations are ongoing.
The 16-nation Southern African Development Community held an emergency meeting last week in which it condemned the violence and vowed a “proportionate regional response.”
Risk consultancy Pangea-Risk said in a research report last week that the attack was not triggered by Total’s announcement to restart operations. Instead, it said the move came after months of preparatory planning by militants who have become increasingly active in the region since 2017.
Pangea-Risk warned first in October 2020 and again on March 12, two weeks before the attack, that insurgents were planning attacks across natural gas hub towns.
Pemba, MOZAMBIQUE – The OCSV Sapura Diamante (Offshore Construction Support Vessel), a pipe layer vessel used in offshore construction, is seen docked at the port of Pemba where sailing boats are expected to arrive with people displaced from the coasts of Palma and Afungi after suffering attacks by armed groups on March 30, 2021.
Alfredo Zuniga/AFP via Getty Images
“There will be a security vacuum in Cabo Delgado in the coming month, if not longer, which leaves both Palma and other locations in the province exposed to further militant attacks,” Pangea-Risk CEO Robert Besseling said.
Besseling said local sources now expect a raid on the Quitunda resettlement village, near the Afungi Peninsula LNG site, in the coming weeks.
“Such a raid would put pressure on the Afungi garrison to leave the security zone around the LNG site and deploy to protect vulnerable displaced communities in Quitunda, perhaps in breach of the Mozambican government’s security contract with Total,” he added.
Besseling suggested the provincial capital of Pemba and the Tanzanian port town and natural gas hub at Mtwara, in the Rovuma border region between the two countries, will be “highly aspirational targets” for the insurgents.
Meanwhile, the humanitarian situation in Cabo Delgado is expected to deteriorate in the coming weeks as refugees continue to flee Palma toward camps in nearby districts, with the total number of displaced people estimated at more than 700,000 and rising.