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How the DFC is Investing in a Sustainable Future for Mozambique

How the DFC is Investing in a Sustainable Future for MozambiqueThe USA’s Development Finance Corporation (DFC) just spent $3.6 billion in investments worldwide, with roughly half this amount going toward a sustainable future for Mozambique.

The project consists of an offshore liquefied natural gas (LNG) project created by the U.S. Anadarko Petroleum and owned by the French oil company Total SE, which will help grow the country’s economy by making it one of the biggest LNG exporters in the world. Its strategic location makes business with markets like Asia, Europe and South Africa very viable. The goal is to bolster Mozambique’s annual GDP to as high as $15 billion a year, stabilizing the country’s economy and encouraging everlasting growth.

Poverty in Mozambique

Mozambique is currently one of the poorest countries in the world, largely in part by corrupt government officials. It ranked 146 out of 180 in a 2019 transparency perception index, and in a study conducted by a Norwegian research institute, the country suffered a $4.9 billion annual increase in corruption from just 2004 to 2014 alone.

In recent times, it has been observed that poverty is decreasing in urban zones. The national poverty index as of today is around 41-46% of the population. This is good news compared to the country’s 80% poverty rate in 1990—making it at the time one of the countries most entrenched in poverty. However, the country still suffers from inequality between urban and rural zones. Poverty reduction in the south is 18%; contrastively, the north saw an 11% increase in poverty rates. However, there is hope that the United States’s renewable natural gas investments can offset this stark disparity, pushing for a prosperous and sustainable future for Mozambique.

Obstacles to a Sustainable Future in Mozambique

With new sustainable projects in action, comes the rise of Ahlu Sunnah Wa-Jamo (ASWJ), an Islamic insurgent militant group known for their terroristic attacks in small villages. Since the start of the LNG project, the group has been advancing by facilitating attacks in large city centers, even killing eight LNG project employees at a construction site near the Tanzania border.

Currently, the ASWJ does not have the arms capability of reaching the significant sites that are heavily guarded, but they still have the potential to pose a looming threat to other smaller project sites that do not have as much security. As the group advances, Total SE must take proactive measures to counteract attacks, given the unprecedented violence that has taken place as ASWJ asserts its presence amid the new oil plant.

The DFC is also giving Mozambique a $200 million loan to build power infrastructure. This will help the country become self-sufficient by using domestic gas to increase power generation, as well as providing affordable and sustainable electricity, furthering the country’s goal for a central electricity system. The country currently has one of the lowest electrification rates in the world, so this will be a massive step forward in bringing essential, environmentally-sound infrastructure, paving the way for a sustainable future for Mozambique.

The United States sees a potential future for Mozambique, and it is showing its optimism by allocating a hefty amount of its global investments into this single country alone. With this funding, the country can build up essential infrastructure like central electricity, as well as exponentially increase its national GDP with the help of the renewable LNG plant, all of which will reshape the lives of many citizens who have only known poverty for so long.

– Mina Kim
Photo: Flickr

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The DFC Energy Projects in Mozambique

Energy Projects in MozambiqueOn September 9, 2020, the United States International Development Finance Corporation (DFC) approved two energy projects in Mozambique. The recent decision resulted in a loan of $200 million to Centra Térmica de Temane for a power plant and $1.5 billion in risk assurance to support the commercialization of Mozambique’s natural gas reserves. The purpose of these projects is to create access to energy and an opportunity for economic growth fueled by Mozambique’s natural gas reserves. The DFC energy projects in Mozambique constitute a substantial investment by the U.S. that will make good on the Prosper Africa pledge which aims to increase U.S. investment in Africa.

Keeping its Promise to Africa

The Prosper Africa initiative serves to create business opportunities in Africa and increase two-way trade and investment with the intent to benefit companies, investors and workers in the U.S. and Africa. Dennis Hearne, U.S. Ambassador to Mozambique, spoke highly of the two projects stating, “These projects will have a significant development impact in Mozambique, improve lives and create a once-in-a-generation opportunity for the country to build a more prosperous future for all Mozambicans.”

Jumpstarting Economic Growth

Mozambique is one of the poorest countries in the world, with a GDP per capita of less than $500. It is the job of the DFC to prioritize projects in areas that are low income. DFC investment for energy projects in Mozambique could create a lot of private capital in the country and jumpstart economic growth.

The DFC will provide up to $1.5 billion in political risk insurance to advance the development, construction and operation of an onshore liquefaction plant that will commercialize Mozambique’s natural gas reserves in the Rovuma Basin. This project could turn the country into a major energy exporter and increase the GDP by an average of $15 billion per year, creating long-term economic growth. The development will envelop the entire country, boosting sectors aside from oil and gas.

Diversifying Power Resources

Those in Mozambique who are lucky enough to have electricity rely almost entirely on one colonial-era dam called Cahora Bassa. The dam provides more than 2,000 megawatts out of the approximate 2,800 megawatts installed capacity. Due to extreme weather conditions, the Zambezi River, which powers the dam, flows irregularly, “putting the country’s entire power system at great risk.” The DFC’s proposed power plant will be powered by Mozambique’s natural gas reserves, providing a different source of electricity that is also reliable.

Creating a Power Infrastructure

Only 29% of Mozambicans have electricity in their homes, making it an energy-poor country. Companies with a grid connection still rely on diesel 17% of the time and biomass (wood and charcoal) accounts for 60% of the country’s primary energy use.

In order to develop, construct and operate a 420-megawatt power plant with a 25-kilometer interconnection line and 560-kilometer transmission line, the DFC will loan Central Térmica de Temane up to $200 million. Not only will the power plant diversify the country’s power resources but will also reduce the cost of electricity. Furthermore, it will allow Mozambique to use its own natural gas supply to increase power generation and support the government’s plans to develop the national electricity system.

Balancing Exports and Domestic Use of Natural Gas

Mozambique’s natural gas reserves are abundant and will provide the country with an incredible income. However, Mozambique is uninterested in exporting all of its natural gas to Europe and Asia. The DFC will help Mozambique attain the generation infrastructure that will allow the country to use natural gas to power its homes and businesses and it will support large-scale liquified natural gas export facilities in order to bring revenue into Mozambique.

The completion of the DFC energy projects in Mozambique will take Mozambique from one of the poorest countries with regard to revenue and energy to a major energy exporter with long-term economic growth. These projects will help the economy grow, provide the country with a diverse power infrastructure and balance its natural gas usage. These investments will also fulfill the Prosper Africa pledge in which the U.S. vowed to increase investment in Africa. Overall, U.S.-Africa relations will benefit, and more importantly, a prosperous future will lie ahead for the people of Mozambique.

– Mary Qualls
Photo: Flickr