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

United States International Development Fincance Corporation

Traditionally, international development has been considered a government responsibility. Developed countries loan large sums of money to developing countries. Debt accumulates, developing countries become reliant on loans and corrupt leaders benefit—not the people. State-controlled development has become infamous for its ineffectiveness and harmfulness over the years. The new U.S. International Development Finance Corporation (USIDFC) introduces a new model: stimulate development through private sector investment and avoid the red tape, corruption and wastefulness of country-to-country loans.

The New U.S. Development Model

In 2019, the BUILD Act created the U.S. International Development Finance Corporation to expand upon the development work of the U.S. Agency for International Development (USAID) and the Overseas Private Investment Corporation (OPIC). Its purpose is to include the private sector in the United States’ international development mission. It can provide loans and political risk insurance, insurance that protects investments from political instability to its corporate partners. Thanks to the services it provides, it can collect service fees from the corporations. This means USIDFC operates without a cost to U.S. taxpayers.

USIDFC combines government oversight with private sector funding to create a new U.S. international development model. Although still in its infancy, the U.S. International Development Finance Corporation has introduced some ambitious projects and adopted some from USAID and OPIC. The projects cover a wide variety of development issues such as healthcare, technology, poverty and female empowerment. Such issues often intertwine, as a solution for one can often impact another.

Alleviating Poverty in Chad and Mexico

For example, USIDFC’s work to bring electricity to Chad will help alleviate poverty. Currently, only 8.8% of Chad’s population has access to electricity. Such limited access impairs education, business growth and overall quality of life. Partnering with FinLux Ellen Sarl, a French corporation, USIDFC will provide a $10 million loan for the distribution of solar-powered appliances to Chad. The project will:

  1. Provide electricity to schools, businesses, and medical clinics
  2. Achieve UN Sustainable Development Goal number seven: Affordable and Clean Energy
  3. Achieve UN Sustainable Development Goal number eight: Decent Work and Economic Growth

Through a similar project in Tanzania by the Millennium Challenge Corporation, a farmer increased her daily earnings by 504% in two years. Such a drastic increase in wages shows the powerful effects of electricity-focused development projects on poverty.

Another example of the U.S. International Development Finance Cooperation’s work to alleviate poverty is occurring in Mexico. Mexico suffers from a poverty rate of nearly 50%. USIDFC is partnering with KapitalMujer to provide $5 million in microloans to women-owned businesses in southern and central Mexico. This project will give low-income women the necessary funds to start or continue their small businesses.

Although a heavily disputed development model, microfinancing has proved beneficial in Bangladesh and China. Microloans will not drastically increase the standard of living; however, the loans will raise many families out of poverty. Ultimately, this project will give impoverished women access to funds that would otherwise be unavailable to them due to their high risk. This money will allow them to invest in their businesses and increase their income.

Different Development Models

The motivation behind the U.S. International Development Finance Corporation’s creation should not be overlooked. It is a response to China’s Belt and Road Initiative (BRI). However, China’s state-to-state development model and the United States’ new corporation-to corporation development model are fulfilling different needs. China is investing large amounts into infrastructure in over sixty countries. U.S. International Development Finance Corporation is targeting small and mid-sized companies to grow developing countries’ economies from the inside.

International politics aside, both programs are filling gaps in places where investment is lacking. Both countries are actively trying to increase economic growth in developing countries, which will decrease poverty rates. Whether the countries’ motives are altruistic or geostrategic, frankly, does not matter. The global poverty rate will be positively affected either way.

Lauren Clouser
Photo: Flickr