Introduction

The present work aims to analyze the local situation in Mozambique, with regard to the participation of the
Mozambican population in projects under development. The point is to know to what level the neighboring
population of the exploration areas has had opportunities to participate in the appropriate projects, and what
actions have been carried out by the exploiting companies with a view to the social inclusion of local communities
and what are the signs of economic growth due to oil and gas exploration in Mozambique, although the work
demonstrates how economic growth is measured based on oil and gas.
General objective

• Study the impact that the exploitation of mineral resources has in Mozambique.

Specific objectives

• Analyze the economic growth of the local community, close to mining areas;

• Check in practice the actions carried out by the government as well as the companies exploring natural
resources.
• Analyze economic policies implemented locally;
• Analyze how Mozambicans and the local population are included in gas and oil projects.

• Analyze macroeconomic indices in Mozambique.

abstract

Discoveries of raw materials in Mozambique constitute great potential, news appears in Mozambican media about new
discoveries of natural gas off the coast of the country's northernmost province, Cabo Delgado. According to the
president of the National Petroleum Institute, Mozambique has more than 2.8 billion cubic meters of natural gas
reserves. With that, according to official data, the country would be in 14th place among the richest countries in the
world in natural gas.

The interest of international oil and gas companies is great: Anadarko (USA) and ENI (Italy) are operating in
the exploration of the Rovuma basin off the coast of Cabo Delgado. Anadarko alone plans to invest US $ 1.8
billion until the target start of liquid gas production. In total, it is assumed that around US $ 90 billion will be
invested in the coming years. The planned construction of gas liquefaction facilities in the country makes it
clear that companies have high expectations.

The Mozambican government assumes that the gas sector's share of GDP over the next six years will increase from
1.7 percent to 13 percent. In 2012, Mozambique's natural gas exports are expected to increase by 95 percent and
domestic consumption by 40 percent. As a result, Mozambique is one of the 15 African countries with the largest
foreign direct investment (FDI); over the next five years, seven billion US dollars are expected annually.

In addition to the gas deposits, geologists have discovered in Mozambique the supposedly largest untapped deposit of
coking coal in the world. The extraction has already started, with more than five million tons, in the next years the
production in the Moatize mines in the north of the province of Tete should increase ten times in relation to the past
years. With the Vale do Rio Doce (Vale, Brazil) and Rio Tinto (Australia), the two largest mining companies in the world
are located there. By 2014, Vale already intends to produce 11 million tons, by 2017 it wants to double that.

In addition, billions of investments are planned in infrastructure projects that are already in the implementation
phase, which include the construction of a new railway and two ports (Beira and Nacala) for the transport and
loading of coal.
- primarily for India, China and Brazil.

The Ministry of Mineral Resources (MIREM) predicted for 2012 a 60 percent growth in the mining sector. The
extraction of heavy sands is expected to increase by 30 percent, coal production by 190 percent. From 2010 to
2011, the production of industrial minerals doubled. Thanks to these discoveries of natural resources, state
revenues from the extractive sector could in ten years reach the height of the current national budget.
Mozambique has had an average economic growth of 7 to 8 percent for several years, however, starting from
one of the lowest levels in the world. So far, the country's revenues are fed almost exclusively from the
so-called “megaprojects” (among others, from the manufacture of aluminum), otherwise the country's
production is extremely low. According to the Human Development Index, Mozambique is one of the least
developed countries in the world; 40 percent of the national budget is covered by international development
cooperation funds. The establishment of political stability after the end of the civil war in 1992 and the high
rates of economic growth have made Mozambique a "donor darling" in southern Africa. Due to the rising
poverty rate,

Where, with the gains of resources, does the paradox of wealth or a way out of poverty?

Due to the growing demand for raw materials, primarily from China, India and Brazil, exploration is
increasing across Africa. In this context, the question of distribution mechanisms becomes increasingly
important in order to avoid the repetition of poor resource management, that is, one that reinforces poverty
and violence. This is described as (the Dutch disease) it appears through an unbalanced export economy,
mostly based on the export of raw materials that lead to trade surpluses and consequently to a monetary
revaluation. This, in turn, leads to sales problems for all other exporting industries and thus also has
negative effects on the labor market.

Negative consequences are a lack of diversification of the economy and thus of the possibilities of jobs and
income for the population. At the political level, there is fear of a worsening of governance and an increase in
corruption. High returns through the extractive industry lead in most cases to a further dissociation of the
government from the needs of the population. As the government no longer depends on citizens' taxes, but can
bet on the proceeds from raw materials, it invests in prestigious projects instead of investing in human capital -
so the world experiences.

A small elite can enrich themselves with income from raw materials, as they have only information and
access to politics and economics. This scenario is easily possible in Mozambique, as there is no major
opposition and legislative control mechanisms are still weak. In Mozambique, state institutions are dominated
by the former anti-colonial liberation movement, the Mozambique Liberation Front (FRELIMO), which has
governed the country since its political independence in 1975. Members of the
government are shareholders of large companies in both the state and private sectors. Mozambique has a high
rate of corruption (according to Transparency International, it ranks 120th out of 183 countries). There is no
regulation by law that prohibits holders of public functions of a political nature from exercising activities in the
economic area. Lack of transparency and access to information make civil society's control and codetermination
difficult. Lack of information opens the door to nepotism and the usurpation of public money. (Hofmann and
Martins, 2012: 2)
Mozambican Governance

Mozambican state institutions are not strong enough to drive the boom in natural resources through
conceptual goals. The expectation that state income from the extractive sector may reach the level of the
current Mozambican state budget in ten years, makes clear the need to create state and civil society
capacities for effective regulation of the raw materials sector . The practice of concessions and the (virtually
nonexistent) taxation of megaprojects in the extractive sector are criticized from different sides. In the
scientific sphere, in civil society, as well as by the IMF and the World Bank, taxation is estimated to be too low
and the room for maneuver by companies is too broad.

Critics call for a unified contract model, instead of the current model, in which each concession is negotiated
individually between the central government and the respective company. It is true that there are some fixed tax
rates (coal: 3 percent, natural gas: 6 percent), however, the government has ample scope to make concessions
to companies.

Concession contracts are, as a rule, confidential, which prevents the control of obligations. The contracts are in
part even unknown to the tax authorities, which depend on the calculations of the concessionaires regarding the
volume of extraction and export. These, to take advantage, can manipulate the investment costs or the quantities
extracted, as the authorities do not have the capacity to verify this data. In 2007, laws were passed requiring
compensatory payments to municipalities or investments in the social area that encourage the development of a
local economy. However, no amounts or percentages have been established, nor is it clear which are the
competent authorities for calculations, control and execution. (Hofmann and Martins, 2012: 2).
Local community

The extractive industry's enclave character is also manifested in Mozambique, where the local population barely takes
advantage of the companies' investments. According to the law, companies would need to inform municipalities in
case of population transfers, in order to reach compensation agreements.

However, these consultations normally take place only after the completion of the planning and negotiations
and are not legally binding. The services negotiated by the government remain unknown to the people
affected. Transfers of populations consequently often lead to a worsening of the living situation of the
affected population, as this without access to infrastructure has less possibilities of income. Resistances are
often suppressed with police violence and threats.

The potential for conflict in these disastrous situations is enormous. Not only is the population's
dissatisfaction in rural areas and in areas directly affected by extraction a risk to the country's stability. The
poorest urban population is also affected by rising prices (especially for gasoline and foodstuffs) that are
driving an increasingly overheating economic situation in the housing market.

In 2008 and 2010 there were riots in the so-called “bread revolt” in Maputo. These can burst again at any time. The
expectations of the young, educated and better-informed urban population are also high. Everyone wants to take
advantage of the country's expected boom. Resistance to current government policy could increase if it does not
meet expectations. In the 2009 elections, more than half of the urban youth population voted for the opposition party,
Movimento Democrático de Moçambique (MDM). This is less and less identified with the ideology of the liberation
movement that serves as always as the main legitimation for FRELIMO.

Demographically, Mozambique is a very young country, more than a third of the population is under 30 years
old. On the one hand, this represents economic opportunities but also holds enormous potential for conflict. The
mixture of a very young population, which knows little about the forms of co-determination and inclusion, with a
widening gap between rich and poor is dangerous. The area of Workers' Rights also has a considerable
potential for conflict. Mozambican unions are in the process of transforming a model of a socialist state into one
of a capitalist state.

This explains its political proximity to the government led by FRELIMO. Due to the small number of formally
employed workers, unions have the enormous challenge of acquiring members to organize themselves and to
be able to exercise a counterweight to the government and companies. With regard to organization, financial or
conceptual issues, Mozambican unions are not prepared to resolve conflicts of interest with groups of
multinational companies. This problem is also reinforced through investment contracts with the Mozambican
government that are entered into without the participation of third parties.

Looking for a successful development model

The comparison with countries, whose extractive sector is predominant, is difficult due to the different basic conditions
(legislation, situation of state institutions, number of inhabitants) and specific assumptions (types of deposits of natural
resources, Geography of the country, History).

Botswana is cited in the African context as a successful model of economic growth based on the
exploitation of raw materials but also on social development. Botswana can generate high profits for the
state through negotiations with the diamond mining company De Beers and has invested them well. In
particular, investments in infrastructure, education and health, geographically spread across the country, led
to relative prosperity in Botswana. Botswana's social security system is well positioned. Most disadvantaged
people receive food and cash benefits from the state.

There is a universal pension independent of income and wealth, distribution of food to groups threatened
with malnutrition and measures aimed at creating jobs for the rural population. In terms of education, health
and social security, Botswana is far ahead of Mozambique. This was achieved through higher investments
in these sectors. Nigeria and Angola serve as negative examples in the African context, with both countries
with an economic focus on oil extraction as well as extremely asymmetrical social development with a
potential for conflict.

Nigeria's oil extraction has made the country extremely dependent on imports (even gasoline, since it only exports
crude oil), has increased corruption and has weakened agriculture. As a result, social inequalities between a tiny
upper class and the majority of the population have increased further. (Hofmann and Martins, 2012: 2)
Anti-corruption laws

Parliament's approval of the anti-corruption package of laws, which is currently being negotiated, could have a
positive effect on controlling yields from the raw materials sector. Many members of the government and
parliamentarians participate in business with raw materials as entrepreneurs themselves, which does not allow
for serious control without conflicts of interest. The most controversial part of the package of laws (Code of
Ethics), which would prohibit deputies in the future from receiving salaries from state or semi-state companies,
is currently being discussed in parliament. As a result, there was a conflict between those who are in favor of
the law and its critics. Many MPs are interested in extending the approval of the package until the end of the
elections in 2014 in order to, if necessary,
Future of Mozambique

There are many starting points for the Mozambican government to exploit the country's natural resources, which
as far as possible is favorable to the population.

The African Mining Vision (AMV) of the African Union (AU) offers an action plan that shows how to deal with
known risks. It is important to both stimulate companies with attractive investment offers and to intelligently
distribute a portion of their earnings.

The construction of a social infrastructure, assistance to the transfer of the affected population, protection of the
environment and control of the activities of the companies constitute great construction sites for the Mozambican
State. It needs to create institutional capacities that are prerequisites for growth and social sustainability to go
hand in hand. According to African Mining Vision, it is necessary to diversify and interrelate the extractive sector
with other sectors of the national economy in order to create jobs.

Depending on the possibilities, minerals should be processed on the spot, the supply of materials and
foodstuffs and the service delivery sector can be purposefully supported by the government. Investments in
infrastructure and research should guarantee the sustainability of development. If the government of
Mozambique relies solely on the exploitation of natural resources, the country will experience unsustainable
growth in the short term and restricted to a few sectors, from which only a small elite will benefit.

Based on world experience, in many countries the indicators of good governance have become worse through
income from discoveries of natural resources. Despite this, Mozambique has opportunities to pave the way for
sustainable growth compatible with social development and to take advantage of the wealth of raw materials.
Only if the government follows an economic and social policy in the next few years, which promotes
investments aimed at education, health and social security systems, will the predominantly poor majority of the
population be able to benefit from income.