'Economic aid alone is not enough'

Mozambique is trying to shake off the idea that it is over-dependent on overseas help, says counselor

Chinese funds are now increasingly being deployed for projects that are crucial for African development, says Wang Lipei, the economic counselor of the Chinese embassy in Mozambique.

"There has been no let-up in bilateral aid and trade. The only difference is that Chinese funds are now being used for development projects in lesser-developed African countries such as Mozambique," Wang says, adding that overseas aid has become more indirect.

The United Nations ranks Mozambique as one of the least developed countries and has little contact with China other than through aid projects, Wang says.

Economic ties between China and Mozambique have started to blossom after President Armando Emilio Guebuza took office in 2005, Wang says.

China was one of the first countries to recognize Mozambique after it won independence from Portugal in 1975. In Maputo, the capital, there is even a road named after the Chinese leader Mao Zedong. However, the civil war over the next 16 years acted as a dampener for bilateral ties and economic engagements.

Official data released by the Mozambique government shows that annual economic growth has averaged around 7 percent in recent years. Sino-Mozambique bilateral trade was more than $1.4 billion last year, with China's surplus being around $600 million. Cashew nuts and marine products account for a big chunk of Mozambique's exports to China.

Wang says that in the last decade Mozambique has been trying to shake off the image that is over-dependent on external aid for growth. The percentage of aid projects out of the total GDP has declined from more than 60 percent in 2003 to less than 40 percent in 2013.

Regardless of the aid component, the other component of GDP such as exports and tax revenue have risen steadily, he says.

"Chinese companies should take advantage of the healthy development environment in Mozambique and invest in critical areas that really benefit the people," he says, adding that "economic aid alone is not enough in the long run as it is unsustainable".

Citing an example of the lopsided aid-related development pattern, Wang says there is one railway near Maputo that has been abandoned because of a lack of maintenance.

Many projects were offered as gifts to the Mozambique government, including the municipal government office and the national stadium, Wang says.

"What has changed is that Chinese funds are now being offered as indirect loans for specific projects. These projects have to show evidence of healthy cash flows before they can get assistance from the Export-Import Bank of China or the China Development Bank."

During the Forum on China-Africa Cooperation in 2009, China pledged to provide loans of up to $20 billion for projects in Africa. Mozambique applied for assistance in several major projects including the Maputo ring road, and other major road, bridge projects.

Not surprisingly, Mozambique has been utilizing the Chinese assistance in cutting-edge areas such as the national data-center project that has Huawei, the Chinese telecoms company as a partner. Chinese funds are also being used for a distance-learning project that will help reduce illiteracy in remote areas. The Maputo international airport is another project that has been built with Chinese assistance.

"The Chinese loans for Mozambique projects are backed by a sovereign guarantee and will be repaid in the next 20 years," Wang says.

Apart from the transformation of direct money into indirect loans, Wang feels that Chinese investors should also enter areas that have been dominated by Western companies, such as agriculture and natural resources.

The Wanbao farming project in Gaza province is an excellent example of how Chinese companies can make a difference, he says. The project, which has the privately owned Chinese company Wanbao Grain and Oil as a major partner, recently celebrated its first big yield of high-quality rice.

"Agriculture techniques are still primitive in Mozambique and it needs to import basic necessities such as watermelons from South Africa and flour from the US," Wang says. "By entering these areas, Chinese companies can meet the local demand, and also through localization help cut logistics costs. Such measures also help them earn more money than from trading."

Nevertheless, direct investment from China still lags that from the United States, he says.

Government figures indicate that cumulative Chinese investment in Mozambique is about $500 million, while the US has more than 10 times that. China currently ranks sixth in terms of investment volume behind the US, the European Union, South Africa, Brazil and India.

But a recently signed energy deal could soon change the situation, Wang says. In July 2013, China National Petroleum Corp, the country's largest oil company by production, made its biggest ever investment in overseas natural gas fields, in Mozambique, when it inked a $4.2 billion deal to acquire a 20 percent stake in a key block operated by Eni of Italy.

The deal, Wang says, has the potential to be a major game-changer. "It will boost the local economy, spur local infrastructure and create thousands of jobs."

The gas generated from the project will be processed locally for local industrial use, and the surplus can be exported. Since this industry requires specific skills, CNPC is also planning to set up an institute to impart the necessary technical skills to locals, he says.

Geological inspection has revealed huge reserves of natural gas in Mozambique. Very few of these prospects have been developed for commercial purposes, Wang says. "Like other African countries, most of the rich natural resources were discovered by Western companies. However, the people of Mozambique have gained very little from it.

"Western companies obtained the gas exploitation rights at low prices several year ago. However, they never developed these prospects and are now selling them off at exorbitant rates."

US and Italian companies have dominated the natural gas area while the coal-mines are controlled by a few countries such as India, Brazil and Australia. "The poor infrastructure has slowed further development, and the annual output is still very limited," Wang says.

"The Chinese investment will help unlock the vast gas reserves, much like awakening a sleeping giant," Wang says.

Though the directional shifts in Chinese investment will benefit Mozambique's infrastructure, the overall well-being of the people and help maintain quick development, Mozambique needs to find its own route of development.

"Every country's situation is different, so there is no so-called Chinese model for Mozambique to copy," Wang says.

"To maintain quick development, Mozambique has to attract foreign investment, pay attention to economic planning and make use of the vast and cheap labor pool. This will help attract foreign investment through merit."

contact the writers through wangchao@chinadaily.com.cn

(China Daily Africa Weekly 03/28/2014 page32)