Ratxide Gogo, Governor of Mozambique’s Tete Province talks to Upper Reach about the importance of agriculture and industry to the province, particularly its coal sector, as well as the rising unmet demand for housing that could produce big returns for investors. He also discusses the potential for public-private partnerships to add value to the country’s rich mineral stocks, the plans to double the capacity of the massive Cahora Bassa hydroelectric dam and how Mozambique’s ‘El Dorado’ represents the future of the country.
Over the past 20 years, Mozambique has grown and updated its economy. In the last three years, we have felt this growth more tangibly and sustainably. What is expected for the next 10 years in terms of a development strategy for Tete Province?
Comparing the graphs of Mozambique's development with other countries in the region, we can see that Mozambique has developed in similar ways to other countries. We had a centralised economy, but instead of evolving, the domestic situation became less favourable. We were trying to provide support to neighbouring countries that were still dependent so that they could also become independent; however, this support had negative consequences for our economy. In 1980, we adopted the metical as our currency to improve our economy, while facing the regional crisis.
These new policies allowed the government to invite the International Monetary Fund and the World Bank to come to Mozambique; in 1984, the Government decided to change from a centrally planned economy to a market economy. This economic transition helped us to create peace with neighbouring South Africa, resulting in the Incomáti Agreement (even with the Mbuzini tragedy, we managed to consolidate our new monetary policy) and we created the Economic Structuring Program (PRE), in 1987, that was the result of President Samora’s work who recognised that a centralised economy was not suitable for the country’s development, resulting in the market economy.
The signing of the Peace Agreement has allowed our graphics to change; today, 20 years later, we continue to grow, approaching 8% of annual average [growth].
Since independence, we have defined agriculture as the basis of our development and industry is the catalyst of our country’s development; so far our definition remains the same. We consider that Mozambique has very strong agricultural potential and our agenda, to combat poverty, must be based on that. The mineral resources recently found will ultimately improve the agriculture, fisheries, tourism and infrastructure sectors, etc. They have come to solve what we need.
We quickly became Commonwealth members (despite not having been a British colony), but because all of our neighbouring countries were, in order to integrate ourselves in the region. We encouraged the creation of the Southern Africa Development Community (SADC) and we became an example of alliance with other countries by trading with neighbouring countries. These improved relations with neighbouring countries reassured our economy and helped us to achieve peace by promoting healthy dialogue.
With the newfound resources, we found the means to leverage other activities to combat poverty. We are certainly aware that we will not become rich in the next three or five years – it’s a long process that depends largely on the stability and maintenance of discovered minerals. Our education and training were more focused on the agriculture area that was defined as the main area for development but, with the onset of mineral resources, we are developing specialised infrastructure to conduct exploratory activities. However, it still is complicated because we rely on specialised professional staff. We are concerned because the amount of resources is large. The contracts that the government has signed are for over 20 years; investors want to build railway lines because they are aware that they will be working here for years, so they offer to make investments that they will recover. If we know how to manage the resources and the contracts we have, the situation will change in Mozambique: the fight against poverty will become a reality and the quality of life will be higher than what we expect.
There is the risk that all African countries where minerals resources exist could suffer from Dutch disease: production and prices increase and so does the cost of living. However, the quality of life for the poorest segment of the population lowers, which is what occurred in Luanda (the most expensive city in the world with high levels of poverty). What is the strategy to avoid Dutch disease and provide the population with a sustainable cost of living while keeping prices stable?
Almost half of Tete Province has a very large agricultural potential that not only supplies the province, but also provides food for Malawi and Zambia since their soils are not fertile. Last year, our province’s prices suffered a small oscillation of 12% and inflation of 11%, which is a low value. Excluding coal, we grew 14%; including coal, we grew 130%, here in Tete.
Despite the enormous growth from coal, we are struggling to keep the prices of agricultural products stable because we know that the livelihood of our population depends on agriculture. The biggest challenge is ensuring that the surplus can be sold to companies in Tete. Agro-processing should be an important aspect of Tete because we have good agricultural potential, lots of production and a good surplus. However, the international mining companies have rules stating that products must be packed, duly registered with regulated expiration dates, etc. otherwise the products cannot be taken from fields directly to the market; however, our African culture says that a fresh product still has traces of soil.
Vale, for example, needs about three tons of meat daily; it is possible that all that meat could come from Tete because we have many farmers, especially in the southern part of the province. But with cattle breeding comes the need to create a Livestock Development Fund; otherwise, the business becomes unsustainable. Until we have very consistent policies in that fund, in terms of extension, we will teach our people how to produce more cattle, so that a portion of the meat is imported and the other comes from Tete.
At a country level, I believe Tete has been the province with the most sustainable prices. We have business and dealer inspections because we know when there is a lot of business; there is also a lot of price speculation, and so we use many controls to ensure that the population does not complain.
The highest inflation is in the housing market; that is Tete’s weak point. We get many people per week, but these people have nowhere to stay. Renting houses in Tete is much more expensive than renting them in Maputo. This is one of the areas that could benefit from increased investment. We are identifying our weaknesses so that we can invest in making them better. One of them is housing, so that we can help lower rental prices.
You spoke about promoting the exploitation and export of natural resources in Mozambique and we know that the world's largest companies are already present in Tete; the strategy is to bring more companies, create a cluster and add value to all companies, not just for exploring and importing, but also to employ local people. What is your strategy to use this international investment context to add value?
We are aware that we cannot just export the minerals; we have to add value to products (either coal, wood, agricultural products, fisheries, etc.). Our philosophy, is to find the best value added locally.
The onset of activity has already started, but we can’t tell the companies to wait for us to create conditions because they already come with features and conditions. On the one hand, we have the company that wants to explore, and on the other hand, there is a lack of conditions.
In time, we will set up factories to have local coal and iron-processing industries and, gradually, we’ll empower added value locally. It’s not going to be just the government who will do this; we need to create public-private partnerships in order to create win-win situations.
At the beginning of any resource exploitation, theoretically everything is set up, then the process starts and at times errors are made. After five years, the corrections of taxes and the rest are made. We can’t expect profits as soon as the products are out; initially, we have the graphs of cost, and only after five or six years do we begin to make profits. At that time, our tax liens are disappearing. Our system allows you to enjoy discounts up to a certain limit; that is when we also will enjoy the added value of the profits, and when we can finance many things because then Mozambique will be more sustainable.
It’s this role that we want society to understand. We are exporting coal, not in the quantities we wanted because we only have a single rail line whose capacity does not meet the desired capacity. This line wasn’t designed to transport large quantities of coal. We intend to make new lines so that in 2018 Mozambicans feel that mineral resources are bringing value to the country.
There is nothing more representative of the Mozambique’s transition from a former colony to an independent nation and its changing economy than the Cahora Bassa hydroelectric dam (HCB), which has a core of very large electricity production. Now, Mozambique faces the challenging task of renewing it to provide it to as many people as possible. What is the strategy to position it as a renewable project?
With the HCB, we have a very large project. At this point, we are providing energy from the south central. In that dam, we have two centrals: the southern central and the northern central (two centrals were anticipated, but we only ended up constructing the southern). We exported all of its energy. Last year, 800,000 MWh were provided to Zimbabwe; South Africa receives about 8 million MWh. We use around 3 million MWh in Mozambique. These values don’t match the 100% of the performance of this central, because last year we had the first failure of the central coil, but it recovered. We are rehabilitating the sub-stations because of the lifetime of many parts that should be replaced. We are preparing the draft of the northern central, which will double the capacity of the HCB.
We have plans for new dams, the Mpanda Ncua and Boroma, which are being studied; these dams will increase the supply capacity. In addition to these projects, we’re predicting the thermal centrals for energy production for the creation of a national backbone: anyone who invests in the thermal central will take its energy to the national grid. It will allow us to sell inside the country and also export.
Tete will be the battery of the country. We have enough potential to energise Mozambique and other countries. It is a matter of attracting investors and defining fiscal policies in order to appeal to the investors and have them work with us.
Today Mozambique can talk equally with other companies and tell them to help in the development of communities with their projects, but before, Mozambique had neither power nor self-esteem.
We have to notice that before, the external dependence of our budget was higher, but in recent years, the external dependence is decreasing because our domestic revenue is growing. We are broadening the tax regulations; the way in which taxes are levied and improving the method of collecting revenue with ‘Single Window’ (in order to facilitate the life of the businessmen). These aspects are very helpful in raising domestic revenue and reducing our foreign dependence. Before, the state had no internal loans but today, we can go to local banks and ask for loans; today, we can use local credit; this is a sign of our evolution. To develop we cannot be in a hurry; we learn from our mistakes and we learn to correct them.
Even though Mozambique was not a British colony, the Commonwealth plays an important role in its integration with all other countries. There is no other province more integrated to the Commonwealth than Tete. It’s close to Kenya, Malawi, Tanzania, and Zimbabwe. What is the strategy to give more use to Commonwealth?
The engineering courses in Mozambique are recognised by EXA, which is the Association of Commonwealth Engineers registered in Australia and the South African Association. Our vision is to have engineers that integrate both in the region as well as in the Commonwealth; this is helpful to us in Tete. Our staff responds to the requirements of the Commonwealth; it is our intention that other Commonwealth countries invest in students from Mozambique in a very significant way.
Last year, we welcomed a delegation of UKAid that was very interested in the Commonwealth’s companies in Tete. The challenge we propose is about the health of the community and not only for the employees of the mines; there are many companies in the Commonwealth that could settle in Tete. While we speak Portuguese, we are quickly training in English to break down the language barrier and facilitate conversation between Mozambican workers and external employers as well as encourage vocational training by technical colleges.
In a logical way, how might one effectively communicate the great economic stability and investment [in Mozambique] to readers and companies in London to attract investment?
Tete is very stable and all the companies who have come to Tete, especially in the mining industry, are satisfied. Generally, in large companies, there is a set of established rules to obey that depends heavily on the country outlook, which varies from country to country. We cannot change the communities without talking to them, because they have their own way of living and their culture. It’s necessary to talk with the communities, so they tell us what they want; it’s up to us and to the companies to ensure the basics – health, education, recreation, agriculture – because these are that affect their livelihoods.
This is the part, we are managing to rise our macro-economic situation; many companies are asking for licenses and registering in Tete. When a foreign ambassador comes to Mozambique, we received almost directly, several companies of that country to open business in Tete.
Tete is the gateway to diverse business. For example, Vale is exploring coal, but no one prevents anyone from buying the coal explored by Vale and processing it, or opening a vocational/technical school. Tete has many opportunities for business, but what keeps the investors from investing is their availability because they want the feasibility studies (it takes a long time and by the time it is done, another company can come and occupy the land).
In Tete, we have more than 200 exploratory licenses; we get many licenses in Tete, those who still are waiting, and those who will no longer be able to work. We had a hotel project that if it waited for the feasibility studies, it wouldn’t have been done; it has about 117 rooms and is a landmark hotel.
London investors who come to Tete will find the doors wide open; our investment policies are very favourable. Tete is the future of the country; within four years, it will already be its peak and will greatly contribute to the national economy, especially because of its proximity to other African countries. Tete has the potential to work with Zambia, Malawi, Congo, Botswana, and Zimbabwe and have links with Angola. Our position is strategically and economically good; we want to create a dry port and a pipeline: instead of going to Beira or Nacala, people can go directly to Tete and transport their goods.
Tete is 'the new El Dorado of Mozambique'. However, the resources and the people need to be treated with care. For future generations, what is the legacy that you want to leave?
We know that we are just starting and we are aware that mineral resources are exhaustible and with this, there will come a point when they will fall. We have to create conditions (infrastructure and activities) that will replace the mining activities in the future.
We are currently discussing the development strategy for Tete province, to be approved this year, which contains a specific strategy for each district. Tete’s territorial ordering of areas with potential for mining, agriculture, livestock, tourism, etc., is already being studied. We are also considering alternatives for the future, keeping in mind that the resources will be depleted; we want people to continue to live well without lowering their quality of life.
Our biggest concern is capacity building. Today, all districts ask for second-cycle high schools, which give students access to university. The challenge we face is to train teachers for the second cycle of secondary education, to place them in the districts, and to construct housing infrastructure. We want to promote access roads, because we know it will help in the advancement of agricultural marketing.
If we overcome these challenges, we’ll achieve a stable future in the health, education and development sectors; we are aware that mineral resources are exhaustible. The mining companies will go away, not before they cover up the holes they made and planting trees they’ve put down, so the lands can be used for agriculture. At this moment, we have a policy of planting trees: each community leader has its own forest and every student must plant a tree every year.
We have these challenges, but we can only overcome them if we have investors interested in seeing Mozambique advance.