Mozambique’s staying powerMay 11, 2020
Miguel Rodrigues Murargy, CEO of Sintagma Holding, talks to The Energy Year about Mozambique’s preparedness to face the Covid-19 crisis and opportunities for local manufacturers to emerge stronger. Sintagma Holding is a Mozambican company investing in capital-intensive projects in the industrial sector.
How have the Covid-19 pandemic and depressed oil prices affected Mozambique?
The crisis has taken a huge toll on every single sector of Mozambique’s economy, from banking and services to distribution and logistics. We own one of the very first cold storage logistics centres here in Maputo, and our plan to build an integrated food logistics centre in the north of the country to service the oil and gas sector has also been impacted.
The biggest issue we face at the moment is uncertainty. Out of the country’s three big mega-projects, Mozambique LNG has already been pushed back and the number of Total’s field workers in Area 1 has decreased substantially [as of May] due to the rapidly escalating crisis.
Additionally, the FID for Rovuma LNG has been delayed indefinitely, without ExxonMobil setting any provisional second date. Given the current oil crisis, that project could easily be shelved for years. The only development the services industry can count on is the Coral South FLNG project, with the platform slated to reach Mozambique in 2022. We have to remember Mozambique is working towards an economy transformed by gas, and not by oil, and the country is not yet on the global market in terms of marketing and trading of gas.
How confident are you in the country’s preparedness to face a crisis of this magnitude?
One has to remember that Mozambique has been sustaining itself without direct budgetary support of donors and the IMF since 2016. Mozambique has traditionally been a country that survived and navigated difficult times albeit with the support of donors and not on its own. Cash injections from donors have been fundamental to stabilising our economy.
Mozambique is among the poorest countries in the world. However, we tend to only witness social unrest when we run out of basic supplies such as bread or when public transport services shut down. We know what it means to be poor and we have the staying power to face the current crisis. If the government acts swiftly and secures the basic needs of the population, we will survive this crisis.
Many of the traditional donors have started to express their willingness to support the country since the start of the Covid-19 outbreak and the collapse in oil prices. The IMF has recently approved a disbursement package of USD 309 million to help Mozambique address its urgent balance of payments and fiscal deficits stemming from the pandemic. Hopefully, many other international organisations will follow suit and offer the government a much needed helping hand.
We will need to wait until the end of 2020 to be able to draw conclusions as to how successful Mozambique has been at tackling the downturn. The amount of money flowing into the country via donations so far seems to be substantial. If the government does a good job at managing these resources, we may be able to get through the crisis in a decent state.
Looking forward, what role can collaborations play in Sintagma’s expansion plans to help avoid distress in project finance?
There is a strong drive behind establishing collaborations and teaming up with your peers on a project-by-project basis. It is more like a necessity to tackle projects together in order to survive the crisis. We have partnered up with some local companies for the construction of the food logistics and procurement centre in the north of the country.
There will be a general warehouse facility too; we are still designing the project and trying to secure the necessary licences. It was going to be ready in 2021; however, in the current environment we have to take a careful look at the viability of building the facility in the Palma district in northern Mozambique. So far we have been able to make use of the capital city as a hub and supply our clients from Maputo to the north.
How has the rapidly growing number of insurgent attacks near the country’s big gas projects impacted the logistics and distribution business?
Our biggest problem is the escalating Islamic insurgencies and the vicious attacks carried out in the country’s far northeast. This challenge comes on top of Covid-19 and the collapse in oil prices and intensifies the risks posed to the country’s vast new offshore gas developments at a time when the pandemic is already decimating demand for oil and gas globally.
Site visits to Palma represent the biggest issue for us at the moment. The cost of us going to visit the construction site in the north would be extremely high, as we would have to go there escorted with a military truck and a security team. Our facility will be in Palma, not in Pemba, and on the road between the two cities there are incidents and attacks happening all the time.
What opportunities are available for the local manufacturing industry to emerge stronger from the crisis?
These are very limited. We barely manufacture anything here in Mozambique (especially specialised products for the oil and gas industry). We still don’t have a proper industry to support any of the ongoing LNG projects. Some small local companies might be able to increase sales figures for specific tools but that won’t be a catalyst for the growth of the local manufacturing industry.
There has been a lack of governmental policies and fiscal benefits to enhance domestic manufacturing. The government does not support you at all to step up local production capabilities. Most companies are acting as procurement brokers. All the big procurement players have had every opportunity to build out domestic manufacturing supply chains. However, they prefer to keep importing since it remains cheaper to bring goods and tools from China, Brazil, South Africa or other countries than to produce them locally. There is a lack of incentives and without them it is extremely challenging to set up a local manufacturing industry.
Which particular areas will remain attractive to investors in Mozambique in the post-Covid-19 scene?
We have been banking on these LNG projects, hoping that they will transform the country’s economy entirely. There are other sectors too that may be attractive but serious investors looking at Mozambique would either put money into our LNG mega-projects or projects linked to the country’s coal revolution, which has already triggered a wave of rail and port developments across the northern half of the country. Mozambique has been trying to diversify into other areas, such as agriculture and fisheries, but only a few investors will want to tap into those segments of the economy.
The opportunity for us is the same as it was last year: We can invest in smaller local companies and help them grow so that they will be able to participate in the country’s gas developments in 2021 or 2022. Setting up operations from scratch is very difficult in today’s environment. However, we have more than 500 small local businesses that are involved in producing certain items and only need a cash incentive to further develop their capabilities.