Energy

Insurgency And Growth In Northern Mozambique: Do We Need A Marshall Plan For East Africa?

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<p style="text-align: justify;">The Second World War had left Europe severely damaged from both an economic and political viewpoint: cities and factories had been bombed, transport links had been severed, agricultural production disrupted, populations had been moved or destroyed, and opposing political factions took to arms and initiated civil wars in most continental Europe.</p><p style="text-align: justify;">It's not an exaggeration to say the continent was a wreck. 1946 Britain, a former world power, was close to bankruptcy and had to pull out of international agreements, while in France and Italy, there was inflation and unrest and the fear of starvation. Something had to be done to help bring peace and rebuild the continent.</p><p style="text-align: justify;">Several ideas to aid the rebuilding of Europe had been proposed, from inflicting harsh reparations on Germany&mdash;a plan that had been tried after World War I and which appeared to have failed utterly to bring peace, so it wasn't used again &mdash;to the US giving aid and recreating someone to trade with.&nbsp;</p><p style="text-align: justify;">New (financial) institutions were built to assist in the reconstruction of Europe and provide mechanisms for international cooperation in managing the global financial system (inter alia, the World Bank, the IMF, and the International Finance Corporation). &nbsp;</p><h2 style="text-align: justify;"><span style="font-size: 14pt;">European Recovery Program</span></h2><p style="text-align: justify;">Today the largest IFI in the world is the European Investment Bank which lent 61 billion euros to global projects in 2011. And ultimately, a massive program of aid from the United States to sixteen western and southern European countries aimed at helping economic renewal and strengthening democracy after the devastation of World War II was envisaged.&nbsp;</p><p style="text-align: justify;">It was started in 1948 and was officially known as the European Recovery Program, or ERP, but is more commonly known as the Marshall Plan, after the man who announced it, US Secretary of State George C. Marshall.&nbsp;</p><p style="text-align: justify;">Fast forward to the end of the same century, and we find a country in similar difficulties: coming out of a long civil war, with little infrastructure, with a population still vastly lacking access to energy, schooling, health and job opportunities, but with immense potential for growth and international trade. This country is Mozambique.&nbsp;</p><h2 style="text-align: justify;"><span style="font-size: 14pt;">Are we in need of a &ldquo;Marshal Plan&rdquo; for Mozambique?</span></h2><p style="text-align: justify;">Therefore, the question is if we need a &ldquo;Marshall Plan&rdquo; for Northern Mozambique to boost job creation and development growth? And the answer is a resounding yes.&nbsp;</p><p style="text-align: justify;">But a number of complexities need to be resolved before implementing it: Who will finance it in today's world focused more on recovering from COVID? And pushing for an energy transition towards a net-zero carbon environment? Where will the money come from? If from outside the traditional IFIs (which have evolved from Europe-focused to World-focused), which countries will finance such FDIs, the US, China, or EU?&nbsp;</p><p style="text-align: justify;">The UK ECA has recently announced that the Mozambique LNG (Total led) will be the last LNG project it will finance, and ECAs are taking similar stances in France, Italy and other European Countries.</p><p style="text-align: justify;">Russian, Chinese, and Korean ECAs will favour only selected NG/LNG projects, preferably closer to home.&nbsp;</p><p style="text-align: justify;">If the money comes from the development of the current NG/LNG Projects, then we will need to wait until the 2030s for the Country to have sufficient funds to start investing internally.</p><p style="text-align: justify;">If money comes from multilateral banks or development banks, the small amount of money will favour only LNG projects that are cheap and/or energy efficient in terms of consumption of gas and emission of CO2/GHG.&nbsp;</p><p style="text-align: justify;">Unfortunately, the remaining LNG Projects in northern Mozambique (Rovuma LNG, Prosperidade and the Unitised gas) are neither (expensive (compared to Qatar, Russia and the US) nor overall more GHG emitting because of the distance between the wellhead to the liquefaction plant and underwater developments.&nbsp;</p><p style="text-align: justify;">The Marshall Plan was envisaged to allow Europe to recover and buy American products and incentivise trade between the US and Europe. It eventually led to creating of a common European market: will something similar be the case for Mozambique? Will trade grow with the US/EU/India/China? Will the SADC become a single market with no tariffs, borders and customs?</p><p style="text-align: justify;">If we can answer these questions and find the money, we can set up a Marshall Plan for Mozambique. If not, we must rely on the IOCs to fund the projects from their budgets: this will undoubtedly require revising the agreements currently in place with the Government/Partners/Contractors/Buyers to reduce costs and increase output.</p><p style="text-align: justify;">Current investors and lenders are protected under limited-recourse finance, which allows lenders to recover their financing from their sponsors if the project is not completed in time or is not functioning properly.&nbsp;</p><p style="text-align: justify;">Completion Guarantees (or Debt Service Undertaking, or Sponsors Support Undertakings) remain in place until the project can demonstrate it can operate within the parameters agreed initially for a certain period (usually 6-9 months) &ndash; so if there are political/security disruptions, these could be caused for not lifting the DSU or cashing them in. In addition, this kind of project also has varying degrees of political/stability risk insurance obtained through the use of financing products available from multilateral and export credit agencies, which in some instances repay the lender up to 90% of its loan in case of a political event of default.&nbsp;</p><p style="text-align: justify;">For new financing, as mentioned before, I think all Lenders/Banks/Multilaterals and ECAs, will take a wait-and-see approach before taking on further commitments. So indeed, these events will impact future financing, and if this situation continues, the cost and schedule may escalate beyond reasonable, and banks may start to wonder how they can be repaid on time. It can also severely hurt the Mozambique govt and its people ultimately &ndash; and while the former is potentially the target of these insurgents, they cannot thrive without the support of the latter &ndash; so take away the support of the local population, and you can start seeing a reduction of attacks.&nbsp;</p><h2 style="text-align: justify;"><span style="font-size: 14pt;">The Issues due to Insurgency and Security Threats &nbsp;</span></h2><p style="text-align: justify;">Theoretically, Western and Asian majors are ready to invest more than a hundred billion dollars ($bn) over the next two decades to develop this gas potential that could amount to 50 million tonnes (mt) per year.</p><p style="text-align: justify;">However, security threats related to the deadly activities of the Islamist group, Al Shebab, are certainly concerning, principally because the Mozambican Government is struggling to implement its security strategy. &nbsp;</p><p style="text-align: justify;">Then there is the issue of the insurgency to be resolved. A quick historical analysis of the dynamics of conflicts in Africa in the second post-war period reveals the vicious link between the richness of resources (raw materials, fertile land, hydrocarbons), governance gaps and self-referentiality of the ruling classes.&nbsp;</p><p style="text-align: justify;">In fact, in very many cases, the government authorities of African countries have managed the exploitation of these resources in an un-judicious manner, not caring about the impacts social, environmental and economic communities on local communities, managing personal and revenues from their marketing and neglecting policies of redistribution of income and welfare that can support the most vulnerable sections of the population. &nbsp;</p><h2 style="text-align: justify;"><span style="font-size: 14pt;">Intra-State Conflict Dynamics&nbsp;</span></h2><p style="text-align: justify;">Mismanagement of energy/mining/water-land cornucopia has often overlapped and intersected with pre-existing political criticalities, such as the imbalance of power in favour of a given ethnic group, religious, tribal or family life and the consequent and parallel presence of minorities or the profound asymmetry in the level of economic development between the centre and the and the periphery of individual countries.</p><p style="text-align: justify;">Overall, the coexistence of these factors acts as the origin or multiplier for intra-state conflict dynamics: in fact, minorities are affected by the negative externalities linked to the exploitation of resources in the territory and, when they do not receive adequate compensation, accuse the government of policies towards them and adopt assertive and assertive political agendas, contrasts against the institutions.&nbsp;</p><p style="text-align: justify;">In some cases, such political agendas manifest themselves as genuine violent rebellions and are part of varying ideological frames, including the most extroverted of radicalism and jihadist terrorism.</p><p style="text-align: justify;">To simplify, this political, social and economic syndrome often afflicts African states can be defined as the "curse of resources" and materializes in a paradox that sees resource-rich countries facing bloody conflicts that hold back their development.</p><p style="text-align: justify;">In this regard, think, among others, of the Democratic Republic of the Congo (North Kivu and Katanga conflict, mine-rich areas), Nigeria (onset of in the Niger Delta region, where the oil and gas fields are located), Cameroon (revolt of the English-speaking community in the western areas and Bakassi, in hydrocarbon basins).&nbsp;</p><p style="text-align: justify;">In the last five years, Mozambique was added to the list of countries affected by the "resource curse" Mozambique was also added, where, in this case, the growth of the jihadist onset in the northern regions of Cabo Delgado, Niassa and Nampula.&nbsp;</p><p style="text-align: justify;">These three provinces mentioned are at the heart of the process of national economic growth at the end of the Civil War (1977-1992), an average of 6% per annum in the period 1993-2019 and supported mainly by the potential of the agricultural sectors, fish, mining and hydrocarbons.</p><p style="text-align: justify;">The country's north has large extensions of fertile land, still little exploited, territorial waters, and exclusive economic zones that are very deposits of precious stones and natural gas. In particular, concerning the last two categories of resources, Mozambique owns Montepuez, the world&rsquo;s largest ruby mine (40% of global reserves, 150 tons per day of extraction), and the Rovuma offshore gas basin (2,800 billion cubic meters of resources discovered) which places the country in the 3rd place in Africa for contingent reserves after Algeria and Nigeria.&nbsp;</p><p style="text-align: justify;">A further element of alienation to minorities and communities came from the existence of a vast criminal network dominated by parts of Tanzanian origin and second and third-generation Pakistani and Indian immigrants who specialized in heroin, rubies, precious wood and ivory trafficking and business with some local personalities of the Frelimo.</p><p style="text-align: justify;">So far, even criminal activities have not produced benefits for minorities and rural communities, which are largely excluded from their network. Indeed, they have represented a further critical element for the most vulnerable sections of the northern Mozambican population because of their violence and Authoritarian.&nbsp;</p><p style="text-align: justify;">Overall, this situation has amplified the resentment of the rural communities vis-&agrave;-vis the Government of Maputo and FRELIMO.&nbsp;</p><p style="text-align: justify;">Previously, this part of the country considered that the institutions had forgotten their contribution to the war of liberation from the Portuguese colonial yoke and the internal conflict against the Mozambique National Resistance (RENAMO). As a result, with the absence of benefits deriving from the development of the mining industry.</p><p style="text-align: justify;">And energy, with the increase in negative impacts on the economy and with the increase in the strength and role of criminal organisations, a growing part of the northern communities has developed a deep feeling of disaffection and marginalisation towards the government and Maputo.&nbsp;</p><p style="text-align: justify;">A disaffection marginalisation made even more widespread by the new peace agreement between FRELIMO and RENAMO (2019), perceived in the north as yet another case of the public sphere by political and military forces expression of the South.&nbsp;</p><p style="text-align: justify;">To offer a religious and, subsequently, ideological framework to the resentment of the northern regions was the fact that the indigenous peoples of the north were in a Muslim majority, while those of the Christian centre and south.&nbsp;</p><p style="text-align: justify;">This, then, added a further piece to the construction of the anti-government narrative that has developed definitively according to geographical contrast faults (north versus south and centre versus periphery), socio-economic (great national urban bourgeoisie against rural), ethnic communities (Kwami and northern minorities against Macombe and other ethnic groups), policies (FRELIMO versus civil society) and finally religious (Muslims versus Christians).</p><p style="text-align: justify;">The transformation of the sect into a genuine jihadist organisation took place in 2015, when AS leaders stepped up contacts with the state network Islamic in Central Africa, a regional emanation of the Caliphate founded by Abu Bakr al Baghdadi, and with terrorist groups active in neighbouring Tanzania.&nbsp;</p><p style="text-align: justify;">It seems complicated to establish how much AS consciously wanted to change the spectrum of its political activities, from propaganda to violent anti-government rebellion, or how much the contact with the Islamic State influenced it.&nbsp;</p><p style="text-align: justify;">Probably, the dynamics of transformation were dual. Some elements within AS had begun to consider starting an onset campaign as that necessary quantum leap to impose the organisation as a hegemonic actor in northern Mozambique. In this, the development of relations with the Islamic State has strengthened its positions.&nbsp;</p><p style="text-align: justify;">The Islamic state's logistical, ideological and training contribution has been fundamental to the growth of AS, which, starting in 2017, has become increasingly complex attacks and attacks, arriving on several occasions to occupy days the city of Mocimboa do Praia. Of particular interest is the analysis of the operating methods of AS, which, in addition to attacking the institutional offices of the Armed Forces and the Mozambican Police, plunders and redistributes the loot between the civilian population in cities rural areas.&nbsp;</p><p style="text-align: justify;">In this way, the organisation has exponentially increased its popular support and recruitment. Although most of the civilian population does not share the political and ideological vision of AS and does not want to transform northern Mozambique into an emirate, it prefers draconian justice concerning welfare and jihadist violence to corruption and self-referentiality of Mozambican institutions and at FRELIMO.&nbsp;</p><p style="text-align: justify;">Furthermore, the possibility that the evolution of the AS leads the terrorist organisation to broaden the range of Cabo Delgado province to the national institutions. This could be done in response to the need for AS to increase pressure on the central government and increase its "prestige" through attacks with a great media appeal, such as those against foreign targets.&nbsp;</p><p style="text-align: justify;">The terrorist group&rsquo;s modus operandi and the government&rsquo;s response reflect Boko Haram&rsquo;s rise in Nigeria since 2010. It is not that they are getting more sophisticated, but more audacious and confident given the regular army&rsquo;s lack of results except when supported by external forces.&nbsp;</p><p style="text-align: justify;">They can take a town or part of a province but certainly not keep it. Until today, they have always been sent back, hiding deep in the forest or across the borders &ndash; so in this sense, nothing has changed since 2017. Tactics and results remain the same, only the attacks have been more numerous and now closer to the Afungi Peninsula, where the LNG projects are being developed.&nbsp;</p><p style="text-align: justify;">This could be an answer if you want to focus on internal means of support. In terms of financing, the region has always been prone to arms and drug trafficking, close to the Tanzanian border, but leaving Cabo Delgado only as a transit pathway. With the bordering governments' harsh down on such extremist and trafficking groups, guns and finances remain in Mozambique, becoming more readily available to these insurgents. &nbsp;</p><p style="text-align: justify;">Or, if one wants to look at the regional politics for financial and logistic support to the insurgents, one could notice that insurgency in Mozambique is not as recent as people seem to think. It started in the 60s with the fight for the independence of Mozambique from Portugal, which originated and was supported by Tanzania and led to the founding of FRELIMO in Dar-es-Salam in 1962, followed by the liberation march from Rovuma to Maputo in the early 70s which led to the independence of Mozambique in 1975.&nbsp;</p><p style="text-align: justify;">Then in the eighties, the Rhodesian Intelligence Services (with the support of the apartheid government of South Africa) funded and armed the insurgency in Mozambique's northern and central regions against FRELIMO. The insurgent movement was called RENAMO.&nbsp;</p><p style="text-align: justify;">In the nineties, a peace agreement was signed, but RENAMO alleged several times that the government didn't keep the terms &amp; conditions of that agreement. The leader, Alfonso Dhlakama, died in 2018, after which the Jihadists took over in the northern part of the region, continuing the fight against the Mozambican government with other means.</p><p style="text-align: justify;">Suppose, instead, one wants to focus on broader and more global implications/origins/support of the such insurgency. In that case, one could look at the past attacks on LNG facilities worldwide:&nbsp;</p><ul><li style="text-align: justify;">Algeria (2013) Terrorists linked to al-Qaeda attacked the In Amenas gas plant on 16 January 2013</li><li style="text-align: justify;">Yemen LNG was stalled by civil war from 2014</li><li style="text-align: justify;">Mozambique (2017-20) attacks close to new LNG plant under construction in Mozambique! Cui prodest?&nbsp;</li></ul><p>The preference given by marginalised communities in the north of the country to jihadist movements concerning the central government poses a political, security and economic growth issue for Maputo.&nbsp;</p><p>In fact, in the absence of structural interventions in the humanitarian, educational, economic and social sectors, the risk that AS will continue to increase its influence and legitimacy becomes higher and more concrete than ever, threatening the stability of Mozambique and, at the same time, the security of that same mining and hydrocarbons sector that underscores national economic growth and, paradoxically, at the root of the social claims on which jihadist movements speculate.&nbsp;</p><p>The total has a significant stake in this project: 26.5%, which it acquired by paying Occidental upfront several billions of dollars in addition to needing to fund its share and proportionally financially carrying the stake of ENH, therefore it will be highly attentive in ensuring that the project goes ahead as smoothly as possible.&nbsp;</p><p>The total would need to involve all potential stakeholders (at all levels of government, private and public organisations, international agencies, and local communities) to see how they could help and to explain once again how the project can help the local populations, along with more execution activities given to local Mozambique companies and/or govt corporations (which I am sure is already done) with remote help from Advisers within Mozambique.&nbsp;</p><p>There is not a single solution, but everything has to be explored/implemented at this stage: protect the local inhabitants (who are the first to suffer from these attacks and those who bear most of the consequences) and invest in infrastructure and local jobs/training/opportunities, prevent corruption, acquire International co-operation, deny cross-border exfiltration, deny International infiltration, push for domestic support and assistance, increase financial aid - both International and Domestic list goes on.</p><p>Nevertheless, Total is an experienced, responsible and prudent operator, especially capable in the entire African continent, and I have no doubt they are planning for all of the above and even more: while these attacks may cause some disruption to the project, Total and their chosen EPC have built LNG facilities under challenging locations in the past and will still manage to complete this project as well.&nbsp;</p><p style="text-align: justify;"><span style="font-size: 10pt;"><em>This article was contributed by our expert <a href="https://www.linkedin.com/in/ananotti/">Alessandro Nanotti&nbsp;</a></em></span><br /><br /></p><h3 style="text-align: justify;"><span style="font-size: 18pt;">Frequently Asked Questions Answered by Alessandro Nanotti</span></h3><h2 style="text-align: justify;"><span style="font-size: 12pt;">1. How will the Marshal Plan help Mozambique?</span></h2><p style="text-align: justify;">A Marshall Plan for Northern Mozambique will generate mass employment for local young people and prevent them from turning to the region&rsquo;s extremist Islamic insurgency. The Plan would need to focus on creating large numbers of low-skilled jobs in construction and agriculture.</p><p><img style="display: block; margin-left: auto; margin-right: auto;" src="https://kradminasset.s3.ap-south-1.amazonaws.com/ExpertViews/Alessandropic1.png" /></p><h2 style="text-align: justify;"><span style="font-size: 12pt;">2. Will total return to Mozambique?</span></h2><p style="text-align: justify;">Yes, but not before the end of 2023.&nbsp;</p><h2 style="text-align: justify;"><span style="font-size: 12pt;">3. What is the Mozambique LNG project?</span></h2><p style="text-align: justify;">The Mozambique LNG project is the first onshore LNG development of the Golfinho-Atum gas fields discovered in the offshore Area 1 Block of the deep-water Rovuma Basin. It envisages the construction of a 12.88 million tonnes per annum (Mtpa) onshore liquefied natural gas (LNG) facility on the Cabo Delgado coast of Mozambique.</p><p style="text-align: justify;">French oil and gas company Total holds a majority stake in the Mozambique Rovuma Offshore Area 1 development consortium and is the operator of the project.</p><p style="text-align: justify;">The final investment decision (FID) on the Mozambique LNG project, estimated to cost approximately &pound;15.5bn ($20bn), was taken in June 2019. Construction works on the LNG project started in August 2019 but was halted in March 2021 after an insurgent group with links to Islamic State attacked the construction camp in Afungi.</p><p style="text-align: justify;">&nbsp;</p>
KR Expert - Alessandro Nanotti