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Date: 02/03/2015
Source: Banco Moçambique
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Mineral Ministry skeptical about sovereign fund

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(2013-09-08) Mozambique’s Ministry of Mineral Resources is skeptical about the establishment of a Sovereign Wealth Fund, at least in the short term, and believes there are more pressing uses for the money obtained from the country’s vast reserves of natural gas.

The Mozambican Tax Authority (AT) has mentioned a Sovereign Wealth Fund as one possible destination for the large sums of money raised from capital gains tax on transactions involving the country’s mineral resources. For example, the sale of shares in the Rovuma Basin Area Four, where much of the recent gas discoveries have been made, netted the Mozambican government 400 million US dollars in capital gains tax.

Asked about the possibility of setting up such a Fund, Custudio Nguetana, the spokesperson for the meeting of the Coordinating Council of the Ministry of Mineral Resources, which ended in the southern town of Manhica on Friday, was cautious. He told reporters that, although the government has not yet taken a formal position on the matter, his Ministry believed there were other priorities.

“We are not in any position to put the money in the bank”, Nguetana told reporters. “We have a severe shortage of infrastructure. Our social fabric is still weak. And our state budget is in deficit”.

He believed these were the areas where the money from the country’s mineral resource boom should first be directed.

“We shall monitor the experiences of all other countries”, he said. But for Mozambique, solving the problems with health and education, and building up the country’s infrastructures, had to be dealt with “before we put money in the bank”.

Nguetana stressed that the Mozambican government should never rely exclusively on wealth from hydrocarbons. It had the example of Nigeria as a warning of what can happen when a country neglects other sectors of its economy. Agriculture in Nigeria had been ignored, fishing had been devastated, and no attention had been paid to the environment. The Mozambican government “must take heed of such examples”.

Nguetana said that, although mineral production had risen by 34 per cent in the first six months of this year, compared with the same period in 2012, the target for this year had been missed by a long way. Production was only 74.6 per cent of what had been planned.

This was partly because the floods of January and February shut down the Sena railway from the Moatize coal basin in Tete province to the port of Beira. This halted all exports of coal for three week, and obliged coal companies to reduce or halt mining. To make matters worse, the world market price of coal dropped in this period.

Nonetheless the Ministry was quite pleased with meeting 74.6 per cent of the target, “because we feared that it might be much worse”, said Nguetana.

Asked about the complaint that mining is dominated by foreign interests and not by Mozambicans, Nguetana pointed out that, in order to make money quickly, Mozambicans who held exploration licences were all too ready to sell them to foreign mining companies.

Thus the Australian company Riversdale (later taken over by Rio Tinto) had acquired its interests in the Moatize coal basin by buying licences from Mozambicans. “They sold them for the price of a banana”, remarked Nguetana.

Source: (AIM)

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