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Who is to guard Mozambique’s gas wealth?

Mozambique is set to get a sovereign wealth fund, but not everyone agrees that the central bank should manage it

Wednesday’s front pages in Maputo. Photo credit: Faizal Chauque / Zitamar News

Good afternoon. The Mozambican government’s sovereign wealth fund is one step closer to reality, after members of parliament approved in outline the government’s plans for a fund to manage revenues from the country’s natural gas production. Unfortunately, the government looks set to miss the opportunity to achieve a broad consensus on how the fund, which after all is meant to serve the national interest, should function. Only members of ruling party Frelimo voted in favour of the legislation, with opposition parties Renamo and the MDM voting against.

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Finance minister Max Tonela has this week instructed the director-general of Mozambique Customs to allow the free export of pigeon peas from Mozambican ports “with immediate effect”, according to a letter from the finance ministry to business association CTA. The letter said that Tonela cited, as the reason for his instruction, the “elevated damage to the economy” being caused by the restrictions on exports. The news comes after three months during which pigeon pea exports have been blocked by customs officials, supposedly because of a legal complaint filed by an exporter which claimed that its position as the holder of an export quota was harmed by unlimited exports. However, other exporters have said that the blockage is essentially due to elites in ruling party Frelimo who have sought to monopolise the trade, acting in league with conglomerate Royal Group, and who use it to extract payments for the party. Read Zitamar News’ coverage of the pigeon pea saga here:

Of the opposition’s arguments, the MDM’s is the weaker. The party argues that now is not the time to be saving revenues, when the need for funding to pay for essential services like healthcare and education is so acute. It is true that the government is short of money to cover everyday spending: debt is going up, the deficit is being paid for by borrowing, and salaries are not all being paid on time.

However, the basic arguments for the sovereign wealth fund as presented by the Bank of Mozambique remain strong. Firstly, oil and gas revenues are volatile, and the fund would provide a shock absorber to deal with that volatility. This should ideally address the potentially damaging effects of a sudden inflow of money to the economy, such as so-called “Dutch disease”, where a boom in one industrial sector, often natural resources, leads to a decline in other sectors. Secondly, saving money and building up a fund over time allows the revenues from gas to be spent over more generations than would be possible if the money only lasted as long as the gas itself.

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