
Real Estate & Construction
Chin up
Challenges for the future
By TBY | Mozambique | Feb 04, 2021
Mozambique’s construction sector has long played an important role in the economy. Between 1993 and 2015, the value added by the sector increased at an average of 12.5% per year, well above the average GDP growth of 7.9%. On the one hand, investment in basic infrastructure, health, education, and housing improved overall living conditions and standards of living, and on the other, investment in roads, IT, and office facilities boosted logistics and economic activities and reduced costs.From 2010 onward, the government’s focus shifted to high-value natural resource exploitation and the increase in demand for non-concessional loans for public investment. Today, the country’s construction sector is regarded to have one of the strongest growth outlooks across sub-Saharan Africa. The industry is mostly driven by huge investments pledged to infrastructure projects that are designed to support Mozambique’s rapidly developing mining and oil and gas sectors.
Having introduced the PPP law in 2011, the government continues to be drawn to the idea of using PPPs to improve infrastructure and boost construction activity, especially given the significant capital requirement of infrastructure investment and the public sector’s lack of technical capacity to manage megaprojects. While a number of PPPs have been successfully carried out, such as the ports of Nacala, Maputo, and Beira, and the Ressano Garcia, Machipanda, and Nacala railways, the government has so far failed to structure the PPP program within an established legal PPP framework, which means each project has its own rules. Moving forward, the government must take certain institutional fragilities into account when designing a PPP program. Alas, despite registering tremendous growth since the 1990s, not all is gloomy for Mozambique’s construction sector. The country entered a macroeconomic crisis in 2015 due to constraints to the budget and a hidden debt crisis, and ever since, there have been significant barriers to the development of the construction industry, the most recent one being the COVID-19 pandemic.
To start with, the widespread disruption of construction activities caused by cyclones Idai and Kenneth in March and April 2019 continue to dampen Mozambique’s growth forecast. The two cyclones, coming six weeks apart, caused unprecedented damage from flooding and high winds across a wide area of the country, particularly the central provinces of Manica, Sofala, and Zambezia, and Mozambique’s fourth-largest city, Beira, where an estimated 90% of the buildings were damaged or destroyed. In particular, the damage to power and transport infrastructure has made it difficult to organize supply chains and carry out construction work in large areas of the country. And although USD1.2 billion was pledged by international donors toward the reconstruction efforts, the figure is a far cry from the government’s estimated USD3.2 billion needed to restore infrastructure and build housing.
Just as Mozambique was beginning to recover from the aftermath of the cyclones in 2019 and its economy was starting to show signs of recovery, the COVID-19 pandemic dealt a deadly blow to a number of key megaprojects, such as the Total-operated Mozambique LNG project, the Rovuma LNG project, the Coral South FLNG project, and the Chongoene airport.
Construction delays at the Total-operated Mozambique LNG project and ExxonMobil’s decision to delay its final decision for the Rovuma LNG project have dented the immediate growth of the construction sector. Notably, Total’s LNG project is one of the three large LNG production projects targeting Mozambique’s Rovuma basin, which together are estimated to attract a whopping USD50 billion in CAPEX.
On the positive side, except for short-term delays, business is expected to continue as usual. Mozambique LNG, which was projected to begin operations in 2024, will begin operations in 2025 due to COVID-19-related disruptions. As for the Rovuma LNG project, its construction will begin in 2021 rather than 2020. On the other hand, the Coral South FLNG project, a floating, offshore production facility, will suffer no delays and will begin operations in 2022 as it is constructed mainly in South Korea. After going through numerous challenges in the recent past, many in Mozambique believe that the worst is over. Only time will tell if that is true, but until that happens, companies in Mozambique should do their best to reach the stage of diversified and sustainable development that would enable them to weather similar downturns in the future.
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