BMI View: Mozambique’s construction sector holds one of the strongest growth outlooks across the Sub- Saharan Africa (SSA) region, driven by huge investment pledged to infrastructure improvements. In order to support the country’s bourgeoning mining sector and increasing potential for gas production, investment is being stepped up into transport and electricity projects. With more than US$25bn worth of projects planned or underway, we are anticipating strong growth of around 10% on average per year between 2012 and 2016, for an industry worth less than US$500mn.
A strong medium-term project pipeline will sustain strong growth – a number of projects were announced in late 2011 and H112, which will drive expansion into 2012 and 2013. The industry will benefit from sustained demand for Mozambique’s exports, primarily coal demand from India, as well as increasing attention into offshore gas potential. Mozambique currently does not have the ability to support this huge investment and export potential, and therefore, investors with deep pockets are taking a ‘build your own’ approach.
The primary driver of growth in Mozambique's infrastructure sector has been coal mining, with Indian demand sustaining significant investment. Insatiable demand for electricity in India is leading to huge investment in coal power plants, and Indian power companies are looking further afield for coal resources. While we expect demand for coal across the developed world to decline over the medium term, we do not anticipate a slowdown in India's consumption of thermal coal, which should sustain investment in Mozambique.
A more recent trend has been offshore energy exploration, with twelve high impact gas discoveries seen in offshore Mozambique. The exploration and potential production will bring with it significant investment opportunities for support infrastructure and services.
Transport infrastructure has benefited from a number of investment pledges, with efforts concentrated on the Nacala and Sena transport corridors (linking the mining regions to the ports of Nacala and Beira). Mining companies are leading the way in terms of investment in railways and ports. This was demonstrated in January 2012, when Vale signed a US$1bn agreement to build the Malawian section of the 900km Nacala corridor (which links the Moatize mines with the Nacala Port). The company is developing the US$5bn corridor, including railway and port at Nacala. However, China is now also getting in on the act. Previously notably absent from the market, China announced in June 2012 that it was in negotiations with the Mozambican government to provide a US$1.5bn loan for construction of a deepwater port in Nacala, potentially stepping on Vale’s toes.
Electricity generation has also garnered considerable investment, with mining companies once again taking on an active role. Vale, Riversdale Mining and Jindal Power & Steel have all announced one gigawatt (GW) of coal-fired power plant projects, in an effort to tap the growing domestic market. At the same time, Mozambique is planning to expand capacity at the Cahora Bassa dam. Eletrobras has announced plans to build a 1,500MW hydropower plant in the country, as well as two 1,500km transmission lines, worth a combined US$6bn.
A major threat to our forecast comes in the form of government revenues, which are insufficient to meet the infrastructure funding gap, and thereby highlighting the importance of external financing. Consequently, multilaterals like the World Bank and African Development Bank (AfDB), as well as state credit agencies, remain an important source of funding for infrastructure in Mozambique. Increasingly, investment into freight transport and electricity infrastructure is being supported by private finance, with cash-rich mining companies executing a build-yourown strategy with regard to infrastructure. Private finance has therefore become crucial to investment, and any threat to corporate financing or mining companies’ profitability could dent investment in infrastructure.
While infrastructure investment is primarily focused on supporting the mining sector, demand for passenger transport projects and residential and commercial utilities should lead to rapid expansion – with real GDP growth expected to average 7.7% between 2012 and 2016, and GDP per capita expected to increase from US$547 to US$831. This should generate a rise in electrification and water access rates over our forecast period, necessitating new transmission and distribution infrastructure. Investment into roads will be strong under the second phase of the Programa Integrado do Sector das Estradas (PRISE) Road Sector Integration programme (2010-2014), which is overseeing planned investment of US$1.5bn to improve the quality of the country's road network. Funding has been pledged by a number of development banks.