Mozambique’s Mining Boomtown
By the time people in Moatize learned of the coming mega-project, in 2009, it was already afait accompli. Moatize, a rural district in the western reaches of Mozambique, would soon be home to the world’s largest opencast coal mine. The Brazilian mining giant, Vale do Rio Doce, and an Australian company, Riversdale, had already leased concessions in the area; more than two thousand families would have to move. But local officials assured village leaders that resettlement would bring the displaced a better quality of life—casas melhoradas, or “improved houses,” with concrete foundations, electricity and running water, as well as money for schools and medical clinics. And, of course, the mines would bring jobs.
Isabel Pedro, a farmer from the village of Malabo, remembers being skeptical about resettlement from the start. Now in her late forties, Pedro has cracked feet and strong, lined hands. She has grown food her whole life—corn, bananas, pigeon peas, cassava—using little more than a machete and a broad hoe to work her machamba, or garden, on the banks of the Revuboe river. In Tete province, arid and hot, land by the river makes farming viable. Selling sacks of charcoal to supplement their farming, over the years, Pedro and her husband built a house so big it took twenty-two sheets of zinc roofing to keep the rain out. Pedro knew Cateme, where the largest resettlement was planned, and she didn’t want to live there. Cateme lies 25 miles down the road from Moatize, where there is no town and no river. Pedro and her husband refused to move. And then, as her neighbors packed up and left, accepting the terms the government had negotiated with Vale, it dawned on Pedro that the mine would be built whether she moved or not. Estado é estado, branco é branco, she told me later, squinting at the sun: “The state is the state, white people are white people.”
In 2008, visiting geologists made a startling discovery: the district of Moatize, where coal had been mined only intermittently since the 1930s, was actually the largest undeveloped coal basin on the planet… enough to fire all the coal plants in the United States for twenty-five years.
Manuel Guimarães, who became Moatize’s District Administrator in 2010, around the time of resettlement, put it this way: “We all need to understand that mining in Moatize is irreversible. We have to learn to deal with the process because we have no way to stop it. The world needs the resources that Moatize has.” And Guimarães was bullish about the district’s prospects. “Already, Moatize is advancing,” he told me, “and it’s advancing in big steps.” Vale’s mine brought foreigners to Moatize by the thousands. The road through town was re-paved, and the colonial railroad to the sea was being rehabilitated. Moatize, a backwater since the colonial shaft mines shut for good in 1997, was the focus of renewed interest.
When I met Pedro, in August 2011, she and her neighbors strained to see the progress Guimarães had outlined. It was true that Moatize was changing. Half-built hotels rose from the savannah. An overgrown colonial cotton warehouse had found a second life housing brand new Mitsubishi pickups. Small boys lined back roads and hailed trucks to collect foreigners’ discarded plastic water bottles. But instead of enjoying the comforts of a casa melhorada, Pedro and her family have been unable to match the meager living they enjoyed in Malaboe.
In October 2012, the World Bank noted that oil-producing countries in Africa perform worse than any other group of countries on measures of political stability, corruption, accountability, and rule of law.
The resettlement zone in town, called 25 Setembro after Revolution Day, the anniversary of Mozambique going to war with Portugal for their independence, is a bare neighborhood of tidy yellow houses with no trees and no space for farming. Instead of working the land, Pedro’s family now makes ends meet by renting out their casa melhorada to a man from out of town who has a job at the mine. Pedro, along with her husband, five children, and one grandchild live in what was intended to be their outdoor kitchen, a small building the size of two double beds adjacent to the house. One of her sons had a construction job during the first phase of mine construction, but that lasted less than a year. The kitchens in the resettlement zone were built as open structures, with a front wall that ends at waist-level, but nearly half of them have been closed up with brick and cement like Pedro’s, with tiny padlocks affixed to improvised, rough-hewn doors.
“What can you do?” Pedro shrugged. “There’s no food. Before, I didn’t pay anything for cornmeal, and I didn’t pay anything for firewood.” Though she now has access to running water and electricity, Pedro views these amenities in terms of the added expense. She spends 500 meticais a month on water and 200 a month on electricity, roughly twenty-five U.S. dollars, or a third of the rent she collects from her tenant in the main house. Even so, Pedro insists that she was right not to move to Cateme. “There’s no water there,” she said flatly—for a farmer, water is all that matters.
Vale, the Brazilian mining company, first bid on concessions in Moatize at a time when no one quite knew what lay underground. Coal has been mined intermittently in Moatize since the 1930s, but by the turn of the twenty-first century, mining in the region was confined to villagers who fired bricks using coal from the abandoned mines of Carbomoc, Mozambique’s defunct state-owned coal corporation, and to young men called garimpeiros who panned for gold in nearby streams and rivers. Vale’s 2004 bid on old Carbomoc concessions made headlines in investors’ briefs and trade magazines around the world. With coal prices near all-time highs, the entry of a major player in a previously unknown mining region was big news. Then in 2008, visiting geologists in Tete made a startling discovery: the coal seam beneath Moatize is part of the largest undeveloped coal basin on the planet. As estimates currently stand, the basin below Moatize and the surrounding districts holds more than 23 billion metric tons of coal—enough to fire all the coal plants in the United States for twenty-five years.
In the years since this discovery, fortune seekers from around the world have descended on Tete province to develop the region’s natural resources as quickly as possible: Chinese and Indian investors, South African hydraulics techs and geologists, Portuguese construction firms, Australian drillers, British crane operators, and American salespeople specializing in mammoth trucks and excavators. Between 2001 and 2011, investment in Mozambique’s mining sector grew from $20 million to more than $1 billion annually, helping to make Mozambique one of the world’s fastest-growing economies. This trend was part of a broader resource boom fueled by surging demand and dwindling resources in India and China. In Mozambique, as in the rest of Africa, high commodity prices have driven a new wave of foreign investment in mining, gas, and oil exploration, often in places once considered unprofitable, or even impossible: remote areas without existing infrastructure, countries hampered by political instability. In addition to coal, prospectors in Mozambique have discovered deposits of titanium, zirconium, iron ore, gemstones, ilmenite, tantalum, bauxite, and gold. With an estimated value of $350 billion USD, Mozambique’s natural gas reserves could soon dwarf the scale of Tete’s coal projects. But in Tete—the leading edge of Mozambique’s resource boom—there are signs the local economy is growing too fast. In its eagerness to attract foreign capital, the Mozambican government has opened the door to a flood of investment for which it now seems unprepared. Government offices are overwhelmed, local companies outmatched, and thousands of farmers like Isabel Pedro appear to have given up their land for slim rewards.
If the model in Tete offers a national precedent, Mozambique may fall victim to the “resource curse” that afflicts countries like Angola, which suffers from increased inequality and an authoritarian regime despite massive wealth from oil and gold, or the Democratic Republic of the Congo, where mining revenues, passing through the sieve of corruption, have been used to fuel civil war. Mozambique’s peers on The Economist’s top ten list of the world’s fastest-growing economies between 2000 and 2010—Angola, Chad, and Nigeria—can each be read as a cautionary tale about the mixed blessings of mineral wealth. In October 2012, the World Bank noted that oil-producing countries in Africa perform worse than any other group of countries on measures of political stability, corruption, accountability, and rule of law.
As Roger Nord, the IMF’s Deputy Director for Africa, warned at a meeting last May, “What are countries going to do to avoid being the Nigerias and Angolas of the next generation?”
One key difference, Nord observed, is that countries like Mozambique, Uganda, and Tanzania have developed “more robust democratic institutions… than the early oil producers had.”
After more than twenty-five years of nearly continuous armed conflict, Mozambique has now been at peace for nearly as long as it was at war, with a record of four free and reasonably fair presidential elections and peaceful transfers of power. The government is beginning to uphold its commitment to providing basic public services at a national level: rural healthcare, primary education, and agricultural support.
In this, Mozambique seems well-placed to avoid the pitfalls of war and authoritarianism that can stem from large mineral reserves. Mozambican president Armando Guebuza, one of the original guerilla leaders who toppled Portuguese colonialism in 1975, seems unlikely to become another José Eduardo Dos Santos—who’s maintained a iron grip on power as Angola’s president since 1979—or Idriss Déby, President of Chad, who has used oil revenues earmarked for health and agriculture projects to consolidate military power and fund sectarian warfare along the border with Sudan.
Yet even in peacetime, and even in a democracy, corruption has crippling effects. Nigeria, for example, has long been a leading African producer of crude oil, but because of chronic mismanagement in the industry, the country now imports 85 percent of its fuel while its refineries lie dormant. A small group of wholesalers and public officials has reaped tremendous profits, but most Nigerians have seen few of these benefits—the BBC estimates that corruption has siphoned off $400 billion in oil revenue since the country’s independence. When the Nigerian government moved to end longstanding fuel subsidies in January 2012, protestors took to the streets with slogans like “Remove Corruption, Not Subsidies,” echoing recent protests in Guinea, South Africa, and Uganda, also aimed at corruption in the mineral sector.
Other African countries offer a more hopeful example. Botswana has used the world’s leading diamond reserves as a springboard to promote tourism, agriculture, and manufacturing, and its standard of living is now one of the highest in Sub-Saharan Africa. Botswana achieved this outcome thanks in part to the government’s independence from the diamond companies that have helped to drive the country’s growth. In dealing with the South African diamond cartel DeBeers, Botswana has repeatedly renegotiated contracts to ensure that mining projects remain in the national interest, eventually gaining a 50 percent share of equity in the country’s mines, and in September 2011, prevailing on DeBeers to shift its diamond sorting operations from London to its own capital, Gaborone.
But winning such concessions has required considerable political will and expertise on the part of Botswana’s leaders. Does the Mozambican government have the mettle to achieve the same result?
As the first trainloads of coal left Tete for port, in September 2011, Lagos Correia was in his office, laboring alongside a decrepit air conditioner in the high noon heat. Correia is the chief engineer in the mineral resources section of Tete’s Department of Mineral Resources and Energy. A Vale representative sat across from him. Together, they were making arrangements for two 30-ton loads of coal to be flown by chartered jet to laboratories in Germany and Australia.
Correia, an alert, smiling man with a tapered mustache and a jockey’s build, seemed near the limits of his patience. He filled in long codes on page after page of dispatch forms while the Vale rep looked up the relevant numbers on his laptop, open on Correia’s paper-strewn desk. The coal leaving Tete by the trainload was high-quality coking coal, used in steel manufacture; the laboratories would perform tests to see whether Tete’s cheaper, thermal coal could be turned into gasoline. The whole operation was hurried: Correia needed his boss’s signature, but his boss was out. The Vale rep couldn’t wait. “You see,” Correia said, “when the government needs something, you can forget about it. But these companies are always in a rush.” The Vale rep left once he got what he wanted. “When I began in 1992,” Correia told me, “you might have time to drink a soda or have a cup of coffee.” He shook his head. “Now, we have much more work, and it’s more complicated.”
Correia’s once-sleepy office is now responsible for overseeing deep-pocketed multinationals operating in the province, supervising matters ranging from disputes with the local population to “geology, mapping, inspection, laboratory analysis, and seismology,” he said. Yet on some level, not much has changed: Correia’s team still works on the sixth floor of a building whose plumbing and elevator stopped working years ago. “The support the Department has gotten,” Correia told me with characteristic understatement, “is not at the level currently required by the province.” They have fifteen employees, and their motorcycles are still broken, exposed to the elements in a gravel parking lot beside the office entrance. Along with other offices in the building, Correia’s team shares one lone pickup truck.
If mega-projects like Vale’s mine in Tete are to drive broader job growth and development in Mozambique, it is up to the government to ensure that profits are accurately reported, that taxes are paid to support other industries, that the rivers remain free from pollution. To insure Moatize’s future after coal, the government must be the guardian of social returns on foreign investment. Instead, Mozambique’s government seems headed towards what some have called “mineral dependence,” where the influence of mining money leads the interests of public officials to align with foreign corporations rather than their own citizens. Correia describes his field visits to the companies he oversees:
“If I go to inspect a business with better working conditions than my own, for example, I’ll have to get there by bike, or motorcycle, or car, but I’ll have to fill the tank. And they have Toyotas—nice, new cars. I’ll arrive there and develop a sort of inferiority complex, because when I get there, they’ll say, ‘leave your car here—and get in this one.’ And they’ll offer you water, or apples… Afterwards, maybe they’ll say ‘Let’s go have lunch.’ And they’ll chitchat and say, everything’s good, and I’ll have to go produce a report about this. Now, do you write a report on what you saw or on what they said?”
Underlying Correia’s “inferiority complex” is the fact that multinational mining corporations—in addition to having the resources to pay for nice Toyotas, apples, and bottles of water, have deep reserves of human capital. Vale, for example, employs nearly 200,000 people around the world and has annual profits equivalent to nearly four times Mozambique’s state budget. It can recruit, train, and compensate employees to represent its interests on a scale far beyond what the government can do. Without Vale’s capacity for number crunching, Mozambique’s regulators lean on the companies they oversee for all manner of important data.
In 2011, the Mozambican government published an independent study of the country’s mining, oil, and gas industries. Conducted by a Ghanaian consulting company, Boas and Associates, the report was part of Mozambique’s application to the Extractive Industries Transparency Initiative, a World Bank-funded program designed to encourage an honest accounting of mining revenue and payments by participating countries and corporations alike. Mozambique’s candidacy was ultimately denied on the basis of its failure to publish what it earned from the companies involved, but the report also noted a lack of qualified personnel in the agencies governing almost every aspect of the extraction of Mozambique’s natural resources: licenses, prospecting, mining and drilling, sales, export.
According to the report, the Mozambican government has no way of verifying the quality and quantity of minerals in the concessions it leases to private companies, and it depends on those companies for data on what is ultimately mined and exported. Worse, the government has no system for monitoring global commodity prices or of tracking companies’ investment costs, which means it cannot independently verify a company’s profits.
The Ministry of Mineral Resources recently announced plans to train 4,000 technicians inside and outside Mozambique to improve the government’s capacity to regulate the extractive industries. But the program relies to a large extent on financial support from mining and oil companies, including scholarships for Mozambican students to study in the companies’ home countries. Given the picture Correia paints of a typical field visit by his office, this initiative seems likely to make the Mozambican government even more dependent on the companies it is supposed to regulate.
“No one wants to work for the government,” Correia told me. After twenty years in the civil service, Correia is a técnico superior earning about 500 US dollars a month. If he were working at Vale or Rio Tinto, he might earn upwards of 3,000 a month. “Everyone wants to work in the private sector,” Correia said, “because after all, we work to improve our quality of life.”
Today, the mine that Vale built over Carbomoc’s old concession produces more coal in two months than Carbomoc mined in a year at peak production. One Australian firm, Baobab Resources, estimates that mines in Tete could produce up to a quarter of the world’s supply of coking coal by 2025.
All day and all night, Moatize is filled with the sounds of enormous machinery churning in the hills, and Tete city is awash with the supporting industries of the mining boom—hotels, banks, logistics firms. On weekends, the bars fill with beautiful women courting foreigners thirty years their senior. But most of the business generated by the mining rush has gone to foreign firms. “It’s like the Wild West here,” Manish Kotecha, the British chief financial officer for Ncondezi Coal Company, told me in his office near Tete. “All the suppliers have started to come, so we have no trouble getting most services.” Ncondezi’s food, for instance, is flown in from Johannesburg by a South African company called Servco: “We had strawberries and Greek yogurt for breakfast this morning,” Kotecha said. “That’s not from here—we’re all using Serveo because it’s either Servco or it’s nobody. We want to hire as many locals as we can,” Kotecha added. “Right now, education is an issue. I hope that in the future that will be different.”
When Vale’s mine opened for business, Manuel Guimarães, the district administrator at the time, boasted that mining had already created more than 10,000 jobs in Moatize. Consistent with quotas on foreign hires, he said, most of them went to Mozambican nationals. In his smooth baritone, Guimarães eagerly pointed out that mining jobs have been the engines of growth in Tete’s informal sector: the sidewalks teem with teenagers selling phone credit and ice cream.
Residential construction is everywhere, and public transport, such as it is—in minibuses crowded with more passengers than the law allows—is expanding. But the accounting firm Ernst and Young offers a starkly different way to think of Guimarães’ figures: in 2012, more than $7 billion in estimated foreign direct investment created only 8,000 jobs, a cost of nearly a million dollars per job. As more than 300,000 young Mozambicans enter the job market each year, Pinto de Abreu, Executive Director of Patrimony and Foreign Affairs at Mozambique’s national bank, warns that “employment in the informal sector is a long-term fallacy. We cannot be satisfied that people are selling in the street—those who are in business today have no way of knowing whether they will have business tomorrow.”
Over twenty years of peacetime, Mozambique’s rapid growth has been fueled by capital-intensive projects run by businessmen with ties to the ruling party as silent partners. As a small minority has grown steadily richer selling Toyotas and construction services to foreign corporations, agricultural productivity and rural standards of living have remained essentially unchanged.
Job growth has lagged far behind the flow of foreign capital into the country, an imbalance that reflects the government’s generous terms for investors in mega-projects. Tax breaks for Fortune 500 companies—BHP Billiton, Vale, Anadarko—are estimated to cost Mozambique upwards of half a billion dollars a year in lost revenue, or nearly 4 percent of GDP.
Carlos Nunes Castel-Branco, a leading Mozambican economist, calculates that less than 5 percent of profits from FDI is reinvested within Mozambique, while more than $1 billion in profits from mega-projects is repatriated every year. As a result, the governor of Mozambique’s national bank, the economist Jeffrey Sachs, and even the IMF have called for the renegotiation of contracts for Mozambique’s mega-projects.
On the streets of Tete, the government’s tax incentives have led to rumors which locals retell with almost religious conviction. At Sundowners, a dimly-lit bar popular with the mining set, I met Edson, a young mechanic who repairs the excavators that dig the coal from Vale’s mine. Along with two friends from Maputo, Edson had ridden the mining wave into Tete, and he spends his weekends drinking, he said, for lack of a better alternative. Many newcomers seem to regard time in Tete as a well-paid prison sentence. Sundowners’ thatched sitting area, dimly-lit by rugby on flat screens, was full of single men from out of town. “Do you know why it’s so hot in Tete?” Edson asked. “Because it’s close to hell.” His friends laughed loudly. “It’s common knowledge that Guebuza”—Mozambique’s current president—“is getting a cut from Vale,” Edson assured me. No one knows how much, he acknowledged, but after all, Guebuza’s predecessor is taking a cut too. In other words, why wouldn’t he? Significant, if less dramatic, conflicts of interest are well-documented. Many high-ranking officials in the agencies regulating Mozambique’s mining industry are also executives of private companies within the same sector, making them both regulators and businessmen.
To cite one example, the tax judge Aboobacar Changa has served concurrently on a tribunal tasked with auditing state corporations, as director of one corporation subject to audit, and as a private business partner of several other public officials who also worked for public entities subject to his legal review.
Still, it is unclear how much of Mozambique’s friendly treatment of the mining industry has to do with conflicts of interest or corruption—essential ingredients of the resource curse—and how much has to do simply with a broader lack of vision on the part of the government. In 2011, Rio Tinto, the third largest mining corporation in the world, bought the Australian firm Riversdale for $3.6 billion. The price was based almost entirely on a pair of mining concessions that Riversdale leased just a few kilometers down the road from Vale’s, in Moatize. But the transaction took place outside the country, and Mozambique had no capital gains tax in place at the time. Measured on the basis of the 32 percent tax the government passed soon afterwards, it lost an estimated $450 million on the deal—the equivalent of building one hundred new high schools. Yet sales like these are a common feature of the mining industry around the world. Why didn’t the government anticipate the potential for loss?
The people who were displaced by the mines in Moatize now wonder the same thing. The main resettlement area in Cateme lies a mile off the road that goes from Tete to the Malawian border, down a rutted dirt track which turns to mud in the rainy season. It consists of several hundred stucco homes nearly identical to Pedro’s, and a few larger buildings, arranged on a grid and surrounded by scrubby gray veldt. In Cateme, I met Raul Coelho, Malaboe’s régulo or headman, along with two other régulos from displaced communities near Moatize. We sat on small wood benches against the shaded wall of Coelho’s new home, built by a Vale subcontractor.
After a long overture, Coelho went into an account of the resettlement process, speaking in a guttural voice marked by extravagantly rolled Rs. “The whole process was a solid collaboration,” he began. The only problem with Cateme, Coelho said, is that “the company hasn’t honored the deal.” In the two years after resettlement began, Vale’s pledges came undone. The 2,000 dollars Vale offered each family who moved was quickly spent on food and other necessities in their first year in the resettlement zone—their crops barely grew, and transport to Moatize, or to Tete city, where many had worked in the informal sector, made working in town prohibitively expensive. Rather than the concrete reservoir they were promised, Cateme’s water supply depends on plastic tanks that require electricity to be filled. When the power goes out, as it often does, people in Cateme are left without water, sometimes for more than twenty-four hours. Rather than the two hectares of farmland promised to each family, Coelho said, they have received one hectare per household, and the land is poor at that. “This is a problem that’s known at all levels of government,” Coelho said. “So here, people in the community are lifting their heads to the sky wondering, ‘How and why is it that this second hectare hasn’t been given? When will the government intercede? What is the company thinking, if they’re not going to give us the second hectare?’ The people are starting to get worked up with us, too,” he added, gesturing at the other régulos. After several requests for meetings and letters sent to Vale and the government both, the régulos were still without response.
Coelho stood up to show me the pale yellow walls of his house, in which I could make out dozens of tiny fissures in the concrete. Almost every one of the houses, all of them less than two years old, Coelho said, had similar problems. The roofs leaked when it rained, and water came seeping through the walls. Vale came once to make repairs earlier in the year, but the same cracks re-opened within weeks. “The houses were not well-built,” Coelho concluded.
Over the next few months, dissatisfaction in Cateme intensified. In August 2011, farmers planted crops in poor soil for a second year. In September, the first trains of coal rattled out of Moatize on the rehabilitated colonial railway, and still, there was no response to their letters and requests for information about the collective second hectare. One morning in January 2012, people in Cateme opted for a different strategy. A crowd of 500 gathered by the Sena railway, which brings coal from Moatize. They hauled logs across the tracks and piled rocks on a road nearby, and threatened to destroy the train that hauls coal to port. The government responded with riot police, but for twenty-four hours, the people from Cateme halted the flow of Vale’s coal, and made the corporation wait as they had. Finally, they had some traction: Vale agreed to resolve their complaints within six months. And Manuel Guimarães, then district administrator, reconsidered his initial optimism about development in Moatize: “This has been a lesson to me,” he told a local paper, O País. “We were wrong to trust Vale. Vale promised things, but did not keep their promises.”
The protests in Cateme echoed earlier periods of unrest in Mozambique’s capital, Maputo. There, as in today’s Tete, Mozambique’s burgeoning wealth is on lavish display in the form of luxury cars, sumptuous homes, and cafés where an espresso costs more than a day’s wages in the informal sector. In 2008, 2010, and again in 2012, thousands of residents took to the streets of the capital to fight government proposals to reduce subsidies for flour and public transportation, blocking major roads with burning tires, and lamenting the government’s failure to better support the working poor. Each time, the protests resulted in incremental gains—the subsidies were prolonged, rate hikes forestalled. Mass protest is a blunt instrument for improving policy, but it may be Mozambican citizens’ best chance to push their leaders towards a more equitable way forward.
In February, the Sena railway was shut down once again, this time because of a spate of derailments and technical failures, followed by heavy rains that washed away several kilometers of tracks. While shipments were interrupted, massive piles of glinting coal began to accumulate beside Vale’s bright blue processing plant in Moatize, like a new mountain range in miniature, growing by the day. Vale was unable to export more than a quarter of a million tons of coking coal, and Rio Tinto’s office in Moatize suspended production altogether for weeks on end.
But it is unclear who is to blame for the chronic technical failures on the Sena line: the World Bank, which financed the railway’s rehabilitation; RICON, the Indian subcontractor that carried it out; Vale, which imported faulty locomotives; or the Mozambican government, responsible for overseeing all three. Though there are four other railway projects now in development to help carry Tete’s coal, the barriers to export could soon multiply. Mines in the province are expected to produce as much as 50 million tons of coal annually by 2015, yet even with a planned expansion that would double its capacity, the Sena line will be able to transport only a fraction of that—6 million tons a year. And so, for now, Tete’s breakneck development has slowed to the pace of Mozambique’s eroding infrastructure. For the people who were displaced, even that is not slow enough: within weeks of reopening in March, the railway was blocked once more, barricaded with empty oil drums, and a truck belonging to residents of Moatize. They demanded further compensation for the families who had to move, and insisted that Vale agree to pay before shipments could resume. Though Vale has enlisted the help of the police, citizen protests continue to block access to the mine.